Match Group, Inc. (MTCH) Earnings Call Transcript & Summary

Okay. Great. So I'm Cory Carpenter, Internet analyst at JPMorgan. And joining me this morning is Shar Dubey, CEO of Match Group. Match is the world's largest provider of online dating products with portfolio of brands, including Tinder, Hinge and Match.com. Shar has been in Match since 2006 serving in a variety of roles, of course, most recently as CEO. So Shar, thank you for joining us again today.

Of course. Good morning.

So I'll kick off with questions. If anyone in the audience would like to ask one, you can click on the blue Ask a Question button, you can type it in, and we'll get to a few of those if we have time. But Shar, to kick off. So 5 years at Match. I think over that time, we've seen tremendous growth in online dating. I think the stat you gave us the last time we had you here was online dating accounted for 3% of marriages when you started, that's closer to 40% today. So my first question for you is what still excites you in terms of the opportunity ahead within dating? We'll get to the non-dating stuff as well. And where do you see the most room for innovation over the next couple of years?

Yes. Yes, that stat is indeed surreal at times when you think about the transformation and social impact that's happened in my tenure itself. And by the way, those trends are very similar in Western Europe as well. But despite all of the progress we've made in the last 10, 15 years, 50 -- about half of the total addressable market in the U.S. and Western Europe. And we define a total addressable market as single people between the age of 18 and 65 who are connected and looking for a relationship. They've never tried online dating. And so -- and that particular TAM penetration number is much lower in Asia and other parts of the world. So even Japan, which is now our second largest revenue market, the TAM penetration is around 17%, 18%. So we still have a lot of work to do around the world to help people find the love and the connection and the relationships that they are looking for. So that's on just how -- reach of where we have to go. But the other way that's very exciting to me as a product person is that we finally have technology and user behavior at a point that allows us to expand the experiences online and give our users much richer ways to discover and date online, truly date online. There's a lot of exciting work that's happening on that front, which I think, is going to be fascinating to watch.

Okay. Maybe more near term, this past year has certainly been challenging times for a lot of people. What have your key learnings been? And then more specifically, I think we called it the summer -- or you've called it the summer of love. What are you seeing in terms of consumer behavior as the economy start to reopen?

Yes. The one thing we've always known about our products is that they offer an essential service. So the need for human connection and love and relationships are existential and fundamental to our happiness. And that certainly got reinforced this past year more than anything. The other thing we learned, I think, is we've always thought of ourselves as a nimble and data-driven operating company. And with all the ups and downs we've experienced geographically throughout those last 14 months or so, we've recognized certainly the value of being able to quickly pivot and react to changing conditions. In terms of what we're seeing, in terms of recovery, there's been a lot of volatility in many different KPIs by geography, the status of lockdowns and the case surges, demographics, et cetera. But more recently, I'd say, as we've seen vaccination rates pick up speed, we're seeing a real divergence in countries like U.S. and now U.K. and certain parts of Western Europe even more recently, where as the vaccination rates are increasing and the case counts are lower, we're seeing mobility go up. In fact, U.S. is one of the largest markets that we're in that we're seeing mobility trends now back to or even above pre-COVID levels to some extent. And so as these trends happen, we see our metrics around new users signing up, users reactivating, and more importantly, the propensity to pay signals start to increase. And that's what gives us, obviously, a little bit more confidence about -- if this trend continues through summer, it should be good for dating activities.

Okay. So let's talk about Tinder, which now has nearly 7 million subscribers, accounts for close to 60% of your overall revenue. So I think we'll spend a good amount of time here. But maybe to start, what would you say are your 2 to 3 kind of key strategic priorities for Tinder this year? And where do you still see the most growth opportunity?

Yes. So Tinder, with its geographic footprint, it's had the most exposure to the volatility of the pandemic and the lockdowns in various parts of the world. However, in Q1, we definitely saw progress across both users subscribers, ARPU and the trends in the Western markets that I mentioned looks strong. There are still pockets of problematic areas. Japan's still in a state of emergency, for instance. India has been -- India, which really looked like it was turning a corner back in January and Feb, is certainly in -- has taken a turn for the worst. Brazil is seeing a lot of volatility as well. But despite all of these various puts and takes, we do think our outlook for Tinder growth for the rest of the year is going to come from both subscribers as well as ARPU. And it doesn't actually hinge on any additional major revenue feature of launch, et cetera, the way we've had a couple of years ago, for instance. So -- but the thing to me that's most exciting for Tinder is the roadmap that Jim Lanzone, who's now been the CEO at Tinder since late summer of last year, and he's laid out. And it is a journey to transform the Tinder experience from a very efficient swipe match message funnel to a much more multidimensional and richer experience with more ways to self express, more ways to discover and flirt and connect. And this, in turn, should open up new opportunities for increased engagement as well as monetization throughout 2022 and '20 -- and beyond. And so that's, to me, the exciting journey Tinder has ahead.

So let's talk about one of your monetization features, Tinder Platinum, which you recently launched or made available to everyone, your third and your highest subscription tier. What have been your key learnings thus far? And how has adoption been relative to your expectations?

Yes. So Platinum was always designed to be a high-value tier, and it was designed for the super user in order to help them meaningfully increase their matches and messages. And so we've been steadily testing it to make sure it met its promise, and the good news is it does. And so as of April, we've now fully rolled it out. However, it is still mostly merchandised to subscribers who have experienced the product enough to understand the value and in order to upgrade to this premium tier. And despite the sort of limited merchandising and promotion of this tier, it is already a pretty meaningful contributor to ARPU and revenue. And we think it's on track to cross our goal of 1 million subscribers, Platinum subscribers this year. And it should definitely help with solid ARPU growth for the rest of the year as well.

Yes. If our numbers are right, I think if you cross 1 million, it will be about at least 15% of your subscribers on Platinum. So certainly, it seems like a good uptake. I want to go back a bit. You talked a little bit about international. Tinder is certainly a very global business. Majority of subscribers, majority of users outside the U.S. We talked about India, Brazil just now. And a few earnings calls ago, a comment you made that really stuck with me was, "Look, those 2 markets can swing Tinder net adds by 100,000 in a quarter." Which I think is eye-opening in terms of size. So I guess my question for you is, would just be helpful to hear what are your biggest markets outside the U.S., maybe where you're seeing the most growth and where you're not yet at today.

Sure. So it is actually true. 2/3 of Tinder subscribers are outside of the U.S. And so in terms of global reach, Tinder has presence in over 190 countries, and it's the top grossing lifestyle app in over 100 markets. So outside -- of course, there are different characteristics, both in terms of penetration, ARPU, et cetera. So outside of the U.S., which is the largest market, Western Europe, particularly markets like U.K., Germany, France, Nordics, Spain, Italy, are all fairly substantial and important markets. Outside of U.S. and Western Europe, we've got Australia, Japan, Brazil and India, which are fairly large markets already. And then there are lots of sort of high-growth markets, particularly in Southeast Asia, even markets like Turkey. Within LatAm, markets like Mexico and Colombia are growing very nicely. And so it is -- in the dating app landscape, Tinder is truly unique in terms of sort of the geographic footprint it has around the world.

Last one on Tinder. I think one of the questions we get a lot is just -- I mean it's growing so fast. It's so big now. Undeniably had a great run in the last couple of years. But what do you think are the biggest execution risk? What keeps you up at night on the Tinder side?

As I said, I think, Tinder's on this sort of threshold of having a truly unique opportunity to transform the user experience from -- into this much richer multidimensional experience that allows users to discover and connect in far more fun ways that are more akin to how people discover in real life, for instance. But that journey, that transformation journey from this very efficient sort of swipe, match and message into this newer experience is, as with anything of scale, does come with execution risks. And so -- but at the same time, I think if we get this right, it truly has the ability to transform the engagement and the experience and have a new unlock on monetization as well.

So moving on to the non-Tinder portfolio. I want to start with maybe zooming in on Hinge for a bit. And then we'll kind of zoom back out on the whole thing. But Hinge, I think, is now the third most downloaded dating app in the U.S. It's made a ton of progress since you acquired it in 2018. My question is, I guess, 2 things. One, what's the secret sauce here? Why -- how they've been so successful the past couple of years? And do you worry at all that it's cannibalizing from Tinder?

When we bought Hinge, it was obviously very small by way of revenue and users, but we thought the product was really good and provided a differentiated value proposition to the higher intent, what I call modern millennial user group. And so we took that core product and user base, of course, applied our knowledge and experience across marketing, product, revenue, in order to help accelerate growth. But first, for about a couple of years, we were very focused on user growth in the U.S. and across a handful of English-speaking markets like U.K. and Australia. And then earlier this year, we focused on revenue, and we were able to increase both conversion and ARPU meaningfully. And so now we do think it's poised for its next sort of set of growth both in English-speaking markets, but even beyond. Whether we worry about Hinge cannibalizing Tinder, the thing to keep in mind in our category, particularly when daters are serious about dating, they use an average of 3 to 4 apps simultaneously. And so we do think Hinge appeals to the slightly older, more higher intentioned user, who may have used Tinder in the past or even using it simultaneously. So overall, from everything we've seen, we think it's very incremental to our portfolio.

Sticking with Hinge. So you talked about monetization. I think you mentioned in the last earnings call, ARPU doubled last year. So one question, is there still a big monetization gap between Hinge and call it maybe Tinder and Bumble? And what are some of the ways you're still working on closing that gap?

Yes. Hinge made a lot of strides on monetization over the past several months. It's actually exceeded our expectations. But even so, if you normalize for geography and demo, there's a fair bit of room to play and work to do on that front still. But for the second half of this year, the team is focused on product work to optimize for user outcomes, which is in line with their brand promise of design to be deleted. And it's important because this in turn drives word-of-mouth and organic growth for Hinge. And then once we've got this, our plan is to then translate and localize and take it to other markets, starting next year, for instance.

So not getting too far ahead of ourselves here. But I mean just thinking about Hinge bigger picture, you're still very early in terms of expansion into non-English-speaking markets. You've had a ton of success in English-speaking markets. What does success look like to you in 3 to 5 years? I mean is there a reason Hinge can't be -- reach the scale of Tinder, at least in the U.S. over time?

That is a lofty target, and I'd love to put that target to the team. The thing is we don't know for sure, right? I do think Tinder came at a unique intersection of the mobile shift and the category normalization, and they got a real sort of first-mover advantage and achieved viral success on a global scale that no other dating app, quite frankly, have seen. So and Hinge, of course, targets a certain type of user intent and has a very different product experience. So who knows what happens? It's today only available, as we said, in the U.S. and a handful of English-speaking markets, so we think there's lots of runway for growth. And it is possible that in many of these more nascent markets that are nascent to the category itself, Hinge, with its value proposition and the product experience, might actually resonate more. And so all that is for us to continue executing and find out over the next couple of years. But we do think Hinge has a lot of potential.

Okay. Kind of back to non-Tinder more broadly, and hopefully, we didn't just answer the question with Hinge. But look, you're seeing your strongest growth just across the whole portfolio since you've gone public back in 2015. So I think my question is what's changed in the last year that's really driving this inflection? And maybe beyond Hinge, what brands would you highlight?

Yes. In our non-Tinder portfolio, we sort of have 2 buckets. We have these long-standing legacy brands that were largely desktop brands that had a big dislocation as the world shifted to mobile and these products had to transform everything from their business model to product experience, et cetera, and they were a drag for a number of years. And so fortunately, that is now behind us. And most of these brands have figured out new ways to amplify growth. For instance, POF launched a brand-new revenue stream with POF Live, which is 100% additive to them. OkCupid focused on international expansion and seeing some nice wins in pocket there. So that's -- should have together 1 bucket, which is no longer a drag for us but starting to see some growth. And then the big growth is coming from our emerging brands. Hinge, of course, we talked about. Pairs in Japan is growing very, very nicely. It contributed to us becoming the second largest market -- revenue market being Japan crossing U.K. over last year. We've got BLK, Chispa, Upward, et cetera, starting to contribute towards growth already. And then we have seeded a few more emerging brands like Ablo and Hawaya, which we hope are going to become contributors in a few months and years again.

When you think about -- just as we think about the sustainability, I mean, it's been very consistent the last year. So I think either you or Gary kind of talked about maybe potential for 15% to 20% growth over time in the non-Tinder brands. Do you think that's the right level to think about it? Is that realistic over time?

I think sitting here today, that feels completely reasonable. The older legacy brands, my hope is grow single digits, mid-single digits. The emerging brands, obviously, much higher growth rates. And then there's going to be a collection of different things, both size and rate. But that, sitting here today, feels reasonable.

Okay. I think we've covered the dating portfolio for now. So let's talk a little bit about nondating, so social discovery and Hyperconnect in particular. I know you haven't closed it yet, so you may be limited on what you can say specific to Hyperconnect. But maybe just bigger picture, you talked about this a lot in your shareholder letter in your most recent one. What's the opportunity that you see within social discovery? And why is now the right time for you to make a push?

Yes. So here's how I see it. So we're in the business of helping people make meaningful connections with people you don't know. And the way we sort of limit our scope of meaningful connections is ultimately one-to-one connections. And so on our dating platforms, these connections are generally with the objective of a romantic relationship and with the intent to meet in real life. But over the last few years on some of our larger platforms, we have seen a reasonable user set that is looking for more of a shared experience and a sense of community among other like-minded single people on the platform. POF Live is an example of that, the engagement with Swipe Night on Tinder is another example of that. And so there's that going on, although if you think about how traditional dating flow is, it's largely discover, which is by reviewing profiles mostly, and then it goes to match, and then message and chat and video chat. And then hopefully, this one-to-one conversation leads to a date. But finally, I think technology is at a point where we can enable people to meet and interact with others through richer experiences and through more few-to-few and many-to-many and one-to-many type of experiences. And this is what social discovery, being a newer segment, has been doing, particularly in parts of the world where people got comfortable with technology and meeting people online. But dating in a lot of these markets is still, as we understand it in the western context, is a bit of an idyllian concept or it's still a developing concept in some ways. But it is still about ultimately forming a one-to-one connection and having a conversation. But the intent is more platonic. It does not always have the necessary expectation of meeting in real life. But the flow is kind of the same: the discover, match, message chat, video chat paradigm that dating apps follow. But as I said, because they were newer, there are more social, many-to-many interactive, dynamic experiences and technology like live video, audio, et cetera, has allowed people to build these experiences in a more -- so people can meet in a more social entertaining setting online. But ultimately, the part of this world that we're interested in is still to optimize to that one-to-one conversation. And we do think the apps in particular and the use cases that we're interested in, there is a fair bit of user base there that does try to filter by gender and by geography, which leads us to believe there is a little bit of that dating intent in it, even though it's not the primary intent of the users joining the platform broadly. And so that's why we think there is real synergy of bringing some of these experiences that are popular in social discovery platforms onto our dating platforms as well as sort of enhance the social discovery platforms and help people get to their dating intent, should they choose to, in parts of the world where I think that is a better, easier way of people -- of adoption of this category. So that's how I think about why. And we've been watching this for a couple of years, and finally, it does make sense for us to find these synergies.

That kind of leads me to the next topic of Hyperconnect, your biggest acquisition ever, assuming it closes here soon. What are you most excited about in terms of what you're getting with Hyperconnect? I think a lot of investors are less familiar kind of with their 2 core apps? And why did you think this was such a good fit for Match?

Yes. We've actually been talking to that team for over 2 years. And the strategic rationale for acquiring Hyperconnect is actually multifold. It's a great team, especially with very high-quality engineering talent, and that's important, over 200 engineers. They have scaled products with growing revenue. They have very innovative technology, especially in video and AI and some more cutting-edge emerging technologies that we can leverage across our existing platforms. It gives us expansion into social discovery and that gives us a foothold to start expanding. It gives us a footprint in Asia. Hyperconnect's business is 75% in Asia, so it fits the bill for us on the user front. But also, it gives us real presence, over 400 employees in Asia, which is a very strategic growth market for us.

So that's -- I think that's a good segue to our next topic, which is Asia. This is a market you've been focused on for many years now. You've had early success. You talked about Japan, second biggest market from a revenue perspective. You've also mentioned, I mean, Asia is half of global singles, but I think still less than 20% of revenue for you guys. So clearly still just scratching the surface. Could you maybe -- a couple of questions, but I just wanted to start, what's your broader strategy in Asia, just given the markets can be so different from country to country? And then maybe what your footprint is today in Asia?

Yes. I think at the end of Q4, we said our revenue from Asia was around 17%. So to your point, it is -- and this is why we're so focused on this part of the world, which is the fastest-growing in terms of young population, single population, adoption of the category, super underpenetrated, et cetera. And so obviously, once Hyperconnect closes, our revenue percentage from Asia will increase meaningfully. But today, we're continuing to build out a portfolio of offerings for this region, very similar to what we have in the U.S. and Western Europe, for instance. We do think different products are going to have a different fit in different markets. People's needs are going to be different in -- at different points in their lives. Asia is also -- there are markets in Asia where there are lots of young people where the opportunity exists. But there's also markets like Japan, for instance, where -- which has an aging population and the requirements there are going to be different. And so today, our portfolio consists of, of course, Tinder, which is largely there across the region in different sizes and reach. Pairs in Japan, and it's growing in Korea and Taiwan. OkCupid, we took to India, and we had real ambitions of growing there. But India has been a tough market with the pandemic. OkCupid is growing really nicely in Turkey and a handful of other Southeast Asian countries. Hawaya, we've talked about. We're taking it to various countries serving the Muslim population, both Muslim majority and Muslim minority markets. And then, of course, the Hyperconnect apps base is going to give us more foothold there. And Asia will continue to be an area where we're both looking at acquisitions as well as building out organically in order to strike this growing segment.

And I just got a question from the audience on Asia. So how do you think about China? Do you have any presence at all today? Is that a market that you -- kind of on your roadmap at all?

We have no presence in China. It always seems very strange to me to talk about Asia and a big part of Asia, which is China, is always a block for us. Obviously, there's challenges operating in China. And so every -- so every few months, we look at China seriously. And my hope is at some point, the regulatory and other conditions are going to be conducive for us to bring our expertise to that market. But as of now, it's not in our tactical road map.

Sticking with Asia, just from a competitive perspective, how does Asia differ from other markets? And could you maybe just talk a bit about what the local competition there looks like?

Yes. So in Asia, there's -- the competition is both some multi-country apps and presence in global brands, as well as much more regional players. And again, it depends on the market itself. There are some markets where they have affinity for global brands. There are some markets that are much more local friendly. And so all of those exist even in markets like Japan and India, which are our 2, I would say, the larger Asian markets today. We do see competition from smaller local players as well as larger global players there. It is a much more complicated market, Asia is. The societies are different, the expectations and behaviors of users, just more broadly, their online behavior, and more specifically, the relationship-seeking behaviors are different. Even how people pay is different in different parts of Asia. And so it is going to be a portfolio strategy for us to be able to truly get the growth we desire from Asia. And which is another reason why Hyperconnect gives us a broad knowledge set of a number of these markets, both from its user base in the region and as well as employee footprint. And I think it's important because Japan's a good case study of how on-the-ground footprint helped not just the Pairs growth, but even Tinder growth in that market. And those 2 brands have other results as to why Japan became our second highest revenue market. And so getting that footprint in Asia is going to be super important.

Last question. I think we have 1 or 2 more minutes, or maybe I'll try to squeeze 2 in. I wanted to stick on competition, a question we got. Okay, I mean, now there's more public companies out there. So I guess we're hearing about it from different side of the angle. Curious, a couple of years ago, Facebook was getting into dating and there was a bunch of questions on how that would turn out. I think it's probably been a little less impactful than a lot of people expected. What are you seeing, if anything, from a competitive perspective, maybe in the U.S. and in Western Europe?

Yes. We've always traditionally looked at competition in a variety of different shapes in the early years of all the ways people met, right? People -- your friends and family, church, work concerts, parties, all of those avenues. And in some ways, a lot of that is now online competition, right? Facebook is a cloud -- is in some ways, a lot of the replacement of the friends and family, introducing you on Facebook was a competitive threat back in the day. And now obviously, there are pure-play dating players that are public and capitalized and definitely competition. But the way I think about us as a company, we started this category with Match.com back in the dotcom mid-'90s. We've disrupted this category with Tinder. We've been the leaders in sort of normalizing the stigma against the category over the last decade-plus. And it's up to us to define what this next journey for us is. And so for us, I always think about -- while I do look at competition, and I'm never dismissive about them, ultimately, it is for us to define what the new market for us is.

Great. Well, we're out of time, but thank you so much for joining us. We really appreciate it. And hope everyone have a good day.

Thank you.

All right. Bye.

Bye.