Grindr Inc. (GRND) Earnings Call Transcript & Summary

So good afternoon. Thanks for joining us. My name is Alexandra Steiger. I'm part of the U.S. Internet research team here at Goldman Sachs. We're very pleased to have George Arison, CEO of Grindr, with us today. Good to see you, and welcome to our conference.

Thank you. Thanks for having me.

So for those in the room who are less familiar with the story, can you talk about Grindr, your long-term vision for the company and what differentiates the platform from other online dating assets?

Totally. So Grindr is the largest LGBTQ community in the world. We have 13 million people, primarily GB and the T in the LGBTQ. And obviously, dating is a huge part of what we do. Our estimate is roughly 1 in 5, maybe 1 in 4 relationships in the U.S. that are gay start on Grindr. But we are a lot more than a dating product. So people use Grindr for social connections like meeting friends. People use Grindr, turns out, for finding jobs. This became a big thing in a lot of media the last weeks because I said that and then the data kind of leaked and it became a big thing. And then people also use us just to talk to each other. Our users produce about 300 million individual chat messages a day, which is about 600 per daily active user. That's about 12x more than on WhatsApp. So it's like a very large number of just connect communication that happens inside the product. And then Grindr is very heavily used when you travel. So we know that our users travel a lot, like way more than you think, and their usage spikes dramatically when they're traveling. And it's everything from like, hey, where should I stay? Where should I go to eat? What is happening in that area today? And so those are the -- it's like a broader product than just dating that Grindr is used for.

And we will definitely go into that a little further in -- during our conversation. But first, zooming out, given that Grindr serves a more niche market versus some other online dating peers, can you maybe frame the addressable market opportunity for us? And how do you see your TAM growing in the next couple of like years?

So TAM is very large, and it's growing. And I don't think the number of people that could be on it is really the right way of thinking about it. Obviously, even in countries where we've been the longest like the U.S., our penetration versus TAM is still fairly low, even though we are by far the dominant product in this country. But what's happening is that the number of potential users also is growing dramatically. If you look at Gen Z, 20% of them identifies LGBTQ versus like less than 10% in early generation. So the potential people we could engage kind of jumps as a result. We also haven't done enough to keep up with the dating set of features that I think our users want. And so we actually lose some users once they are like 35 because they kind of want to be more, and I want to settle down versus I want to be casual dating. And so I think as we build that feature set, a lot of those users will come back because we have a big difference between our monthly active and our quarterly active. We've never released the quarterly active number, but it's like way higher than I think most people would anticipate. And I think a lot of them are these like 35-plus-year-olds who have a Grindr account, come in every once in a while, but are not using it constantly. So I think the number of users can be a lot larger than this today, even though we are dominant in so many countries, especially given what's happening around the world. Plus, as we think about commercializing our feature sets that we are building out that are not just dating, that makes the TAM even bigger, right? So travel is a huge example where like there's a lot of money to be made in travel and -- dating and traveling. So [indiscernible] in the overall travel category. So we think there's a lot of opportunity on that front as well.

Grindr is the #1 app in most geographies in the market segment you're serving. Can you maybe talk about the competitive landscape today? And how do you expect it to evolve in the next few years?

Totally. So we are even #1 or #2 in virtually every country. There are a few specific countries like Japan where we're #2. And because there's a local player who is kind of dominant for local usage and then Grindr is used for meeting foreigners. But with like 3 or 4 exceptions, we're #1 in almost every country. And that's all been super organic, like we've never done marketing in these places. We also don't localize very well. Like if you talk to people in Asia, the complaint will be I'm seeing the same imagery in your marketing in Korea, for example, as I would see in the U.S., and that's probably not appropriate. We need to change that. So localization is a huge opportunity for us in some ways. Competition-wise, we know our users use more than 1 product, but that's true across the whole dating ecosystem, right? So we know that for dating purposes, gay men might use Tinder as well as using Grindr. Frankly, not as many people are on Tinder who are gay as they are on Grindr. So us being able to serve the dating -- the use case better, it's something we should do because they'll meet more people, but that's on the come. And then probably the most scaled competitor for us is a company called SCRUFF. So that's like about 1/5 of our size in the U.S., but the only other one that's at real scale.

I do have to ask because we have the Match Group CEO on stage tomorrow. Match Group launched Archer a few months ago at this point. Have you seen any impact from the app on your business?

No. And I've been really surprised because, obviously, they have so much data about gay and bi men using the product and what they use -- meaning their current products and what they use for. So I've been really surprised by how Archer has gone. I think the idea of trying to announce it during Pride but they're not being ready for a month was challenging. So I think that kind of got in the way. And then there is a -- they want to build a dating product, but they're targeting the younger user base. Gay men, on average, get married at about 35 to 38. Straight men get married at 28. So you can't really target younger users if your goal is to build a dating product because it's the older gay men who want to get married. So I think there's a disconnect between the product that they're building and the user base that they're trying to catch.

Before diving into some company-specific trends, I also briefly want to touch on just the broader macro environment. Just given the volatility we're seeing in discretionary consumer spending, what are your thoughts on just like the broader consumer into like the second half and potentially into next year? And more specifically, do you actually expect to see any impact from the resumption of student loan repayments in October?

Yes. So we've been asked this question a lot, and we've been trying to track it as much as we can. Now Grindr has not had a la carte offerings, so like micros for that long. We only launched 1 last year. And what we've heard from Bumble and from Match is that economic impact is mostly on the a la carte. And so we can't say, hey, 3 years ago, it was X and now it's Y, it's all kind of new to us. But so far, we've not seen any real impact from the economy on the product. The reality is that we are so low in payer penetration right now. I mean we're at 7.1% in Q2. There's a lot of opportunity to go up. And the product is -- offers a lot for free. So the big question for us always is like where should that line between free and paid be? Are we a little bit too far on the free side right now and not enough on the paid? And so I don't expect the economy to really impact us much in that sense because the product is so important to the users who use it, and there's so much opportunity to monetize. I think we can continue pushing on monetization and get good results.

Obviously, a topic that is front of mind for a lot of investors these days is artificial intelligence. How do you leverage artificial intelligence to unlock value within the Grindr ecosystem? And what are some of the areas you're most excited about?

So I've thought, from the time when I first started talking to folks about this job, that AI is going to be massive for Grindr and for every other dating product because dating is all about matching people. And AI is really good at creating matches that are better, right? So inevitably, I think, it's going to really transform how these products work today once AI is better. In Grindr's case, I think our unique opportunity is with the chat that people have and trying to understand the users a lot better. So my hypothesis, and I think generally validated, is that users don't say who they actually are in their profile, but they do say who they actually are in the chats they have with our users. And so if we could try to understand you as a user better through all your chats through natural engage processing and then tell you, hey, based on everything that we read, these are the 5 people around the world that are probably the best matches for you among the 13 million people that are using our product. That's extremely appealing. We know that among gay men, one of the biggest challenges in dating is lack of density. So there are only so many people around you in any given geography. And so they're much more willing to look for partners further away, much more open to long-distance relationships, et cetera. So I think if we can expand our geographic footprint that way by saying, hey, you're in Palo Alto, your good matches are in these 5 locations. Are you interested in meeting them? You would never meet them otherwise, except for the fact that we understood all our users and then brought you guys together. I think that will be really powerful. So that's kind of where we want to go with AI. Obviously, that's a lot of steps from where we are today and something we need to start working on. Concurrently with that, I think using AI to make the product be healthier is also a huge opportunity. We already do track bots and find bad behavior in the app through AI, and we'll continue to invest in that, obviously.

Let's pivot to some of the key product initiatives you're working on. And I think in the past, you've talked about your key strategic priorities being centered around user experience, monetization, future growth in community. Can you just maybe give us a brief overview of the key milestones that you have achieved against those priorities? And what are you most focused on for the remainder of '23?

Totally. So Grindr historically had underinvested in technology, and that was probably kind of ownership changes, et cetera. And so the current ownership cohort bought the company in 2020. For the next 2 years, the focus was on very much like solving the technical debt that had accumulated. So that got done by end of 2022, and that has now allowed us to invest more resources into actually building new features. So this year, we changed the profile page, but that's something that users really had wanted to be different. We changed the homepage, which has been really positive. Totality of both of those changes that the app became a lot faster. So if you use the app last December, January, like it was noticeably slow versus where a product like this should be given technology of today. That's now very different, like the product is much faster. So we're really excited about that. So that's an example of like improve the user experience that we've achieved. And there's more that we're going to be doing like that. As far as monetization, the really big focus this year was on creating a cheaper paying tier for our users. We've -- we're still testing some options, but the one that we really settled on is weekly. So our users can now pay for Grindr Extra, which is our middle tier, on a weekly basis rather than just monthly. That's actually really helped us with our average revenue per paying user and has been a big driver of why we raised our guidance last month. But we've been really happy with the success of that. So kind of testing that and launching that has been a big focus this year. One of the things that I've been really focused on coming into this job is making sure that we not only meet our result goals in the year we are in, but also have a view of where do we want to go in the future. And so the big focus for us this year has been to launch -- or to build more a la carte offerings, similar to Boost, and we can talk about what those are. And then to also lay out how will we do dating once we start building a dating product because again a lot of dating happens inside Grindr, but it's not -- it's all organic, and we don't have a feature set to kind of support it. And building that out in the future will be something that we want to do. And then lastly, Grindr is a -- obviously, we are a for-profit business and we're very profitable as a company. But we also have a very unique ability to impact our users' lives. And our objective is to help make their lives be more just, more free and more tolerant. So we always try to do things for the community that's kind of outside of the core business focus because it still benefits the business ultimately. Some of the things we've done this year is we launched, together with the CDC and Emory University, ability for our users to request an HIV test to be delivered to them at home. Normally, if you like put up a bus in a community and try to do an HIV test, if you had like 1% to 3% of people who had never had a test, that's considered a success. In our tests so far, about 1/3 of the people who requested test have never had any HIV test before, which is like really incredible when you think about our ability to reach people and get them to do things that they should do, but haven't done. So that's an example of something that, like we're not doing this for business reasons, we're doing it because it's good for the users and is a great outcome. And obviously, we'll probably save lives. That's in the U.S. today. Ideally, in the next 2, 3 years, we can expand that to go outside of the U.S.

I do want to double-click on weekly subscription. So you said you successfully completed the global rollout. Can you maybe help us quantify the impact of weeklies on payer and revenue growth? And how do you think about just adding more subscription tiers, either on the low end versus high end going forward?

Yes. So weeklies is very much this Gen Z product because Gen Z actually seems okay with paying more for something in aggregate if they feel like they're paying less at the time when they're paying. So our weeklies are $12.99, our extra for a month is $19.99, but a certain cohort of Zen Z prefers to pay $12.99 for a week versus $19.99 for a year. So it's kind of serving that niche. I mean similar to like a firm, right? Like a firm has a high interest rate than your credit card, but you want to do that because of how you can pay for it. And in some respects, it was counterintuitive, but it's been very, very successful. We've seen basically the increase in paying users that you saw from Q1 to Q2 was almost completely around weeklies because we went from 50% test to being at 100% sometime in the middle of the quarter. And we are really happy with the uptick. Our users use Grindr in spurts. So it's not like you're always a paying subscriber or you're not always paying subscriber. You kind of go back in and out of being a paying subscriber. And many of them use it when they either travel or like they are now not in a relationship anymore and they want to start dating more, et cetera. And so weekly is great from that perspective because you can get started for a week if you're traveling and then you're not a paying user anymore, and that's okay because then you'll come back to us in the future. So I think what we're seeing is more frequent conversion to paying for these bursts and people who previously might not have converted, converted now. So we're pretty happy with the outcome. I think the results have been very positive, and that gave us a lot of confidence to increase our guidance like we did in -- at the August call. As far as higher tiers, I think there's a lot of opportunity out there, especially around the dating use case because there's a whole set of features that we don't offer today that we need to offer. And as we do that, then I think people will be willing to pay for the value that will create in the product. So that's probably not something we'll do in the next 6 to 9 months, but over the long term, we think there's a lot of opportunity to offer a higher tier. Frankly, if you look at what Match does and is doing with Tinder, they're kind of proving this for us, right, because they are even testing a $300 a month tier. So we think there's a lot of opportunity there. If you think of who wants to date and how much income they have, older users [indiscernible] have more income. So that's also kind of thing goes with having a high tier. On the lower side, we have tested a cheaper tier. And we think there's more testing to be done. Grindr has an ads business in addition to a subscription business. Ads is about 15%, but our ad frequency is very low. We show at most 2 ads an hour to a user. And Grindr users for reference are using our product for about 55 minutes a day. So they're in the product a lot. And so I think for a cheaper tier to really work, we probably need to have a higher ad frequency first because that's the biggest value prop that you can offer is let's get rid of ads for low dollar month.

You've highlighted Grindr Web as one of your long-term priorities. Can you talk about what it is, its use case and why it represents an incremental opportunity versus the mobile experience?

So right now, Grindr Web is in alpha/beta and it's very basic. It just basically allows you to do what you do on Grindr, but photos are bigger. It's a little faster to use in some ways and you can have many chats going at the same time. So if folks remember, G-Chat days when you could have like many windows open at the bottom, you can now do that on Grindr Web. So for users who are like talking to many people at the same time, again, 600 messages a day, some people are spending a lot of time chatting, that's powerful. But it was built with an idea of becoming something much more than that. We know that our users have certain use cases and features in mind that we cannot build on the app, primarily because of what Apple and Android lets you to do. So the way companies like Twitter have gone around the limitations is by building those features on the web. And once they are available on the web, then Apple becomes a lot more flexible in letting you put them into the app as well. And so that strategy, I think, has worked really well for Twitter, and that's a put that we'll take kind of over the long term and how we'll be using the web.

You briefly mentioned additional a la carte offerings. If you want to double-click on those and what else is on the product road map, we should be excited about in the next couple of like quarters?

So the feature I'm most excited about, which is I get accosted on every time I speak in front of Grindr users is being able to show yourself in the market other than the one you're in prior to traveling and I've literally had to [indiscernible] what product I would pay $1,000 a year for, and then they described this. And so it's -- and it makes sense, why, because our users do travel a lot. And so being able to like say, hey, I'm coming to San Francisco, show me in San Francisco is something that's really valuable. We already allow you to look at who's in San Francisco in advance if you're a paying user, so it's called Explore, but we don't let you do the reverse, like showing yourself in a market. So that feature will launch sometime next year and I think will be very popular based on kind of everything we've seen so far and just the data that we have from our users. We already offer Boost which allows you to be seen by more people. We think there is an even higher tier of Boost where it's longer and more people see you that we can offer because we've seen a lot of success with Boost, but this is one of the feedback points like I want it to last longer. Again, learning from Tinder that like a way to boost your communication to somebody else and really kind of express to them that you really like them is something that's very interesting to people. And so building that kind of super messaging capability is something we are working on as well. And so we think that's on the come. So those are more like immediate over the next, say, year, ala carte that we want to launch. Slightly longer term, I think using AI to tell people a lot more about who they are talking to and what their behavior is like would be quite interesting as well, right? So this person tends to respond more to people who are older or this person tends to respond to people who are younger or people who are -- who have these interests versus these other ones, letting you kind of learn all that by unlocking out of intelligence about the person you're talking to, I think, can be really valuable. So that's a more longer term a la carte that we need to build.

Moving on to advertising. So in your last shareholder letter, you mentioned that you introduced new and more persistent ad formats to improve the user experience for your partners, but also for users. First, how should we think about the advertising opportunity longer term? And to what extent will advertising be a mix of the monetization pie going forward?

So today, roughly 85%/15%, 85% is subscription, 15% is advertising. And advertising has been very much an afterthought at Grindr for the last few years. Within the ad business itself, it's roughly 2/3, 1/3; 1/3 is direct ads where we partner with somebody to service ads on their behalf and then 2/3 is third-party ads. Obviously, our users really dislike third-party ads. You hear about this all the time. We know this, and we don't want third-party ads over the long term. We are very privacy focused. And so we share no information about the user with the third-party TPA partners. That's one of the reasons why the ads that you are served through third parties are not good because they can't target you in any way. And that's on purpose because we think protecting privacy is really critical. So when I came in, I think if you had talked to the team, the expectation would be ad business, we just kind of stay at that roughly $30 million a year in revenue and become a smaller percentage of the total business. But what we've seen is that actually there's a lot of opportunity to make it be bigger and grow significantly. First because the number of ads that we serve per hour is so low. So there's a lot of more room to grow that. And secondly, because we think we can transition, over time, a much larger portion of our adds to being direct ads versus third party. And obviously, we make a lot more per ad served if it's a direct ad versus a third party. Obviously, there, we need to push people to be willing to advertise with us. And we have brands that are very forward in that regard and are very much willing to spend money with Grindr and then there are brands that are not, even though they tend to be very loud during, say, Pride Month about how they want to be committed to the user base and to the LGBT community, et cetera. And so I think we need to both offer them really good ad formats and be a little bit louder in hey, you guys should advertise with us because you need to put your money where your mouth is. And so that's something we'll obviously do over the long term. But I think ads can be a very big part of the business. If we can maintain it at somewhere between 10% and 15% of the total revenue, as the revenue grows, I think that will be very beneficial for us.

I want to go back to your international opportunity and you briefly alluded to that in your opening remarks. What are the key markets you're most focused on in like the near, medium and long term? And do you also see an opportunity to greater localize the app to gain greater traction in those markets?

Yes. So Grindr is in 190 countries. There are very few places where we don't operate. Most of the places we don't operate it because government regulations don't let us do that. And many of the countries we operate in are actually very dangerous for our users but -- and so we constantly talk to local organizations like should we stay or should we not stay? And usually, the response is, no, you absolutely have to stay, because even though there's a risk to your users using you, say, in Egypt, that's better than not having any way to connect to each other. So it is a pretty challenging kind of topic for me at least on a regular basis because things happen in certain parts of the world that are very bad. Obviously, those are not places we make that much money. If you look at our product, the same way that most subscription businesses make a vast majority of the revenue in 25 or 30 countries, that's true for Grindr as well. But international accounts for about 40% of our revenue in total. So it's a pretty significant amount. The way we've been approaching things is a launch perfect things in the U.S. and then expand them out into other countries. All the usual suspects are where you tend to make money. Where I think the big opportunity for us is in Latin America because we've seen really great user growth in Latin America. And so that's part of this kind of secular tailwind of people becoming more comfortable being out in parts of the world, and so taking advantage of that is huge. And then I think our longer term questions around where does India and the rest of Asia go, right? In India, 10 years ago, it was illegal to be gay. Today, I think if you ask most people who look at India, gay marriage is probably like 2 to 3 years away. And that's an incredible change in a very, very short amount of time. And so obviously, as that happens, a lot more people will be comfortable being out because if you look at population today and that's how it's very low as a percentage. So we think India, over the long term, has a huge opportunity. If we reached our baseline penetration levels in terms of users in India that we are in most other parts of the world, we'd be double the users that we have today. So it's a huge opportunity. And then the same is to in Asia like who would have thought that in Thailand, you'd have a party that wins elections be for gay marriage, like that's totally -- things are changing much faster than I think you would have accepted before.

So we talked about TAM. We talked -- we just talked about international. We talked through your product initiatives. Taking it all together, how should we think about the building blocks for Grindr, not just '23 growth rate but also kind of like the normalized growth rate beyond '23?

So I think what we've said publicly is that we want to be best-in-class among our peers, both on growth and in EBITDA. I think we're doing that this year. And our expectation is that for the foreseeable future, we'll continue doing that over the long term.

Let's pivot to margins for a second. Just keeping at a very high level, how do you think about balancing growth and reinvesting in the business versus margin expansion? And what are the puts and takes around your margin trajectory in the next couple of like quarters and years?

Yes. So this has been an evolution for me actually coming in because I thought coming in that for a while margins might have to come down in order to invest in things and then where it would go up kind of as we ship scale. But I found that we don't actually need to do that, that we have enough room to be able to both do all the investments that we need to do while keeping margins to be really high. So we've guided to 38% in the beginning of the year and then we raised that guidance to 41% on the EBITDA margin, which is really great, I think, and we're happy to be in that position. So I think as long as we are able to maintain very high productivity, we'll be in a really good place. I think coming out of the pandemic, most companies are facing issue of productivity challenges, it's not unique to us, because in the beginning of the pandemic, productivity was very, very high and then it kind of came down and now we're trying to get it back to where it needs to be. So there is a lot of opportunity to kind of leverage the people that we have to be more productive and do more. And I think this year, we've done some of that, but there's more work to be done on that front. In the very near term, I know we did start a return to office initiative, which maybe is stricter than a lot of other companies. We just told everyone to make a decision. Are they in or are they out on coming back to the office and they're going to have designated offices that they need to come to 2 days a week. And if you don't want to do that, that's great, but then probably there's not a place for you at Grindr. And so the result of that is that we do -- we have seen some attrition this year, and we do expect more attrition. So in the near term, the team will be smaller than where we were before and where we want to be. And so that will obviously impact margin in a positive way in the near term. But I also think it shows that you can have a lot of leverage in this business because you don't need that big of a team to do the things that we need to do. And I'm talking about team all the time because that's our single biggest cost after money where we pay Apple and Google.

You haven't -- You said earlier that you haven't really invested in marketing. Could that be an opportunity going forward?

So we are thinking about marketing a lot because we just brought on board some new marketing leadership that we'll announce in the next few weeks. But almost everything we're talking about isn't like expensive marketing. So planning on like user acquisition marketing through Google spend or Facebook spend, that's not something that we are thinking will be in any way valuable because we just don't need it. I mean our user growth is quite strong without having to do that. And our brand recognition is very high, right? We are 85% brand awareness. So we don't need to kind of do brand marketing either. Where we do have opportunities is kind of addressing some of our brand debt, where like some of the negative stories that have come out on Grindr in the past, some of them 5, 6 years ago, people still think of like as a thing that's happening today, even though it's like 2 managements and 2 ownerships ago. And so we have opportunity to kind of tell our story a lot better. And then I think we can use social media a lot better as well. So we will be doing a lot more on marketing, but -- and maybe our costs go up a little bit, but nowhere near what our peers do because most of our peers spend it on just like user acquisition, and we don't need to do that.

So you mentioned app store fees, obviously, a topic that is very front of mind for dating companies or investors in that space. And there has been a number of developments with that regard in the past few months. A number of countries are taking actions. How do you see the regulatory environment evolving from here?

So we have a really good relationship with Apple, and it's actually really important to us because Apple lets us do certain things in certain countries that they normally don't let products do. For example, when we launched Albums last year where you can have many photos in an album, you can send an Album to somebody, it was really important for us to prevent screen capture on albums because, again, there are 60 countries where it's illegal to be gay and you don't want people faces to be captured by -- very easily. And Apple let us kind of prevent that screen capture in Albums, which they don't let anyone else do. So we generally had a good relationship, and I think we'll continue having that. I also used to run a mobile company that I've built before App Stores existed. And I know what the wild wild west of kind of app world was like. And so that's not great either. Having an App Store is a lot better. That said, I think there's a lot of room to kind of reduce the fees. And obviously, we'll be very supportive on those fees going down. But I don't think Grindr is going to be the one that's leading the way on that. We'll let some of our bigger [indiscernible] and kind of take the lead.

And they're working on it?

Yes.

Last question. How should investors broadly think about capital allocation? And how should we think about inorganic versus organic growth going forward? And is there may be an opportunity for M&A?

So right now, our biggest focus on capital allocation is paying down our debt and then refinancing our debt because we think there's opportunity to reduce our interest payments significantly from where they are today because today, most of our cash goes to pay down the debt. We can't really do that until November from just a structure perspective, but something that we're very focused on. Once we kind of grow and refinance the debt and free up some of the cash, we'll obviously think about where that cash will go in the best way. But today, investing it in growth makes a ton of sense because there's a lot of opportunity to do that. I've been here now for nearly 10 months, maybe 11 months. And M&A has not been my focus in any way because there's so much opportunity to increase monetization in the current product. But there are some opportunities probably to think about, but I would say in a little bit, like let's focus on the core product as it stands today first.

Perfect. I do want to close it off with kind of like your prediction. And what do you think is going to be -- or what are you most excited about with respect to Grindr over, let's say, a 1-, 3- and 5-year time horizon?

So what I tell my team all the time and I think my team, which is less commercial than people in this room, I guess, is less, but what I'd like to say is the more power Grindr gains by being a more successful business and that's worth more money, the more we can do to make the lives of our users be more just, more free and more tolerant. And that's what attracted me to this job, is this world where you can actually build a really awesome commercial business that's making a ton of money and grow it significantly, while at the same time, every day, do things to make lives of people who have suffered a lot, suffer less or be a lot better. And so that's where I think we uniquely win, and that's what we'll continue doing.

Perfect. Thank you so much for coming.

Thank you.

Perfect. Thank you.