STOCK BRIEF | MATCH GROUP (MTCH)

Key Takeaways:

Justin McLeod (Hinge Founder and CEO)

• On Hinge's evolution

• Hinge's slogan, "the app that's designed to be deleted", has driven their relaunch with a focus on catering to people looking for the right person. That's aligned their strategic priorities with making sure the user has great dates - and put less of a focus on engagement, retention, DAUs.

• "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."

• On international go-to-market strategy

• Hinge is still focused on expanding their user base and driving revenue across the world just like any other dating app. On the international front, McLeod said Hinge is taking a measured approach to international launches - focusing on finding their footing in core markets before turning their attention to new ones. That's not to say they haven't had success internationally, though.

• "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."

• On scaling in new markets

• "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."

• On regions and demographics with growth opportunities

• Regions like Latin America and India as the biggest growth opportunities for Hinge internationally, but reiterated their stance on growing their core markets first. He cited 20-25% YoY growth in U.S. MAUs and a 35% YoY increase in Gen Z women on the app as examples of this strategy paying off. Hinge has also leaned more into the LGBTQ demographic, which has grown 50% YoY for them.

• "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 ]."

• On Hinge X

• Launched just under a month ago (2/16/2023) and replaced Hinge Preferred as the top tier available to customers

• It has a $50/month price point and Hinge Preferred was lowered from $35/month to $30/month when Hinge X went live

• McLeod said that Hinge X is "not like a super premium tier" but they're seeing good uptake. The tier is designed to give people priority access to the app and other individuals who are their type

• On Hinge's monetization opportunity

• McLeod said Hinge is relatively early in their monetization journey still. They monetize lower in terms of ARPU than their peer set, something McLeod chalks up to Hinge having less optimizations than other apps such as a lack of international pricing (Hinge uses one global USD price worldwide). McLeod also cited AI as a revenue growth opportunity for the app.

• Speaking more about AI, McLeod said that he sees AI playing a role in helping others understand potential matches better on the app to create more high-quality matches and to assist with "coaching", or getting conversations off the ground and transition them from on-line to off-line.

• "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"

• On the relationship with Match

• "So we began our relationship with Match Group in 2017. We were trying to do -- our target was to hit, I think, $1 million of revenue that year. We're -- we plan to do $400 million this year, so it's hard to decouple the Hinge growth story from the Match Group relationship."

• "We've just gone through a restructuring at Match Group and into reorganizing the business units. And I am now reporting directly into the CEO, alongside Tinder and then a couple of other business units; and hoping that I can share a lot of the learnings that I've had as the CEO of Hinge with the rest of the portfolio."

Tanny Shelbourn (SVP of Investor Relations)

• On Tinder, management turnaround and reacceleration

• Despite a tough 2022 that saw the Tinder team fail to produce expectations for products and results and CEO Renate Nyborg depart, Shelbourne asserted that "the leadership team is so in sync. It's more in sync than I've seen a team at Tinder in a really long time." As a vote of confidence, she added "they're [Tinder management] so in sync that we are announcing that we're putting on hold the Tinder CEO search right now".

• Shelbourne said Tinder's main goal is to reaccelerate growth in 2023, and they'll do that through optimizations within the app

• On product development

• With regards to product development and deliver, she said they were shipping 50% more products and features in Q4 than they were a year ago

• "In addition, we had an optimization on incognito mode. This is a feature that actually existed within the Tinder product for a long time, but we rebranded it, re-merchandised it, and we're seeing a win there. We're actually collecting 4% more cash from female users on the plus offering today through that change."

• On pricing and net adds

• Shelbourne revealed they'll be increasing pricing in the next few weeks

• With regards to how pricing will affect net adds, "we'll still be in negative territory in Q1, probably just out of it in Q2 and really growing in the back half of the year. That's all being said, at the end of the day, we are focused on maximizing revenue. So depending on how these optimizations come out and -- there might be some puts and takes between RPP and payers because, at the end of the day, revenue is what we are focused on."

• On Match Group margins

• Affirmed commitment to deliver flat margins or better. She said Match will be investing in Hinge but funding it through spend pullbacks in their evergreen businesses, so overall marketing spend would not be a drag on margins. Also announced they had done a buy back in the first quarter.

• "So we are very committed on delivering flat, if not better, margins. There will be some puts and takes throughout the year. The biggest one is reaccelerating growth at Tinder. It is our highest-margin business. Even with the incremental marketing spend, we said we would be spending about 2 points of revenue incrementally at Tinder this year, still below 10% of revenue."

• "In terms of returning capital to shareholders, I will share we are out in the market. In the open window, we did buy back this quarter. I know there's been a lot of questions around that, so I did want to share that today."

• "Nothing has changed in our capital allocation strategy. It remains the same. We invest in our businesses first."

Please call or e-mail with any questions.

Andrew Freedman, CFA

Managing Director
@HedgeyeComm