Match Group, Inc. (MTCH) Earnings Call Transcript

All right, there we go. Good afternoon, everyone. I'm Lauren Schenk, Morgan Stanley small, mid-cap Internet analyst. And I'm thrilled to be joined this afternoon by Justin McLeod, Hinge's Founder and CEO; and Tanny Shelburne, investor -- Head of Investor Relations for Match. Before we begin, just a couple of disclosures. For important research disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. And from the Match side: "During this presentation and during the Q&A session, we may discuss our outlook and future performance. These forward-looking statements may be preceded by words such as we expect, we believe, we anticipate; or similar statements. These statements are subject to risks and uncertainties, and our actual results could differ materially from the views expressed today. Some of these risks have been set forth in our periodic reports filed with the SEC. Q&A." All right, so with that out of the way. Justin, you haven't presented at many of these types of conferences before.

First time.

First time, so maybe take a step back. Walk us through your founding vision for Hinge and how the app has evolved since then.

Yes. So I started Hinge in the -- 2011, so this was pre dating app world. And what I really want to do is bring online dating to the next generation. And originally Hinge was an app that looked pretty similar to Tinder. It was a yes-no kind of swipe feature experience and it was friends of friends. And then a few years into it, Tinder came along. A couple of other apps came along, and in the face of pretty steep competition, we decided to pivot the company. I let go about half the team. We threw out the code base. We started the whole thing over from scratch. And we relaunched as the -- as Hinge, the relationship app, the app that's designed to be deleted. And what that really means is 3 things. So first is that we really got dialed on who our core audience was. It was clear that the other swipe apps were really focused on the more casual, fun, young end of the spectrum; and we really wanted to be for people who are really looking for their person. So that was a big piece of it. We set -- as a part of that, we actually changed our strategy. Before, we are really focused on things like engagement and retention and DAU over MAU and all of these kind of traditional social media metrics. And with the reboot, we've focused all of our attention on great dates per user. We set that up as our North Star metric. And everything that we did was going to be revolved around great dates per user and really just dialing on what our customers came to us for. And that led to a very customer-centric, rather than competitive, focus. Our app stopped looking like all of the other apps; and it became a really, really differentiated experience. We no longer had the swipe feature. And so that is kind of the story of the reboot and the way that Hinge shows up today as the dating app designed to be deleted.

Great. I think the area most top of mind for investors with Hinge right now is probably international expansion. Maybe talk on the international go-to-market strategy, how the expansion is going in markets that you've recently launched in. And what are your biggest learnings?

Yes. So we've really paced our international launches. We really wanted to get a solid footing in our core markets before we started to go abroad. And also there is a lot of nuance associated with launching Hinge in new markets because there's so much cultural context with our vitals and our prompts. We really like to take trust and safety very seriously, obviously; making sure that our algorithms, especially our trust and safety algorithms, are set up when we enter a new market. That said, when we enter a new market, we've been -- we've had a lot of success. So in the first international markets that we launched, which were the U.K. and then Australia, we're now vying actually for the #1 position in downloads. We were actually #1 in the U.K. in January, and that gave us a good signal that we thought Europe would be a great place for us to start launching next. And in Europe, we launched in Germany, and within the first couple of months, we've gone from the #20 app to the #3 app. We launched in the Nordics, and actually within the first couple of weeks, we shot up to the #2 app. And we just most recently launched in France, so we've had really, really good momentum, so far, in Europe -- and really excited that we're going to keep rolling out countries every couple of months going forward.

And I also just want to add. Not only are you hitting these marks, but you're sustaining them, so it's much more about staying at these #1 and #2 places for a long period of time.

Yes. These aren't -- yes. To be clear: These aren't like marketing-driven like pushes where we pop up and then we fall back off. Every time we've hit a position, we sustain that position. And again that's because, I think, of the strength of the product. We come to market with a very differentiated product that people -- that I think is really -- the market is ripe for. And once we hit that level, we sort of just keep sustaining and growing from there.

Great. How long does it take for a new market to build to a level of scale that you can turn on monetization and you start to see revenues flow through the P&L?

Well, to be clear: We're seeing revenue flow right now in Europe, in Germany and France. And obviously, like, as our penetration in the market goes up, so does brand love. So does brand trust. So does willingness to pay. And so you'll see more of like an exponential curve over time, as like overall user -- monthly active users grow, so does payer penetration. And then that creates a kind of a, yes, more of an exponential growth of revenue in a Europe-like market -- in a market like Europe. So -- and we expect, over time, Europe to contribute, probably continental Europe excluding the U.K., over 20% of revenue at Hinge.

Okay, looking beyond Europe, where do you think Hinge has the biggest opportunity to expand? And how do you balance new market expansion with existing market development?

So we're very focused on existing market development. I do think that Latin America is obviously a place where we can go next. We've already translated for those languages. It's a very, like, natural place [ for us to head ]. We have a lot of natural, organic momentum in India, but I also just want to point out that we really are still growing in our core markets. And for the U.S., for example, monthly active users are up 20% to 25% year-over-year. And that's especially true for the -- I would say, like the bellwether groups that we really focus on, which is Gen Z women and LGBTQ. Gen Z women is actually up 35% year-over-year. We're really starting to see women move -- to choose Hinge as their dating app. We, unlike the -- some of the other apps out there, have a pretty "close to a 50-50" gender split. And then on LGBTQ, which has been a really big focus for us on the product and marketing side, that audience has actually grown 50% year-over-year for us. And I think it's a really, really important market for us to focus on because about 20% of Gen Z is identifying as queer, 20% to 25%, depending [ on who you ask ]. And so I think the -- like whoever the dating app of the future is going to be is really going to have to be dialed on that market.

Okay. You recently launched your new-tier Hinge, Hinge X, the new premium subscription tier. What was the impetus for launching that? And how has the consumer reaction been thus far?

So the impetus is that we have users who, I think, are very intentioned, very motivated. They're looking for their person, and there are not a lot of ways for those people to be able to stand out and find the person that they're looking for. The only way, on the app, to do that before was to send roses, which is also known as like a super like or -- and some people, like, don't feel comfortable doing that; and we wanted to give them a way, for people who are really intentioned. So our previous tier, which we called Hinge Preferred, it was $35 a month. We dropped that down to $30. We actually added more features to it, but that experience is essentially just unlocking more of Hinge. It's being able to send unlimited likes and set advanced preferences and things like that. Hinge X, on the other hand, which is priced at $50 a month, which is not -- again, not like a super premium tier, but we're seeing pretty good uptake rate on it as a result. But what it's for is for people who want to get like priority access. You get access to people who are most of your type. When you send a like, it's a priority like, so you get pinned at the top of the list for the people that you've liked. And overall what we're seeing is really, really strong effectiveness, which is again, Hinge as our -- focused on great dates per user, that is at the end of the day, like, what we want to make sure we're moving. And with Hinge plus or what -- previously Hinge Preferred, we see people going on about 2x as many dates per user. And with Hinge X, we're actually seeing 4x, so people are going on 4x as many dates who are using Hinge X. And I think that's a really good indication of retention rates and things like that for the future. And overall it's delivering very in line with expectations and giving us confidence that we're going to hit our $400 million revenue number this year.

Okay. Longer term, what do you think the monetization opportunity is for Hinge from a revenue; or average revenue per user, per payer perspective? And what features do you think dating apps more broadly can launch from a paid perspective?

Well, to address Hinge specifically: So we are, I would say, pretty early in our monetization journey. If you look at our comps relative to some of the swipe apps, we are -- we monetize lower revenue per user overall. And we're just, in a sense, like not mature along that journey. We don't have a lot of the optimizations that the other apps do. We -- for example, we don't even have international pricing. We have like one global USD price that we use throughout the entire world. So a lot of that, we're still building those capabilities and optimizing, but to step back and look at the bigger picture, I just think that the -- we're pretty far away from the cap on where I think revenue per user can be in this industry, if you just think what people spend. I mean this is one of the most important decisions you'll make in your life. It's like finding the right person. And if you just look at what people spend on dating and like going out on dates and preparing for a date, much less for like self-improvement and gym memberships and everything that people do, I think, in order to like make sure that they end up with the best person possible, I think that the ceiling is relatively high. There's -- in addition to all of the optimizations, of course, I'm really excited about what we're working on when it comes to AI. And I think that's going to be a pretty transformative piece of dating and will open up a whole new slate of revenue opportunities.

Okay, I'm going to come back to the AI in a minute, but we've been pretty vocal in our research that we think Hinge can become the #2 dating brand over the long term. My question to you is do you agree. And if so, what time line would you think that could happen?

Thanks. I appreciate the vote of confidence. And so setting aside the competition for a minute, I just -- I do want to say that I think that Hinge has a lot of room to go -- grow. If you look at what has happened with our -- with like the momentum that we have in the U.S. where the -- right now we are the #2 app on iOS. We have been since January. We have great momentum there. We have really great momentum in our core markets in the U.K., Australia. Europe, we've been off to an incredible start, frankly, better than I imagined. And then we're also pretty early in our revenue per user journey. So like I think Hinge can definitely become a $1 billion-plus company. At the same time, of course, the competition isn't standing still, and so I think we have to be really conscious about that. It's been amazing that we've gotten to where we've gotten, frankly, because we have a fraction of the marketing budget and a fraction of the technical team size of our competitors and we've still been able to achieve this, but I think, to achieve #2, we're coming from behind. We're operating with pretty strong margins. It will take investment, I think, to get to #2, so if we're going to do that, I think that like it will require real investment. And given the macro environment, we at Match Group [ and here ] are pretty focused on delivering our -- like preserving our best-in-class margins.

Understood. So I'll jump back to the AI topic, a hot topic, I think, that will be here for the next 4 days. How do you think about recent advancements [ in texts ] and visual AI impacting the online dating ecosystem? And are there any ways that you're looking to immediately integrate it into the core Hinge product?

Yes. So I'm thinking about this a lot. And I really think that, yes, it's like, if you listen to people out there who are working on the forefront of AI, they're telling you that it's going to change everything. And I think, when it comes to dating, that's going to be no exception. I do think that AI and neural networks and machine learning are going to be as transformative and probably more transformative than mobile was to the category. And I think about it like in 2 dimensions. So when we ask our users what their like 2 biggest problems are on dating apps and on Hinge, 1 is relevant matches. It's feeling like, "This app doesn't really get me. I'm not quite sure I'm really finding the person that I want." And the second is conversations that don't really go anywhere. They, people, feel like, "We match. And we sort of chat for a minute, but it doesn't really get off the ground. I don't know how to transition this to off-line." And I think that articulates pretty well the 2 big areas that I think AI can help us, which is the matching side and the coaching side. So without getting like -- I can talk about this all day. Without getting into too much detail: I think that there's a lot of opportunities to advance on the matching side. I think that we can move from a world which is pretty basic where you're kind of voting up or down a catalog of personal ads to a world where we're actually understanding more deeply who are you -- like who each user is, who the other people are, what you're looking for; and make more intentioned, like, higher-quality, fewer-quantity matches. And then on the coaching side, just helping people through their journey; helping them set up their profiles; helping them move their way through interactions, even potentially going past the first date; and coaching people through the process. So I think that there's a lot of opportunity on both those ends. And I think, if you put those together, what you get at the end is essentially having like the best matchmaker, personal matchmaker, in the world that's only available to the people who want to go out and pay like $25,000, $50,000 in your pocket. And not only that, but those people usually then go on Hinge to try to find the person that they're actually going to match you with and this person -- like this matchmaker would essentially know like everyone out there. So I think the advancement and value that we'll give to users to help them find their person is like very, very incredible. I can talk about this all day. I will stop talking about it, but...

I'm going to go a little off script because you told me I could. What is the -- and don't worry, Tanny. What is -- a concern that we've been thinking about this is about like the inauthenticity aspects of it, right? If you have people using ChatGPT to write their profiles, is there a concern that maybe it makes it a little less authentic over time, if there is that risk that people are using those tools?

Yes, it's interesting to watch how culture is changing. I mean if you look at like the percentage of people that think that dating a robot would actually be like socially acceptable. The fact that like someone would help you write an opening line or a funny prompt based on, "We know your personality. We know your interests. Here is a fun thing to say that might get the conversation started in a really good way," that, I think, is actually something that -- we all consult our friends. Like, "What should I say next in this text?" right? And I don't think any of us are being like, well, this is -- like, "I don't want to go out with this person because -- you used your friend to help you write your, like, next text response to me." This would be like your friend who joined you on that journey.