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Match.com (Buy, $21 PO) Stock view: Positive on Tinder monetization growth on new products Match has continued to build monetization on Tinder and we expect a more widely released Tinder Boost as well as international marketing spend to have a positive impact in 1Q17 results. The incremental revenue increase combined with Core enhancements should drive ARPU forward, though we are still cautious given Core’s declining to flat growth and project 1Q17 at $.0.57 (-3% y/y). Another issue on the horizon for Match group is the high ownership percentage of IAC. Based on our discussions with management, this is a known issue from both Match and IAC’s perspective. The high degree of IAC ownership limits the float and has created a disproportionate short interest on the company to obtain higher exposure to IAC’s core (ex-Match) properties. Our conversations suggest we can expect further discussion from management on ways forward in 2017, with the most likely outcome, in our view, a spin off IAC’s Match ownership to IAC shareholders. As Tinder expands, one concern we have is that its highly diverse user base could cause an overload of options and limit user’s ability to find the type of matches they are looking for. An “elite” version of the app was recently launched called “Select” (per TechCrunch}, highlighting the company’s focus on making sure users are able to find suitable matches in different ways. 1Q17 should see international marketing spend on Tinder begin to pay off. We expect that paid member count (PMC) will continue to trend up driven by Tinder and other recent platforming initiatives helping to increase conversion on Core mobile and other sites like Plenty of Fish (PoF) and Meetic. Key theme/metric(s) for 1Q: International PMC growth Key for the quarter will be international PMC growth and we expect international to grow 25% y/y to 2.3mn and overall PMC growth to be up 17% y/y to 5.9mn as Tinder marketing outside of the US should start paying off. We are still cautious on ARPU and expect modest declines of 3% y/y, we believe there is still upside potential here driven by Tinder Boost, released in September 2016 and Core turnaround efforts. Key issues for the call will be PMC growth, Tinder monetization and Core improvements. Biggest 1Q issues/risks: « Decline in margins due to increased marketing of Tinder and Core improvement ¢ Drop in monetization as more consumers switch to mobile from PC. ¢ New investment initiatives drive down FY17 earnings projections. Estimates vs. Consensus: Expect lower revenue, slight beat on profit We are modeling rev/EBITDA of $293mn/$78.5mn below the Street due to impact of Princeton Review sell off but higher on EBITDA vs. the Street’s $307mn/S77mn estimate. We estimate total PMCs of 5.9mn in 1Q and average revenue per users of $0.527 down 3% y/y due to lower monetizing Tinder plans. With the sale of Princeton review closing 3/31 and management moving any income to discontinued operations, we have removed all non-Dating revenue from our model and believe our treatment of these discontinued operations (totally excluded from our estimates) is the reason our estimates are currently below the street. BankofAmerica <2” 26 Internet/e-Commerce | 06 April 2017 Merrill Lynch HOUSE_OVERSIGHT_014912