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

Awesome. Good morning, everybody. Brian Fitzgerald from the Internet and video game research side of Wells Fargo. We're very happy to have with us Match CFO, COO, Gary Swidler. Gary, welcome.

Thanks. Thanks for having me to Vegas.

So I wanted to start out with Tinder, kind of the challenges and opportunities there. Better performance in Q3 than the Street expected, but you pointed to some changes in younger users' propensity to spend. So I wanted to unpack that a bit. Are you seeing any changes post the quarter going into Q4? And anything changed in the last couple of weeks?

And I would say, I think it's still pretty tough out there for the consumer. I think they've held on for a pretty long time and they've kind of blown through savings, taking up debt on their credit cards. They're starting to feel it. And I think they're looking for ways to cut back on some expenses. And so a way that younger consumer who tends to have less discretionary income, maybe they're in college or just out of college, first job, whatever. As they look at these a la carte purchases and they say, okay, normally, I would have given this no thought and would have made that a la carte purchase. They're just pulling back to some extent on the a la carte purchases. And our strategy has always been to show them actually a pretty expensive bundle of a la carte, kind of a $30 bundle. And so it's kind of say, you know what, I've got these other subscriptions, I got my Tinder subscription, I'm going to hold off on buying that a la carte this week or this month. And that's kind of the trend that we're seeing pretty clearly, and so it's causing us to think about how we're merchandising to people. If they haven't bought a la carte before, we're not showing them a $30 bundle out of the box. We're showing them $10 or $15 bundle, trying to see if we can get those incremental purchases. But that is having some effect on us, And I think that's going to continue for a little while just given kind of where we are in the economic...

Yes. I wanted to dig in on some of the product points. But first, I wanted to ask about this idea of Match taking into -- of the Tinder narrative, particularly among younger users. BK talked about highlighting 10 years of success stories. Could you unpack that point? What narrative are you trying to get across and establish?

I mean look, Tinder burst onto the scene in 2012, and it was really something that people love talking about. You could go on, you could swipe, and you could meet people, and it was extremely exciting. And the narrative that got defined for Tinder was basically that it was a hookup app to meet people and date very quickly. And Tinder really didn't spend a lot of money on marketing over its 10-year history. And as a result, that reputation has kind of been out there. And I think at this point, as we look at kind of this generation of users, people who are kind of in their early 20s today, I think some of that is not maybe the place that they want to be. And we need to go back and say although that is a common conception of what Tinder is, it really is a much broader experience. And I'm sure this happens to you. And to me, we feel like, oh, I met somebody on Tinder, and we've been dating for 6 months or we're engaged or we're married or whatever. And people don't focus on those kinds of stories. They still focus on the hookup aspect of things. And so we want to go out there try to shift that narrative a bit and say if you want to come to Tinder and hook up and that's what you want to do, we're fine with that. We don't have an issue with that. We're not going to make a judgment. But if you want to come on and meet somebody more serious or you're not sure why you're there or you want to meet someone to show you around a new city that you have to be in, we're fine with any and all of that. But we want to try to distill down the hookup app reputation a little bit and try to broaden out because we think it's some resistance for people who say I don't feel comfortable going there because that's esterification. So that's going to require some investment and some education of the public we're going to aggressively market in the first part of 2023. You'll see it in the U.S.. You'll see it in the U.K., some of our bigger, more important markets. And hopefully, we'll start to slowly shift that narrative and get be a bit more comfortable.

Got it. On a product level, big levers for growth over the last several years, like you, then Tinder Gold with ability that's transformative. Last year, you had pretty significant changes. [ Wipeout ] before time out, that was impactful. When you look at things you are working on now, things that are in the pipeline, are there things that can have that same level of subscription product for women, virtual goods coins?

So your point is a good one that for a long time, we've always found dating or a series of things that have moved the needle sufficiently on Tinder to keep revenue growing in that kind of 15%-ish area. And what we start to notice at the beginning of this year was we just weren't taking enough shots on goal on the product side, and the shots we were taking weren't hitting as frequent. And I attribute that to just not great execution on the Tinder side, particularly in the product area. And so BK brought in somebody he knew on the product side, from the gaming industry, the Chief Product Officer. We revamped the way Tinder is working. We brought in a COO, who used to work for me as the Head of Strategy at Match Group, who is now the COO of Tinder. And we've just gotten them better organized, better galvanized, better prioritization of initiatives. People know what the plans are, what they need to be executing. There was a period where we had deals kind of not sure what to do or doing some pet projects but not things that were kind of consistent with our strategy or would move the needle. We've cleaned a lot of that up. It is starting to work a lot better there. So we're very encouraged, and that's some of the optimism that you've read in the most recent letter. And so the machine, I think, is heading in the right direction again. And when I look at the road map for 2023, there's a lot of reasons to be optimistic because there's a lot of good stuff on there. And it's a series of things. It's a large number of things. It's not like relying on one big hit that has to happen or else you missed a year. It is a large series of things. A lot of them, I would describe as the optimization category. Things like pricing, things like adjusting the swipe level, which you referred to, that we know should work. We just have to get them out the door and get them executed, and we feel like they will move the needle. And then also taking some bigger shots that are virtual goods and coins, things focused on women, things that we think also will work but are a little bit bolder, bigger initiatives. And we think that the makeup for next year is probably 2/3 in what we would call the lower-hanging fruit kind of optimizations, things that should kind of consistently happen. And then the other 1/3 is slightly bigger swings, not home run kind of swings, but singles and doubles and a series of those. And then while those two things are happening, Tinder will continue to think about ways that can really innovate and evolve the product with some bigger, more bold bets as well. But we're not counting on any of those to deliver revenue or anything in 2023, but they need to be thinking about those bigger bolder bets while they're executing on the product road map in 2023. So it was important to get the team working so it could do all those three things. I think that is in the process of happening and is on a good track, and now it is just kind of hitting those goals and delivering the road map for them.

So -- and you kind of talked to this, but improvements in product velocity, changes inside of the Tinder organization, we hit those two. Where are we in terms of getting back to field to full cadence, the full speed cadence in terms of product development?

My hope is that by the first quarter of the year, that's where we'll be. So the goal was to give the new team 6 months basically to retool, and I think they're making good progress on that. So what we've talked about is kind of really fully hitting the ground running in the first quarter of next year. And obviously, it takes some time for some of these efforts to translate into changes in the ecosystem and revenue growth and whatever, so that will be a build. But you got to walk before you can run. And so we've organized them to do that now, and I think they will be starting that good jog in the first quarter.

Okay. You mentioned couple of minutes ago, women's experience on the platform. You've talked before about the monetization gap between men and women. Where does it stand today? Where do you think that can get to?

Tinder has always focused on the male experience, hasn't really focused much on the female experience. And this has been on our radar screen for a while, and it is a priority for 2023. And it actually sort of comes in two flavors. There's a lot of focus on the revenue piece. But even before the revenue piece is kind of the experience piece of attracting women to the ecosystem, retaining women, especially younger women in the ecosystem. A big focus on that, which ultimately translates into revenue down the line. But it's very important for Tinder to attract and retain women, especially younger women. And so there's a lot of initiatives on the road map that is focused on that goal. And then the -- closer to the revenue side, but even related to the ecosystem improvements are women tend to get a lot of matches but don't tend to get the high quality or the type of matches they're looking for. And so giving them more control over their experience, giving them a way to improve the quality of the matches they get is something that we think we can deliver and ultimately women will feel value in and therefore be more attractive to the ecosystem or retain better or ultimately find things that they find a value and therefore, pay for them.

Yes. Okay. BK emphasized three areas of focus for '23, so I want to spend some time on those. The first one being Gen Z. How does that play out from a product and a marketing perspective given everything that's happened with COVID? Has there been any change in what Gen Z is looking for in a product and dating more generally?

Yes. I mean it plays out in a number of different ways. So first of all, on the very good news side, Gen Z is really comfortable using online for meeting people, right? I mean their whole life is conducted online. So the notion of somebody in Gen Z saying, would you meet somebody for friendship, for romantic purposes or something between online, you get a resounding yes from pretty much every Gen Z-er out there. So the stigma really has fallen away. They're totally comfortable meeting people online, socializing online, spending their time online. So that's kind of step one. Then you get to, okay, what are they looking for. And then this comes in a number of different areas, too. So the first thing is they don't love the term dating. They don't think of themselves as dating or looking for someone to date. They're looking for people to meet, to hang out with, to spend time with. It's a much more fluid concept for them, and we need to cater to that, which means that, ultimately, Tinder needs to make some adjustments to the way it sort of comports itself and the way it markets itself to cater better to the way Gen Z thinks about what they're doing on Tinder and online more generally. So they're very open to meeting and socializing but a little bit less comfortable with the notion of like dating and trying to find someone serious. And in fact, if you look at the way they date or the way that I would describe it as dating. It tends to be inconsistent, meaning it might be very serious for a few weeks and then it might be much cooler and then it might come back again. It might be as starting off its friends and maybe something a little bit more than friends, then it's off, then it's more serious again. It really does have a lot more volatility than kind of in the 50s when people you were like, oh, you're seriously dating that person and its headed to marriage. It's extremely different. It's also different in terms of gender identity and kind of the relationships that they're looking for. People are just much more open. They define themselves differently from a gender perspective. They're also looking for different things. And so Tinder needs to cater to that better to attract more Gen Z, much more fluid on both of those fronts. There's also the notion of authenticity. Gen Z, and you see this as an example with BeReal, which has climbed to the top of the app charts, and I think Apple just named it kind of the app of the year. And the reason is it really hit a nerve with Gen Z because people were saying, "We like this authentic moment, where we don't have to pose and we can just kind of show what we're doing." And I think that has to carry into Tinder as well to cater well to Gen Z to basically have some higher level of authenticity than maybe what it has. And obviously, that's a little bit at odds because people do tend to be a bit inauthentic on dating apps, and so Tinder has defined some ways to have these authentic moments. And so if you look at Hinge as an example of where we've seen some success with this, the notion of like voice prompts and things like that do cater to the notion of authenticity because that is what you sound like, that's what you had to say at that particular moment. And the reason that, that has been really well received and went viral on TikTok, and people have been kind of enjoying hearing what people like to say, is because it is a truly authentic moment that, that person recorded about themselves. And so I think you should expect to see Tinder adopt things like that. Maybe it won't be exactly voice prompts the way that Hinge did it. But things like that, that cater to Gen Z, that reflect kind of authentic moments, kind of less guarded moment inside the Tinder app, which we think will enhance appeal. So this is a very broad effort going on at Tinder now to figure out how to adjust itself to cater more to Gen Z., but we have a lot of good interesting ideas. We've studied this very closely. We understand it well, and so you should expect to see big and small changes to better reflect that cohort.

Got it. I mentioned three things that BK was focused on. The second one was virtual goods and monetizing power users. What can we expect there? What's the focus there?

So we were focused on building a virtual goods ecosystem for Tinder before he joined. He's had some thoughts and input on changes we could make to how we're approaching that issue, and we've delayed the rollout of virtual goods until kind of mid to back half of next year. But it's still a priority for Tinder. It's still something they're working on. He's having input. His new CPO, Mark Van Ryswyk, is having input. And so that is still on the Tinder plans for next year. We should expect to see it. As I said before, it's one of many things. So it's not like all the chips are going on to virtual goods, but it will be one of the key initiatives for next year for Tinder.

Okay. And then finally, the last kind of focus, and we've talked about it a bit is just targeted monetization, tapping in the users who haven't paid in the past. What can you tell us there?

Some of that is really focused on advertising. Tinder has really been a reluctant advertiser. It has a nice advertising business, relatively small advertising business. But there's a lot more they can do on the ad side. And so he has made that more of a priority for them, and so we are going to roll out ad products that we have not historically had, like rewarded video where you watch a video and you get certain benefits for doing so. That's become very common in gaming and other places, and Tinder will roll out something like that in 2023. And also for certain users who we don't see -- who've been on the platform for a while, who aren't going to monetize as a direct payer, I think you should expect they'll see more ads in their experience. And so we're going to carefully increase the cadence of ads. We've been testing this for a while. It doesn't have much impact on the ecosystem, and it is revenue generative for us. So we do expect to increase ad cadence for certain cohorts of users really late this year into 2023.

Okay. I wanted to pivot to Hinge. It sounds like things are going well there. Strong user growth, continued monetization progress. When we think about the usage growth story, we've attributed strength to products meeting the needs of underserved users, young people looking for commitment. Any thoughts on where you are in terms of addressing that user on the Hinge side, tailwinds coming out of the pandemic for more younger people looking for commitment? Anything on the growth vectors of Hinge?

Look, I think Hinge has done an extremely good job with their product. People really like the ecosystem there. They like the way the product works. It takes a little more work to get into the product, right? You got to put more pictures up. You've got to answer some questions. You got to be a little bit clever. So it takes a little more work, but that means that people are a little more serious that they went through the work to get on there. And so it is kind of taking out that very marginal user, which is making the ecosystem a bit healthier. I think people enjoy the experience. They find it fun and engaging. I talked about video prompts. They rolled out another thing called poll prompts, which has been pretty successful too. They're just innovating on the product and making it more fun and more enjoyable. They've added now relationship types so people can express what kind of relationship they're looking for. They are catering more to the LGBTQ community, which is going very well for them. So there's a lot of efforts which are consistent with some of the themes. We are talking about Gen Z that Hinge has been incorporating, which we think has led to very strong growth there, particularly with the Gen Z cohort, but just generally very strong growth and users at Hinge globally. And so we feel like the product is really resonating. Their growth is extremely strong, record amount of numbers in October. So we feel they've made some great moves there. Monetization has also been very successful, as you say. Pricing changes that we've made, increases and focus on the a la carte products. And so we feel great about everything that they've done. And now they have two big, big initiatives for 2023. The first is to bifurcate their revenue tier into two to have a more basic one and then a more premium one. And so we're just rolling out -- it's in App Store review now, rolling out the premium tier, and we're going to test some different prices and see what the uptake is on that premium tier. But we're optimistic that, that will go very well. And then they've also got this international expansion, which keeps rolling. The numbers in Germany, which was the first market they went into, are extremely good. They've rolled into Austria, Sweden, a couple of other markets that look very, very good. Italy, Spain and France are coming. And so it seems like the receptivity to Hinge in these international markets is as strong as it is in these English-speaking markets, and so that's good news. That's the first proof point you want to see. Does this resonate? Do people like the product? It seems like all that is really working, and so they are just kind of progressing along on their plan and rolling through Europe, and then they'll turn their attention to Asia. So we feel really good about Hinge kind of firing on all cylinders at this point. and just trying to move as quickly and effectively as we can.

So you mentioned the international growth as a vector for Hinge. I wanted to double-click on that for a second. Can you talk to us -- can you give us a glimpse into the playbook about how you stand up new markets, the marketing investment, how you establish some virality around products as you launch in international venues?

And so the first thing to note is that Hinge does already have organic traction in markets where it really doesn't have any presence. So if you look at India, for example, we're not doing anything in India, but there's enough people who go from India to college and then go back and have friends in the U.S. And so there's just virality around the app, even in India, even though Hinge has absolutely done nothing in that market. So that's really encouraging to see. We saw virality to a greater extent. But like that, when Tinder first burst on the scene where it was viral in all these markets, we're seeing shots of that with Hinge, which is extremely encouraging for its international strategy. So that's sort of Point one. Point two is what we have to do is spend the cycles to localize the product, which really mostly means translate it, but also adapt it to sort of the local behaviors, the local customs, the local holidays, whatever. Some things don't resonate in Germany the way they resonate in the U.S. and vice versa. So we have to make those adjustments. We're doing that and going country by country of doing that. Once we do that, we see an increase in the virality because now it's in German and now it reflects German society and so people start using it more. And then as that starts to get some traction, we start to spend marketing dollars in it, in that market and start to really drive it. And that's the strategy, and that's working. Germany was the first test case, and now we'll have a couple of others. The Nordic countries is another one. And so that is the playbook. It is an investment at the beginning as we're marketing heavily. But as long as we see the returns down the road on that marketing investment, we're happy to spend it. It's also taking engineering time and product [ op ] time. But we're making those investments, and we think '23 will be an investing year for Hinge in the European market, and then that should really pay dividends in 2024. So that's kind of the way we're looking at it.

Okay. Last question on the Hinge maybe. It looks like revenue per payer has leveled off a bit. Just wanted to ask if are you prioritizing payer growth versus RPP? Anything you can tell us about the focus there?

It really is just a function of what we're focused on. So they have focused less on revenue generation and pricing changes and things like that and more on the international expansion and on these international markets. And so Hinge is still a relatively small company from an employee perspective, and there's only so many things they can do at once. And so last year, they made a big push on revenue. This year, the big push was on international. They're just following their plan. Next year, we'll probably have a bit more of a mixed bag because we'll have the push on revenue from the new subscription tier, and we'll continue to have the international expansion. So we'll be doing a bit of both next year. So it's just a question of prioritizing. But when I look at KPIs for Hinge, there's nothing that looks out of whack to me or it looks like it's hitting a ceiling or I'm concerned about the level of progress and things like that. I kind of know where the progress is. As another example, they actually didn't market very heavily in the first half of this year, and the user growth was a bit slower. They marketed heavily in the back half of the year, the user growth was off the charts, phenomenal, better than what the marketing would have justified. So you get this virality going as you start to spend marketing dollars, and that's working the way it's supposed to work. So I'm actually really, really encouraged by what's going on at Hinge.

Okay. And last one on Hinge. It's sort of a natural question maybe. The tagline designed to be deleted. Can you talk about payer retention and lifetime value at Hinge maybe compared to some of the other properties?

Yes. I mean, look, it's marketing tagline and really the product is designed to get people out on dates and get them off the app. That is their mantra. They do check on did that date go well? Would you like to see that person again? They are focused on dates and getting people off the app. But look, it's a hard thing to do because human nature and relationships are complicated. And so you meet people. I think they are taking the dating aspect of things much more seriously. But I don't see churn dynamics that look remarkably different than our other businesses. Obviously, people are there with a more serious intent. They are looking for relationships, so there is some difference depending on which of our other business you look at. But in general, I think we feel very good about kind of the churn dynamics and the retention at Hinge.

I want to touch quickly on -- we have a couple of minutes left. I want to touch on Azar and then I want to talk to App Store. But with Azar, a nice pace of innovation there and improvement there. Is that giving you more confidence in this idea of expanding the TAM and do friend discovery, spaces that they're getting back on track with?

I mean we're really happy with what's going on there. Live streaming has definitely been a component of it. Introducing live streaming at Azar has gone well. I think you've also seen some normalization of markets kind of post COVID. They had a big Middle East, Japan, Korea, some places that were hit hard by COVID kind of late in the pandemic or at a later stage, I guess, at least. So I think you've seen some normalization of kind of the environment for them. You've seen some of our efforts work on the marketing side, which has been important as well on the product side. So I'm very happy with the way that's going. We had another very good month in October. So we feel great about the progress that they've made. Now we're turning our attention to Hakuna, which is Hyperconnect other app, try to accomplish the same thing. We just brought in a new leader there. I just went through the plans a couple of weeks ago so for 2023. So we feel good that we're starting to see the terms we want to see at Hyperconnect, and there will be a focus on cost discipline for them in 2023 as well because we want to see that business get to a reasonable level of profitability. So kind of a breakeven business in 2022. I want to see that business show real profitability in '23. So I feel like it's on the right track, more effort than we would have liked in the last 18 months, but we're making good progress, and I think that's going well. I think we remain very optimistic about social discovery more broadly. It is a trend kind of post pandemic. People want to meet people, whether it's for dating, whether it's make friends, whether it's to go hiking with, whatever the purpose is live streaming has worked really well. So yes, I think we're really comfortable playing in those spaces. And we're going to continue to innovate and try to build products that serve people for whatever they want to do, whenever they want to meet others, who they don't know is clearly in our mission.

Okay. A quick one. Grindr just came public. Any surprises with their numbers that you saw? And you mentioned this a bit with the LGBTQ community. What's the opportunity within all your brands there?

Yes. So first of all, I mean, look, the Grindr business obviously is an impressive financial business when you look at kind of the growth and the margins they've achieved. That demographic clearly is willing to spend money and does look pretty resilient. So it didn't escape our notice, let's put it that way. And we do serve that demographic, and I think serve it well through Tinder, through Hinge, through others of our products. So we don't have a dedicated gay app, but we do have apps that serve a broad section of that population. I do think there's room for more competitors in that market. Grindr has been a player for a very long time, and the business has certain strengths or weaknesses, and so it's something for us to think about for sure.

Okay. And then I said I wanted to touch upon App Store fees. Any updates there and thoughts on where things stand and how the regulatory landscape is shifting?

I guess we have a new best friend in Elon Musk, so he doesn't seem too happy with the App Stores. Look, I think that was something that we were not expecting, is putting pressure on Congress to really seriously consider OAMA, which is the Open App Markets Act in the U.S. And whether that will come up in the lame duck session here or whether once the Republicans take control of the House in the new year. We think they should take that up. There's broad support for it. It wasn't able to get taken up before the elections, but I don't see any reason why it wouldn't get taken up now. Clearly, there's something completely out of whack with that App Store ecosystem. Anyone who really understands it and gets involved in it recognizes that. And so we'll see. I mean I think at the end of the day, the Europeans are already further ahead on this battle, and they've already passed their legislation, and so now it's just a question of them putting it into effect. So it's already effective, but now they've got to promulgate the rules and decide who the gatekeepers are, which hopefully shouldn't take them too long to figure out what the gatekeepers are. And then I would expect compliance with that by late 2023 or early 2024. The unknown is what is the new App Store policy set going to look like from Apple and Google in compliance with DMA and some of the other jurisdictions like South Korea and India. But it's pretty clear the winds of change are blowing pretty hard. Now they're blowing a bit harder in the U.S. This is a global phenomenon. I think it's hard to fathom that we'll be facing the same system in 2025, 2026, 2027, as we're facing today. Obviously, it's taking a long time because regulatory changes take a long time, and Apple and Google are fighting with every resource they have to protect this pool of fees to them. And look, it's an economically rational thing to do, and they've got lots of money to spend doing so. But at the end of the day, both general fairness as well as the legislative changes are demanding change in this area, and I'm optimistic it's coming. So everyone just needs to be a bit more patient, but it is increasingly pressure on them to adjust their system. It will be wonderful to see them change proactively to recognize what they're facing and actually adjust proactively as opposed to getting forced. But ultimately, if they have to be forced, they have to be forced.

Well, we're out of time, Gary. So I appreciate it. Thank you very much.

Great. Thanks for having us.