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

All right. We'll get started. Pleased to have Match CEO, Bernard Kim; and President and CFO, Gary Swidler, with us today. I'll read the safe harbor, and then we'll get going. During this presentation and during the question-and-answer session, we may discuss our outlook and future performance. These forward-looking statements may be preceded by words such as we expect, we believe, we anticipate or similar statements. These statements are subject to risks and uncertainty, and the actual results could differ materially from the views expressed today. Some of these risks have been set forth in our periodic reports filed with the SEC.

All right. So maybe we'll start off higher level, BK, with you. You've been at Match for about 1 year now. What are some of the key changes you've made? And how do you think about the state of the business today?

Great. It's great to be here today. Yes, I'm almost at my 1-year anniversary, so we're going to be celebrating that soon. Some days, it feels long. In other days, it feels really, really fast. But we've made a lot of change over the last year. We reorganized the teams around Tinder; Hinge; E&E, Evergreen & Emerging; and in Asia business. Around Hinge, we have a strong business. It's growing really nicely. We have expansion internationally and new pricing subscriptions that have hit the marketplace, and we have really strong brand momentum. Around E&E, very clear focus around cost efficiency as well as emerging brands that are going after niche markets. And then in Asia, we have, for the first time in the company's history, we have a CEO on the ground in Malgosia Green. She's based in Singapore, and she's running all of our Asian businesses, and we're really excited around our performance there. Pairs has a brand-new leader. And then Hyperconnect is a business that we're kind of bringing into Match Group, and we are excited about that talent joining the group. And then around Tinder, I mean, that has been really inspiring, the work that we've done there. The last year -- I mean, I'll be honest, coming into the business. It was a business in turnaround. I felt like quick changes needed to be made with regards to stabilizing the leadership team, in our case, bringing in a brand-new C-suite in, stabilizing the organization, having us focus on the product road map and then delivering it that product road map, and then a focus on marketing and innovation. We've done all of those things. I've actually been in the turnaround room multiple times in my career. I kind of know how that goes and I saw a lot of the like same tendencies. I thought we could have moved faster in the last couple of turnarounds I've worked on. But in the case of Tinder, I was learning the business, wanted to make sure that we're making the right moves, testing properly. And we're seeing that momentum on product execution, marketing and innovation in this year. So it's really been an exciting 300-plus days.

So we'll definitely come back to Tinder. But maybe before jumping in, there's a lot of debate around industry saturation, TAM. How do you think about the growth opportunity in online dating from here? And why haven't we seen perhaps a stronger recovery post COVID, as expected?

Look, I mean, I wouldn't have joined the organization and the company if I didn't think that there was a growth opportunity for us. You look at a company and hundreds of millions of first dates are created by this organization and our teams. There's literally nothing more inspiring than that. Especially in a post-pandemic world, people want to get out, in IRL meet one another. Look at these really kind of interesting opportunities to get people together. And there's no company like Match Group when it comes to being on the forefront of that. We have a lot of work ahead of us, though. When it comes to product innovation, when it comes to product execution, I think we can improve on where we've been. It's inherent on our organization, as a group of a couple of thousand people focused on product and innovation, to figure out that next thing that's going to drive that word of mouth and get people to say, "Hey, have you tried Tinder? Have you tried Hinge? You should try this experience." And I think it's really important for us to do that. For me as a team and -- for me as a leader of this organization, I've set clear objectives for people to go after: Innovation, around profitability as well as growth as a business. I actually think the last couple of months have been considerably more exciting than maybe the first 6 months have been with like the advent of AI and how we can use AI within our multiple platforms. We have an incredible data trough when it comes to understanding what daters are looking for, understanding what people are looking for when it comes to that first date, when they're looking for love in the marketplace. And we want to utilize AI when it comes to like improving jumping into our platforms, maybe listening to what our daters have said like, "Here are some pain points that I've had in our experience," and then utilizing AI to help in those areas. It's a really exciting time for us.

So a bunch of questions on Tinder. We'll kind of start with just, as you just alluded to in the first question, Tinder was a turnaround. So where are you in the turnaround? Maybe what have you accomplished so far and what's been more difficult?

Yes. I mean, like I came from a history in gaming, and we've always focused on acquisition, engagement and then monetization. When it comes to Tinder, there was actually a lot of the same language, but I had to learn the business and understand how delicate that ecosystem is. I thought we could move a lot faster in certain areas, but every change that you make impacts other parts of engagement or the way that people interact or spend in our platform. So I wanted to make sure that we're doing the right things around testing. That flywheel took a little bit of time but we're really kind of seeing that over the last couple of weeks. Our product execution, our product velocity has actually increased pretty dramatically from where we were at the back half -- first half of last year. We see a positive impact in the back half of this year as we roll out pricing optimizations, we roll out weekly subs, we roll out just for you, for women's experience. So there's like -- there's been a tremendous amount of traction. The thing that I look at is like culture, momentum, how the teams are gelling together, we've had some wins recently. And we think that's going to continue to have that positive effect in the future of our business.

On the price increases, so you rolled out a pretty sizable price increase in the U.S. late in 1Q. Understanding, Gary, you talk a lot about optimizing for revenue. But what gives you the confidence raising prices is the right longer-term strategy for the brand?

Yes. So just to make sure kind of people understand the dynamics of this. First of all, we test this extensively. And so we tested the effect of raising prices in the U.S., and we do see a negative effect on the number of payers, but we do see an increase in revenue. And so we rolled some of those changes out in the U.S. at the end of the first quarter, like you said, and that's going to have a negative effect on payers, but it's going to generate incremental revenue for us. Now we're rolling out those price changes into an additional 5 international markets. I don't know what variance of price are going to prevail there and generate the most revenue, could be higher, could be lower. We're going to test and see. We've assumed that it's going to be the same as what's happened in the U.S., and that's what we've assumed in our outlook in terms of kind of payer outlook as well. But don't know for sure yet. So that will play through in second Q, and we'll see. But if the similar variant of price prevails as the highest revenue generator in these international markets, I'd expect to see negative sequential payer growth in Q2. And then in Q3, as a result of those payer -- as a result of those price changes and the impact on payers. By Q4, a lot of that should have washed through the system and we'll see better sequential payer additions in Q4. We'll be back in the positive territory. And so that has to wash through. It's important to understand that Tinder is really catching up. We should have been making these price optimizations over time on a gradual but consistent basis. They didn't do that for a while. And so now there's a bigger catch-up and the prices have changed pretty dramatically. So once that goes through, I think you'll see the benefits of all the great work the team there has done on the ecosystem, on the marketing side and on product changes more generally, and you'll start to see that momentum in the business really build. Keep in mind, this is a momentum business. You saw it slowly slow down on the momentum side and growth really wasn't there. Now you're starting to see it go in the other direction, the momentum is building. So there will be modest revenue growth as we get through this year and then it will accelerate by the time we get to the fourth quarter. That's kind of where I see the trajectory.

And the other big optimization you've talked about is weekly subscriptions. What have the learnings been early on? And how impactful could that be to revenue or payers?

Yes. I think that overall, the optimizations are the bigger piece of it, the price optimizations, the price changes. The weekly subscriptions are a nice additional source of incremental revenue, but not a massive one. It's one of the reasons why we never did weekly subscriptions to begin with because they impact the number of who will take monthly subscription. So they're only modestly additive. But I think what we're seeing in this market is 2 things. One, in a more cautious economic environment, people are a little bit more interested in weekly subscriptions. It's a smaller commitment, more bite-sized. And so we're seeing a better take-up of weekly than we probably would have seen 2 years ago when the economy was stronger. And so that's one aspect. And the other thing, which has been a pleasant surprise but it shows you the power of the size of the ecosystem and you never know exactly what's going to happen, weekly subscribers have been a healthy boost a la carte revenue as well. They've been big takers of a la carte. And so we're seeing some real benefits there on the a la carte side from having introduced weekly subscription. So that knock-on effect is meaningful for us.

So one more on the financials, and BK, I want to get back to kind of more top of the funnel stuff. But Gary, the shareholder letter had a chart showing Tinder subscription revenue in the U.S. accelerating through April. Has this trend continued through May? And I guess bigger picture, like how much of the expected acceleration in the second half is simply flowing through what you've kind of done around the price optimizations and the weekly subscriptions?

I mean, a lot of it is from that. So there's more work to do, and I don't want to minimize everything we need to do as the year progresses. There's a lot of initiatives underway at Tinder, as BK started to go through. But the benefits of having rolled out the pricing changes in the U.S. and then having rolled them out in the international markets, does help give us confidence that by the time we get to Q4, we have a sense that we can do 10-plus percent year-over-year revenue growth. And yes, to answer your other part of your question, the April trends have continued into May. So that's increasing our confidence. Now instead of 4 weeks, we've had 7 weeks of similar trends. So that's obviously very encouraging and meaningful extra data points for us and increased confidence that what we said about the back half of the year is coming to fruition. And so we're feeling good about that. I want Tinder to keep executing on its many initiatives, and it needs to keep doing that. But from a financial perspective, we're making the progress that we needed to make. Subscription revenue continues to be up nicely year-over-year. And as I mentioned, we're seeing some increases in a la carte as well because of weekly subscriptions and some changes we've made on the Boost a la carte feature as well. So things are starting to flow there as well, which, again, gives us more confidence that we can achieve our financial objectives.

So BK, moving back to you. Optimizations were a big part of, let's call it, Act 1 of the Tinder turnaround. You also called out early signs of momentum in top of the funnel in April. Could you talk about what's driving the top of the funnel improvements? And then if you're seeing this momentum continue as well.

Great. I wouldn't underestimate Act 1, which is getting these optimizations to work, getting weekly subscriptions out in the marketplace. I would say that, when I joined Tinder a year ago, there actually was a lot of really great ideas that were flowing through the company and we were testing a lot of different things. We just weren't putting product out in the marketplace. Our product execution and delivery wasn't there. I think there was a general pause. And part of that was just continued leadership turnover. Today, we're in a much different place. The product execution is working. Our product velocity is up. And then the kind of fruits of that labor is Act 1, which is that focus on revenue, seeing the results over the last couple of weeks in that performance coming through, that drives this like this momentum and this energy of like the things that I'm working on every single day are showing up, and it's a multibillion-dollar platform that we're working against. So it's really exciting to kind of see that happen. It's like little wins that lead to like this positive flow in this improved kind of culture that we can do it out in the marketplace. When it comes to our top of funnel, we have a brand-new marketing campaign that's hit, and it's working. It's really exciting to see. We've gone a long time where we've underinvested in marketing across Tinder. We've let the market tell the narrative on Tinder. And probably like when it comes to the pendulum, there's a lot of fun and great things that are happening in Tinder, it's probably swayed towards the negative. We need to swing that pendulum over to like, wow, it starts with a swipe, and there's a tremendous amount of possibilities that come from this platform. It's been galvanizing for our teams, but we're seeing it in the top of funnel. User intent is higher, people that are considering our brand as Tinder, with especially Gen Z, young women, that's improving every single day that this campaign is live and out in the marketplace. But the key for us is like improving that ecosystem. I talked about this in our letter, but it's around realness, respect and relevance. That is like the 3 words that our product teams talk about every single day. It's having that great experience in Tinder that then creates that word of mouth, like, "Wow. I just had one of the best dates in my life, and it's due to Tinder." And then having that positive kind of story that then tells other people like, "Hey, let's jump in. Let's reach. Like let's try Tinder. I may have lapsed out because I'm in a relationship. I'm jumping back into Tinder." There's a lot of runway for us.

The one other thing I just want to jump back on is the optimization. We're getting a lot of questions about is now the right time? And I just want people to understand that, as many people in the room probably know, a lot of subscription prices have increased over the last couple of years because there's been inflation and people have raised subscription prices. Tinder didn't do that over that period of time. And so now the gap between where some of the competitors are priced and where Tinder is priced has become very wide, and so Tinder is really playing catch up. And so we're seeing this sort of sustained effect for a couple of quarters, but then we'll have caught up to where it makes more sense to be. And there aren't negative effects on the ecosystem from those pricing changes. If someone doesn't -- they don't pay the higher price as long as they keep renewing the subscription. It's for people who are coming back into the system or are new to the system who see the higher prices. And so the effects on the ecosystem are really modest. You can always become a free user because the vast majority of people use the product for free anyway. So there's no real negative knock-on effects on the ecosystem. And so we think that, as we continue to improve ecosystem health, that will have real benefit overall to the ecosystem. The price optimizations aren't going to negatively impact that.

Sticking on the Tinder brand campaign. I think some investors worry that maybe it's too late to shift the Tinder brand narrative. It sounds like it's working. But how would you reply to that? And kind of what are you seeing more specifically that's giving you confidence in the strategy?

It's absolutely not too late. If I would say that if we were launching this campaign and we had tried 5 or 6 other campaigns that hadn't worked, we would be in a different place. Tinder and its position, we're in a position where we probably didn't have to spend as much money in marketing or focus on the brand. We're in a different place today and the things that we're doing are working. We're seeing traction. We have a great team working against it. This is the first stage of a multistage kind of process for us. What I'm really excited about is, when we get that product innovation flywheel rolling on top of an improved brand perception, we can start marketing like the really great product innovations that we have coming through the pipeline. So it's an exciting future that we have.