After recommending Match Group for years, Deutsche Bank has finally decided to "swipe left" on the online dating platform, downgrading the stock to a hold rating.
Analyst Kunal Madhukar told clients in a note published Tuesday that he projects a significant slowdown in subscriber growth in Match's dating app Tinder over the next 12 months. While the app is popular across the U.S. and Western Europe — and is still being adopted globally — Deutsche Bank believes "it could take time and a lot of effort to convert the potential addressable universe into subscribers."
Tinder is a location-based social search app that lets users signal their interest in meeting others on the app by swiping left or right on profiles they view on their phones, a rejection and approval, respectively.
"There still is a lot of stigma associated with online dating in many countries outside of North America and Western Europe and the stigma associated with casual relationships could be even higher," Madhukar wrote. Tinder's other challenge is that its user base "is currently skewed disproportionately towards males in a number of countries."
Pricing could also prove problematic for Match, the analyst said, since the majority of the current subscribers (and future ones) live outside of the U.S. If the pricing for Tinder internationally is at a significant discount to the pricing in the U.S., sales growth could lag subscriber growth. Higher prices could also affect one of the key appeals of Tinder, its large and diverse pool of potential partners.
"We think the attractiveness of the platform comes from the selection and liquidity it is able to deliver because of its more mass-market prices," Madhukar added.
The analyst did not adjust his price target of $54, representing 3 percent downside from Tuesday's closing price. Shares of Match Group fell 4.3 percent Wednesday following the Deutsche note.
Any such slowdown could pose an issue for Match and CEO Mandy Ginsberg, who has often characterized Tinder as the company's "growth engine." Shares notched a closing high in September and have rallied nearly 60 percent over the past 12 months in part thanks to a premium subscription option introduced in 2017. Called Tinder Gold, the premium option allows paying members to see who has already "liked" their profiles without swiping.
More than 60 percent of the 4.1 million subscribers on Tinder were Gold subscribers as of the end of the third quarter, helping boost direct revenue on the app nearly 100 percent. Still, management has cautioned that the strong year-over-year performance won't sustain itself indefinitely and that they are exploring how best to exploit the company's pricing.
"As we have discussed previously, the comps do get tougher for us starting in the fourth quarter, since last year's fourth quarter was the first full quarter with Tinder Gold," Ginsberg said in November. "We do still have pricing power at Tinder. We're still very early in dynamic pricing and testing price elasticity. We need to do that more on a country-by-country basis as well, since Tinder's in pretty much every country in the world."
— CNBC's Michael Bloom contributed reporting.