Is Tinder Worth $5B? IAC Says No

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Is a company that's only 20 months old and has no revenue model really worth $5 billion? Spoiler alert: no.

IAC/InterActiveCorp recently bought back 10% of mobile dating service Tinder. Although it's easily the hottest mobile dating app on the market, it’s hard not to approach Tinder with a healthy dose of skepticism. $5 billion is, to put it bluntly, a completely insane number for such a young company.

According to the market research company IBISWorld, the entire online dating industry is worth just $2 billion. How on earth could a company that gives away its dating app for free be worth more than the entire dating industry? The answer is simple: it can't.

The number, first reported by Bloomberg and quickly picked up elsewhere, was based on the $500 million IAC had allegedly paid to buy a 10% stake in Tinder from venture capitalist Chamath Palihapitiya, but it's far from accurate. Sam Yagan, CEO of IAC’s Match Group (which includes IAC’s online dating companies) recently confirmed that a deal was made, but declined to comment further.

“I can confirm on the record that we did a transaction with Chamath, but this valuation is nowhere near the truth,” he told Forbes. Tinder CEO Sean Rad added that the Bloomberg report was “meaningfully incorrect.” Forbes found that an e-mail to Palihapitiya did not receive an immediate response, but noted that his statement on Twitter read “My Tinder sale for $500M is inaccurate. I sold my stake but value was much less. Thx @samyagan for official IAC pos’n. #wishfulthinking”

That being said, it's far too early to write Tinder off as worthless. Just because it has no revenue model to speak of to date, doesn't mean it has no value to investors. With 10 million active daily users, Tinder is fundamentally changing the way a massive number of people behave and engage with each other. That's bound to be worth something.

“Tinder’s really doing something that has been the Holy Grail for online dating: it becomes fun,” says Mark Brooks, a consultant to the Internet dating industry. Unlike traditional dating sites, surfing profiles on Tinder is fun, low risk, and not time-consuming. Users don't have to fill out tedious surveys and the swiping process practically eliminates the fear of rejection. Thanks to Tinder, mobile dating is exciting and mainstream, a major coup that the rest of the dating industry has never been able to figure out.

“IAC’s not valuing Tinder based on what it’s worth,” Brooks notes. “They’re valuing it based on what they’ll lose if they don’t own it. If Tinder can own mobile and own the younger demographic, then IAC is owning the future with Tinder. It’s an international phenomenon.”