For the young and single, Tinder is appealing as a phone-based way to find dates. Wall Street types find the app exciting for a completely different reason. Investors have been hoping Tinder’s success could lead IAC/InterActive (IACI), which owns Tinder, Match.com, and OkCupid, to spin off its online dating businesses into a separate company under the Match moniker. And that, in turn, would make IAC shares more valuable.
Tinder now finds itself in trouble. The startup is facing a sexual harassment and discrimination lawsuit from Whitney Wolfe, its former vice president who has a strong claim that she was one of the company’s founders. This could complicate what otherwise seemed to be a lucrative opportunity for IAC and its shareholders. “Given what’s going on at Tinder, I would assume that probably would cause IAC and Match to think a little bit longer and harder about pursuing that at this juncture,” Scott Kessler, an analyst with S&P Capital IQ, told Bloomberg News last week.
This could be disappointing for investors, who’ve been pestering IAC executives for months about hurrying up and making Match its own business. Last year, IAC made $788 million in revenue from membership and subscription dues for dating services, well more than twice what it had made five years earlier. Tinder doesn’t contribute any of that at the moment. While the app has started to experiment with advertising, IAC has only said that Tinder would start generating its own revenue sometime in the next few years. “It’s certainly big enough to monetize it now, but I think there’s priorities,” Greg Blatt, chairman of the Match Group, said in an earnings call last month. “This is a small startup team that we’re building, and everything you do comes at the expense of something else.”
Investors seem less concerned with revenue than they are with market value. Tinder is hot, and spinning off the Match group could lead to spikes in the stock prices of both IAC and the new company. Last December, IAC separated Match from its search business, which was widely seen as a precursor to turning the two into standalone companies. This led to a huge jump in IAC’s stock price. It would also seem to play into the wishes of Tinder’s founders, who treat IAC like the embarrassing parent who has come to pick them up from the mall.
Barry Diller, IAC’s chairman, is well-versed in this maneuver. IAC’s spinoff of Expedia in 2005 let him draw salaries from both companies, as well as $464 million in value from stock options in 2005. In 2008 he spun off four more businesses from IAC in 2008—HSN, Interval Leisure Group, Ticketmaster, and Tree.com—resulting in short-term market gains for everyone involved.
The question now is whether the unsavory business with Tinder will drag down the name of IAC’s wider dating operations. IAC didn’t respond to a request for comment about how Tinder might affect its plans for its dating businesses. Diller said last month that there were no structural reasons preventing IAC from moving ahead, but has remained coy about when Match will become its own company. “When and if we do, we will, and I can’t say much more than that,” he told investors.