There’s something awfully strange about the Match Group (MTCH), and it should make investors and users of its suite of online websites very nervous.

Match Group went public late last year, as a spin-off from IAC/InterActiveCorp (IACI). The company’s S-1 says it has 45 online dating operations, with 59 million monthly active users across 190 countries, and about two-thirds of its revenues being generated in North America. Match Group is profitable, and free cash flow positive, although its Q4 net income fell by 26% YOY, and FY15 net income fell by 19%.

However, the dirty little secret I’m talking about is buried in the S-1. Match Group also includes test-preparation company The Princeton Review and online tutoring operation, Tutor.com. Other than a one-line mention on page 2 and a small-print financial notation on page 13, Princeton Review doesn’t get mentioned again until page 57.

Beyond that, the only references are to its lackluster contribution to financial line items. Form 2000 to 2010, it had only one year of profit. In the recent press release for Q4 earnings, the Princeton Review is only mentioned twice.

To me, the most positive scenario is that IAC/InterActiveCorp wanted to slough this pig off its books and bury it in Match Group. Considering that the spin-off touts its ability to leverage data, it offers investors nothing as far as how many customers Princeton Review actually has, or has ever had, growth prospects, an overview of the test-prep industry, or much of anything else. It’s never a good sign when a public company hides basic information.

This may, in fact, be the only explanation. In fact, there was a class action filed recently that accuses the company of exactly this fact.

The Secret

I have a different theory.

I think the dirty little secret is that these test-prep assets were quietly dropped into Match Group because it allows the dating and hook-up operations to advertise to the student demographic of the online educational assets. This would potentially permit advertising access to that age-vulnerable demographic, as well as be able to mine the student data for the hook-up sites.

This is, to me, kind of sleazy. We’re talking about teenagers who use the test prep services that I believe Match Group is trying to advertise to, and mine data from, in order to push the dating products on this very vulnerable age demographic.

In researching this possibility, I discovered an alarming truth about privacy laws in the United States – namely, there aren’t any. I interviewed Tim Sparapani, who is the Founder of SPQR Strategies, the former Director of Public Policy at Facebook and former Senior Legislative Counsel at the ACLU. Sprapani tells me that the law is totally silent on the matter of how companies guard privacy and share data.

The deal is this: unless a company like Match Group makes a specific public promise regarding how data is used, and exactly what kind of privacy to expect, then there is no such protection or privacy afforded to the user. None.

A glance at the privacy page of The Princeton Review suggests that The Princeton Review can do just about anything it wants, unless a user specifically opts-out.

“We may use your Personal Information to… send you e-mail notices and offers and otherwise correspond with you, about products, services, companies and events that we think might interest you… perform research and analysis about your use of or interest in our products, services or products or services offered by others…develop and display content and advertising tailored to your interests on our site and other sites…”

Meanwhile, over at Tinder, the hook-up site says “We may obtain both personal and non-personal information about you from other Match businesses, business partners and other third parties…We may share personal information with… Other Match Group businesses: The Match Group’s businesses include the online dating websites and apps Match.com, OkCupid, OurTime.com, BlackPeopleMeet.com, Twoo, Meetic, HowAboutWe and others. We may share information we collect, including your profile and personal information such as your name and contact information, photos, interests, activities and transactions on our Service with other Match Group companies.”

Notice that there is no mention of the educational brands in the list, but they are members of Match Group, and therefore that information can apparently be shared.

How many parents are aware that their kids may apparently have their data shared with dating sites, should The Princeton Review decide it wants to do so? Are kids being hit with ads for online dating sites? Does Match Group not advertise to the younger students now, but since they know a user’s age, will they do so later?

Is this issue overblown? Not if you’ve spent any time on a dating site, and experienced the bizarre behavior of some of its denizens. Even Match Group distanced itself from an overly-frank interview with Tinder’s CEO, giving parents all the more reason to be mindful of The Princeton Review and Tutor.com.

Policy Questions

Obviously, there are policy considerations. Congress needs to act, not only to protect consumers but also to protect investors. Legislation should require specifics regarding every facet of privacy and data handling. Consumers need to know exactly how what is being done with their information, and not have it buried on a never-viewed web page.

Investors need assurances that activist Attorney Generals won’t go after companies for privacy issues that presently reside in grey policy areas, or companies that run afoul of one state’s policy while adhering to another, despite them being identical. As it stands, the Match Group and its investors appears to be at risk for such actions.

Although government is generally best kept out of most private company matters, this is a case where one-size-does-fit-all, and where government intervention is likely better for all concerned.

What does it mean for the stock?

Remember, investing isn’t just about growth. It’s about risk. We want to be able to assess a company not only based on future cash flow, but future risk. I think Match Group has risk that is real and not priced in.

I think this could blow up Match Group badly. This is a PR nightmare waiting to happen. It is only a matter of time before sexual assaults give Uber Technologies (UBER) a headache and damaged its brand and business? More and more reports are springing to life. Uber doesn’t happen to be a public company, but imagine what would happen to the stock if it were?

The same thing could happen here.

Imagine a scenario where some young person is using Princeton Review or Tutor.com. Their data gets shared with an online hook-up site, which then markets to the young person. They meet someone online who maybe isn’t who they say they are, and something bad happens. When the dots get connected, you won’t want to be long the stock.

Not only that, state AG’s can take very aggressive and activist stances on certain issues, and privacy is a gigantic elephant in the room. More than 40 of them already sent a letter to Congress demanding legislation. AG’s often run for governor, and like to make a name for themselves with a big case. I think it won’t be long before a case like the one I mentioned pops up, or someone’s identity gets stolen, or some other awful hack occurs, and an AG decides to make an example of lackluster privacy at a place like Match Group.
I would not get involved with Match Group. You might catch something.

Published by Wyatt Investment Research at