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

Good morning, everyone, and thank you so much for joining us. My name is Nathan Feather, and I am Morgan Stanley's small and mid-cap Internet analyst. I'm excited to be joined today by Steve Bailey, Match's new CFO. Thanks so much for joining us today.

Glad to be here.

Before we begin, a few quick housekeeping items. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. And with that, let's get started. Congrats on the now official promotion.

Thank you. I guess its been a long time in the making, but it is official, yes.

Certainly a long time in the making. For those who aren't familiar with you, can you give us a quick overview of your background and the perspective you bring to the role?

Yes. I've been with the company a long time, 13 years. The year I started was the year Tinder was created. So it's been a wild ride. I've learned a lot. I know the business inside now. I spent a number of years in the brands and FP&A roles. And the last few years, I spent in a corporate FP&A role and running business operations where I worked closely with Gary Swidler, my predecessor and the IR team, and I feel very well positioned to take on the role.

Okay. Great. Well, Match announced today that Gary is stepping down as President, and Hesam Hosseini will be promoted to COO. Can you provide some color on the driver for that change? And what will Hesam's primary goals be in the new seat? And then now that Match has a new CEO, CFO and COO since the Investor Day, all of the company, but slightly different capacities. What, if anything, has changed from that road map?

Yes, we did announce this morning that Gary Swidler, many of you who know will be stepping down from his President role effective April 1. That's part of a thoughtful transition. He felt like now was the right time with me stepping into the CFO role. He's been a mentor to me. He's really set me up for success. I've worked with him for many, many years. and very closely since we announced my transition to CFO in October. And with Spencer coming on board and with Hesam taking on the CEO role effective April 1 as well, he really felt like now was the right time. So I wanted to say thank you to Gary. He's been instrumental to me and to the company for many years, but he's also left the company in great hands.

Okay.

In terms of the -- let me just take the second part of the question, too. In terms of the strategy, that does not change. We laid out a very compelling strategy at Investor Day, clear financial targets, strategic path for product and marketing that we're executing against the next 3 years. That is all intact and unchanged. And the focus now is really on execution. And we think this new leadership team is the right one to ensure our success.

Great. Well, I want to start a little more high level here. There's been some industry-wide pressure on user growth, particularly when it comes to Gen Z. And I should hear what's your diagnosis of that weakness, the primary issues and what are the potential solutions you're working on?

The way I think about it is Gen Z, what Gen Z is looking for in a dating app is different than what millennials or other generations have been looking for. That may be partially to do with their experience during the pandemic, which changed social patterns and norms. They're looking for lower pressure forms of dating, more social ways to connect with people. They've also just set a higher bar for dating apps. They want them to be safe. They want them to be effective, and they want them to drive the outcomes they're looking for. And we're really focused on evolving our products to meet those evolving needs and expectations.

Okay. Great. Now let's switch over to Tinder. You outlined a robust 2025 road map at the Investor Day. If we jump forward 12 months from now, how does the experience feel different to users? And what does that translate to from a KPI perspective? And to get there, what are the biggest challenges you see on the way?

Yes. What's interesting, I think and exciting is that 2024 was really a year on building the foundations within the Tinder product in particular that are allowing us to launch these innovative new product features this year in '25 that's really you're going to see as a user. It's going to really start to change the way you interact with the product. And I think that we're going to -- we're excited about it. We think we've got a great road map ahead of us, and we're looking forward to seeing how it resonates with users. Features like AI-enabled discovery, which is a curated set of matches outside the core swiping experience, features like double dating, which is a feature within the core swipe experience that allows you to pair up with another person and swipe on other pairs and get you out on a double date. I think those are all exciting new ways that will make the Tinder experience feel more dynamic, more new, more fresh, more fun. Those are all things we're working on. Ultimately, what we think that does is it -- depending on the feature, it affects specific KPIs differently. For example, AI-enabled discovery, it's really around match quality, improving the recommendations through AI to get you better matches faster. Dual dating, for example, or double dating, for example, is more about user engagement, a fun new way to interact with the app. All that will translate over time to improving MAU trends. That's really what we're focused on. What we've said is MAU trends will improve throughout the back half of the year as we roll out these product features. It's important to know that it's not only -- it's not one feature per se that's going to change the trajectory of Tinder. This is really a laddering of features that will build upon one another to really change the overall experience. That's what gets us back to more sustainable MAU and revenue growth over the next few years.

Okay. Great. And speaking to MAU growth at earnings, you called out a strong start of the year at both Tinder and Hinge. Have those trends persisted as we move through the quarter?

I've been happy to see that the peak season trends have largely persisted. We had a good solid peak season at both Tinder and Hinge in terms of downloads. Really, what we're talking about in terms of peak season trends is downloads and MAU, where we said Tinder's MAU continues to be stable and even show a little bit of signs of improvement. That remains true today. So that's a positive, although I will say that it's still early, and we have to sort of see how the post peak season user and MAU trends play out. I think it's still too early to call that one. It's only been -- our peak season ends with Valentine's Day. So it's only been a couple of weeks, and we're looking at it very closely, but peak season was good for us.

Okay. Very encouraging. And I want to talk about some of the features on that road map that you hope to get MAU growth to accelerate through the year. And one of those, you started talking about testing new forms of discovery outside of the traditional swipe model. And short term, what are the main goals of trialing some of these other formats? And long term, could shifting away from the swipe format makes sense? And are there any historical parallels you draw here?

Yes. Look, I think the core swipe experience is not going away anytime soon at Tinder. It's so core to the brand, to its ethos, and it's a powerful model that works well for a lot of people. What we're trying to do is look for ways to augment that core experience through features like AI-enabled discovery, which is outside the core experience, offers a more dynamic set of features that users can take advantage of depending on what they're looking for in the app. So for example, a curated set of matches really resonates with women. They're looking for more quality over quantity. They're looking for better matches, and we think that feature will do just that. So I wouldn't say it's a rethinking of the swipe. Maybe I could draw parallels to you've seen this in social media, think of like Instagram, where they've added features like stories where they've used more video format. They've evolved the products as users' tastes and expectations evolve. That's what we're looking to do at Tinder while keeping the brand ethos and the core product intact.

Okay. And another key debate here has been to the extent which you can monetize further. And interested to hear in what areas do you believe Tinder could offer additional value-add paid options for users. And in 2025, what are the primary monetization initiatives you're working on?

Yes. The way to think about it is 2025 is really around monetization optimizations. So optimizing our existing feature set through package mix, merchandising, things we do every year optimizations. I think what's interesting is these new AI-driven features are focused on user growth in the near term and in 2025. But do, I think, will definitely offer opportunities to put some of those features behind the paywall in some form or fashion in '26 and '27. If we're creating features like AI-enabled discovery that are adding value to the experience, we can monetize that. That increases the value proposition of the app. And so I do think we haven't had those new feature sets to monetize in some time at Tinder. And this will open up a whole new avenue of monetization, not for '25, where we're focused on the optimizations, but certainly over the long term in '26 and '27.

Okay. Great. Now we talked a little bit about product, a little bit about monetization. Another one of Tinder's key priorities for 2025 is fostering a clean ecosystem. And so part of that is increasing the bar to sign up with things like liveness checks and requiring face photos. How do you find the right level of friction during the sign-up experience, balancing profile quality versus quantity. And then do you expect these changes to have a meaningful impact on user growth for the year?

First, fostering clean ecosystem is a critical pillar of Tinder strategy. That remains intact. Spencer believes in it wholeheartedly. It is something we need to do for the long-term health of the business, not only because it's ethically the right thing to do, but because it makes business sense as well. And so we'll continue to focus in those areas. You're right, we have a couple of specific features we're testing now, biometrics in Canada and mandated face photos in select markets. And it is a balance. What we're trying to do is maximize their effectiveness for removing bad actors while minimizing the friction it causes with good users who want to keep on the app. And so that is why we're being so methodical in our testing, and why we plan to test and iterate until we get those feature sets right to minimize that friction you described. And look, we think there is a -- we're not going to shy away from it. To the extent it does cause some short-term MAU and revenue impact, we're willing to deal with that because it's the right thing to do for revenue growth and user growth long term. We'll be transparent about it and communicate to all of you. But we're also going to be careful and methodical and to see -- to find ways to minimize its impact for good users and revenue.

Okay. Great. And one more on Tinder before we move on to some other brands. Can you give an update on Tinder's unbundling efforts with Passport and like you? And what are the key learnings you've unlocked to date? And how does that inform your a la carte strategy going forward?

Yes. We did talk a lot about optimizing our ALC feature set and introducing some new features. First impressions is a good example of a feature that we have tested for some time. It was somewhat cannibalistic and wasn't having the revenue impacts that we had hoped. We continue to test it and optimize it to reduce that cannibalization, and we were able to successfully do that. The feature is now rolled out 100%. It's improving match rates. So people who send a first impression with their like are more likely to get a match. So it's adding value to the user experience, and it's generating some incremental revenue for the business. So it's a good example of how, while a feature may not work on V1, we can continue to test and optimize and make -- ultimately roll it out in a way that's beneficial for users and for the business. And Passport is another example of where we'll do the same. We're still testing that feature, and we'll try to find ways just like with First Impressions to reduce cannibalization, add value to users in the business before rolling it out. I would say that these new features are a small part of the revenue expectation for the year. Really, the improving revenue trends at Tinder are going to come through those monetization optimizations of existing features both subscription and ALC, not so much the new ALC features, although hopefully, they can add a little bit of incremental revenues here.

Now let's talk Hinge. Hinge continues to be one of the best-performing brands in the space. And with that being said, revenue did decelerate a touch as we move through 2024. What drove that? And how you gained conviction in the ability to reaccelerate growth as we move closer to the $1 billion revenue target in 2027?

Hinge has been a fantastic story and an incredible acquisition. It's still -- user growth has been extremely solid and continues. It's resonating in all the markets it's entered. And it's really a fantastic business that's bucked the trend in the category, as you know. It did see a little bit of a slowdown or deceleration in revenue growth in the last couple of quarters, and that really has to do with the timing of their monetization initiatives. They focused -- they shifted focus a bit in the back half of last year really on innovation, product innovation, that's leading to these great new AI-driven features that are rolling out in the next couple of quarters. And that's -- but they have a really balanced, I think, monetization, optimization and innovation road map this year that's going to reaccelerate some of that revenue growth. So the revenue acceleration or reacceleration really comes through executing on that 2025 monetization optimization road map that we feel very good about. And I'm very confident in our ability to continue on the path to $1 billion in 2027.

Okay. And I want to dig in just to touch there. Can you give more detail on what some of those monetization initiatives are? Is it more so on new features and subscription tiers or about really optimizing that paid experience?

Yes. The monetization road map is around optimization, not around new monetization features per se. They're very early days here. They really focused more on user growth given the life cycle of the business, and there's a lot of room to improve monetization, both in the core and international markets through things like package mix, pricing and pay-walls. And that is the road map for 2025.

Okay. And then one more on Hinge here. International expansion has been the key tenet of that story over the past few years, especially as we think about kind of Continental Europe. Hinge plans to expand to a few new markets, particularly in LatAm over the course of 2025, particularly the back half. How should we think about the magnitude of investment and impact to back half AOI as you make some of those early investments in scaling up markets?

Yes. They've had a lot of success in Europe, as we said. They're going to continue to focus there. It's still very early days. One of the things that's encouraging is that still a very small amount of the revenue comes from Western Europe. So while they've been on it for a couple of years now, there's still a lot of room for growth there and will continue to be a focus of marketing. We're going to add to that a couple of new countries, Brazil and Mexico, in the latter half of the year. It's a relatively small investment from a COA perspective. And we're not expecting it to have a meaningful revenue impact in 2025 either, but it continues -- it's a new continent they're entering. We expect it to resonate well there too. And it sort of continues them down the path of being a more global brand, which is necessary to get them to the $1 billion in 2027. I think a lot of the revenue growth and investment will still be focused on their core markets in the U.S. and other English-speaking markets like Australia and Canada and in Western Europe, where they've got a lot of runway to go.

Okay. I do have a few questions on Gen AI, where you've been increasingly active. What areas of the online dating experience do you believe Gen AI can really transform? And then what do you see as, let's say, one, the most underappreciated opportunity; and two, the most underappreciated challenge as you start to launch and integrate more Gen AI features within the product.

I really think AI can transform almost every part of the online dating experience from onboarding all the way through to post match. So it has a lot of practical applications for our business that you're going to start to see us take advantage of. And so there are many features, we've talked about AI discovery, for example, that's going to affect the discovery experience. You've got also behind-the-scenes algorithm improvements at both Tinder and Hinge that are just going to get you better matches through AI, and you're starting to see a thread around coaching at Hinge, where we're going to help guide a user through the dating journey to help them find more success.

Okay. And then talk to me about those challenges and where you think that Match really needs to focus on as you start to launch some of these? And then what are kind of the key opportunities, maybe most underappreciated opportunities?

I think the challenge for us is to ensure we do it in an authentic way, right? So utilizing AI to improve human connections, not to lead to an inauthentic or inhuman connection experience. And so it's about augmenting human connections. That's a core principle, not replacing them. And the challenge for us, and I think I'm confident we can do it, is to find ways to help lead users to success, but it's always really built around human connection. I'll give you one example. Prompt feedback, for example, we're not -- AI is not writing the prompt for you. AI is giving you feedback to help you write the prompt for yourself better. That's an example of focusing on authenticity and human connection that will always be core to our mission. In terms of opportunity, I think AI could be really transformational to both Tinder and Hinge and to our portfolio at large. The last time I've seen a technology like this was during -- when Tinder took advantage of the smartphone. We really haven't seen, we've been waiting for the next technological advance that gives our product and engineering teams the room to sort of rethink and reimagine what the product experience might be and to really start addressing user pain points. And so I think it could really transform the industry, the category and our business, and that's what we're hard at work doing.

Okay. A lot of opportunity there, but also associated with especially some of these Gen AI features comes real investment. And so do you feel you have the right engineering capabilities to meet your pipeline? Are you hiring? And then in some of the early Gen AI features you've launched, how is the ROI compared to a more traditional product development?

Yes. I think we do have the right resources. We were hiring at Hinge. We're hiring at Tinder. We hired Will Wu last year as our CTO, who's built out a central AI and innovation function. We've got great AI talent in South Korea as part of our Hyperconnect business, where we've taken a pool of 25, 30 engineers that are working on centralized products that brought us, for example, Photo Selector. They're very talented. They're less expensive than they are and easier to find and retain than in the United States. And that's been a huge win. I think we can leverage that even more than we do today. And so I do think we have the right investments. Obviously, the cost, the OpEx costs associated with AI is changing and evolving. There are signs that it can be coming down -- should be coming down. And so while the OpEx investment in '25 is within our guidance and in our investment plans, the hope is that as we ramp up these AI features over the coming 2 years, those costs will also come down, which will help us from a margin perspective. So I do feel like we've got the right level of investment certainly to achieve the road map we've laid out for 2025.

And speaking of margin, one of the big announcements at your Investor Day was the Power of Portfolio Plus or PoP+ initiative. Now on the cost side, what are the major milestones we should be tracking through the year as you roll out that initiative? And how should we think about the magnitude of cost savings you're looking for?

I think the first thing I want to be clear about is PoP+ margin improvement is not a part of our 2025 margin guide. So we're not counting on it to hit our 50 basis points of margin expansion. That said, we are hard at work on the project. Hesam is going to take over leadership of that project from Gary. He knows the business very well. I think it's a benefit to have an operator leading that project forward. We are -- we've already made a lot of progress. Spencer is very involved personally as well. So it is a big part of the 2025 thinking and execution. I think if we can accelerate some of that into '25, that offers either margin expansion opportunities or reinvestment opportunities. And so we'll see whether we can accelerate that project and whether we reinvest it or let it drop to the bottom line, but it's certainly something we're hard at work at. I think in terms of where you'll see it, what we're looking to do is reduce duplication. We're looking to find ways to improve efficiencies within the organization. It's not just a cost consideration. It's also a way to improve efficiency and ultimately to accelerate growth. We're looking at G&A, in particular, pretty carefully, what functions we should centralize versus keep at the brands. If you think about our history, we've been a little bit of a loose collection of states. We're in a hybrid model where certain functions are centralized and certain functions are held at the brands. And we're rethinking all that now. I think Spencer brings some good insights from his prior roles as CEO of Zillow. He co-founded Zillow and he oversaw the growth into Zillow Group, which included acquiring 17 brands, I think it is, and building out Zillow Group as a public company. And so he's seen a lot of these same things and been through what's centralized, whatnot, how do you work as a fully integrated team to unlock efficiencies, cost savings and revenue opportunities. Those are all the things we're looking at.

And on the margin guidance for the year, you've guided to 50 basis points or more of AOI margin expansion, tracking a bit below that for the 1Q guidance. Given that, how should investors think about the slope of AOI margins over the course of the year? And what would lead to upside from your expectation?

Yes. A couple of things. One, there's seasonality to our margin that we see typically every year. We see margins lowest in Q1. That's when we spend up on marketing during our peak season. We see margins improve throughout the year, typically better in Q2, Q3 and then the highest in Q4. I'd expect a similar seasonality this year as we've seen in years past. And I think in terms of, yes, we're confident in our ability to increase margin by the 50 basis points we talked about. Some of that comes through improvement in revenue trends throughout the year and the natural operating leverage we get in the business. And some of it has to do a little bit with the timing of marketing spend, which can vary year-to-year aside from the seasonal component I talked about, just based on when we're launching campaigns across our various brands. And so it's really those couple of dynamics that makes Q1 be a little bit less -- lower than you would otherwise expect, but that we're confident in achieving the full year target.

And what would lead to upside to the extent you're able to drive above that 50 basis points of margin expansion?

Yes, I think that's what I talked about with PoP+. I think that's the biggest one. Obviously, where we land within the revenue range and the natural operating leverage we have in the business is a factor, but also PoP+ is a big lever, too. So again, we're not counting on anything from that project. I would say, moving faster than we originally contemplated, and so that could prove to lead to some upside there.

All right. And can you walk us through the puts and takes of your 1Q revenue guidance as well? What would lead to the high end or the low end of that range you shared at earnings?

Yes. I think we feel good about the guidance we put out and how the year is progressing. There's always some puts and takes to consider. FX is a big one, which has swung around and had meaningful impacts on our business. So we'll have to see how that plays out. We use the forward curves as part of our forecasting process, and we'll see how the FX plays out versus that expectation. And I think the -- probably the other variable is really around that monetization optimization road map and how those tests play out when and where we get wins, that can cause some variability within the range. But I think largely speaking, we feel good about the guidance we gave for Q1. And also -- I'll just take a second to talk about the full year and say peak season was within our expectation and solid at Tinder and Hinge. And none of our -- we're on track with our product road maps. We're delivering the product features we talked about at Investor Day and reiterated at the earnings call at both Tinder and Hinge. So things are on track. Execution looks good. And so we feel good about the full year guide as well.

Okay. Now we've talked a lot about Tinder and Hinge, but obviously, the Match Group portfolio is much wider than that. Outside of those 2, what brand are you most excited about over the next year? And then if we zoom forward over the next 5?

Yes. I think there's a lot of exciting things. You're right, within Match Group that don't get the airplay that a Tinder and Hinge gets. E&E is executing on their consolidation road map and consolidation efforts. things are going well. They're about to consolidate some of the bigger apps, namely Meetic and Plenty of Fish later this year. So it will be exciting to see E&E as one consolidated platform by the end of this year. It's a good use case for initiatives we could think of more broadly across the portfolio. And so I'm excited to see that. They've also had success with acquisitions, tuck-in acquisitions that they put on this consolidated platform. I think that's an interesting playbook for us going forward. I'll give you one example, which is Salams that we purchased, and we've grown revenue there 50%. We're about to put that on the consolidated Match platform, which will improve profitability and margins. And I think that's an interesting play going forward once we have their consolidated platform set up from a technical perspective and the organization that supports it, and they really have this build once, deploy everywhere strategy to not only reduce costs, but improve revenue efficiency and product throughput. I'm excited to see how that plays out when all that consolidation work is done. And then I would say within Asia, we've got the Pairs business. What's interesting there is that finally, we see some green shoots within the Japanese market that's been so tough post pandemic. We've seen user growth within Pairs for the first time in a while. And so we're not expecting a lot of growth out of that brand, but we're hoping to see continued stabilization that obviously helps the overall revenue growth of the company. And then Azar, which is our South Korean one-to-one video chat app also is doing incredibly well. They expanded into Europe recently, and that's gone well. And they expanded into the U.S. late last year. So we're looking to see how that product resonates in the U.S. market. I think it should resonate well, particularly with Gen Z because, again, it's one of these lower pressure forms of connection they're looking for.

Capital allocation, you plan to return at least 100% of free cash flow to shareholders in the next 3 years. With the new dividend, how are you thinking about the relative size of the buyback versus the dividend? And then Match has a long history of acquisitions, as you just noted. And given that high return to shareholders, what's the appetite to do additional M&A from, let's say, those smaller tuck-in acquisitions to maybe something a little larger?

Yes. Our focus remains the same, which is, first, to invest organically in our business to drive growth, sustainable growth and improving margins. Second is to return capital to shareholders through both share buybacks and the dividend. What we've said is we're going to give back 100% of free cash flow to shareholders, at least 75% of that will come through share buybacks. So that will be the primary source. But we've also introduced recently a dividend that we think is a more consistent and predictable form of capital return that some investors are looking for, and you're seeing more tech companies do it. So primarily through stock buybacks, but also through the dividend. And we think that's the right balance for us right now. In terms of M&A, we'll continue to be inquisitive as we always are. We're looking very closely at new technologies, new product experiences that could resonate particularly with women and Gen Z. And we're also looking for these tuck-in acquisitions, like I mentioned with Salams, other opportunities to put niche or demographic-specific apps onto the E&E platform, I think, is a great strategy for us. And it's a way to sort of unlock revenue growth, but also margin and some of these subscale brands by putting them on a consolidated platform. And so that's really the focus right now. Of course, Spencer is coming in. He's been here for a month now. He's going to have to look at all this and put his experience and perspective into our strategy going forward, but that's the plan for now.

Okay. Well, we've covered a lot of ground here, a lot of different topics. Bringing it all together, what are the 1 or 2 things you think investors most underappreciate or misunderstand about the Match story?

I would say that AI can be completely transformative for our business. I think some investors understand that and some investors maybe underappreciate it. As I said earlier, I think it's a technology akin to the smartphone that Tinder took advantage of and really changed the category. And so I'm extremely excited about what AI can do for our business. I think it will touch all forms of the product from onboarding through to post-match and collectively really change the product experience, addressing both user pain points through practical applications like Photo Selector, I'll give you an example. A user on Tinder spends 3 minutes trying to pick their photo. It's a stressful -- I don't know if you guys have tried it, but it's a stressful thing to do. Photo Selector can go through your photo reel in seconds and provide you with the best photos for your profile based on what it knows works on the app. So solving user pain points, real practical application of AI, along with bringing fun and new dynamic experiences to an app like Tinder, such as through AI-enabled discovery or through dual dating, I think could really change the game for dating apps and really address and evolve the products to meet the needs of Gen Z and today's dater. So I really think the utilization of AI can change the trajectory of our business and get us back to sustained growth.

Okay. Let's leave it there. Steve, thanks so much for joining us today.

Thank you. Appreciate it.