Grindr Inc. (GRND) Earnings Call Transcript & Summary

Thanks for having me, and I'm looking forward to it as well. And a really good conference with you today.

Great. Thank you.

So for those of the audience who might be less familiar with you as a company, why don't you talk a little bit about the platform you've built, how it's evolved and what are some of those key milestones that you've achieved.

I didn't build it. This was built before me, and I'm very fortunate to be running this really beautiful product and beautiful asset. Grindr is the primary way in which gay and bi men around the world connect and meet each other. And so we have 14 million monthly active users or thereabouts in 190 countries around the world. So we're basically in almost every country with a few exceptions. And people use Grindr for many different things. It started out as a casual dating product that was kind of the first -- very first thing that Grindr was used for back in 2009, 2010 was the first real kind of location-based products on the iPhone, which really help it take off. And then over time, as more and more people joined, it's become a lot more kind of turning into more of a social network for the engagement. So now people use it, yes, for casual dating and for long-term relationships and for building friendships for obtaining information for what might be happening in a given community in a given time or even health information. And frankly, in like 40, 50 countries around the world, we have the primary source of health information for a lot of people now ordering HIV test to be delivered to their home. And that is where the opportunity for us lies as well, where we have all these different use cases that the products already used for. Now we can productize those and turn it into more of a product than what we have at hand today.

Okay. There's a lot in there. I want to go a little bit deeper on all of them. But maybe let's take a step back before we take a step forward. You recently hosted your first Investor Day in June. You laid out sort of the platform's vision and some of your key strategic priorities for those who didn't listen to that event or weren't at it, maybe why don't you refresh people what's some of the takeaways from that investor in [indiscernible]?

Sure. Yes. I do encourage people to go see it on our website because it is very detailed in terms of the product road map so it might be helpful to see. But what we said is that we believe there is a huge opportunity in product development across 2 buckets of product. One bucket is kind of the core product around connections and making that be a more awesome better user experience, and I'll talk about that in a second. And then secondly, around these gayborhood expansion opportunities where we say that we had the gayborhood on your phone. So we want to expand into different things you could get in the gayborhood. And so I'll talk about both for a minute. In the core product, we believe that we can make, first, the immediate casual connection experience a lot better through a product we are calling right now that's already in test in Australia, and we're going to be testing in more places soon. And we think it's having a really positive response from users and will be very impactful. Secondly, by building a whole set of features for dating and long-term relationships, things that were not as important to people in the community, say, 15 years ago or 20 years ago, a lot more important now a lot more people want to settle down and be in a long-term relationship. And Grindr is the primary way in which people meet each other for long-term relationships in the U.S., but we think we can do that a lot better. Then by implementing AI across the entire product to make the user experience a lot better through AI features and by building a bunch a la cartes, 5 in total that will make our product a lot better and obviously drive monetization as well. So it's kind of bucket one of our focus over the next 3 years that is on the core product. And then we believe there's a bunch of expansion opportunities outside of the core. The two that we've mentioned publicly so far is one in health and wellness and another in travel and local discovery. An example of health and wellness would be something like, we know that a lot of our users use various types of medications that are, I would say, let's call them more cosmetic medications versus like you absolutely need to take them to be alive. There are many different places where you could buy those. But what if we made it a lot easier for people to buy those products from -- directly from us. I'm not saying we're getting it into the business of fulfilling those medications. We can do that through a partnership, but we can be a really interesting distribution engine for that. In terms of travel, game and love to go on big experiential events. Coachella, which is obviously a very big event in the spring every year. A huge percentage of attendees are gay. What if we were able to work with Coachella and build a unique experience for our users while they're there, whether it's, hey, let's be able to say on your profile that you're going to Coachella this year, so connect everybody who's going to be going before they go to then creating special experiences for them at the event. We think that's a huge opportunity as well. So this is a taste of what we can do in health and wellness and what we can do in local discovery and travel that I think can be a really big opportunity. On the latter point, in particular, 1 in 4 of our weekly active users is traveling, which is really remarkable. So to make sense, given that a lot of them are single. They have high amount of disposable income, and they want to do things with that income. But obviously, that creates a ton opportunity for us.

So I want to come back to some of those themes you introduced there, George. When you look at the industry writ large, there's a lot of debate out there around the dating apps, the dating industry. You've demonstrated a lot of platform differentiation and growth dynamics. So can you talk a little bit about what you're seeing from your user base in terms of engagement, how they might compare to the industry writ large. And there anything you're pointing people to in terms of why there might be a divergence in your trends relative to the rest of the industry?

Totally. So look, our users are extremely engaged. Last year, in 2023, we generated 121 billion chats during the course of the year. That's on 14 million mile or -- I think it was 13 million last year, just like it's a huge number of chat people spend over an hour in the app a day. And those numbers are not going down. They're going up, right? So we're doing very well in both of those metrics now. So we are not seeing any sort of drop-off in engagement, whether it's overall or within the Gen Z segment, which is where people kind of focus on a lot. One of the reasons I think is because as people become 18, come out, whether it's before they're 18 or after, but like kind of start to figure out who they are, it's actually very common for them to want to be around older people who can help them figure out what it's like to be gay. And Grindr is able to offer them that community, and that's why we have a gayborhood on the phone. For me, that was moved to DC and live in Dupont Circle and kind of gain that experience from that because obviously, those are before products like Grindr existed. But not everyone gets a chance to do that, and we can offer them the same experience through the mobile device, which I think is very valuable. And a big reason why I think people come back to us all the time. Secondly, I actually think that a lot of this is an excuse rather than reality that Gen Z doesn't want to be doing things online. Look at how well Hinge is doing, and that's obviously an online product as well, right? The difference is that innovating versus others have not innovated, it just drove just monetization for the last half a decade or so. And that's something that we are very careful about. We could be driving monetization just by making the product be less good on the free side and basically getting more people to pay for it because they are losing the free experience. We don't think that's the right approach. We think the way to preserve the asset is a really positive product for people is by building a lot more features for them on the positive end, things that they want to use. And then because they're seeing value in the features we're building, getting them to pay for those features. And I think that's a really big difference in kind of our approach versus what some of our peers have done 5 to 10 years ago and how they drove monetization.

Okay. Understood. Very clear. So you talked a little bit about where you want to take product and platform long term. Maybe just drill down a little bit more in terms of which products you're most excited about when you think about your road map in the years ahead.

Well, obviously, we laid out a very robust road map at Investor Day. We wanted people to understand that there is a lot of investment going on in technology to create it all. When Grindr was bought out of China's ownership, the company was very hollowed out, both in terms of people and also in technology investments. There was a lot of technical debt and a lot of effort was put in and it continues to be put in, in solving the technical debt. So for the first couple of years, it was really impossible to build new product because we had so much technical debt to deal with. I don't think we're fully passed that, but we've kind of addressed a lot of it so far. And so frankly, the people who bought Grindr from the Chinese ownership really saved the company, and then they had a lot of compliments for that. Now we are in this place where we can build a lot of co-products. I'm super excited about what we can do with dating and relationships. And when I think about my own life, I really wanted to find a long-term partner and be in a relationship and have children. That was not very common for gay men in my generation, but that was something that meant a lot to me. And I actually picked myself up from D.C. where I had been living for a decade and moved to San Francisco in part because I felt like I could find a long-term partner here, and I couldn't do that in D.C. And that's not an uncommon story that you will hear in the community. And so -- and one other drivers of that is that there is not enough critical mass of people in any given geography for you to potentially date. So at Grindr -- but we have users everywhere, obviously, and we have 40 million of them. So if we could break down geographic barriers to dating, that would be really valuable. So what I'm sick about is a world where through AI, we can actually understand each of our users a lot better and then provide them with transparent matching around, hey, you as an individual, here are 10 or 20 people around the world that are really good potential partners for you and for these open reasons why, obviously, fully with user consent with them being okay with us doing that. It doesn't matter where they really are because if you can get really good data on why this is a good match, you probably would be open to meeting them anywhere based on what we know about our users. So that is a product that I think can have really tremendous value for our users and it can also be a huge driver of revenue growth as well. And I'm super excited about that as a feature. Now that's not going to come in 2025. That's a longer-term thing that we are working on today, and we'll continue to work on in '25 and then we'll see benefits from -- in the future. And then I also talked about these a la carte that we are -- sorry, about these extension opportunities outside of the core product, like health and wellness that we are working on because I do want us to be able to offer more to our users the size of the core that we're offering to them actually.

Okay. Understood. We're sitting at a technology conference, can't sit very long at a technology conference without talking about artificial intelligence. I would love to understand better your world view of how AI can impact the dating landscape, and in particular, can be rolled out and deployed on your platform.

Yes. So I'm spending a lot of time on AI, like many hours a week. I even hired a very early in AI engineer out of strike to be an AI tutor for me. So I meet with him twice a week to like talk through what's happening and kind of how to deploy the tech for us in a good way. And that's been really valuable to me to better understand what is possible and what's not possible and when. So where I kind of feel -- we have tremendous opportunity there, like it's almost like too many opportunities and we have to prioritize what's possible. I would love to be able to soon within a year, launch a wingman that our users can use to make their app experience lot better, whether it's the suggestive text that what they should message to somebody or suggested people that they should talk to based on their interests or suggestions around, hey, I'm seeing that you're about to go to dinner with this person. Here are a recommendation for a restaurant that where you can meet. I think that can all make the user experience a lot better and can be very engaging. I want us to launch AI features initially that are not over the top and that users can experiment with and then through their experimentation, tell us how they want to use them more and then add on to those features. Eventually, I can see a world where I have a replica of myself in the app through AI, another user has their own replica, and it's the 2 synthetics that are talking to each other to establish a connection and then provide us with a really detailed kind of view of, "hey, these are all the things we talked about, and this is why we think it's worth for you guys to meet in the future." That would be like really interesting, obviously, not for everybody, but for a lot of supple, I think that will really interesting product.

Okay. Interesting. You talked about the global expansion. You've talked about 1 or 2 markets. How do you plan on scaling internationally? What do you think the opportunity set is internationally when you compare it to the opportunity set here in the U.S.?

So we're in 190 countries around the world, basically we're everywhere. And we're usually the #1 product in most of those countries. That said, our brand recognition, which is very high in the U.S., it's 90% unaided in the U.S., isn't as high abroad. And we've not obviously tested every country, but we've tested a few and it comes out usually as well 60% unaided awareness, which is still really, really good, right? Like most companies would actually kill for that, but that's not 90%. And we do know that if people know us in these places, they use us, but if they don't know us, they can use us. And so a lot of what we want to do internationally is actually gain better brand awareness without really spending too much money on that. And we think that by narrow casting to our community through social media and other tools like that, we can do a lot to create more engagement and more reality by getting people to know us more and then through that use us. We've seen really tremendous positive results in user growth in Latin America, for example. And we want to replicate that in Asia next because obviously, that's the next frontier. One of the things that's happening abroad is in places where 5 or 10 years ago, acceptance was not very positive, right? Like for example, in India, a decade ago, it was illegal to gay. We're seeing tremendous change in the society, and that's obviously a huge tailwind for us in terms of being successful and growing in these countries. And so that's like a really big kind of focus for us in terms of what we're going to do. Secondly, we are very successful in a lot of these countries, almost in spite of how we've approached things. We have very little localization in the product. We primarily use like English everywhere. We use Western imagery in every country in our app store imagery or inside the app itself as well. That doesn't make a lot of sense. We need to localize our product a lot more. We just started to do that, and that's actually having a really positive initial set of results. So that's a huge opportunity also. And then lastly, from a monetization perspective around pricing, we have never really gone through an exercise of what prices should be abroad versus what they are in the U.S. Yes, we charge different prices abroad, but it's not very kind of scientific. And we think there's a ton of opportunity there as well to potentially change pricing and through that increase monetization.

So maybe stick with that theme of monetization. You talked earlier in an answer about not wanting to rush monetization sort of create a sense of community, have a lot of value in the free tier. How do you think about monetization though evolving longer term? What's the right balance to strike between user growth, user engagement against extracting price and value where you think we're delivering value to the consumer.

I'm a capitalist, right? And I very much believe in our system and that my general view is when you create value for people, they should pay for that value. And people normally do. That's why our system works. And so my general view is that if we create a lot of value for our users, they will pay for it. Albums, which is something we launched in 2020 is a great example of what's happened is initially, we launched it as a free product. It took off very, very fast, very viral product because every time someone got an Album, they learned that Album was a product and then they were asked to send an Album as well and then they would go set up an Album. And eventually, we said, okay, we can send one Album for free. But if you going to have more than one of Album, you've got to pay for it or if you want to see more than, I think, 5 Albums a day, you have to pay for it, and that started to drive monetization around Album. That seemed like a really good approach because we create a lot of user value, and then we started to extract value from that outcome. And I think we have the luxury to be able to do that over time because we have a lot of monetization opportunity in the product today. And I think that gives us the chance to launch a lot of new things. We get clarity around how you users are using it, hopefully, get a lot of users to use it and then focus on monetization. So right now, for example, which is a product we're launching again in Australia as a test initially and then it's going to come to be tested in one U.S. market next. For 2025, the focus there is less on monetization and more on getting people to actively engage in it and get as much virality around it as possible and only events that focusing on monetization. But we also are all very focused on monetization. And so when we build products, before we went build them, we think about it, what is the best way to potentially monetize this product, and we build in that capacity into the product. So once we want to turn on monetization, we can actually do that.

Okay. Understood. For those away from the opportunity set with payer conversion, how do you think about building an advertising opportunity set for the company over the medium to long term.

And so unlike apps like us, we have a fairly high percentage of our revenue coming from advertising. It's 15%. And advertising was definitely one area that suffered from a lot of technical debt and under investment. We had one primary ad unit called [indiscernible] in the app, but that's from like a decade ago. And since then, a lot more ad units have been created that are better, including video. So we -- my thought was like this is a huge opportunity for us. We have a user base that is highly engaged, high disposable income and very valuable to advertisers. We should be able to drive a lot more revenue from this. I think initially, the view was like revenue is going to just stay where it is and as a percentage of decrease, we didn't want that. And so we said at minimum, it should keep up at the same pace as the core product. So if the core product is going 22.5% to 27.5% is kind of what we've guided to over the next 3 years at that pace, then we want to add business growing at that pace as well. And obviously, if it can do better, even better. And we think we can do that. We just hired a new leader for our ad team in March. He comes with 15 years of advertising business experience in tech at Google and at Bloomberg. And he's super excited at what he's seeing. For the first time, we have an engineering team focused on advertising as well, and they're building the ad units that we have to build. They're building the integrations to third-party advertising partners that we need to have on the platform. We are testing higher ad loads, which not only increase our ad revenue, but obviously also have a conversion impact as well because if people don't like single ad, they can start paying for the product and not see the ads. And that always going to be, I think, really beneficial for us and for the product that we are envisioning. Eventually, you can see a world where maybe for users with [indiscernible] account, we offer a lower price tier, right, like where, hey, get our app for $5.99 a month or something like that. So that's also another opportunity that can start converting people to being paying customers and over time, getting them to pay more for other things as well.

Okay. Understood. You talked earlier about the expansion around the gayborhood. Can we talk a little bit more about what can be built around that? You talked about health and wellness. I think you talked about travel, you talked about local discovery. Maybe connect a little bit of what's being built versus how you see the opportunity set evolve in terms of the product back into engagement?

Yes. So we are going to be very much building this through partnerships, right, with, for example, medication example, like I don't want to be in the business of running a pharmacy, right? There are already online pharmacies that you can use to do the fulfillment of that product. But we have a distribution engine that is very powerful. And so that's where we'll put our focus is like how do we distribute this product? How do we get people to sign up for it? What is the marketing that happens around it in the app. If you look at a lot of these companies, if one of them is public, you'll see that marketing is a huge expense, which obviously we wouldn't have in the app. And so that's what we will kind of focus on, and we'll rely on a partner to do the fulfillment and the customer service and the support kind of on the back end. And that's the approach we're going to take across all the things we're going to do in this space. But what we have is unique knowledge of our users and what they need and what they want and how to bring it to them in a way that they understand. I think that's the really big opportunity for us, where we are like a place that they can come to for all of their needs. And obviously, we're not going to go out into something that's like totally not connected to the product. Like we think the things we're doing to still connect to the product and things that users do normally use us for, so they can kind of understand why we are doing what we're doing. Now eventually, there might be other areas like I've jokingly said, but it's not totally jokingly that like, I don't think that gay men are going to retire in the villages, like that's unrealistic. And there's a huge generation of gay men who haven't really had it as easy as, say, my generation has had, that are coming up on their retirement, and there will be things that you need to do to facilitate that. And I think Grindr could be playing a role in that. But that's not in any way of focus next 3, 4 years. That's a much more longer-term thing that's less connected to us at the core. And so does it make as much sense as some of the things we've talked about in travel and local discovery and health and wellness and in education kind of user information.

Okay. So we've talked a lot today. We started with strategic priorities. We talked through product, bring it back to investments, the cadence which you need to make investments in the business what your top priorities are to invest the dollar into the business to support this growth? How do we think about the investment cadence and your priorities?

Yes. So Grindr has a very lean team. I'm very proud of the fact that we have very lean team. And we're much leaner than we were even 2 years ago. At peak, we had 223 employees. Now we have 141, I believe, at the end of June, right? So it's much less, but way more productive, both in grand total and on a per employee basis. And I think we can be even more productive than we are today over time. So obviously, we need more people eventually. I'm not saying that we're going to run this whole thing with 141 people. And we do have external contractors right now that we're using to kind of supplement for the team as well, and that's helpful. We will continue to grow the team, but we're going to grow it in a very deliberate and careful way because I think if you grow too fast, you lose productivity and that's not a good thing. But otherwise, our big spending items are paying Apple and Google and AWS cost, right? Like that's kind of the 3 core main things we spend money on. And so we are -- as a result, we have a very high EBITDA margin. And I think everyone who is involved with mundis very proud of that, and we're going to continue to keep that to be very high. We guided to 39% to 42% over the next 3 years, and we feel really good about that number. And we believe there's a lot of leverage in the business as well beyond that.

Okay. So building on that answer, that talks about sort of investing in the business, driving organic growth. How should we think about other capital allocation priorities, the potential to do M&A in the landscape or the potential to return capital to shareholders and drive maybe some equity returns that way.

Yes. I mean right now, we have debt, and we've said that we want to be at a 1.5 to 2x ratio on EBITDA to debt, and we're not quite there yet. We are making our way in that direction quite nicely, but we're not there yet. So that's the first focus is like kind of let's get to that. And then in consultation with the Board, we'll figure out what the right answers to that are. But generally speaking, I'm spending very little to no time thinking about M&A because we have so much opportunity ahead of us in our core business. And frankly, that is much more exciting and appropriate because we -- that's what we know and that's what we should do. Obviously, like there's a 4% team of AI experts that kind of unable to raise a Series A and is looking to find a home. I'm happy to have a conversation with them and bought that. But that's not an M&A. Obviously, it's more like an aqua hire. But otherwise, that's like my focus. And so we will return -- we will consider returning money to shareholders in an appropriate way based on what market conditions kind of allow to at the time in the way that makes the most sense.

Okay. Very clear. So we only have a few minutes left. We've been ending every conversation with looking forward with folks. So a couple of bigger picture questions for you. Can you discuss what the next big milestones or goals you'd like to achieve over the next 12 to 18 months? And if we were sitting here a year from now, what do you think one of the biggest surprises or themes might be when you think about how the industry might evolve?

The milestone that matters a lot to me personally, like it's less external, no one is going to see it is what percentage of the code base is written by AI, say, by the end of 2025. I don't know I don't have a number that I'll put out there for the team yet. I want to get there by the end of the year. But like we already have research data from scientific research that says that at Fortune 100 companies, they tracked 25,000 engineers and how many tasks they were completing on a regular basis. And with CoPilot alone, they saw a 25% increase in tests completed. And that's with what today is already outdated technology, right? So like I don't know what the number is, but 15%, 20%, 25% of our core base, I would love to be written with AI because that would show us significant leverage in what we can do with our engineering team and the kind of entity adopting the changes that are coming inevitably into engineering is just like how quickly do you get up them or not. So that's like one thing that I would be super excited about. And then secondly, I think if the right now product achieves a really strong virality by the end of next year, I'll be really proud of that as well.

Okay. Understood. So with that, we'll leave it there. George, first, thanks for giving me the opportunity to have the conversation. Please join me in thanking Grindr for being part of the conference this year.

Thank you.