• Market Crumbs

It's A Match. Til It Isn't


That match you thought was too good to be true? Turns out it just may have been. Yesterday, the U.S. Federal Trade Commission filed a lawsuit against Match Group, which owns a handful of popular dating sites such as Tinder and OKCupid, for allegedly using fake accounts to get new users to sign up.

So how did the alleged scheme work? The FTC alleges non-paying users, who cannot view or respond to messages without being a paid subscriber, were receiving messages and then being encouraged via emails from Match to sign up so they could read the message. The problem is Match allegedly knew the accounts sending the messages were fake and continued to email users to sign up. After the users paid and went to message their soulmate, the messages said the user had been banned or will be banned for on-platform fraud.

In the FTC's suit, they allege Match used this method to attract 499,691 new paid subscribers from June 2016 to May 2018. They also allege Match made it difficult for subscribers to cancel their accounts, requiring over six clicks to cancel and find love elsewhere. Match CEO Hesam Hosseini said in an internal email “I believe the FTC has fundamentally misunderstood our work here, and we intend to fight any allegations.”

Match shares fell yesterday as much as 8.5%, before rebounding to close down only 1.9%. After rising more than 500% over the last five years, shares of Match are now down 25% since beating earnings estimates last month.

An FTC suit of this nature is interesting given so many companies' business models now revolve around user growth and advertising revenue. For instance, Facebook deleted more than two billion fake accounts in the first quarter of this year. Twitter, which has a lot less users than Facebook, is removing ten to twelve accounts per second.

It wouldn't be surprising to see similar allegations brought against other technology companies in the future, especially when you can hire a click-farm in China if you need to improve your user metrics.


Leftover Crumbs

  • Travis Kalanick, Adam Neumann and Kevin Burns now all have something to bond over should they end up in the same room. They each lost their position as CEO of high-flying tech companies when things went south. Just one day after Neumann stepped down as CEO from WeWork, Burns resigned as CEO from Juul as troubles continue to mount for the e-cigarette company. Altria, which owns a 35% stake in Juul, is bringing in one of their own to run the company. Burns will be replaced by KC Crosthwaite, who was a senior VP and chief strategy and growth officer at Altria. Subsequently, news also broke that Altria and Philip Morris walked away from talks to merge the two tobacco giants.

  • Not 1. Not 2. Not 3. But 4. The U.S. Justice Department is supposedly ready to open an antitrust investigation into Facebook. This will be the fourth antitrust investigation currently facing the social network, along with investigations by the Federal Trade Commission, a group of state attorneys general and the House of Representatives Judiciary Committee. The news comes just two days after Facebook acquired CTRL-Labs, which is basically a company that lets you control computers with your mind. Between the FTC and DOJ, the two are looking into Facebook, Google, Amazon and Apple.

  • Is it different this time? According to Bloomberg, money-losing companies have raised the most cash by going public since the dot-com bubble in 2000. It's a coin flip, though. Since 1999, nearly half of the IPOs of unprofitable companies outperformed the greater market one year after shares started trading. Investors may be coming to the realization that investing in the 2019 class of money-losing IPOs is a money-losing proposition. The returns of recent high-flying unicorns such as Lyft, Uber, Chewy and Slack have been abysmal, while WeWork has seen its valuation plummet before even going public.

  • Speaking of money-losing IPOs, fitness company Peloton priced shares for its IPO today at $29, the top end of the expected range of $26 to $29. The company, which would be valued at $8.1 billion, sells bikes and treadmills connected to a subscription service where users can join live and recorded fitness classes. In what is a common theme among IPOs this year, sales grew 110% last year to $915MM as losses widened to $245MM from $47MM. SmileDirectClub, which also saw strong IPO pricing on widening losses just two weeks ago, is now already down 31% from its IPO-day high.

  • Motown is heading to Austin to keep things weird. Ford announced Austin will become the third location, following Miami-Dade and Washington, D.C., to deploy its self-driving vehicle fleet. Ford will begin mapping the city by the end of November by putting its AI-powered test vehicles on Austin roads. Don't worry, these cars will have a safety driver and an observer and are meant to collect data to build maps before Ford deploys commercial services with partners. Ford is planning to deploy its AV fleet commercially for customers by 2021.