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

So good morning, everyone. Thanks for joining us. My name is Alexandra Steiger, and I'm part of the U.S. Internet research team here at Goldman Sachs. We are very pleased to have Bernard Kim, or BK, the CEO of Match Group, with us today. Good to see you and welcome to our conference.

Thank you so much for having me. Appreciate it.

So you joined Match Group a little over a year ago, and you've made a number of changes across the organization. Can you maybe lay out your top strategic priorities for Match Group over the near, medium and long term; and walk us through some of the key milestones that you have achieved over the past few months against those priorities?

Great. Yes, I've been at Match Group now for a year, and it's been the time of my life. I've been having a great time meeting all these new teams. But when you talk about near, medium and long term, I did quickly realize that there could be some near-term opportunities for us with regards to the way that the organization was structured, the prioritization and a little bit of like cleanup across the teams. We quickly moved into place one of the largest restructuring that Match Group has ever been through centered around 4 major pillars and core businesses: Tinder, Hinge, Emerging & Evergreen Brands and then Asia. Each one of those teams were set up with leaders that were focused on key differentiated experiences, but also financial goals that were very clear. I wanted to make sure that we had these teams and leaders in place and that we are sharing practices across each one of these groups, because what Hinge is working on is very different than what our Evergreen Brands were working on, and then Tinder. But at the same time, we're all one family of brands. So we're incentivized as a team to try to increase the value of Match Group. So I wanted to make sure that we were a family of companies that were competing together, but at the same time, sharing like best learnings, best practices as an organization. That's one chapter of Match Group. And then on the Tinder side, which is our largest business and our most valuable brand in the marketplace, I jumped in very closely with that leadership team. I quickly realized that Tinder needed to turn around. Like I had this vision around like awakening a sleeping giant, and I wanted to do that through a strong and stable leadership team. So we had to make some quick calls around putting in the right people in the right position and giving them clear incentives around Tinder. I utilized some of my background and people that I knew and trusted, and then also kind of had a little bit of a god's view of great talent across all of Match Group. And so what we did is we put together a leadership team that I believe were the right people, the right IQ, the right incentives and then set them to do their jobs. We have had a tremendous run. I think that Tinder as a business has been really spectacular in the year 2023. Last year, we kind of had to fix things, restructure, but we've rolled out a great marketing campaign, weekly subs, pricing optimization, a healthier ecosystem. So there's just a tremendous amount of momentum.

And we're definitely going to spend some time on that later on. Before that, I'm going to ask you about a topic that is obviously very front of mind for a lot of investors these days: Artificial intelligence. So just from like a very high-level perspective, how do you leverage AI to unlock value within the Match ecosystem? And what are the areas you're most excited about when it comes to AI deployment within Match?

Love that question. When it comes to the core of what Match Group is, we use AI and machine learning. And we have tremendous amounts of talent that are setting people up on the right dates, the right experiences, matching the right people, utilizing best practices in our algorithms and AI across the company. In the last year, AI has gone from like in the background a lot of these tech platforms, and now it's the topic of every cocktail party you go into. And I view this as like a real inspiring moment for the organization of how do we utilize AI and generative AI to solve some of the key dating fatigue points? And when it comes to looking across all the different brand leaders and the teams that we have focused on innovation across Match Group, I saw some real pockets of goodness when it comes to the AI side. What I wanted to do is create real centers of excellence. I'll use Hyperconnect as an example. We have some of the strongest AI engineers and innovators in the entire marketplace sitting in Seoul, Korea. We now are utilizing AI, and the teams and the product that they're building across multiple different brands at Match Group, now everyone is like fighting for Hyperconnect engineers to work on AI. I would say, though, for me, because I come from a world of like long development cycles. Like in games, sometimes it takes 3 years, sometimes it takes 5 years to build a game, I wanted to see something in action as soon as humanly possible. So we wanted to move really fast on the AI side. Having Will join as CTO, and most recently Mark Kantor, we've like made sure that we've given the right priorities across all the different AI sprints across the company, but we want to see them in action. We don't want to see it 5 years from now. So even as recently as last night, I was like testing the Tinder AI photo selector. And it went through my 3,500 pictures on my phone, and it picked the top 10 most -- best pictures. I'm like, "Wow, that really does make sense. Me and a picture of my dog on the beach, that's a great photo." And I like -- initially, when I jumped into Tinder, I had no idea what photo to select. That's like a great example of something that you can see in code utilizing AI. Or like Meetic just recently launched something where, you're filling out your profile, and there's like a little magic wand that appears. And if you click on that magic wand, it will give you -- it will take what you wrote but then make it a little bit more appealing on a dating platform. So it makes sure that it's authentic to who you are, and that's live in the marketplace. OkCupid. We've looked at your profiles, your photo, and then we're optimizing that based on what works on our platform, giving people a nudge to jump in. At the same time, we are making sure that we're doing right by like making sure that we're authentic, that we're taking privacy and security into full account. So we've had these internal guidelines and principles when it comes to AI that we actually just recently published to the entire marketplace on its own designated website yesterday. So we're really excited about what the future can take to us.

Great. Let's pivot to Tinder. So earlier this year, you announced some pricing changes to Tinder. Today, roughly 50% of the users in the U.S. are paying the higher price points. First, why did you decide to take a more gradual approach to roll out those pricing changes? And second, could you maybe share some thoughts on the user response and also the business implications from those pricing changes?

Great. So quickly upon joining Tinder, I thought that Tinder needed a bit of a turnaround. And I've been through multiple different turnarounds in my career. And usually, setting that right foundation of the right team plus the foundation of revenue is what builds that momentum that can build over time. And those are the things that I execute against: Focus on setting the right team that's going to stay long term; focus on the right things; and then prioritizing revenue stability, getting our business back to where it should be, which is double-digit growth. And so I've prioritized revenue. And one of the things that I did is like, hey, I have a blank slate. I don't know that much about how we're priced in the marketplace. But let's do like a canvas of where we are, the value we provide, where our competition prices their products and do it globally. So we did see some kind of like immediate low-hanging fruit around, okay, maybe we could be priced a little bit higher in the United States for this price point because our competitors are here. So we quickly executed against that. I'd say that one of the things that I'm really proud of is weekly subs across the company. I was -- like I noticed that some of our competitors had weekly subs, and I was like, "This makes sense for Gen Z. They don't want to commit to a month-long subscription. They might want a shorter-term subscription." I asked the team about it and they said, "Hey, we tried that a couple of years ago. It didn't really work." But now the marketplace is different. I kind of blindly just asked them, hey, let's test it again. At the same time, this is like an example of Match Group as a family of companies really working well together. Our affinity brands, BLK and Chispa, they decided to test it very quickly, and we saw great results. We took those results, brought it over to Tinder. Tinder rolled out weekly subs. And then we shared those results with Hinge, and then Hinge went through it -- went through testing a lot faster than it normally would because we're sharing across all of the different groups. And that ends up becoming a win-win for consumers and the company.

In addition to the product initiatives, you mentioned, and we will spend some more time talking about those, you also -- or Tinder launched a major brand marketing campaign earlier this year. How would you describe the response to that campaign so far? And do you see any incremental -- or an opportunity to incrementally invest in marketing going forward?

Tinder, unfortunately, has dealt with a lot of executive churn over time. So teams that have come in and they didn't stay long term. And like, frankly, when I came into Tinder, wanted to set up the right team and the right foundation of people. We brought over our CMO from OkCupid, who's doing super innovative things on a smaller platform, we brought her over to work on Tinder. I asked the team, "Hey, let's try to reseize the narrative around Tinder because." Generally, when people think of Tinder, they think of a certain thing, and it's not necessarily true. And I think like -- we had a lot of doubters. Like, hey, there's been other executives that have come in, leadership teams that said that they wanted to do a global marketing campaign. They never really like took off or they never really got to the finish line. I knew, with the right team in place, the right foundation of analytics, proving through like do these brand marketing campaigns work, and then the need for us to reseize our narrative, that was so needed in the marketplace. And we executed against it. It Starts With a Swipe is a campaign that I'm really, really proud of, and I think the team is really proud of. It really talks to the many different possibilities that come out of Tinder. And not just the one that people think of. It's like, oh, wow, people can be really proud of that experience that they've had in Tinder, and they can talk about it at cocktail parties. They can boast about it in social media. That's what we're doing, and we're reseizing that narrative. At the same time, the team that we had in place, with our CMO and our COO, we're putting the right analytics around do these brand campaigns work? I -- like the thing that would keep me up at night is if we're like incinerating marketing dollars in the marketplace, like we're blindly trying things. I want to make sure that we're doing the right analytics around brand campaigns. Is it working? So we saw some like quick learnings of like the impact that it had in New York and L.A. and really working. But they're not really quite working in the UK. We kind of put it to bed in the UK, and then we re-jumped into the marketplace. We didn't go up with a different slant on it. And that worked. Some of the things that we've also trialed is like ramping up marketing and then bringing it down. We actually -- towards the end of the summer, we brought down our marketing in a little bit of like saving some powder for back-to-school. We're excited about that. But then we saw the impact of how valuable marketing is in the marketplace. So now coming back in September, we're going to be jumping back on to college campuses. We're in Phase 2 of our marketing launch. And then really exciting marketing features that are going to push product innovation for the rest of the year.

I do actually want to follow up on that point, just given how important it is for Tinder. So beyond marketing, what could you do to kind of like change that brand perception or perception of Tinder longer term?

Yes. I mean, I think it really comes down to the health of the ecosystem. When it comes to our marketing, we didn't try to like push everything for everyone. We really were going after Gen Z women. So the marketing campaign wasn't geared for somebody like me. It was geared towards someone closer to my daughter's age. That helped the ecosystem, more women having great experiencing -- experiences swiping right is going to lead to like a healthier ecosystem, better word of mouth, better success ratios. And we had made some really bold moves as an organization. We've been cutting down on spammers, we've been cutting down on kind of promoters on our platforms. Even though -- like sometimes, it might not make the most sense financially, what we really are focused on is the long-term health of the ecosystem. We do all of these things right, including like great product features that you can tell your friends and family about. Like over time, that ecosystem will become more and more robust. And then like the way that people think about -- thought about Tinder over the last 5 years will be like an asterisk in the full long-term Tinder story.

Great. Let's dive a little more into your product road map. Tinder is currently testing a new, refreshed core experience. Could you maybe double-click on how that new experience will look like versus the current interface? And how should we think about kind of like the broader product road map from here?

Great. I love talking about product, and I'm so proud of the Tinder team and the product execution that is coming from that team. Like what -- like one of the metrics that I look at is like how many features are we putting out in the marketplace? What does that velocity look like? And for me, it's like -- it's all about velocity. And we've built that muscle over the last year. And you looked at our product velocity at the start of the year from where we were last year, we're exponentially better than where we were. Now we're rolling into this really exciting time period for Tinder. First half of the year, we're focused on revenue and building that foundation, getting that like revenue growth to become double digit again. And then now we can work on these like great innovative features. You mentioned our high-end subscription tier. The brand will be announced shortly, but that actually went into submission last night. So it's with Apple right now. We're really excited about what that can bring, and potential. We said we were going to do it, and then we're now launching it in the marketplace that's going into full testing. Then we have the product refresh that you referenced. This is that right -- like I really believe that our teams are looking at it with that right balance. Like I want -- when I was in Tinder, I was like this feels -- it's really fun and it's frenetic, and it's a great experience, but it could feel more alive. And then we jumped in deep with Gen Z and what Gen Z were looking for. They wanted more information for deep profiles. But we had to figure out that best balance of like providing more information about a potential date versus like that speed and that core of what swiping is. And I feel like the teams are getting to that right balance. We're testing that live in the marketplace, and we're going to be rolling out features towards the end of the year on that. And then in between our high-end subscription and refresh, we also have something really exciting that is unannounced right now. But there'll be more coming out on that, that is -- that I think is going to be a really exciting feature that I'm personally excited about. Think about the right team and getting that velocity and that comfort and that freedom and security to go after innovation, and I believe that's going to set us up for like a strong 2024.

Perfect. So shifting gears to one of Match Group's fastest-growing asset, Hinge. So Hinge has seen very strong user and revenue growth over the past few quarters. You're now on track to reach the $400 million revenue goal this year. What are you most focused on when it comes to, a, expanding your international footprint versus some of the product offering or new product features? And how should we think about the building blocks to eventually reach $1 billion in revenue?

Love it. Love it. And I love that aspirational thought of a business that can generate $1 billion of revenue in a year, and I believe that Hinge can do it. It's an incredible journey when you think about M&A, and I've gone through a lot of M&A that's worked in the past and gone through a lot of M&A that unfortunately hasn't worked. It's not like everything always works. Hinge is a business that was doing, I think, about $10 million run rate when they joined the Match Group family. Now when we're talking about a business that's going to generate over $400 million in this fiscal year and then with the potential to be $1 billion business, it's really incredible to look at that journey. And I do think it's like this blend of like a founder-led culture and like marketing and product that's way differentiated in the marketplace, also with the balance and the discipline and the monetization know-how of Match Group. And like when those kind of strengths come together, in this case, it's working really, really well. I think the sky is the limit for Hinge. It's a brand that is incredibly hot in the marketplace. It's growing really well. But I not only see like growth in product innovation and international expansion like you mentioned, but also organic growth as well. Like in English-speaking countries, it's still growing really, really well. And we just have to be tenacious, be innovative, continue to launch great product features, but then also focus on monetization. And I think we have the right team and the right brand in place to go after it.

Great. So let's talk about some of the other brands in the Match Group portfolio. You recently launched Archer. That is an app that is focused on the LGBTQ community. We had Grindr on stage yesterday. They're definitely seeing a lot of growth in that market segment. Can you maybe share some early feedback from users? And how is the app performing versus your initial expectations?

It's still early right now. It's only live in New York and now recently Los Angeles. I think that when I joined the organization, I went on this like kind of road show and visited all the different groups. And we were at the time organized very differently than we are today. And I actually saw a couple of different independent presentations around going after this segment, gay men, in the marketplace. And they were actually presented to me, and the other teams didn't know that they were presenting it because I was like in France one day and then in New York the other day and then in Dallas the other day. And they didn't -- we didn't really align around presentations. I thought to myself, "Wow. Like, okay, 3 different teams are presenting. Like let's Voltron this together and go after something big together as a team and bring those resources together." The thing that was really exciting for me is like, normally, if I were to do this in the previous job, we'd have to organically build the team, build the platform, some of these different things. Like here, it was like you have the vision for the product which everyone aligned around and then speed of putting it together. And the product innovation, utilizing platforms that we have and like not organically building a brand-new team around it, utilizing these passionate people that we have across Match Group and then having them align around this thing was something that was really exciting to me. So it's like cost-neutral to the organization outside of marketing. Today, we're in a position where we've rolled it out. And I think the idea around it was like to go market by market. And honestly, like we've had more reaction of like, hey, I want to use this app, but it's not available right now. And so what our push has been to the team is like how do we roll this out faster? There's a need for it in the marketplace. The user interface, the experience is way different than what other people are experiencing in competitive apps, so we wanted to push this out faster. So our rollout is going to be faster than originally intended.

I also briefly wanted to touch on Hyperconnect. So the 2 portfolio brands, Azar and Hakuna, appear to have underperformed initial expectations. But based on your most recent commentary on the last earnings call, you suggested that you're starting to see some momentum at Azar specifically. How sustainable is that momentum? And how do you think about the steps to return to sustainable growth from here?

Yes. I mean, there's 2 parts of the Hyperconnect businesses. There's the enterprise AI-focused side, but then there's 2 core businesses. One of the things that I did as part of this road show was I took the management team, and then we went to Seoul, Korea and we sat down with the Hyperconnect team. And I think this was like one of the first IRL meetings that had happened because the acquisition of Hyperconnect happened during COVID, where pretty much all happened over Zoom. Kind of feeling that energy and like the innovation that was coming from that team, I've never seen anything like a team that is so motivated on what it's doing right for Match Group. So they really wanted to focus on what could be great for Match Group. And that, I really loved on a culture perspective. We have made some changes. Sam, who's the founder, is now like our Chief Innovation Officer. He's focused on innovation across the businesses. Someone who I've known for a really long time, Linda Kim, is now CEO of Hyperconnect. And when it comes to those 2 core businesses, Azar and Hakuna, we have 2 stories. Azar is back on a growth plan. We launched a new AI-driven algorithm of like matching people together, real time in video. And then using like AI across all our platforms to get people to meet up quicker with better outcomes. And that has led to an immediate spike and hasn't dulled with regards to engagement and revenue. So we see that as like really focusing on the core business, utilizing AI and our know-how and then going after and seizing monetization opportunities and engagement opportunities. Now when it comes to Hakuna, like that business has not performed well post acquisition. So I think it's like -- it's actually better for us in a way that -- like we know we need to make a clear pivot. Like kind of being in no man's land like on the tennis court. It's not great at times. Like we know exactly what we need to do. And we're going more for like a creative -- a creator-focused platform that I think is going to be really exciting. And we're rolling that out now with a tremendous amount of urgency around Hakuna.

The other part of the Hyperconnect story is the technology integration with other apps. Can you just remind us how many apps right now are using the Hyperconnect technology? And where can that number go?

I mean, the Hyperconnect team is like, when it comes to K-factor across Match Group, has grown dramatically. We had this idea of like of having Hyperconnect work on AI photo selector for Tinder and then having that work across companies. And normally, like with Tinder, I think in the past, they didn't really want help from other groups. They want to own everything and build it all like organically. In this case, we had such great AI talent at Hyperconnect. They were chomping at the bit to do something great for Hyperconnect. And we saw tremendous success of not only like the code that was being delivered, but the way that these teams were working together and the culture that was like happening between Tinder and Hyperconnect. Now there's like almost like an internal fight around like who can utilize Hyperconnect's abilities. And then being in Korea on the cutting edge of AI and technology, it's like -- it's really become a center of excellence for us.

Let's actually stay in Asia for a second. So Asia, specifically Japan, has continued to underperform over the past few quarters. How do you explain that softness in the Japanese dating market? And can you talk about some of the initiatives you're focused on to stabilize or even accelerate growth from here?

Yes. I mean, I can't really speak to culturally what's happening in Japan. Because previous to COVID, this was a business, with Pairs and Tinder in Japan, that was growing 20% continuously and consistently. And we still were like not really at full like market penetration. So more and more people were trying these apps. And then COVID hit and the business has started to decline and it hasn't rebounded. That, I think, is a little bit perplexing because like Japan hasn't caught up to the rest of the world, where like people are back wanting to get on dates. And for me, it's like really just being tenacious around setting up the right team, the right people, the right product innovation. So like what I'm excited about is like, in this kind of lull in the Japanese market, we've set up the right product teams, a brand-new CEO in charge of Pairs, where -- who's been fantastic with the teams. And then a brand-new head of Asia that's on the ground, Malgosia, who's brilliant. They've been working on what that next phase of growth can be. At the same time, it's like -- we just recently rolled out a TV campaign in Japan. And for those of us -- like in other markets, being on TV is not that big of a deal. But in Japan, it was actually forbidden to be on TV. And just recently, they unlocked TV as a channel for us as a company. And we see this as like a potential unlock with regards to like the government. And usually, Japanese listen to the rules. Like -- I was like, hey, it's great to be on these dating apps. But I do think that they -- what was driving a lot of this decision-making was the birth rates in Japan. And pretty amazing when you think about a mission of a company and what we do on a -- as technologists working at Match Group, that we can impact birth rates in a certain country or a global population. It's really amazing. So this could be a potential unlock for us, but it's still very early. It went live last week, September 1. We were the first company to do it.

So in this context, I also briefly want to touch on the broader macro environment, not just in Japan, but also your other core markets. Just given the volatility we're seeing in discretionary consumer spending, what are your general thoughts around the consumer? And kind of like your thoughts around the health of that consumer into the second half and even into '24? And could there be like a potential impact you have seen on the business, like in the past specifically on like the à la carte side?

I mean, I think this is a challenge that we and any other service or subscription service has been dealing with over the last couple of years, maybe more so in the last couple of months. And that's going to continue into the rest of the fiscal year. I mean, it's really around like providing the best service that then consumers can prioritize their wallet share. It's up to us to provide the best value. And sometimes, like I joke around internally that it's hard to price love or finding that great human connection. But it does come down to like, am I going to spend $20 on this versus filling my gas in my car, versus paying back my college loans? Like we have to earn that dollar share. But if you do look historically at Match Group and the way that our business has performed during these kind of financial pinch time periods, our businesses have remained resilient, especially on the subscription side. Sometimes, that à la carte moment of like, do I spend $10 for that Boost on a Friday night. Maybe you might pull back on that. But like subscription businesses within like businesses that are focused on finding love and human connection, usually, that's like the thing that you want to cut later.

Let's talk about M&A for a second. So since the acquisition of Hyperconnect in '21, it's been fairly quiet for Match Group on the M&A front. How should we think about your opportunity -- or the opportunity around strategic M&A going forward? And what are you looking for in a potential target?

I mean, I'm really focused on our core business. I think there's a lot of like great opportunity, things to fix within our organization more so than expanding the family inorganically. I will say that like we do remain opportunistic and sometimes inquisitive if something like comes on our plate and we have a great team to go after it. The history of Match Group has been really fantastic M&A in the marketplace. Like I do think that we're in this phase, is like focusing on our core business. I don't think we'll have anything big to announce unless it's like a potential tuck-in in our core businesses.

Great. Let's spend 1 minute briefly on app store fees, certainly a topic that is always front of mind when it comes to online dating. There's also the upcoming trial against Google. Just from like a high-level perspective, how do you see the regulatory environment evolving from here? And do you think we're still going to talk about this in 3 to 5 years?

Well, first, like maybe I can take the long-term first, of like in 3 to 5 years. I don't think we're going to be in the same position of like the share that we pay Apple and Google. I think it will be different come that time period. We will still be paying something to those platforms. I do think it will be different. On a short-term perspective, we have DMA coming next year. These platforms are going to have to make some changes. They might react to getting fined or like they will have to wait for the last minute to do it. They might do it by geo or they might go globally. It's generally -- like having run tech platforms in my life, it's usually easier to do things globally. But I do think that there's change that's going to be happening in the next year.

Let's close it off with kind of like your prediction for Match Group. What are you most excited about when it comes to Match Group, specifically over a 1-, 3- and 5-year time horizon?

Yes. I'm going to take the 1 year first, and it's going to be around product and execution across all the different brands at Match Group. I do think we have this like the spirit and this energy around innovation that is palpable. And people are really inspired around things that we can do to innovate in our core services and potentially new apps that could increase the funnel of people that are trying dating apps. And I think we have a real opportunity ahead of us. I would say though, it really comes down to execution, execution, execution. So we have to just continue to prove through that -- like we have to build on our momentum and deliver against execution, especially on Tinder. That's like my day-to-day of like focusing on product execution, marketing execution, and then the people and culture of Tinder and making sure that we're continuing to improve. I'd say long term, I do think that there is going to be an AI aha moment that is going to open the eyes, create tremendous word-of-mouth, something that could be very different than what they've experienced in the last 10 years of dating apps, this moment where it like really clicks and say, "Okay, all the reasons I don't want to try this experience, I'm going to jump in now." And hopefully, that will come from Match Group. But I'm -- I think it will come from somewhere. And no matter what happens, I believe that this company will be really well positioned on an innovation front.

Great. Well, thank you so much for joining us.

Thank you so much for having me. I appreciate everyone's time.