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How to make money off the online dating boom

More Americans are shopping for love online these days, and industry analysts say there's an opportunity for investors in the emerging trend.

A recent report by Topeka Capital Markets finds that the combination of tough economic times, a rise in the number of singles, social media and mobile technology is causing a resurgence in the "fast food dating" business of online personals.

Peter Dazeley | Getty Images

"With the rise of social media, … people are a lot more comfortable posting their personal information online. So there's no longer a negative stigma attached to online dating," said the report's author, Victor Anthony, Topeka's managing director of Internet media.

Other data support that trend. In a recent Pew Internet survey, 59 percent of Americans said they consider online dating a good way to meet people compared with 44 percent in 2005. Other research suggests that more than a third of married couples now meet online.

Also, 112 million people in the U.S. are single, meaning there's plenty of opportunity for dating sites. The unmarried population stands at 47 percent, up from 42 percent in 1994, according to the Census Bureau.

All told, the dating services industry is expected to generate $2.1 billion this year, and nearly 70 percent will come from the thousands of dating websites across the globe.

But even though the industry as a whole is growing, not all online personals sites are created equal, and analysts say only a select few make for good investments.

Sites like eHarmony—the second largest online dating website in the U.S. after Match.com—caters to a broad demographic. Others focus on niche markets like race, religion and ethnicity.

Online dating as an investment

"There are few stand-out investment opportunities these days," said Mark Brooks, an Internet dating industry consultant based in New York City.

Leading the pack is Match.com, owned by IAC/InterActiveCorp, the Internet holding company controlled by billionaire Barry Diller. Analysts say Match.com is best positioned to capitalize on the surge, so much so that Topeka has increased the value of the company's stock to $98 from $78 and recommends investors purchase shares of IAC in anticipation of a Match.com spinoff.

(IAC announced in December that the dating website will be reorganized as a separate business called Match Group, with its own chairman, potentially setting the stage for a spinoff.)

"A company like Match, they have the best potential to gain significant market share in terms of the number of subscribers," Anthony said.

If it happens, the move will make it easier to turn Match into a separately traded company, a strategy Diller used before. IAC previously spun off travel service Expedia in 2005.

Launched in April 1995, Match.com is now in 24 countries and hosts websites in 15 languages.

Since acquiring Match.com, IAC has bolstered the personals business with several acquisitions, including OkCupid in February 2011, expanding the Match unit's sales to $713 million in (2012) from $366 million in 2008.

It now has the highest brand visibility in the online personals industry and is the largest personals site in terms of traffic and revenues.

Changing market dynamics

Match also owns the dating app Tinder—one of the fastest-growing apps in the market—and the company hasn't even begun to monetize it yet.

Bigger is usually better in the business of online dating, and the large players stand to benefit most.

"In general, I would recommend mobile and social and large dating sites. i.e. Match.com. Everything else is humdrum," said Brooks.

Another factor boosting the online dating trend is cost: It's simply a much cheaper way of getting a date. Strategists at ConvergEx Group, a New York-based global brokerage company, crunched numbers from statisticbrain.com and found that online dating can save a person thousands of dollars.

"The dating phase prior to an offline marriage runs up a $23,660 tab. The average dating site customer spends just $239 a year for online memberships, which more than pays for itself to the tune of $12,803 in cost savings from fewer dates," the report said.

Mobile technology is another driver of industry growth. The monetization of romance in the form of dating apps has allowed users to take their online dating experience with them wherever they go.

"Mobile services are forecast to be the fastest growing segment over the next five years as operators, including Interactive Corp. and eHarmony, cater to consumers moving toward easy-to-use mobile applications," IBISWorld online dating expert Jeremy Edwards said in a report released last week.

"Users are most likely to be attracted to simple applications and interfaces, so businesses that are able to entice consumers with new and exciting mobile functionality will be the most successful," he said.

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