Grindr Inc. (GRND) Earnings Call Transcript

Hello everyone, thank you for joining. I'm David Harkin from JPMorgan here with George Arison, the CEO of Grindr. Thank you and welcome to the conference all.

I thought we would start with just given all of the kind of press recently around the dating sector, maybe just to cover, George, your thoughts in terms of the evolution of Grindr, and where it finds itself today against that landscape of the broader dating company landscape?

Totally. Thanks for having me. I'm excited to be speaking here. We have been saying this now for a while, but we also think it's really true that Grindr isn't just a dating app, it's a dating app and a lot more. It started out as a product for a casual encounter. That was kind of the initial use case at, which it excelled and that's how it gained a lot of traction from users, and became this ubiquitous product in the user base where brand recognition is like 85-plus percent in the United States. Most gay and bi-men in some fashion or form have come in contact with Grindr at various points in their lives. That was kind of the beginning. Over time as more and more users joined Grindr, and now we're at nearly 14 million users. We've gotten people using it for many different use cases. But the product itself hasn't really evolved, to support all these different use cases, so people basically hack the product, for other things that they want to do. Based on our internal research, about 1 in 4 gay relationships in the U.S. start on Grindr, but we offer no dating features as an example, right? It's still just that simple, here's the grid, and you can talk to anybody you want in that kind of open architecture way. So we are used in a lot of different ways. We have a very broad range of users among many different age demographics and young users, and by that I mean 18-plus year olds, as they become 18, or when they finish college, actually very actively come into Grindr. So whereas our social media products kind of, would normally lose that young generation to something else, like people go from Facebook to Instagram, Instagram to Snapchat, et cetera, we've never experienced that as an issue, and young people still coming back to the app, partly because of the community feeling that the app has, and people wanting to be around more people like them, which is something you don't have in the real life if you're gay. And so that's a thing that Grindr offers to them, and why they keep coming back to us. I think that this general sense of like, Gen Z doesn't want to date online, is not really that accurate. I think what Gen Z wants, is product innovation and that's what they're really striving for. Innovation includes kind of connecting in real life with digital and Grindr already does that. So I think we're very lucky in that sense.

Maybe talk a bit just with that view in mind of kind of comparing, to some of the other legacy platforms. Where are you focused in terms of product innovation that you think, is different from some of those legacy platforms?

Totally. So we have an Investor Day coming up in 5 weeks or 6 weeks on June 26. So everyone should come and listen to that in New York, because we're going to actually have a fairly detailed look into our product road map, probably more so than most companies would, because I think it's really important. In a bunch of product areas, I think what's really applicable to us is this analogy around copper wires and cell towers in China in the early 1990s. Where you could like choose to build copper wires, and try to build it, capabilities for landlines, or you could say, I'm going to take a risk on cellphone towers, because that's probably the future for how communication is going to be. So we have to make similar decisions around some of the product road map, for example, dating, right? We could build a dating product that is good enough for where the world was in 2023, or we could build a dating product that is AI-first, and what dating is probably going to look like in 2027. And I think we need to really innovate and do the latter. That's probably the bet that we should make. So the way we think about product innovation, is core use cases. So things that already happen inside Grindr, obviously, dating is one, for example, friendships and social connections is another one that Grindr is used for a lot. And then travel, is another really big one. Our users travel a tremendous amount. They have high disposable income. Most of them don't have children, so they are able to be more flexible with travel. Not surprising that they're on the road a lot. And so, building features for those use cases, is kind of 1 set. And then there are adjacency use cases that are not as connected to the product, but make sense given the relationship that we have with our users. Our users spend about an hour in the app a day. They send, last year they sent 121 billion chat messages in the app. That's more chat messages on a per user basis than WhatsApp. And so we have this connection to them, why not cater them with other things that they need that make sense from the perspective of what we do? Whether it's in healthcare or in other adjacencies, we have an opportunity to do some really interesting product innovation and that's another area where we are spending some time.

As you think about innovation, what struck me over the last year plus is the innovation, not just on the product side, but also in terms of the subscription experience for your users. Maybe talk a little bit about, how you've thought about the subscription experience, and where that will head over time?

Totally. So for background, we make money both for subscriptions and through ads. Roughly speaking, 85% of revenue comes from subscriptions and add-ons, and the remainder comes from the ad business. We have 2 primary subscription tiers today. We call 1 extra and one's unlimited. What they really offer you is more profiles. I mean, there's other features, but the differentiator is on profiles. If you're a free user, you get a hundred profiles around you. If you are an extra subscriber, you get 500. And if you're an unlimited subscriber, you get unlimited number of profiles. Extra is $19.99 and unlimited is $39.99. When we came in, a lot of us as the new management team felt like $19.99, is a very high price point as the entry point to the product. And so, we wanted to experiment with a cheaper price point. So we ran various experiments and monthly cheaper product, and then also a weekly extra, where people pay for the extra product and get all the things you get an extra. But on a weekly basis. Users were very loud and very clear that they prefer the latter and not the former, meaning they wanted a weekly product. It's $12.99 a week, which intuitively doesn't make sense, because it's a lot more than $19.99 a month, if you spend it over 4 weeks. But for our type of an experience, it seemed to make sense. And one of the things that people like about it is the immediacy, right? There is a desire to have immediacy inside Grindr. Like I'm traveling this week and so I want to pay subscription this week, but then I don't need it when I'm at home. So weekly works really well for that. And what we saw is tremendous growth in people who hadn't been paying ever before now becoming subscribers on the weeklies. And then coming back and re-subscribing either immediately or several weeks later. So reactivations also increased. And the result was that we saw a significant growth in the number of total people paying on the app. And obviously our ARPU went up as well, because it's a more expensive product on a normalized and a monthly basis. Cannibalization was really low on that from our monthly. That was also great. So last year we did extra weekly and then this year in March we launched unlimited weekly as well. That's obviously probably less impactful than extra, because people who subscribe to unlimited are wealthier, high disposable income, probably less concerned about the monthly versus weekly pricing, but we're seeing really positive results there as well.

You mentioned the revenue complexion, being part mostly subscription and partly advertising. Can you maybe talk about the advertising product, kind of where it is today and where you see it going over the next few years?

Totally. So Grindr has always had an advertising product. Grindr's origin story is quite unusual. It's a single founder, has this idea starts a company. He's not an engineer, so he's a marketer. And the company just takes off. For years, he filed taxes for Grindr on his literally personal tax return, like that level of individual company. And so from day one, he had to be profitable like, because there was no way to pay for it otherwise. And so, the ad business is how they initially became a profitable business. And so, we've always had that as a business. And then only later did the subscriptions launch, and then kind of grew a lot more. We have 2 types of advertisements on Grindr. Direct ads, where we partner with an advertiser to offer ads in the product. And that's about 1/3 of our ad revenue. And then indirect ads, or what you'd classify as like third-party ads, which come from third-party servers like Google, which are 2/3 of our ad revenue. The latter is not beloved by Grindr users, would be fair to say. Because they're not very relevant. And they're not relevant, because we share no information about our users with third-party advertisers. And that's because privacy, is such a critical piece of Grindr. We have about 1/3 of our users are discrete. We operate in 60 countries, where it's illegal to be gay. And so, protecting their privacy is really important. And that's just a choice that we make -- in terms of sharing information. And then, we only have like 1 type of an ad format. And we are told a lot by advertisers that they want a lot more. So we spent a lot of time last year, kind of figuring out what the ad strategy should be, and can this be a much bigger business than it is. At the minimum, we wanted to keep up with the direct business, meaning the subscription business, in terms of growing at the same pace as the subscription business. And maybe there is upside beyond that for it to grow more. Obviously, one of the ways to do that is to convert a lot more of our third-party ads into being direct ads. And we need to do things for that, meaning we need more ad formats. We need a sales team that's much more active in going out there and selling this opportunity to advertisers. But we also need advertisers to come along the journey with us as well, right? It's really convenient for almost every big advertiser to issue a statement in June about pride. But they're not often going to put their money, where their mouth is in actual spending. And so, we need them to kind of work with us on that. So we think advertising can be a very significant contributor to our revenue growth. And obviously, it is an even bigger contributor to EBITDA, because we don't have to pay the Apple tax on that. And that's obviously really beneficial as well. And given how underinvested it was, it makes sense to continue investing in it, and see what we can do with it.

You mentioned user safety as being a core focus. Can you maybe just talk about where, particularly today, where you're focused in terms of data privacy, user safety?

Yes, so Grindr's always actually been quite good about privacy. We don't share information with advertisers, for example, that almost every other app does. We probably get no credit for that, because I think users still think that we share the information even though we don't. And then, we actually don't require you to have a photo when you register an account. We don't do a verification, again, because there are users that need to be discreet, right. It could be discreet, because I'm in Egypt and it's a really terrible place to be gay or, because I live in a place in the United States where I'm uncomfortable with people knowing that I'm on the app even though, I'm totally open about who I am, right. So both kinds of discretions are necessary. And so privacy is a really big focus. And obviously, security of the app is a really big focus as well. And we have a strong security team that kind of manages that and a privacy team that is focused on ensuring that we do things in a very privacy-centric way. In most companies, privacy, is kind of managing regulations. That's not what privacy is for us, right? Privacy is kind of core to our business, because if we don't do that well, we could really hurt the company and hurt the brand. And so, it's really, really crucial. We've started to deploy AI to help with safety and privacy as well. So, we have an algorithm running, for example, now that looks at messages in the app and if it sees illegal behavior, right, so if it's, you know, the most not allowed item on Grindr, like a zero-tolerance policy, is anything related to minors. So if there's any minors discussion in any way, and we're able to flag that before anyone even reports it, we then ban that account permanently, and actually report the account to the authorities. Same thing with drugs and solicitation, also not allowed, and we could practically ban those. The good thing since we've started to do this about 2.5, 3 years ago is we've seen really big decrease in the user reports that we get for illegal activity. That's come down by about 50%, and that's really beneficial, right, because that means that we are actually able to catch misbehavior before it happens, and that's really helpful. Our users, again, because we're a community and users really perceive the product as a community, they're really big about reporting things as well. So when bad behavior happens, they usually report that to a customer service. That's really good, but as much as we can find, before it happens and kind of prevent somebody from doing anything, that's better.

You mentioned a few different international geographies, through the course of this discussion. Maybe highlight a few regions where you're most excited about international growth over time?

Yes, so Grindr is a very international company. We're in 190 countries and territories. There are very few countries where we don't operate. Like we are not available in Turkey, not because we don't want to be in Turkey, but because they ban us from being able to be in Turkey, which is kind of surprising when you think about it. But -- and then Indonesia is another place where we're technically banned. In some of these countries where we're banned, like Turkey and Indonesia, you can get on Grindr through a VPN, and people do, but in a few others you can't even do that. We practically don't allow like parts of Ukraine, because we are under Russian control, Iran, et cetera, but generally we're very international. And that's probably because of this, we are doing a service for the community. And for example, even I've been involved in this discussion, like do we go back to Iran or not? And local activists and NGOs really want us back. Even though they know that the police will use Grindr, to try to honey trap people and catch them, the response still is that is a risk worth taking, versus not having the product that we can use to communicate with. And so, that's a big reason why we choose to be in a lot of these countries, is because we're serving the community really well. We've seen tremendous growth in Latin America, and I think there's still a lot of growth to be had there. The secular trends in Latin America are really positive for us. Brazil, for example, has the highest percentage of self-reported people in the GBT category in the world. And so, there's a lot of growth opportunity all over Latin America. And then I think there's a ton of growth opportunity in Asia as well. They're probably a little bit behind Latin America in terms of societal acceptance, but in India, it was illegal to engage in gay intercourse 10 years ago. Now they're actively talking about gay marriage in certain Indian states. And so, the change is so rapid in some of these places that inevitably, we will probably have a lot more available users to us. And so, being in Asia makes a ton of sense. Grindr's never really spent money on marketing. And so, and we don't want to spend money on kind of digital marketing in a traditional way. And so, building a brand in some of these places, where our brand's probably not as strong as it is in North America, in Europe, is an opportunity that we should take because over the long term, that'll drive a lot of user growth I think.

Yes, how do you think about that? I mean, you recently had Grindr's 15th anniversary, and you were in Brazil, and you announced the global gayborhood in your pocket, as part of a way to think about the Grindr brand. But yet, unlike some of your other peers across the category, there's been very little performance marketing, or other investments. What is the -- how do you think that kind of, how will you kind of elegantly combine some amount of brand marketing with, I think, keeping the current cost structure?

Yes, totally. So just to explain the gayborhood in your pocket, no, gayborhoods have existed in large cities for a very long time. When I finished college, I moved to D.C., and I literally moved myself into the gayborhood on 15th and O Street precisely with the idea of, hey, there's a lot of gay people here. And I want to be around a lot of other gay people, to figure out what it means to be gay. And so, a lot of us that have that flexibility to do that, we choose to do that, right? Now, not everybody does, and in many ways, Grindr replaces that in-real-life community feeling that a gayborhood does for people, who can't live in one on their phone. So if you're in Des Moines, Iowa, and there's no gayborhood in Des Moines, you have one with you on the phone that gives you kind of that similar experience. And that's been true on Grindr forever, and we want that to be even more, true in the future as we build new features. And so, we felt like having a brand description that kind of is both descriptive of what we do today, but is aspirational for where we want to go made a ton of sense. So that was the idea behind the gayborhood in your pocket. We don't believe that we need to spend money on performance marketing to continue driving users. What we do need to do is, be out there taking control of our brand, not letting others define us, and really leaning into the things that make Grindr successful. People engage really actively with our social media. When I say people, like both users and not users, meaning people in the community who are not users. And that's something we should take a lot of advantage of. They want fun and sexy things on our Instagram. They want fun and sexy things in our TikTok, et cetera. And we need to be providing that with them. We recently hired, recently being about 9 months ago, hired a new leader for our brand and communications team. And I think there's a very noticeable change, in kind of how we present our story in our social media. And we'll continue to do that a lot more. So we think for way less spend than performance marketing, you can have a much bigger impact through kind of being out there telling our story. Now, in the U.S., we don't need people to learn who we are, because they already know it. In places like Europe, our brand is still very, very well known, but not as well-known as it is, say, in the United States. And so there, having some brand extension of our brand kind of reach matters. But again, we don't think that's a digital approach. There's other things we can do to make it happen. Events that we can use as activations are opportunities. For example, this year, we're going to be having a Grindr bus that will travel from San Francisco, all the way to New York during the month of June, and stop at about 8 pride events across the country. That's one thing to have the bus stop locally, but we're going to use digital channels, to really activate that kind of worldwide. Next year would make sense if this is a successful event, to do that in Europe as well, right? And doing those types of events is way more beneficial financially and from ROI perspective than spending money on digital advertising. I think we are lucky, because we have a very contained community, right? We're trying to go after a specific set of people that, like to come together at events, and so that gives you a huge benefit in terms of how you do it.

Maybe just moving to financial topics, maybe helpful just to describe the guidance for '24, and the key parts of, particularly product growth initiatives that support that guidance?

Absolutely. So first on how we give guidance, and I say this as a, second-time public company's CEO who used to run a private company before. And have gone through the pain of, being a little too, in the private sense, overly optimistic about the future. And then giving guidance like that, and that did not go well for me, a few years ago. And so I've been very, very focused on when we give guidance, we need to be very predictable in what we will achieve. That's what investors expect, and we need to be able to provide that to them. And so, we think of guidance like, what do we have visibility into now? And that is what we guide to. If there are things we're working on that, we don't yet have visibility on, we should not include that in guidance. And we could add that to guidance later with an update, once we have visibility into what's happening. And so to me, that's been really important. I think investors generally appreciate having that perspective on how guidance is given. So our guidance for this year is 40% or better EBITDA and 23%, or better revenue growth. And that's partly driven by weeklies, kind of lapping for the full year, because they started full on at 100% in the second half of Q2 of last year, as well as some of the products that we are releasing now. So we released Roam, which is a travel-a-lot card to a set of users already this quarter. And then, we are in test with right now, which is another new feature that we're launching that hopefully will be launched to more users as the year progresses, as well as a bunch of optimization on kind of free to paid, like where should the free line be and what should be available for paying customers only in the app. So there's a few things happening there that, kind of are driving the growth there. While a lot of the investments that we're making in product, are going to be things that probably benefit us in 2025 and 2026 and 2027. Now I'm very much, we're not quite there yet, but in the ideal world, what shareholders should expect from us, is that vast majority of the revenue that we're going to be generating in a given year, has already been tested in the year before. And that we're spending most of our time in the year we are in working on the future, right? That's when you create a really good company that is futuristic, and is thinking about how to be even better longer term, rather than trying to scramble to get revenue in the year you're in.

You obviously have a very high EBITDA margin today, by any measure. How do you think about balancing that EBITDA margin today with some of the growth investments longer term?