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

Good morning, everyone. Cory Carpenter, Internet analyst at JPMorgan. We have Match Group, Gary Swidler, President and COO and CFO. Thanks for joining us.

Just President.

Did I get that right? It's President. We'll start with safe harbor. So 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 uncertainties, and our actual results could differ materially from the views expressed today. Some of these risks have been set forward in our periodic reports filed with the SEC.

So let's jump right into Tinder, if that works. Look, there's been a lot of focus on Tinder payers, but hoping to start, could you kind of clarify the dynamics in the different parts of the funnel across users, MAUs, payers, et cetera?

Sure. And so maybe I'll sort of start at the very top. The way that we think about this, the very top of the funnel consists of new registrations or new sign-ups, so slightly different than downloads, people actually sign up for the app; as well as reactivations, people who previously were on the app and who left and who come back. The reactivations are actually a bigger part of the total top of the funnel for Tinder than our new sign-ups. So reactivations are a critical component. And oftentimes, when people look at public data, they look at downloads, they don't get the concept of reactivations in there. So that's an important piece of it as well. Those 2 things we refer to as new users. And then users that we retain, of course, also contribute to the monthly active users. So those 3 pieces, new registrations, reactivations and retained users contribute to our MAU. And then MAU comes down funnel into payers and revenue ultimately. And we've had a relative weakness at the very top of the funnel, registrations and reactivations, for a while, and that has flowed more into MAU over time. So if you look at the most recent quarter, for example, registrations and reactivations were down about 4% year-over-year, and MAU is down about 9% year-over-year on a kind of a like-for-like basis. And when you see that MAU number down 9%, what you see is that the registrations and reactivations, having been disappointing for a little while, have now flown through down into MAU. So the way to start to improve those trends is to improve the strength of new sign-ups, of new registrations and reactivations. And we started to see at least stability in those numbers. Down 4%, I think, was certainly a step in the right direction. And so I think those numbers will move around a little bit over time. There's different effects month-to-month, quarter-to-quarter. But I do see some relative stability at the very top of the funnel. I think that will lead to improved MAU over time. And that's why I say, as we make the turn into the back half of the year, I think these trends will lead to improved user growth metrics, looking at new registrations, reactivations and MAU as we get toward the back half of the year. And I think that will set us up better as we go forward.

So you mentioned Tinder had 50 million MAUs last quarter. Just how does this compare to prior peak levels?

I think Tinder peaked at around 55 million or 56 million MAU in late 2022, if I'm not mistaken. We don't focus as much on MAU as others do, just because we're not trying to monetize through ad revenue. So not all MAU are created equal, and therefore, the absolute number of MAU is not specifically in our focus, but healthy MAU, MAU that are beneficial to the ecosystem are. And so we've seen a decline of, call it, from 55 million to just under 50 million, I think, is where it is now. And some of that is self-inflicted. We have made some moves to improve the health of the ecosystem by tightening up some of our policies on our community guidelines. And so that has led to some MAU leaving the system voluntarily, and we're comfortable with that because we want to make sure we have a healthy ecosystem that people can feel good about on Tinder.

Yes, I think you called out about a $2 million headwind from that last quarter. Where are you in that process just around safety, moderation practices, policies at Tinder? Are you done with that? Or could there be more to come?

So I think that a lot of the impact of the actions we took last -- starting last July around changes to the policies and our moderation practices have been working through the system. And so as we get to the summertime, we'll anniversary those effects. But I don't think we can declare our focus on the Tinder ecosystem to be a one and done. I think we understand that people need to feel respected in the ecosystem. They need to feel that people there are real. The people are there to date and not to do other things on the app. And so we need to keep patrolling the app in a very intent way. We already do that, but we'll keep tightening it up. And if we see opportunity to continue to clean the ecosystem to make people feel better about the people they see on Tinder, we'll do that. So we don't have any immediate big actions planned, but we are looking at some different things. And if you take, for example, the notion of mandating face photos, and I think we'd all agree that on a dating app, it makes sense for someone to have a photo of their face, and that hasn't been Tinder's policy up until now. And so if Tinder implements face photos, I'm assuming that there'll be some impact on MAU as a result of doing that because some people who don't have face photos will say, you know what, if they're going to require me to have a face photo, for whatever reason, you can let your imagination run a little bit wild, for whatever reason, they decide they don't want to have a photo of their face, then we're happy to let them go. We don't consider them somebody we want on the app. And so we're going to -- we're contemplating putting in a policy like that, which will have some ramifications. Presumably, people who don't have a face photo, who do want a date and be active on Tinder, will simply add a face photo and that will solve the problem, and they'll be retained as a user. But for those who don't want to, we're happy to let them go.

So bigger picture, you're about 2 years into the turnaround. Could you just talk about the progress you've made, how you feel about that, and then maybe what's been tougher than you expected?

Look, I think we've made some good and important progress. I think that Tinder's execution, planning and team have improved significantly from where they were at the end of 2022. I think we've taken some very important steps. I think if you look at what we did sort of between then and now, we also made some significant strides on the monetization side, pricing changes to catch up to where competitors were. And some other monetization initiatives, particularly weekly subscriptions, which have actually been a huge hit, I think they've been very successful on Tinder. So both of those had led us to back to kind of 9%, 10% year-over-year revenue growth. We're happy with those monetization initiatives. We're happy with some of the safety initiatives that we've added and some of the cleaning-up of the ecosystem features. I think when we look at kind of what's working and what's not in the Tinder ecosystem, I think it's clear there's still more work to do on the product. We've talked a lot about better resonance with women, better resonance with Gen Z. And I think we've taken some steps in those regards, but we haven't made as much progress as we need to make. And so there's more work to be done on the product. There'll be a series of things coming out over the summer and into the fall, both focused on improving profile quality, improving the depths of profiles, which is an important piece for Gen Z, and also improving the relevancy of matches, making sure women, in particular, get the matches they want and get high-quality matches. And so there's work to do on that front. And I talked about some of the safety features as well around face photos and the like. And so all these things need to get rolled out, need to help us make progress on the system. We're aware of some of the concerns that users have, Gen Z in particular has with dating apps. And we need to continue to innovate. We need to continue to adjust the product, adjust to the new generation, adjust to the new realities, and we'll continue to do that. It's going to be iterative, and it's going to take time to get these features into the market. But we're optimistic that as we do that, we'll see the experience on Tinder improve, the satisfaction with Tinder improve, which will help attract and retain users and move down the funnel in the way I described before.

So on à la carte, it's a minority of Tinder revenue, but you saw some pressure there. You called out last quarter, it impacted your '24 outlook on Tinder. Could you just expand on what's happening in à la carte and the initiatives you're working on to turn it around?

Yes. Look, I mean I think that we are not different than a lot of other companies out there where the consumer is facing a bit of a squeeze on discretionary spending and is being a little bit tighter given economic conditions. And especially at Tinder, which is a relatively mass-market app and has a lot of younger people in particular, who are feeling more of the pinch of what's going on in the economy, I think people are being more cautious with their spend. And we've seen that in terms of people just trying to limit how much they're spending on various apps and so forth. And so I think that's really what's going on at Tinder. I think that the smaller number of users obviously had some effect on à la carte purchase as well. But we've seen the amount of ALC being purchased has been declining per user. And so there's a lot of things that we can do to counteract that. And in fact, if you go back earlier when the economy started to turn, we saw a little bit of this. We made some adjustments to the pricing of the à la carte features, to the packages that we were offering, smaller bundles, differently priced bundles of à la carte, and that did have some real impact and helped us for a while. And so now we need to readjust again to the latest realities, and I think we can do that in a lot of different ways. We can roll out some new à la carte features. We think there's room to do so given we only have 2 à la carte features. We can adjust some of the existing à la carte features to make them work better for people. So people will look at those and say, wow, this is working better, it's adding more value. And therefore, the sticker on it, the price on it makes sense, and I'm willing to make the purchase. And we can make sure that people see the benefits of what we're offering well. And also, we're looking at taking some specific features out of subscriptions and also introducing them on an à la carte basis. So we've got to watch cannibalization there. We don't want to cannibalize subscriptions with à la carte. But I think there are some features that really could resonate with people on an à la carte basis that currently aren't offered that way. So introducing new à la cartes entirely, offering things à la carte for the first time and adjusting the way we offer things pricing-wise, marketing-wise, are all tools available to us. I think we have 5, 6, 7 things along those lines that we're planning to roll out over the course of the coming months. And I think we'll see improvement in à la carte as we get to the back half of the year as well.

So on the subscription side, you did a lot of price increase last year. That was a big focus. You've had a few quarters now to analyze the impact of that. You mentioned weekly earlier. Any evidence that you perhaps took price too much or too little in certain geographies? Just kind of thinking more broadly what your postmortem is on price increases and weekly subs.

Yes, it's interesting, we get that question a lot. And it's something that's not debated internally, meaning when we look at all the data internally, we feel that the pricing increases and changes we made were clearly revenue enhancing and clearly the right thing to do. So we don't have any concerns along those lines that there are really any issues. I mean you can always adjust pricing up or down a little bit and get different effects, so we'll continue to make these adjustments. But when you look at what had happened, and people probably remember this, when everyone kind of raised their subscription price, the Apple TV and Netflix and on and on and on, Tinder really became gapped out pretty significantly from some of the other competitors and from -- where more typical subscription offering prices were. And so we reduced the gap significantly. We actually didn't close it, so they're still not right on top of some of the competitors and the demographics are different. There's lots of reasons for that. But ultimately, we closed the gap. And I think what we did absolutely made sense in terms of where the competitive landscape was. And we monitor very closely what the impact is on revenue. So we did see a significant decline in the number of payers, as you would expect when you raise prices, but we did see overall revenue go up consistently. And the retention rates of those packages has been very strong as well. So we feel very good about those decisions. It's created a lot of noise in our payer count, which has been complicated for people to get their arms around, and I understand that. The only -- the 2 bits of good news are, one, I think it was significantly revenue enhancing; and two, we're basically lapping those more complicated payer comparables now as we get into the second and third quarter of this year. So that noise is going to die down. And all of the stuff we've done to make adjustments to the Tinder ecosystem, a lot of this will be behind us as we get through '24 and make a turn into '25. And I think that will also make the business easier to understand and for people to get their arms around and see the true trends in the business.

And then sticking with payers, so you did reiterate, you said Tinder payers turning -- net adds turning positive in 3Q. It sounds like you're lapping the price increases. But could you just talk about what's underwriting your confidence in the improvement in getting to that positive net adds?

I mean I say a lot, we don't really love talking about sequential payers. I think at this point in Tinder's life cycle, it's really not that meaningful a metric. But I know there's tremendous focus on it, and we do believe we're going to get Tinder payers to be positive net adds in the third quarter. And the reason for that is that I look at this on a year-over-year basis. And when you look at kind of Q1, payers were down 9% or so. I think it will be similar in Q2. To get sequential adds in Q3, which tends to be one of the strongest quarters of the year, we have to get to about negative 7% year-over-year on Tinder payers. And between some of the user trends that I described earlier, some of the product initiatives that are in the road map, the fact that Q3 tends to be a strong quarter for us, all those things, I think, give me confidence that we should be able to achieve 7% or better year-over-year growth, which will lead to the sequential growth that people are very focused on. And so we appear to be in a position to do that today. Since we reported earnings a few weeks ago, the trends have stayed strong and stable. So we feel good that there's nothing different than what we saw when we reported earnings a few weeks ago.

And then a similar question, but on 4Q, you talked about the path to Tinder payer growth on a year-over-year basis getting a little more difficult, just given the slower start to the year. Curious on your thought process there, why not walk that guide back last quarter? And do you still think that's a real possibility?

Yes. I mean I think you framed it correctly. When you start the year down 9% in the first quarter, and we're not expecting a lot of progress off of that number in the second quarter, it makes it harder to get where we want it to be, which was to be positive year-over-year by the fourth quarter. There's still a path to get there, but I think the path has clearly become narrower. And so what I'm looking for really in the business is improvement in these payer numbers as we get through each quarter of the year. So I'd like to see us go from negative 9% to at least negative 7% to something that's better than negative 7% by the fourth quarter. I think there's a path to being positive. But I think if we can get close to positive, that would be a good outcome and that will position us for continued progress as we make the turn into '25.

Okay. And then 2 more on Tinder, and we will talk about your other dating brands as well.

I'm used to it.

So just could you expand a little bit on the products or conversion initiatives you think could be most impactful on the payer side in the second half of the year?

Yes. I mean I think the way to think about Tinder's product road map is there's not sort of one single thing that's going to happen that's going to change the revenue picture, the payer picture or the user picture. I think that there's a number of adjustments that have to happen. We talked just on the à la carte side, about 5, 6, 7 things are going to happen there, pricing adjustments, offering adjustments, new initiatives. I think that's the right way to think about the rest of the road map as well, a series of initiatives to improve realness so people feel like the people they're meeting are there for dating; a series of initiatives to improve relevancy, so people meet the people they want to meet; a series of initiatives to improve the onboarding process so that your profile is easier, you get your best pictures front and center. There's a lot of different things going on at Tinder, but there's not 1 or 2 or even 3 things to call out. It's a series of things in each bucket of the objectives that need to come together to make Tinder feel that it's catering to younger users, catering to female users, feel safe, feels like a good experience, feels like the efficacy is there, meaning the effort that somebody puts in to get the matches that they want to get out on dates that they want to get out on is a good equation for people. And that's where I think there's room for improvement at Tinder. And overall, the team is very focused on delivering all of that.