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

Good morning, everyone. I'm John Blackledge, Internet analyst here at TD Cowen. We're pleased to have Gary Swidler, President and CFO of Match, for a fireside chat today. Thanks for coming, Gary.

Yes, thanks for having us.

So before I get into it, I'm going to read the safe harbor language. During this presentation and during the Q&A 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 uncertainties. And our 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. How did I do?

You did great.

So we have an announcement from you guys this morning, the debut of Archer, new brand, social-first dating app for gay, bisexual and queer men. Could you give some color on Archer and maybe timing of rollout?

Sure, happy to. I mean, we're really excited about it. We've had this passionate team working on it for getting close to a year now. We identified the market opportunity. We tried to build a new product to serve that market. I think the team has done a great job. We're really excited about the product. The initial kind of beta testing of the product has been really positive. Look, it is a market that hasn't really seen a lot of innovation in a long time. The main competitor in that market predates Tinder, right? It's a product that came before Tinder. And we just don't think it serves that community as well as it could. It hasn't really been vested in. And so we saw a real opportunity. That's a growing community, a rapidly growing community. And we think that it was time for a new product to better serve that community. We spent a lot of time thinking about it and testing it and trying different things. We think our product reflects how that community interacts and socializes and dates. And we're really excited to roll it out. So it's going to be a staged rollout, New York, L.A., a couple of other markets in the U.S. over the next few months. The goal is really user growth. It's not intended to drive revenue at the moment, which is a playbook we are following from Tinder. That is, if you remember, because you were one of the people can remember, back in 2012, 2013 when Tinder was rolled out, it was really to drive user growth. And so we want to see how that community responds to the product. And we want to get liquidity in the various big markets to begin with. I think that should be achievable. But we have to do that first and then we'll sort of go from there. So it is something we haven't done in a while, rolled out in a big, splashy way a new exciting product. We think that market segment is exciting because it's high income and it's active on these products. And so we're really excited about it. Our team is super excited about it.

Will there be a marketing push behind it or...

There will be. So we've made some investment in the team and building out the product. And we're making some marketing investment as well over the year. It's not a massive amount, but it will sort of build by market. And we want to see -- it's important to see how it gains traction in a market like New York. And then that will tell us a lot about other markets across the country. And then we'll think about other markets around the world over time. But right now, it's a focus on the big key markets in the U.S.

Makes sense. Okay, very exciting. Maybe pivoting over to Tinder for a little bit here, you mentioned in the 1Q shareholder letter, seeing early signs of momentum in April with the pricing increase, and maybe to a lesser extent, the weekly subscriptions. And then you recently mentioned kind of continued momentum in May -- into May. Can you kind of take us through what you're seeing and how the pricing increases and weekly subscriptions are setting Tinder up for 2Q and then in going into the back half of the year?

Yes. I mean, I think what you said is accurate. When we did our earnings call at the very beginning of May, we had 1 month of data of all this work that the team has been doing to get out the price optimizations and the weekly subscriptions. But it looked good through April. And then now we've seen another month through May, where the same trends have held. So the U.S. price optimizations are driving incremental revenue. The weekly subs are working. They're just not as big a contributor as the price optimizations. But they're both working. The weekly subs are also helping on the à la carte side, which is good. So there's a lot of good momentum in that business. And we just need to keep going. And so we've rolled out the price optimizations into a handful of other markets. We'll continue to roll that out into more markets over time. You start with the big markets and make a difference, U.S., U.K. being the two key ones. And that's also working hand-in-glove with the marketing campaign, which started out in the U.S., U.K. and has rolled out to other bunch of markets. So we're seeing that help from a top-of-funnel perspective. Those initiatives are helping from a revenue perspective. And the business starts to generate more momentum. And as we see that, it helps us in Q2, which helps us roll our confidence -- increase our confidence and rolls financially into Q3, which should help into Q4. And as we've talked about, we're very focused on generating strong growth exit rate in Q4. And so these initiatives working and coming together increases our confidence that we can drive that kind of revenue growth in Q4. That's the momentum and that's the way the business operates from a financial perspective.

Okay, makes sense. And so in terms of the price increases, so U.S. and then I think there's five markets?

I think it's five in total. So it should be U.S., Canada, U.K., Australia, Japan. Those are the five kind of big -- bigger-money markets. And then we'll continue to roll them out. Those were -- initially, U.S., then some more and then we continue to roll them out. I think we've rolled it out into parts of the EU now. We're looking at a couple of Latin American markets. We're going to look at the critical markets and kind of keep going down the list of priorities.

Okay. And so the price optimizations that you're doing now are impacting top line in some of those markets, as you said. How should we think about kind of -- and then you're bringing it up. And like as you guys have mentioned, you're bringing it up because you hadn't really been doing it. But how should we think about kind of going forward, pricing versus payer growth in terms of kind of next couple of years for Tinder?

I mean, I think you categorized it correctly, which is this is a bit of a catch-up. Tinder hasn't been optimizing price very effectively for the last little while. And so they're catching up now. And we'll continue to optimize. It's not a once-and-done. This should be kind of always-on kind of activity. And so going forward here, we'll keep tweaking it in all these various markets. I think there's a lot more to do on that front. And so that will be sort of a basic kind of always-on activity. And then we'll drive more product enhancements over time. We're somewhat indifferent whether they're payer-driven or RPP-driven. We want to drive revenue. And so you'll probably see a mix. We've always had a relatively healthy mix of things that drive payers and drive RPP. It will depend what we prioritize. We're looking for things that people see value in. If that's like the elite tier, which we've talked about, that will be more RPP-driven. But there's other things that we have on the road map that are more payers-focused. And so we'll see how that plays out. But the goal is to continue to deliver products that people find exciting and see value in. And that will drive the revenue of the company, which is the primary goal.

Great. Sticking with Tinder here, and you guys embarked on a global brand campaign, which you really hadn't done before. Maybe to kind of reframe the narrative around the brand, just curious, I know it's talked about a little bit at the quarter. But can you discuss how -- are you guys happy with it? Are you -- is it meeting the objectives that you guys set out when you decided to do it?

Yes. I would say we've allowed the market to set Tinder's narrative for too long. And we need to take that narrative back and take control of it. And so that's a long process. And that's not going to happen in a matter of weeks or months. But this is the first step in that direction. And so far, actually, the results are very encouraging that in the core markets, U.S., U.K., where those campaign -- that campaign has been out for a while, we are seeing improvement in sentiment. We are seeing improvement in brand consideration and intent. We are seeing impact among the younger users, particularly the female users. So we think that in most of those markets where we're rolling out that campaign, it is hitting its objectives and doing what we wanted to do. And so that's encouraging and leading us to think we should roll it out in more markets and continue to invest in it. But that's not going to be the only initiative on the marketing side. There will be more to come as time goes on as we focus on resetting that narrative and making people feel more comfortable using Tinder.

Okay. Great. So we're about through year 1 with BK. And I think last year, at this time, you were about to embark on kind of a world tour with BK. I hope your summer is easier this summer. But I guess, my question is -- and you have great context because you've been at Match since before the IPO. Just discuss any changes you've seen since BK came onboard. And how do you view the management depth right now across the company, but maybe particularly at Tinder, just given it's a new -- relatively new team?

Yes. Look, it has been an eventful year. There was a lot of work to do. And I think he did a great job kind of seizing the bull by the horns and making changes, not being afraid to make changes, flattening the org structure; getting Hinge to report directly to him, given its trajectory; putting a new Head of Asia on the ground in Asia and making changes on the team in Asia; consolidating all the Evergreen & Emerging Brands under one leader, so taking a set of global businesses that are similar and putting them all together, which sets us up well for the future. Those were all very important initiatives. And then I would say, obviously, the most important one, given that it's the bulk of our revenue, was at Tinder, where we basically said, "Look, the current team is not where it needs to be, and we need to make changes." And I think he smartly brought in a couple of stalwarts from other parts of the business -- or other parts of Match Group to take over aspects of Tinder. So Faye as the COO and Melissa coming from OkCupid, where she had done a great job as the CMO. And you start to see the results there as we drive product road map and we drive the marketing initiatives, which you were just asking about. Those two have had a big hand in what's gone on so far. And then BK brought in a Head of Product that he knew from the gaming world, who's been great as well. And then the Head of Engineering had been someone who'd been at Match Group for a long time, who had been at Tinder. So those four are really leading the charge and driving the functions at Tinder. They've done a great job stabilizing the team there, getting everybody galvanized around kind of the road map and the vision for the product and starting to kind of head us in the other direction. And so it's been an important year of pivot and start to see the success. I think it's still very early and there's still a lot to do. But particularly, the last 2 months of results have been very encouraging. Because before that, it's a lot of work and expectations and things happening. But you never know until you start to see results. The fact that we're seeing the results now, to me, is really encouraging. And we just got to keep going. There's a lot more to do. We're planning for 2024. You referenced it, last year at this time, we did this world tour. We actually do that every year. So I'm flying to L.A. imminently. And we're going to sit down and spend a bunch of time next week with Tinder and some of our other businesses. And then we'll continue to other parts of the world. And we review the business. We plan for next year. We plan for the months ahead. And we have a lot more to do. And so I don't know if the summer will be that much easier, but that's okay.

Okay. Maybe before we go to the -- some of the other brands, you just talked about kind of the new management at Tinder. Any other color on product pipeline at Tinder as we kind of roll through the year? We talked a lot about various aspects of Tinder. But anything further to add on product or high-end membership experience or just kind of wait and see?

Yes. I mean, I think when you look at kind of what we need to deliver for the rest of the year, the price optimizations and the weekly subs are going to do a lot of the work. I think with a few other things going on, we're in place to be where we want to be later this year. So it feels good. You never know, it's still a long way to go. But it feels good. And so we're starting to turn our attention to other things to make the turn late this year and into next year. The elite tier is something that BK has been pushing that we've tried to think about a couple of times at Tinder before and haven't quite gotten there. We're getting closer, so we feel good about that. And then there's some other initiatives as well, less directly revenue-generative but still very, very important, particularly around women and the women's experience and safety. We're doing a lot of work on that front, which I think will pay dividends at that business over time. So it gets less attention from the outside world. But internally, those initiatives rightfully have a lot of focus and attention. And I'm sure we'll talk about them more as time goes on. But they're critically important to getting that business where we want it to get to.

Okay, makes sense. All right. Maybe we'll pivot over to Hinge. And I think Hinge passed over 1 million payers recently, growing -- robust growth first both in kind of payers and revenue per payer. Can you talk kind of about the opportunity and then we could kind of drill in to the expansion into non-English-speaking markets?

Sure. I mean, as you know, driving users is important. And Hinge is doing that extremely well in what we call the core English-speaking markets, U.S., U.K. Australia, Canada, et cetera. User growth continues to be very strong in those markets. And we've got to keep driving that. Because I think people really do like the product. They like the ecosystem. And it's really resonating with the core demographics. And so we're happy with the user growth in the core markets. And now that we've expanded into Europe, into Continental Europe, we're really happy with the resonance that the product is having in all these markets. And the markets are different. You go into Germany, you don't know if that's going to behave like the U.S. and the U.K. When Germany shows real traction, that's really encouraging. Because you've got a different culture there. Then you go into France, it's different than the U.S., different than the U.K. and different than Germany. How is that going to resonate? The fact that Hinge had a tremendous run up the charts of downloads in France is really, really encouraging. I think it's the #2 most downloaded app at this point. So it shows you that Hinge is resonating in all these markets, which gives us real optimism for global expansion and its opportunity. I do think that there's a long way to go for Hinge in Europe. And so that's a place we need to focus. Because as we talked a little bit before with Tinder, a lot of the bigger revenue markets are U.S., U.K., Continental Europe. And so we want to focus on those markets and drive what we need to drive in those markets. So I'm happy with the traction in Germany. I'm happy with the traction in France. The Nordic markets are doing well as well for Hinge. Spain, Italy are getting online, too. I think it's 4 in Spain and so forth. So we have a lot to do. But the momentum is great. And we really want to keep driving that. And then there's the simultaneous focus on revenue, which you've seen. As you grow users and get liquidity in these markets, you try to drive the revenue as well because it makes sense to purchase some of the subscription benefits or the à la carte features if you have liquidity of users in those markets. So as France grows, as Spain grows, as the Nordics grow from a user perspective, we can really monetize those markets. And so we're in the very early days of all that, especially in Europe. And then we've also got this other initiative, which are these two pricing tiers. So that's helping us significantly in the U.S. and then over time, will help in these European markets as well. So you've got sort of three things: user growth and the expansion into new markets and then some of the monetization initiatives, all working to drive Hinge's revenue growth. And all those things are working. And we're just -- we're going to keep pushing.

And over the years, so we -- you guys have talked -- we've talked about, you guys have talked about the notion that online daters, mobile daters use a couple of services. So is that still the case you use? Like Hinge and Tinder, they don't completely overlap. They overlap a bit, but they can coexist as you -- and grow side-by-side as you kind of expand into these non-English-speaking markets?

Yes. I mean, I think as we showed, for example, in our chart in our last earnings letter, on France, we see that Hinge grows the overall market when it comes in. Because it focuses attention on itself but also focuses attention on dating. And people are like, "Oh, dating, I see that ad. I'm going to try Hinge. I also use Tinder. I've used Tinder for a long time." And so it kind of refreshes their thinking on dating apps generally. So we do think it's incremental. I think the way you described it is correct. There is some level of overlap and interchangeability among these. They also serve different purposes. And people use them simultaneously. They might use one for a few days, another for a few -- they vary in their behavior. But we do think the products naturally compete to some extent. And that's good. It internally drives fire among the teams to outdo one another, which we love. And we do think overall, it's incremental to Match Group itself, which is overall what we care about.

Okay. Super helpful. Maybe pivoting over to the Evergreen & Emerging, can you talk about some of the bright spots, what you guys are focused on within that segment?

Yes. So first of all, as I talked to you earlier about the management changes, I think combining these Evergreen businesses under one umbrella has proven to be a very good decision. There was Match in the U.S. and there was Meetic, which was basically Match in Europe, but they were run separately. And now we're getting the benefits of having them both under the same umbrella. And so there's a lot we can do to benefit from the fact that those businesses are similar and that we run them together. So we can do something on Match and do the same thing on Meetic very easily over time. And I think that will be really beneficial. So we're looking at reducing duplication, taking advantage of the talent we have, plugging it into the best spots across those businesses, which also includes OkCupid and Plenty of Fish. And I think that over time, we'll see a lot of efficiencies derived in terms of speed to market, in terms of innovation enhancement and safety. There's a lot we can do having all those businesses together. So we're just getting going. I would expect that in the next couple of earnings, we'll communicate more about our plans for those businesses and how we're thinking about them. And then we've got the Emerging Brands. And the way to think about the Emerging Brands is they're focused on specific demographics. And so by their nature, they're not a broadly applicable business like a Hinge or a Tinder. And so if you have a business that's focused on the black community or focused on the Hispanic community, it can only be so big. But it served that community's needs very effectively and in a pinpoint fashion. And so by running all those on similar platforms with similar teams, we cannot have such a big-scale business, but we can run it efficiently at a good margin. And we can serve those communities really effectively. And so that's the strategy of those Emerging Brands that are focused on certain demographics. And so you've got BLK serving the Black community. You've got Chispa serving the Hispanic community. Now you have Archer serving the gay male community. And that's how we're thinking about those businesses and the strategy and rationale behind why we're approaching it the way we're approaching it.

Okay, great. Okay, that's super helpful. Maybe move on to kind of margin, free cash flow, capital allocation. Now on the margin, I think you guys have guided and maintained flat to better for this year. Can you talk about the puts and takes there and then how we should think about kind of longer-term margin opportunity?

Yes, I would say, look, we're tracking to achieve our objectives on the margin front. We're being very thoughtful about expenses. We've talked about reducing marketing spend at some of the Evergreen Brands, investing in Tinder and Hinge and now in Archer as well because we see real growth opportunity there. We've also tightened the belt a little bit from the COVID days. Things that we just didn't need or could do without, things like some office space and things like that, we can just reduce. And so I think we're in good shape. The most important driver of this is really Tinder growth. Because it is such a high-margin business, the more growth that contributes to our overall business, the better it is from a margin perspective. And so the fact that Tinder is tracking to deliver its financial objectives also gives me a lot of comfort that we're on pace to hit our margin goals. And we'll go from there.

Okay. And then so you guys have called out $800 million in free cash flow in 2023. Can you talk about -- remind us on the capital allocation side what you said in terms of what you're committed to for buyback? And then maybe I have one follow-up after that.

Sure. Yes, I mean, I think we're going to generate approximately $800 million this year from a free cash flow perspective. I think there's some question whether we'll receive a final payment this year from Apple, whether it will be like on December 29 or January 4 because they have some flex in how they pay us. So that's kind of a swing factor in the free cash flow number for the year. But essentially, we're generating those levels of cash flow. And obviously, we hope to grow and expect to grow that cash flow over the coming years. But if you use that $800 million-plus number, you have $2.4 billion, $2.5 billion of cash flow over the next 3 years. And we're looking at that and saying, "Look, we're going to try to return at least half of that in the form of buybacks or some other way to our investors." That would be $1.2 billion-plus. And then that leaves us flexibility to invest in our business, including new ideas like Archer and also perhaps for some M&A. M&A has gotten a lot cheaper. And we think that it's an important component of our strategy. And so we're keeping our eyes open on that front as well. And then we'll sort of calibrate as we go along. If we don't find M&A or organic investments to make, we'll return some more cash to shareholders. Because we don't want to just build cash for cash's sake. That's not our strategy. And as you know, having been around the story for a long time, we've always returned lots of cash to our shareholders. It used to be we had one shareholder and we paid lots of dividends over time and gave that cash back. We don't have to do that anymore to that one shareholder. But now we have the public, broadly speaking. And we want to employ the same philosophy and discipline of returning cash back in the event we don't have other uses for it.

And on the M&A side, we've talked, you guys have done a bunch of acquisitions over the years. But what do you see out there in terms of -- are there any like really scale -- it doesn't feel like there's any real scale players in the U.S. per se. But just curious what your view of kind of what's out there, U.S. or outside the U.S.

Yes, I mean, there's a handful of things that are interesting, a couple in the U.S., some in some international markets. But there's not a lot. And you're right, there haven't been a lot of sort of new things that have emerged in the specific dating area over the last few years. And I think in part, people are looking for that next wave of technology or something that kind of creates some new and exciting experience. And look, I'm expecting a big wave of innovation with AI. I think people will try different things. And we're focused on a number of things there, too. So hopefully, we're going to invent it and come up with the next things. We're best positioned for it. We have the most resources, the most understanding of the category. But if somebody in their garage with their dog comes up with a great idea, we'll look to buy it as well. That's part of our strategy, always has been. And so we'll continue to look for great new innovations and try to bring it into the family. You see the benefits of that in Hinge. I think they had a tremendous product idea. And they've got a great company. And when you infuse some of our knowledge with that around monetization, around marketing, around international expansion, you can see how you can really build a tremendous business. And I think that's been a huge win-win and it's a great blueprint for us as we go forward.

Yes. That was an incredible deal. And you just mentioned innovation. And I think you recently brought in a new Chief Technology Officer. Curious if you can kind of talk about the priorities for the new CTO and maybe how AI -- we talked a lot about GenAI at this conference thus far, just how AI may more broadly be helpful down the road.

Yes, I mean, Will Wu, who you're referring to, came over to us from Snapchat. He's spending a lot of his time focused on this exact question. Where is the applicability of AI across our business? How should we best deploy it? How do we build what we want to build? Is it something new? Is it existing? It's probably both, quite frankly. Tinder has always had a pretty significant effort in this regard. They've always used AI for things like moderating photos and things like that. And so on the safety side, it's been very helpful to us. But now we're looking at it, can it help people with their profile creation and make that easier and simpler? We know what a good profile looks like. And so we can really do things in that regard. Can it help on the matching algorithms? We think it can. And so it's across the dating experience where AI can really help. And then there could be some new things that come out as well. And so Will is leading the charge, working with our brand teams on that. And this is -- I think it's -- to use my baseball analogy, it really is the top of the first inning. It's really early. There's a lot of opportunity, a long way to go. And we're all just getting started.

Okay. Maybe pivoting to another topic we've been talking about for a while, the app store fee. Just kind of update us on what's going on there with the litigation with Google and just puts and takes. I mean, we've been waiting for something to happen, but regulatory takes longer. It's global. So there's a lot of markets involved. It's very complicated. But maybe, we have a couple of minutes left, if you can kind of frame it up.

Yes. I mean, look, I think that's right. There's multiple efforts going on, on this front in the legal system and in the political regulatory system. Neither of those places move very quickly. And so it's taking a lot of patience and a lot of time. I think if you go back 5 years ago, people weren't even aware of this problem. It's gained a lot of focus in a lot of legislature. So we've made progress but not as much as it needs to be made to make that system much fairer. But I do think that 2023 still is going to be an important year. Because the Europeans are going to enforce the DMA and figure out what rules of the road apply there. I think Apple and Google will have to respond to that. My expectation is it will be a global change in policy by them and not specific to Europe. But that's an open question. And the DMA says that app store fees need to be fair and nondiscriminatory. And Apple and Google, together with the regulators, need to figure out what exactly that means and what that looks like from the app store perspective. And so I think that work is ongoing. And I think by the end of this year into early part of next year, I think we'll have a good sense of what is happening in Europe. And I think as they've been on privacy with GDPR, they probably will be the role model for many other jurisdictions to say, "What Europe did make sense, and we're going to follow that." So I know markets like India, Korea, Japan are all very focused on what's happening in Europe. And there's communication and focus in the U.S. as well. And then you've got the lawsuit against Google because Google kind of switched the rules of the road. You used to have a choice whether you use their payment system or not. And then they said, "No, it's only our payment system." And so that was a real change. And so we, along with 37 state attorneys general and some consumer groups and some other developers, have sued them and said, "You can't change the rules of the road. Once we're in your system, you can't all of a sudden make that change and require it. That's what someone can do only when people have no other choice." And so that trial is scheduled for November 6. And there were some attempts to kind of delay it. And the judge said, "We'll see you on November 6." And so that's another significant event in the latter part of 2023 that I think will tell us kind of where some of the app store situation is heading. And so I think by Christmastime, we'll know a lot more about kind of the landscape than we do today.

Okay. Well, I think that's it. Thank you so much.

Okay. Great, John. Good to see you.

Yes. Good to see you.

Thanks.