Grindr Inc. (GRND) Earnings Call Transcript & Summary

Thanks, everyone, for joining. Ygal Arounian from the Citi Internet team. Pleased to have with us Grindr's CEO, George Arison; and CFO, Vanna Krantz. Thanks so much, guys, for joining us. We'll take some audience Q&A later. If anyone has any questions, pass around some microphones.

Yes. Well, let's jump right in. Thanks, guys, for being here. So George, you've been at Grindr for about 3 years now, taking the company, which is already the category leader, and it's kind of been through a major overhaul. So I think just a good place to start would be how has Grindr changed over the past few years? And kind of what's the vision for the platform over the next 3 to 5 years?

Yes. Actually, announced me joining like [indiscernible] or something like that 3 years ago. It's been really busy journey, way busier than I thought it would be. We had a lot to do that I didn't realize. We went public about 2 months after threshold up. And that was great, but also a lot of work to get ready at the very end. Grindr had been owned by the Chinese and then had been sold to a consortium of American owners in 2020 right around COVID kind of being at the peak. And then they knew that they need to take the company public, so they did it really fast. We realized once we got there, a bunch of us got there that the team was not what a public company team should be, both from the point of view of just like being able to have expectations and then meet and beat those expectations, but also how they perceived the role of this company, which always has a very big public advocacy role for gay people. But in their minds, it was like that first and then a business second and not business first and then advocacy second. And there was no way to move them towards kind of the direction we needed to be in as a public business. Additionally, it's like work habits were not aligned with what I would expect them to be. So we had to make a really big change. We went through that in 2023. We returned back to office earlier than most companies did. And as a result, a lot of people chose to leave. So today, almost 90% of the Grindr team that works at Grindr has been hired since I got there. So from like just -- if you think of like people build companies, not companies don't build companies, right, ideas don't build companies, people do. And so we've completely rebuilt who is there and who is building this business to being much more public company caliber, high-growth tech caliber team, similar quality engineering talent and similar quality product talent and the rest of the company talent that you would expect in a business like us that has as much potential as we do. And then secondly, we didn't really have a very clear vision of where we wanted Grindr to go. You're right that Grindr was the dominant platform is the dominant platform for this particular user base, although we compete with products that are not just for gay people, they're for a broader audience. And so our competition base is like Instagram, Pinterest, Hinge, et cetera. So there, obviously, we're not dominant. And from that sense, we need to develop a product vision for what we wanted the company to be. And we did that, I think, very successfully in Q4 '22, Q1 '23 and then presented out as this idea of building the Gayborhood, where Grindr is at its core, this really powerful product for gay and bi men. We have a very special connection to that user base around the world. But that gives us the permission to build new businesses and new verticals on top that are expansions of what we do rather than just the core connections use case that we're taking care of today. And so that's what we are executing on, I think, very successfully now, driving the core business to grow significantly while investing in these growth businesses in a moderate way towards the direction of like having three of them being very successful by, say, 2028, 2029, driving a meaningful portion of our overall revenue story.

Okay. Do you want to elaborate on what those growth initiatives are?

Yes. We've never like given specifics other than in one particular case before. We've given a broad view. And by the way, in our 3-year plan, all the costs of these are paid for, but revenue is not assumed at all. So it's all incremental revenue to what we said in our 3-year plan. The one that we are actively talking about publicly is around health and wellness. So we launched a product called WoodWork, which is a Grindr version of ED medications, but that's meant to be a platform for launching many other medications on top of that as well to build out like a gay-focused business like HIMS or like Row, which we think can be a huge opportunity and not just for cosmetic medications like ED medications or hair products for skin care, but also more life-saving medications around delivery of PrEP which is something you take if you want to avoid getting HIV. A lot of men in America are on PrEP, thank God. Many more should be. And frankly, no gay person should not be on PrEP because it's a huge part of getting to zero HIV transmissions a year. And Grindr has had a massive role in getting people to accept PrEP as something they should use, but I think we can do a lot more there and actually then drive the revenue story from that as well. So that's like one bucket. And this is everything like over the long term. It's not going to happen in 1 year. This is probably a 3-, 4-year journey as we build out that health and wellness vertical. And we started out with the ED medications first, which we launched in April, May of this year. And I told everybody in our May earnings call that like I will not be talking about any data related to this until it's time. I want that team to be operating like a start-up, and they are like they're a 3-person team, super grind focused, like they are not allowed to have too many resources, not because we can't afford to put more resources, but because I don't want them to have more resources. Like a start-up would have a finite amount of resources, a finite amount of budget for marketing, and they should operate the same way to prove out their business. The other vertical that we are going after is a combo of travel and luxury experiences. We're starting with luxury experiences. Average gay household in the United States has 2x the income of a straight household. Gay men have 2x the number of MDs, PhDs, JDs, MBAs that a straight male does in the U.S. So their income is very high on average, and they have a lot of disposable income. So we think offering luxury experiences through us makes a ton of sense. And so that's another one that we're working on really actively. And then we have a third stealth point, which we don't publicly talk about that's an AI, and it's the biggest opportunity probably on paper. Let's see if we can kind of go and capture that fully. But we have talked about the fact that we are doing some really cool innovation in AI even at the model level, kind of retraining a lot of models to understand gayness a lot more. And I think that creates a huge opportunity with the product as well.

Got it. We'll obviously come back and dig into AI a little bit more. But it sounds like the -- I mean, not -- it sounds like it is the mission for Grindr is much more than just a dating platform.

Grindr is not a dating platform. Grindr is a social network for gay and by people around the world. And we monetize the dating portion of what people do on the app. But people do a lot more on the app than just hookups and dating. So people, I think, should think of Grindr as like an Instagram or a Pinterest for gay people with a subscription-based monetization, which those businesses do not have.

Got it. Okay. And I guess that speaks to -- I'm going to jump around a little bit here. But when you look at the data, the engagement level on Grindr is significantly more than what you would find on a traditional dating app. So can you talk about that a little bit? I mean -- or maybe just help people understand like how much time you're spending on the dating side versus the lifestyle side?

I kind of stopped describing how Grindr works for people for a while, but I think I realize I need to do that more. So I'm going to do that, bear with me for those who know. So Grindr is a completely open architecture platform. When you open it, you see a bunch of people on a grid. Each of those is a profile or a user account, and you can e-mail anybody that you see. There's no limitation on who you can talk to. Unlike traditional dating products that all came after Grindr, but that have this like double opt-in, where each person has to say, I'm interested in somebody for there to be a communication opportunity and a message. That open architecture, only limitation on it is how many profiles can you see at any given time, a free user sees 80-ish profiles, paying subscribers sees anywhere between 600 and unlimited number of profiles depending on their subscription tier. And if you move from here to, say, 2 blocks away, the sets of people you'll see even if it's a free user will be different from what you saw here because all geographic based on distance. And so we don't -- like a free user still gets a lot more than 80 profiles because we give you new ones as you move around. So that open architecture creates incredible amount of messaging in the app because the primary way that people engage with somebody else is through messaging. Our users sent about 130 billion messages last year. On a daily active user basis, that's more messages than on WhatsApp a day per user. So it's a very heavily used messaging platform. And communication is about all number of things. It's not just about dating. It's like, hey, I'm going to Singapore, like I want to figure out what to do in Singapore and like talk about that. So that's kind of the core thing that makes Grindr work. And I think that's what drives our engagement to be as high in terms of time spent, right? Because it's such a heavy conversational experience that people are either talking or looking at profiles the same that you'd be looking at profiles on Instagram or somewhere else. And that unique openness gives Grindr its magic. That's also why just thinking of Grindr is like, oh, they can to just monetize, monetize by driving more people to become payers is the wrong way to approach it because you do not want to degrade the free experience in any way, especially on this messaging experience. That's the magic that makes every person who turns 18 who's gay, come to Grindr. Our user base is very young in its kind of overall body because all the young people that turn gay come to Grindr. And partly just learn about what it's like to be gay. And the openness in communications is critical to that. And so we have no user acquisition cost because we are so open, and we would never want to change that in any direction.

Got it. Okay. How much of your users are using Grindr ex the dating side? Is that like a way to think about it just as we think about like the engagement and...

We don't really measure that at all. I mean, we probably could, but we don't. I mean, look, we know that of the gay existing relationships in the United States, like long-term relationships, 3.5 out of 10 originated on Grindr. And that's a pretty remarkable number, right, because this is measuring all gay relationships and Grindr has been around for 16 years. So in that sense, it's a really big part of people's lives. But I think all the other use cases are pretty important. We do survey our users and say, "Hey, like what are you 1.4. And I don't remember the exact numbers, but orders of magnitude, like 80% of them will tell you it's like hookups and dating, 50% of them will tell you like social engagement friendships, 30% of them will say networking, like that's broadly the kind of how it falls out in terms of what are the use cases.

Okay. Yes. I'm going down this path because you're certainly from investors and I guess, thought of more like you bucketed into this like dating app category, but it sounds like you're a lot more than that. And the monetization model also sounds like can be built out in a much different way. To your point on you want to be careful about how you're putting in monetization and not blocking people from coming in. I think that's been a challenge for the dating app business model. So maybe elaborate on how you see the monetization model developing over time and what your vision is for it, if it's a little bit different than how people normally think about it.

So today, we monetize 1 of 2 ways. We have subscription products and a la carte, and that's about 85-ish percent of our revenue. And we have an advertising business that's about 15% of our revenue, and that's a lot more than operating products. But that business is almost all -- not all, but a very large part of it is third-party advertising. There's a huge opportunity to grow that business through direct advertising over the long term. We probably shouldn't have any third-party advertising. We shouldn't be all direct advertising to like trendsetting gays, right? Like that's the pitch to an advertiser for why they should come to Grindr. In subscriptions, we have 2 tiers. We have a $20 tier, $99.99 tier and for $39.99 tier. These are U.S. prices. Obviously, they are different abroad, but roughly the same broad kind of model. Grindr has not raised prices in 7 years, even though inflation in 7 years is 25%. So the amount of value that we're creating for people in each of those tiers is a lot more just purely based on inflation, plus we've launched a lot of new things in those tiers. And so we've also added value on the other side. This quarter, we started for the first time to experiment with price increases. And so that is going to be a big part of our story for the next 2 years because we do think we're significantly underpriced versus what we should be offering. So we don't expect that to happen all in 1 day, but we want prices to go up. I'm not promising a $5 price change on extra and a $10 price change on unlimited to match with inflation by any means, but there is room, I think, there to push prices up. And I think we should because we've done so much more in terms of value in both of those products. And then concurrently with that, we've created a lot of products, especially our AI products, and we can talk about what those are in a minute, that are way more valuable than $40. Frankly, like it's just the value that people are getting from them is very high. And so we are exploring creating a more premium tier above our $40 tier. I don't know if it's going to be $60 or $80 or $100, we'll let the market decide through testing, but we will probably launch a more premium tier. And frankly, one of the reasons we want to do that is because we -- these AI features are so powerful, you don't necessarily want everyone to have access to them because you cannot meet everyone's needs if it's available to everybody. And so it's okay if only a small number of people sign up for them, but they're paying a really high dollar amount because that creates a better user experience. So think of it as like I don't know if anyone has children and goes to Disneyland on a somewhat frequent basis, but lines are very, very long. And then Disney has like a couple of premium ways to cut the lines, but they only allow about 80 groups to be using VIP tier at any given time in the park. And the reason is because if that number becomes bigger than that, it starts to degrade the experience of the regular people, like quite for just a regular ticket because they see too many people skip the line and creates a bad experience. And so I tend to think of our premiumization in the same way, like we don't want to give the very high premium tier to too many people because that might degrade the experience of our lower tiers.

Got it. Okay. A few more, we're going to come back to that. So we talked about the overall experience with people use it. We talked about the monetization angle. Let's talk about user growth. That's another area where you guys have been outperforming. MAUs were up 6% sequentially in 2Q. Where do you see MAUs trending longer term? And kind of where does that growth come from?

Yes. We tend to think of MAU growth as being so far purely organic because Grindr has not historically done much to drive MAU growth. It's been purely word of mouth is kind of what's made it happen. Obviously, we are further penetrated versus TAM in the U.S., in the U.K. and some of the other countries like that versus where it might be in India or Philippines or Thailand or all across Latin America. And the total TAM is growing in those countries a lot more because more and more people are getting comfort to be able to be using a product like Grindr in their lives versus where they were 10 years ago. Like 10 years ago in India, it was illegal to be gay. It's not the case anymore. Now certain states in India are talking about gay marriage and the speed by which that's happening is much faster than has previously happened elsewhere. So obviously, TAM will grow with that. We are -- our view is if we're adding somewhere between 0.5 million and 1 million actual net users a year, that's really good, and that's kind of where we've been over time. So maintaining kind of that steady pace is step one. Percentage might not always be the same because we're talking about total users versus what the percentage might be. And then beyond that, we have an estimate of like how much more can we gain over time and what can be done to gain those users. And that's a pretty broad number, like -- but we don't expect to be going after that broader number probably for a little while because we do need to do a lot of investments in the product to make it happen. And the way you would go after a bigger MAU than just kind of steady-state growth would be, number one, better brand abroad. We have very, very high brand recognition in the United States. It's over 90%. But we're only about 60% in most of the countries where we have measured it with gay men. So that 30% difference obviously makes a huge difference in who's using you because if they don't know you, they can't use you, especially when you're in a word-of-mouth business. Second one is around just trust in the product. There is a lot of historical brand debt that we face in certain places, particularly true in Latin America and cleaning that up is going to take us some time, all very doable work, but something we need to focus on. And then thirdly, localization of the product and how we talk about the product in the app stores, for example, is also another really big opportunity. We've never done localization. We use literally the same imagery, mostly from America in every other country around the world, it makes no sense. Why are you showing people in Korea, images from America, like that we should not be doing that. Two like maybe the product should look a little different in India because in India, people are very uncomfortable showing a real picture in the profile. Whereas here, that's not an issue. And so when you get a grid of users that's all either blank or images of like states in India or famous buildings, like that's not a very helpful experience for users. So we probably eventually start thinking of how do you localize the grid in a place like India. We wouldn't do that for every country, but for a place with as many potential users as India or Philippines or Brazil, maybe some level of product localization also makes...

Got it. What's the international revenue mix right now?

Vanna, do you want to speak to that?

Yes, it's just under 50%.

Under 50%.

Under 50% correct.

Users is more heavy.

Yes. Our MAU is about 75% international.

Okay. And that's still more of the growth opportunity today.

A lot more of course.

Okay. Maybe, Vanna, just to follow up with you on the 2027 financial targets that you've said I think you guys have been tracking well towards that. Maybe just bridge us from here to there, the puts and takes on it and how good you feel about getting there?

Sure. We feel great about getting there. And our targets that we put out were between 20% and 25% revenue growth. You can see that we've been on the higher end or exceeding that pretty much every quarter. And with respect to EBITDA, it was 39% to 42%. We've been at 43% for the last 2 years. We put out our guidance for at least 43% again this year. So we are tracking very nicely to our long-term targets. And remember, our long-term targets were our core business, not any of the Gayborhood initiatives that we are just starting on. Like George said, we're incubating them. They're like start-ups, and we expect them to be a larger and larger part of our business. But in that 3-year plan, that was not part of that. So we're tracking very nicely. We've had some very nice successes in our business to date with respect to optimizations and really just a lower price point. We've introduced the Weeklies. As you know, those were massive home runs in 2023 and 2024. This year, we had a series of optimizations and small features that have added up to nice growth and we are targeting our guidance is 26% or better, and we're on track.

Can you talk a little bit more about the advertising revenue because that's another area where you think you guys have outperformed the category. I know I'm understanding better now the category is bigger than what I was thinking of, but that's been an area of strength for you guys as well?

So when George started as CEO, he really wanted to focus on advertising, so we did. And we turned it into around 15%, 16% of our total revenue. That was the number that we gave out at Investor Day last July. We're sticking to that around that ZIP code. The growth rates have to be a lot higher because, of course, that business is smaller than the direct and a la carte business. It's got two real components, the third-party advertising component as well as the brand component. On the third-party advertising, I'd say that we have levered up some of the volume component, like the quantity of ads, not only domestically, but also internationally. But more importantly, now we built the tech stack over the last 2 years to enable much higher CPM type ads. So native ads, rewarded videos, things that are more interesting to the user, more applicable to the user and generate a lot more CPM. We do not think we are done with -- we certainly don't think we're done with brand. We're still working on really hitting high gear in that one. Probably on TPA, third party, we're reaching our limits on U.S. quantity, not international, but certainly still room on CPM. So we see that as a very durable growth, double digits going forward.

Got it. Okay. And you guys have hit on it a little bit, but just to expand again on EBITDA margins. I mean your margins are really strong, the higher end on I said really strong. The higher end of what you'll find on pretty much any in that business model. You are investing for growth. So how should investors think about the margin profile from here, the balance between investment and margins?

We -- I'll start, and I'm sure George will have some stuff to add. But we are very happy with our 43% or better margin numbers in the sense of we think it's the right balance for now of investing in the business and giving back to shareholders. Truth is that we have a structural advantage because we have zero CAC. So we don't spend any performance marketing. That is a massive structural advantage. We also keep a very lean team. We have around $2 million of revenue per head. That lean team as well as no performance marketing is like a very nice tailwind to keep the EBITDA margins high. That generates a lot of free cash flow. That cash flow, we invest in all of the Gayborhood initiatives, which are predominantly people, but more so AI, I would say, AI initiatives, the cloud computing, things that are just helping us keep the business going at these incredible growth rates for the long term. So we think that's about the right number. Of course, 39% to 42% is our target, and we intend and fully expect to be always hitting that.

I think we benefited on the EBITDA by like, I don't know, 1 percentage point or something in '23, '24 and '25 because of the team change that we made because we then we're just operating on a very small team for a long period of time. We do need to eventually to like at least minimum get back to where the team was in 2022, right? Like we peaked at 225 people, and we're not even close to that number right now. So there was a benefit there, even though we were -- we added a lot of contractors along the way to help us kind of get through that period. So I don't think people should expect any expansion beyond where we are, but 39% to 42% feels really good in terms of having no concerns about investments, but also delivering very good results.

Got it. Okay. Let's shift to AI and products. So -- this past quarter, you had a few slides, can you delve into the AI product a little bit more in the platform. Can you talk about your strategy? You talked about gay AI and maybe just explain what that is and how you're approaching AI benefits and kind of walk us through that.

Gay AI is a little bit tongue-in-cheek, right? So everyone kind of realizes like it's not anything fundamentally different than anyone else. It's just that I spend a lot of time talking about AI and our Head of Marketing, who is very good at branding, who would listen to like, oh, like we are like gay AI, kind of -- it's really good. It's really -- yes, I know. So that's kind of what we did. And I put out that deck because I was getting so many questions around like what are you doing that's different and why are you doing it that I think people don't quite understand how existing incumbent companies can dramatically benefit from AI. Normal technology platform shifts, and I was like very active in the last platform shift because I started a mobile app company in 2007, and we put apps on BlackBerry and Windows mobile devices like back then, which was fully unheard of at that time. And like they really benefited start-ups because start-ups like we're doing something totally new on a totally new platform. That's very different in this platform shift towards AI because AI only works if you have the data. And the people -- and then you have distribution, obviously, as well. And incumbents have an incredible amount of data, and they already have an existing distribution of some kind with the users that they work with. And so this platform shift, if an incumbent uses it really well, has the opportunity to create unique competitive advantage for you for the long term in a way that's very different from what happened with mobile last time around. Now some incumbents won't go after it or most will not go after this opportunity. And eventually, the start-ups will catch up with them on the data and the distribution. But if you do, then obviously, you'll have a big advantage. Quite frankly, like ChatGPT should not exist, right, in total fairness because there are companies and one in particular that had more compute than anybody else that had all the engineers that were out there and invented the technology on which it's built. But it did not take advantage of this incredible distribution and data advantage that it had and allowed somebody else to arise. I don't want us to ever be in that position, and that's why I want us to invest in AI, very targeted at our users. And what we're doing is we're not building a foundation model. Obviously, that's not necessary. But we're taking existing open source models and retraining them to be more gay-centric in terms of like identifying the male body and being able to create imagery a lot better, be able to understand uniqueness of what gay people talk about and how we talk about those things. And so far, that's been really helpful for us and then really good. Secondly, we're taking the kind of more foundational work that we've done and implementing into our architecture because for an incumbent to be able to use AI really well, they need a very strong architecture layer around it. And that's both in terms of how the team is coding and how the team is working, but also in like what's actually being used in the architecture of the products that we're creating. And if you go to like any very successful AI native company and ask them to describe gay AI architecture and then you look at ours, like it will be exactly the same, which gives me like a lot of -- I get very excited about that because here's a company that's been around for 16 years and is rebuilding its core architecture in the very same way that an AI native company that started a year ago is doing, which I think speaks to like the technical powers of the people that we've been able to bring on board. And then lastly, we are creating AI native products that would not have been possible before rather than layering AI on top of existing products to try to pretend that there a lot better. So one of the products that we created that's most out there and I think is an incredible user experience is called A-List. So we go through all of the chats that you've ever had on Grindr. And we create a short list of people that we believe are the right people for you to focus your conversations on, put them in a list. And then in addition to that, bringing together all the photography that you shared together into a folder, which is like very, very valuable for our users and then writing a summary of the conversation that you've had with this person. Reminding you what he's told you, what you've told him, what information was shared. And that's all like accessible now in one place. Like, frankly, I want an A-List for my Gmail, I want an A-List for my Instagram, right? Like that's a Grindr-specific product, but something that I think other companies will start doing as well. We launched chat summaries for people on Grindr in January. Chat summaries didn't go live on Gmail until about April. So like I know it's only 4 months, but that's like a pretty big deal that Grindr did something like that way before other much bigger tech companies did. And what we have in A-List now is just the beginning, right? The next step of this will be to use the summaries that we create to derive what your interests are that are actually like real interest, not the ones that you summarize in your profile because people don't actually say the truth in their profile, but they say the truth in the chat. And then based on that information and your true interest, match you with people in a better way, which I think will be really, really powerful because you might be matched with somebody further away than you are today, moment looking at people. But if that person is really the right connection for you, why not engage in that conversation. And if we are very, very transparent with people about it, then I think we'll trust it, and that's kind of how we are doing it. I want to -- just for the sake because I think this might be public to like reemphasize, we do not force our AI products on anybody. People have to proactively say they want to be part of the AI experience and only then do they get the AI features. And so we are not like in the business of, hey, everybody is getting AI here like what Anthropic did last week, I think, is really irresponsible where they're now saying that you have to proactively opt out of having your data in the training of the model. We would not do that. We actually went out and proactively asked people to say they were okay with that and the data being used.

On that note, what kind of adoption are you seeing? And when people are adopting like are you -- anything like measurable on better matches? Or is it too?

It's way too early for that. And again, frankly, I am not sure yet I should promise these AI features to everyone. Like I think these AI features are really, really powerful. And the best way to ensure that we can stay -- keep the quality to be as high as we want it to be is to limit who is using them. And so most likely outcome will be that we'll take a lot of these AI features and put them all in one tier that will be like a more premium tier to what we have now and have a small set of users having access to it for a while. And then as we learn more about it, then kind of democratize it, right? And I think a bunch of AI companies have done the same thing, right? Like you don't get ChatGPT's most advanced capabilities on you're paying a very significant amount of money. On rock, it's $250 a month, right, to get those. And they know that not going to subscribe to that, but they want to limit it because the technology still needs time to grow and develop.

Okay. Got it. We have less than a minute left, but any questions from the audience who want to squeeze in? Okay. I wanted to spend a little bit more time on product. Unfortunately, we didn't get to it, but maybe I'll just leave it kind of open for you in the last 30 seconds outside of the AI stuff, product features that you're working on that are really exciting for you?

Yes. So we added an experience into Grindr called Right Now in the last year, which is like a massive expansion of the product space inside Grindr because before we had like the grid, we had your messages and we had favorites. It was pretty much like the core app. And now you have Right Now. So like in that sense, we just added 25% to 30% new space to the app. It's very well used. About 20% of our, I think, our weekly active users are using right now in any given week. That's just people who post in it. There's also a huge, much bigger number of people who look at profiles in -- right now. But there's still a lot of opportunity to make right now be a better user experience. And so to me, the way I think about it is Grindr started out as a casual dating product back in 2009, and then it's become a lot more for users. Right now, as a new space is allowing us to keep the casual connection use case be awesome, which is core to like what Grindr is. And frankly, sex is core to being gay, right like the reason someone is gay is because of their sexuality. And so while we do all the premiumization on top. And I think that's a really important nuance for people to appreciate that we're not just premiumizing. We're also making the fundamental thing that made Grindr possible back in 2009 and onwards, be a lot better through right now.

Got it. Great. Thank you, guys. Really appreciate you joining us and love the great conversation. Thanks, everyone, for joining.

Thank you.

Enjoy the rest of the day.