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

All right, everybody. It's the time you've been waiting for: The last presentation before cocktails. No, I -- we're very happy to have Bernard Kim and Gary Swidler here from the Match Group to bring us home. We do have a little bit of a sizzle reel featuring all of the brands that we'll start with here to kick off. And then we'll dive into all kinds of hard-hitting questions for our management team. All right, reel. [Presentation]

Fantastic. I think that was new to you guys as well. And we catched you nodding as you went along the groove. Look good to you?

Absolutely. First time I've seen it. It's inspiring.

There you go. The comms team is on it. We've got that delivered in the nick of time last night.

Nice job.

So well, listen, thank you very much, guys, once again for joining us. Naturally, Gary and Bernard, as everyone knows, the President and CFO and CEO of Match and also -- are we still calling it interim CEO of Tinder? Look, let me get back to that a little bit later in the questions because I want to ask about that a little bit more. Gary, naturally, is the CFO. We'll have -- at present, we'll have a couple of more questions for you later, but with BK here for the first time, we're maybe going to lean on him just a little bit more.

So let me start with this, with a softball. You've been in the seat over 10 months now. What's the top unexpected opportunity you've discovered and the top unexpected challenge that you've had so far?

Well, that's a great question. I think one of the unexpected things out of this love summit that we're in, that you found your significant other in Tinder. It's incredible, it's incredible.

That's right.

Upon joining the organization, I'd say that the positive unexpected opportunity that I saw was meeting all the teams and seeing how open people were to change and new ideas. I've been in this situation before, where we've had new leadership come in. I've worked in corporate America my whole career. And sometimes, people are apprehensive to new people coming in. I really believe that the way that teams embraced me, they are open to discussing new opportunities, looking at the organization, setting up the right teams for long-term success. That was really positive, so I was really excited about that. The unexpected challenge maybe was how quickly we needed to work on Tinder. And from the outside coming in, I always saw Tinder as this huge opportunity. But kind of understanding, with the teams, going through the initial midyear review with Gary, we saw an opportunity to make quick change and establish a leadership team for the future. And that's probably what I didn't have written in my first 90 days upon joining the organization.

Fair enough, fair enough. Just a reminder to everybody both in the room and on the webcast. You can scan the small QR code on your badge if you have a question for the guys. We're happy to mix that in. So let's start with that first one with Tinder. And thanks once again for having Faye and Mark join us earlier today to kick things off. But the #1 bear point that I think that we hear from investors is the online dating market is oversaturated, and Match and Tinder have the most potential risk from that. Do you agree with that statement? Is that fair?

I mean, I know that's been the sentiment and that's what I've heard a lot of. But I actually see that as the biggest potential opportunity, not the biggest potential risk. I joined the organization, and everything was like pumping on all cylinders, were delivering against a product road map, marketing was in sync with product, we're delivering against all of our revenue results, and then things were flattening out, I would be a lot more alarmed. The fact that we kind of were faltering a little bit on execution, we weren't aligned as a leadership team. Marketing wasn't quite in sync. I saw that as a real opportunity. Young people today are jumping into Tinder. That's way different than when I was like growing up and I was jumping into dating and having very little success. There was no opportunity like Tinder. That stigma is gone. Now it's about earning that engagement. When they're jumping in, they know. Hey, I want to jump into dating, I'm going to jump into Tinder. We want to make it less of a requirement. We want, really, people to jump in. And that's this profound opportunity that this team is going after. And all of our decisions are really centered around the health of the long-term future of the ecosystem.

Yes, yes. As I mentioned, we had the panel of private companies up beforehand, and Mark nicely asked them what their advice was for you guys. And trust and safety and mental health were big parts of that answer. And so that's an important thing. And then maybe I want to get to the rest of the business. We spent a lot of time on Tinder this morning. But just beyond that sort of big picture about still seeing a lot of growth, when you look out at the product road map, what are the things that you're sort of most excited for the Tinder team to roll out?

Well, one thing that we did that was brand new to the company was laying out a product road map both internally and publicly. For the first couple of months of this new leadership team coming on board, we wanted to make sure that the team was gelling well together, we were all aligned around our long-term goals as an organization, and then aligning around this product road map because it really comes down to execution. So we were public about what our product road map looks like. And part of it is like 2/3 we actually talked about as optimizations. So we kind of have to earn our way back into rebuilding trust with our investor community as well as daters in the marketplace, and we have to deliver against these optimizations. And I'm really proud that our product execution has increased dramatically from where we were last year. We're delivering, we're testing. Our builds are getting to the platforms a lot faster. So I'm really excited about kind of how this team is working together and gelling, but we need to prove through long term, execute.

We appreciated the product road map, too. We know it's no small thing when things are disclosed publicly. Gary knows that in practice of guidance. And when you lay things out there, this group is going to hold you to it. And so we know that doing that raises above a bar.

Accountability is super important, and we know we need to execute this year. So we look at our investors as partners in this space as we go and increase that pie, so it's really important that we execute as a team.

Let's switch gears because like I said, we spent a lot of time with the Tinder team this morning and there's so much else to your business. Let's go to Hinge. So Justin McLeod, their CEO, was at a conference last week, said he thinks that, that should be a billion-dollar business. He also added that when Hinge's partnership with Match started in 2017, they were targeting only $1 million in revenue. Your guidance this year is $400 million, and we estimated in our model at $822 million by 2025, hopefully. So with that as a little bit of context, what do you need, BK, to see from Hinge to push to those sort of levels and beyond, and turn it into that billion-dollar business that Justin pictured it could be.

Wow. I think we can take a moment to reflect on that. Talking about a million-dollar run rate business and then having a conversation around $1 billion is pretty inspiring. Great acquisition. We are really happy to have Hinge and Justin and his team to be part of Match Group. I do think we're kind of still in the early runway of what we can do with Hinge. I like, as an outsider looking in, when I heard this marketing campaign of Designed to be Deleted, I just about fell out of my chair. Coming from the space of gaming and what we want to do is design never to be deleted or ever to be put down, this is way different. But like it was a jaw-dropping campaign, and this idea of great dates and intention daters is something that I personally found incredibly inspiring from the outside looking in. Coming into the organization though, like my first week, I think Gary had slapped on like 7 midyear reviews in my first 7 days of the company. And one of them were Hinge. And the team was really focused on product innovation and product execution. That was the mantra for last year. Now this year, we're moving into global expansion and monetization. We made a hard call in the middle of last year to hold actually HingeX for further testing. We wanted to make sure that it was perfect for the high expectations of our daters in the marketplace. So after lots of testing and product and proper surfacing, we're really happy with the way that it's rolled out. So for those of you that don't know, HingeX is being launched -- it was launched at $50 price point, but then we lowered the price of Hinge+ from $35 to $30, making the approachability of a subscription model better. So we have kind of 2 tiers and seeing that roll out and the execution of the team. Still, we're early on the surfacing side, so we're testing that whole side of it. It's very exciting and inspiring. Then on global expansion, we're in this process right now of rolling out throughout Europe. We see great opportunities ahead of us internationally as well. The virality and the organic -- and so I mean, Hinge is on fire. People are really excited about the brand coming into their marketplace, so we want to add fuel to that.

Awesome. Let's keep moving through your business and switch over to Asia. So we published our sort of new and improved industry model on Sunday. And just what remains so clear from it is how much of the industry growth for Match as well will come from Asia and how significant that is. So you've now carved out the region as its own reporting segment. It includes Hyperconnect and Pairs and is now being led by former Plenty of Fish CEO, Malgosia Green. So a question for each of you, first to Gary. I think the market's view of the Hyperconnect deal has been a little bit mixed. So maybe just take us back, remind us sort of how you viewed it when you bought it, and then what you've learned since then sort of through COVID and ATT, the Apple privacy changes, which we know impacted it. And more importantly, the keys to resurrect and growth at Hyperconnect. Then I'll come back to BK.

Yes. I mean, look, I think you were very diplomatic probably in the way you described the reaction to that transaction. I don't think our investors or we are happy with the way it's turned out so far. But there's still a long way to go, and we just have to keep working and grinding it out. I think one of the things you already mentioned was a key component of it, which is there's a big opportunity in Asia. It's a place where we're underpenetrated from a business standpoint. And getting 400 people on the ground in Asia with market knowledge was very, very important to us. So that was definitely a key piece of it. The other thing was a bet on their technological capabilities. They have a lot of very highly-trained, capable engineers that were helpful in video and audio, which we've exported to some of our other apps. And we think as AI and things like that start to become more critical, they can help us in that regard as well. So that's why I say there's still a lot more runway for that acquisition. And then I think if you look at their businesses specifically, we really acquired 2 apps, Azar, which is the one-to-one chat app, video chat app. And that app is actually performing reasonably well. It's back to some reasonable growth levels. We're also improving the profitability of Hyperconnect. I think 10% kind of margins this year are achievable. So between that level of profitability and the growth we're achieving, we're happy with the way Azar is headed. And then Hakuna, which is their other app, needs more work. We've got a new head of Hakuna now. He's got a new strategy we're planning to implement in the back half of this year. So we need to see how that goes. I think there's no question that Hyperconnect benefited from people staying at home and the COVID phenomenon. They also ran into some challenges with the Apple changes on the marketing side. So there's a few things that kind of outside of their control that we're moving around. And we've done a good job kind of coming in there, getting it back to growth, making some changes on the marketing side, and more work to do. So there's not a silver bullet in a sense. It's just hard work that needs to get that app back to -- or those 2 apps back to where we want them to be. And we're going to continue to work on that, as well as leveraging the capabilities across our portfolio for future innovation.

And so BK, then to you, tell us a little bit more about your appointment of Malgosia Green to run the region. And then beyond Hyperconnect, other key growth drivers in the region. Of course, Pairs as a business, obviously. But maybe some points on what are the differentiating elements in Asia specifically that really drive growth there versus, say, other regions.

Yes. I mean, I think that's -- there's a couple of different facets. And I want to make sure that Gary doesn't get all the hard questions. But the story on Hyperconnect still isn't completely told. Like I joined the company in an unprecedented time, kind of post COVID, and I did recognize that we haven't had a lot of IRL meetings with the Hyperconnect team. And a lot of magic happens when you're in a room together. You're brainstorming ideas. You can read people's body language. And I actually think that the talent at Hyperconnect is actually really well positioned for the future where Match Group can be with AI and machine learning. And the talent that we have that's super motivated in South Korea and this real chip on their shoulder around like achieving success. The fact that our comments about Hyperconnect is a little bit tepid like, it's not a home run, let's call it, and not all M&A works. But there is this like chip on their shoulder to prove that it was a great acquisition for Match Group. That's what I love, is like the spirit and this energy. Kind of infusing great internal talent with external talent is like one of my skill sets. So saw an opportunity to recruit Linda Kim as COO. A new head of one of our apps that came over from Kakao, it's like kind of really exciting. But then also it's saying, okay, you have great talent in South Korea that's focused on AI and machine learning, a fantastic sponsor in Malgosia. And then having them work with one of our largest platforms in the world, Tinder. Like I actually crashed a phase meeting with Will Wu with Linda Kim. So they happened to be meeting. I found out where the meeting was. And then Linda and I just showed off at their table and say, "Hey, like let's the 4 of us sit down and talk about the opportunities". And Will's kind of fresh in from Snap. He hasn't officially started, but we started brainstorming ideas. And these are like these great moments that happen in real rooms, in real life, not on Zoom. And I think that's like kind of the magic that we're recapturing. Part of that is like now to move over to Malgosia and what the opportunity looks like in Asia. I did really see an incredible talent in Malgosia. When she's in the room, she was kind of commanding respect from not only Match Group, but like the team around her. But really strong product sets. So I like having experience running business in Asia, like having somebody that's remote, that's hundreds of miles away, that doesn't work for Asia because like sometimes what happens in Asia stays in Asia. You need a leader that's on the ground that also has like camaraderie with the large -- like the larger part of Match Group, and I personally saw that perfect solution in Malgosia. And when she told me, "Hey, I'm open to like picking up my life, my family, taking a big risk with you and jumping over and trying, like working with the teams in Asia, with Pairs, with Hyperconnect, our go-to-market teams," I saw like things really clicking together. And the opportunity sits with we're in a little bit of a weird time in Asia. Like are people back from COVID? Are they not back from COVID? This spirit and this energy, that people are looking for love and they're looking for human connections, they're looking for IRL relationships, that will rebound at some point. So we just need to make sure that we're patient, we're calm and we're well positioned in the marketplace with the right leadership and vision.

Fair. And thank you for the additional comments on Hyperconnect because it's good to know your conviction, and the comment about the chip on the shoulder of the team is very interesting.

I mean, that is a comment that I'll say across all of Match Group. Like right now, we're not happy with where we are today. And then like this idea of like what inspires people, part of it is like having that chip on their shoulder, proving through that we can win and we have the winning organization. So that competitive fire is like is rampant in Match Group. You might not be seeing it in the open marketplace, but there is this competitive fire, positioning ourselves to win. Get out of our way and we'll go after it.

We've got a few coming in on the Q&A, and I'm going to start with one. I'm going to come back after this and talk about in-app payments, but this is a good one to think kick that off. For BK. Compare the elasticity of dating at Tinder versus mobile games. Is cyclicality pressuring net adds in 4Q and Q1?

Well, we have seen a slowdown since I've joined, and I hope it's not because I joined the organization. I will say that the life cycle of a gamer versus a dater are very different. What is indisputable, though, is that the rewards of like finding the right date, having that great experience, finding the one like you did with your wife on Tinder, I mean, those rewards are literally endless. That's what inspired me to join this organization. It doesn't matter what game you play like -- and this is a fallacy, that -- like gaming executives will tell you differently. No one plays these games forever. After a certain point, people churn out of a game experience. And what are you left with? I personally have spent $50,000 in 3 months in Clash of Clans, and I still look back on that with lots of shame. I'm like, "Oh my God, what did I really get out of that experience?" Nothing other than like a really amazing wall, which is not cool today. Now you look at like what can come out of Tinder? Like you meeting your wife. Like I mean, that's an immeasurable reward, like something that will last a lifetime, that will lead to unbelievable amounts of happiness. Maybe sometimes despair, but at least you're feeling something. So I'm like -- I think that it's just this really incredible opportunity for us.

And it leads to children, too. That's the other surprise. Let's come back. I want to talk in-app payments because the implementation of the Digital Markets Act's starting to come up on the horizon. Reporting from Bloomberg and others are suggesting that Apple is ready to consider side-loading. I know there's lots of caveats and other activities going on in different countries around it. But could you talk about what you're expecting in terms of the outlook for in-app fees? Do you think that there's a material change coming? Why don't I toss that one to Gary to start?

Yes. Look, I think this year is actually a very critical year around the DMA, right, in terms of how it's going to be implemented in Europe and what kind of standards that's going to set for Apple and Google. I think it's pretty clear that the current store policies don't comply, and they're going to have to change the policies. I think it's a question of how much longer they are going to kind of battle and push and see how long they can drag this out. But my sense is they need to comply by the end of 2023. They don't comply today, so changes need to be made. And my guess is that you'll see that as a global policy for Apple and Google because I don't think they want to have one regional policy where things are cheaper for the consumer in Europe versus what's being charged in the U.S., or more advantageous for developers in Europe versus developers in the U.S. So I think you're going to see a significant amount of change this year, which will then kind of be a financial implication for next year. That's my best sense. And there's already a lot of discussion by the regulators of what new policies could work, what makes sense, what's fair and nondiscriminatory, which is the language that the DMA uses. So I think you're going to be hearing more and more about this as the year goes on.

Look, like there's -- I'll just add on a couple of points to that. And Gary mentioned the word fair and unfair. Look, I've had a career in mobile freemium. Sometimes, I talk to like my old friends, not really current, but old friends at Apple and Google, and I say, "I owe these guys a lot." Like they created this incredible ecosystem where anyone at any place, at any time, boring meeting, 3:00 in the morning. They don't have to run over to GameStop. They can download an app and play it and experience and get into the fun super quickly without barriers to entry. That was 10 years ago. Things have considerably changed. When the App Store launched, at EA Mobile, we were one -- and Mark van Ryswyk was there with me. We were 1 of hundreds of apps. Today, you're competing against hundreds of thousands of apps. The organic install, like browsing through the store aisles is gone. Now it's all a paid acquisition channel. Now you come to the financials. I mean, you look at Match Group, we spent over $600 million in app store fees last year. That's more than we're spending on R&D. Like, how does that make sense in a world that's like driven on innovation? Like we want innovative new features that people are inspired to jump into, and you're paying a tax of $600-plus million. That's why like there hasn't been a tremendous amount of innovation in the app ecosystems for a long time. People want to invest. They want to have the biggest and bright teams, not like trying to copy something else that works in the marketplace. It needs to be driven off of innovation, and we need to fund those things. So I mean, like I'm jumping a little bit versus like fair versus unfair and then our financial metrics. You look at games companies, you look at our company, spending more in a tax than we are in innovation. That seems unfair to me.

Fair points, fair points. Another hard one. Let's talk about Google specifically. I'll get right to the point. On one hand, you're involved in sort of active litigation against them. Well, one of your biggest competitors, Bumble, is early testing partner for alternative in-app payments. So BK, the broader relationship with Google, obviously, has a lot more variables than just those. But are you happy with the direction of your relationship with Google right now?

I would say that it could be better. I've always had a pretty collaborative relationship with both Apple and Google in my previous history. These are people that I've had personal relationships with outside of even like kind of the work day to day. But I am proud of the efforts that Match Group is driving around driving a fairer ecosystem. I think if we were treated fairly, our relationship would be absolutely better. But we are on the forefront when it comes to innovation, when it comes to like leading that fight. And I think long term, that will lead to better innovation.

Fair points. Just a reminder, everyone, I've got questions here that I can grab. I'm going to have another one for BK, you -- and it's about advertising, right, which is a form of revenue which those 2 companies do not take a slice of, which is important to note. You've talked about it being much more of a priority at the company. Gary, I can remember when we go back to -- we went back to the IPO and it was always sort of drifting around. And I remember, as Tinder sort of took off, the explanation was, hey, we're just going to focus on this product. You've brought this focus on advertising a little bit back to the company. You talked about getting up to $100 million run rate some time over the short term. What are the keys to that? Do you think that, that number is coming sooner rather than later? And how important should advertising be for the business over the medium and long term?

Look, I have a personal view on this. I think advertising should be an important pillar for us, but it will take us some time to get there. So we're currently like a $50 million business. It could be a $100-plus million business over time. I do think that like when it comes to young people and the way that they experience their content in apps is very different than the way that you and I may have. My son spends all of his time on YouTube. And I watch over his shoulder what he's doing, and I'm like, "Hey, we have a YouTube Premium subscription." I did like pay for that one, and it's a family plan. So we can link your account and then you don't have to experience any of those ads. And he's like, "I love the ads." He's like, "I want to know what's hot in the marketplace. I want to know what the next game or the next app to download is. I'm used to it. It gives me a break from watching, and I can kind of zone out or zone in." It's like it's a real thing today. Now some of the things that we're excited about is like my lens on this is not like revenue is revenue. We should be open to these other opportunities, especially if the majority of our daters are not spending today. And I've done a lot of research in this area and like especially in gaming, is that like if there's a rewarded ad that people might see, and then they get a great premium experience, they might be apt to spending money on that premium experience in the future. The nice part about our business is like, in gaming, everyone's just promoting each other's games and everyone's okay with that. Here, we're promoting different experiences that could actually lead to better dates. We have to be very careful about that, and we have to be very careful about our ecosystem. So it's like kind of a long story and the long path of how we get to $100-plus million business.

Let me ask. I want to come back, as I mentioned, to the Tinder CEO search and your decision to put that on hold. We talked with Mark and Faye earlier today about how well the team is clicking. I wonder, are you headed for a Sundar Pichai type relationship or role here, where it's CEO of the parent and of the largest company as he is at both Alphabet and Google? Are you a candidate for the role?

Well, there's a couple of parts to that, and I'll try to answer it the shortest possible way that I can, is that I actually do not see gaps today. So a gap that a CEO can fill, like it has to be very distinct. Like we need a marketer, we need a turnaround expert, we need somebody that's a product savant. Like I've answered all of those questions in my own head because I've seen the way that this team has gelled together. It's taken some time, like we've taken a lot of people, and we pulled them out of their day jobs and said, "You're now 100% focused on Tinder." That's a -- like we're basically submerging people in the ultimate pressure cooker. So it takes some time to get that team to work together. I'm really excited about the way that this team is working. And then it's also forced me into a function of really learning our biggest business, not kind of taking this parent approach of I'm on arm's length. It's not us versus then, it's all just us. This year is a year of execution, so another thing I wanted to do is make sure that we're removing all of those distractions in the marketplace. We hired another CEO or if we promoted from within, it would lead to 6 months of retraining this person, doing a Tinder for Dummies course. Like we just don't have the time for that. We want to see how this team performs, and I'm confident around our team.

Fair enough. Fair enough. I'm going to take the last couple here just from the audience, 1 for Gary and then 1 for BK to end. Gary, for you. Actually, I'll combine it with the one I want to ask. What are you thinking about for M&A versus the buyback over the next sort of 12 to 18 months? And then I'll save one for BK for the end.

Well, look, the company generates a lot of free cash flow, right, north of $800 million easily this year. And so we don't want to build cash for cash's sake. And so as we think about it, things have obviously gotten cheaper in the M&A market. There's more attractive targets now. We've been good at M&A. If you look at the Hinge deal, as you said, it was a fantastic deal. So if we can find more great deals to do, we absolutely want to do them in our space. But even with some M&A deals, we're going to have a lot of capital that we can return back to shareholders. And certainly, we believe in our own stock. Especially at these prices, we really believe in it. And so buying back stock makes a lot of sense for us. It's a high returning investment for us. And it's something that we don't have to do any due diligence on or negotiate with anybody or anything like that. So we're going to keep looking at both those avenues very, very seriously, and we have lots of capital to put to work in both those regards.

How much was -- you kicked the buyback back into gear last quarter. And as you noted, at these prices, it's -- which has come down from there, I mean, is this the proverbial signal to the market of where your value is and how you see execution improving?

Look, we want to try to buy our stock whenever we think it's cheap, and we certainly think that. At the same time, the market is super volatile. And every day, the market is telling you something and that usually it's something that's less than it was the day before. So it's a challenging time to obviously be a stock buyer. I don't have to tell everyone on the call and in the room about that. And so that we have to factor that into our buying back as well, that just the market has been extremely challenging. But we absolutely believe that a great use of our capital is to continue to buy back our shares, and we're looking for ways to do so.

Okay. Last one is for BK. Social responsibility and mental health, as I mentioned on our panel beforehand, when it was asked sort of advice for you two, that was a top one. What do you think your role is in both of these issues, mental health and trust and safety across the industry? And how do you expect to lead?

This is not only one of our top responsibilities. It's actually when it comes to trust and safety and then mental health of users on our platform, with potential of incredible rewards, but then also some distress that can be caused and fatigue that can be caused, it's existential for our survival to solve against this. We have probably the largest investment of any other dating app or maybe any games company that I've ever seen when it came to dedicating people, trust and safety, building tools within our apps that are verifying users and driving like a better experience. I do think it's something that we need to look at as an industry across like every digital experience as well. Sometimes I see my kids, and they're -- my daughter spends most of her waking hours on TikTok. And I'm like, "You probably need a little bit of a break." But like it's something that's really pervasive and it's something that's really important, and we all have the responsibility to do it. For us, it's even more important though, because if there's bad word of mouth, that people are not feeling safe on our platforms, that will lead to deterioration. I've seen that happen to other digital platforms. We cannot let that happen.

Gentlemen, thank you very much for joining us. We really appreciate it. We appreciate your time all today, and come join us for a drink afterwards. Just lastly, thank you to everybody here in the room, all of the guests, all of our partners, everybody who tuned in. We hope it was a very informative day. We tried to do something a little different and a little special and really dive into it. I'm really happy with how it turned out, and I hope you are, too. So we hope to do it again and have you back and do this one more time at some point down the road, but BK and Gary, thanks again for joining us. Really appreciate it.