Tinder’s parent company allegedly faked valuation to avoid payouts

We looked at a recently reported news on Business Insider, whereby a group of Tinder founders and executive filed a US$2 billion lawsuit against Parent Company InterActiveCorp (IAC) and its subsidiary Match Group. They allege that a “disinformation campaign” and a “false picture” of Tinder’s financial figures and projections were used to lower Tinder’s valuation, thereby avoiding payment of equity incentives. However, a 2018 independent valuation performed on Tinder threatens to further complicate the lawsuit, as Tinder was valued at US$10 billion, a whopping US$7 billion difference.

The lawsuit by Tinder’s founders and executives alleges that the IAC and Match Group faked the financial figures, in a scheme to avoid paying out billions of dollars of equity to the founders and long-time employees. Key allegations are that IAC inflated Tinder’s expenses while downplaying upcoming features which would improve growth figures, contributing to an overall lower valuation.

Tinder’s relationship with IAC started in December 2013, before increasing its stake in Tinder in March 2014, paying an amount that was believed to have valued Tinder in the billions. In 2015, a valuation of Tinder was done by an analyst at Bank of America Merrill Lynch following its IPO announcement in June 2015. These analysts attached a value of US$27 per user for the app’s 50 million users, and this served as the main revenue and growth projections assumptions used in the valuation. This led to a valuation of US$1.35 billion, with a bullish valuation of US$3 billion on revenues of $250 million.

What Tinder founder alleges, is that IAC and Match valued Tinder at $3 billion in 2017, which they argue was a misrepresentation as its growth could have pushed its valuation further up. As Tinder is a subsidiary, its financial figures are private, and its valuation is not made public. The valuation done in 2017 was based on revenue projections of US$454 million in revenue. When Match announced its earnings in 2018, they announced that Tinder “is actually on pace to exceed US$800 million in revenue in 2018.

IAC also cancelled three scheduled independent valuations, set for 2018, 2020 and 2021, after the US$3 billion valuation was set. The complaint filed argues that the reorganization of Tinder’s executive structure was so its employees are unable to exercise their stock options at a higher valuation

These actions obviously raise eyebrows and skepticism amongst Tinder founders and executives, who are in line for stock bonuses based on Tinder’s valuation. Recent updates do lend Tinder’s founder, Sean Rad some merit in his lawsuit against IAC.

Against the backdrop of Tinder’s valuation of US$10 billion, US$9.4 million in stock has been paid out to employees. However, this does create a new point of contention. Did IAC undervalue Tinder in 2017, ripping off Tinder founders and early employees to the tune of billions of dollars?

The payouts triggered by the latest round of valuation seems to suggest that IAC agrees with the independent valuer assessment of Tinder. In this situation, the drastic difference in valuation figures suggests that parent companies may have an incentive to deflate figures when it serves their own needs. Being a private firm, third-party valuations becomes difficult to come by without large assumptions, negating the accuracy of the valuation. This leads to what we see in Tinder’s case. Inaccurate/ falsified information is used to affix a contentious value to the firm, leading to lawsuits and loss of income.

Match Group paid millions in stock awards that could help Tinder co-founder $2 billion lawsuit [The Verge]

Tinder’s parent company allegedly faked financial information to lower the dating app’s valuation, according to a new lawsuit [Business Insider]