Match Group Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 1, 2023

There are 12 speakers on the call.

Operator

Good morning, and welcome to the Match Group Third Quarter 2023 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Tanny Shelburne, Senior Vice President of Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, operator, and good morning, everyone. Today's call will be led by CEO, Bernard Kim and President and CFO, Gary Swidler. They'll make a few brief remarks and then we'll open it up for questions. Before we start, I need to remind everyone that during this call, we may 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.

Speaker 1

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 earnings release and our periodic reports filed with the SEC. With that, I'd like to turn the call over to B. K.

Speaker 2

Thanks, Tani. Good morning, everyone, and thank you for joining today's call. I come to Work every day energized because I get to work at a company dedicated to helping people find love, happiness, and human connections. That Inspiration not only inspires me, but also our teams and has enabled another strong quarter of strong operating and financial results For Match Group in q3, highlighted by a second consecutive quarter of record total revenue in AOI. Our businesses have demonstrated that setting clear goals and objectives can not only build momentum in the but also set up our company for a bright future.

Speaker 2

Tinder is a great example of this. Tinder's Looking at 2023 thus far, I deeply believe we made the right decision in Prioritizing revenue growth initiatives at Tinder with U. S. Price optimizations and weekly subscription packages. While we recognize that these Actions have created short term volatility in Tinder's payer account.

Speaker 2

We're essentially resetting Tinder's payer base at We're very pleased with. The other component of Tinder's ongoing success is centered on product and marketing initiatives that reignite user growth and improve its brand narrative. We saw great strength through June in terms of total sign ups and reactivations as a result of the It starts with a swipe campaign. However, in late summer, Tinder pulled back its spend on the campaign and concentrated more heavily into female focused messaging. Although overall user trends remained slightly down as a result of the pullback, Tinder's younger female sign ups did not see the same pullback, proving that we continue to make good progress with this critical demographic.

Speaker 2

Tinder also began marketing again on college campuses for the first time in 3 years and launched The new feature called Matchmaker in mid October, both of which featured well known rappers as part of their campaigns. We are so excited to Leverage the power of music into our work because we know how core it is to the lives of Gen Z users. Tinder Select, our first And make sure that it's an exceptional experience that deeply resonates for users and provides the value that they are looking for. Importantly, Tinder's learnings from 2023 are informing its 2024 roadmap, which we will continue to build off What we've accomplished throughout this year. For example, we've learned from launching weekly subscriptions that the younger generations Tinder primarily to increase our monetization by revisiting our a la carte portfolio.

Speaker 2

The reality is markets where it can really push penetration higher. These represent real opportunities for Tinder and give me a great Deal of confidence in Tinder's ability to achieve future growth expectations. Looking across the entire Match Group portfolio, I continue be amazed by the level of team collaboration, work output and innovation taking place on behalf of daters across the globe. Hinge continues to prove that when you have a great product and a brand that deeply resonates, good things happen. Through Q3, Hinge drove usage levels to an all time high, becoming the number one most downloaded dating app in several important markets Not only that, but Hinge continues to make massive inroads in its European expansion markets.

Speaker 2

All of this enabled Another quarter of strong double digit revenue growth. With Hinge well on its way to delivering its 400,000,000 Our annual revenue target in 2023, we see an even brighter future ahead led by ongoing growth initiatives and more monetization capabilities. At Match Group Asia, Azar continues to post double digit revenue growth driven by its new AI enabled matching algorithm, a demonstration of Hyperconnect's best in class talent coming which marks an extremely important step in breaking down stigma and unlocking improved user trends. And at E and E, we rolled out Archer, our first dating app for gay, bisexual and queer men nationwide in late September. Again, one full quarter ahead of initial plans, and the team is even accelerating its international plans given Such strong user receptivity thus far as it zeroes in on key competitors.

Speaker 2

Archer can really improve our users' experience and expand the category. We know there is much more work to be done to finish 20 23 from a position of strength and set our company up to deliver ongoing shareholder value over time. With that, I'll turn it over to Gary.

Speaker 3

Thanks, BK, and hello, everyone. Thank you for joining us this morning. The momentum in our financial performance strengthened again this quarter and we hit our financial target of 10% Tinder year over year Direct revenue growth 1 quarter earlier than we've been expecting. As BK mentioned, we achieved record quarterly total revenue as well as record AOI and OI at Match Group in Q3, a clear demonstration of the financial power of the business. We're pleased by the revenue momentum Tinder and also by the exceptional user and revenue momentum at Hinge.

Speaker 3

Our judicious focus on costs across the is enabling us to invest in our growth businesses and deliver record profits. Match Group's total revenue for Q3 Was $882,000,000 up 9% year over year compared to up 4% year over year in Q2. FX was a notable headwind once again and $10,000,000 more severe than we anticipated at the time of our last earnings call. Tinder outperformed our expectations in the quarter as the revenue momentum we saw from price optimizations in the U. S.

Speaker 3

And weekly subscriptions continued to deliver. Tinder direct revenue was up 11% year over year at $509,000,000 in Q3. Tinder RPP was up 18% year over year At $16.28 due to the U. S. Price optimizations and weekly packages.

Speaker 3

In the U. S, Tinder RPP was up 42% year over Tinder's U. S. Price increases and the rollout of weekly subscriptions in the U. S.

Speaker 3

And a handful of key international markets have played an important role in accelerating revenue growth as the year has gone on. These optimizations have Increased RPP dramatically and have clearly been revenue enhancing at Tinder. However, they've also had impact on Tinder's payer count this year. Q3 Tinder payers declined 6% year over year to $10,400,000 largely due to the U. S.

Speaker 3

Price increases. Tinder payers were down by 56,000 sequentially in Q3 as weekly subscribers in the U. S. Rolled off, partially offset by the optimizations was modest and far less than in Q2 as a majority of U. S.

Speaker 3

Members had already been subject to higher pricing. Tinder top of funnel trends, which include new registrations and reactivations of lapsed users, weakened Electing to concentrate efforts on several key marketing initiatives in the back to college season in late August and September, which affected top of funnel trends in Q3. In the U. S, new users were down 6% year over year in September compared to June when were down 2% year over year. That said, over that same period, new users consisting of women 18 to 29 years old Did not see the same step back, demonstrating the impact of Tinder's sharper focus on younger women.

Speaker 3

Our Hinge brand continues to exceptionally well. Hinge grew direct revenue 44% year over year, a 9 point acceleration Q2, Hinge experienced strong user growth in both core English speaking markets and its European expansion markets, leading to 37% year over year download growth in Q3. Hinge Q3 payers were up 33% over year at over $1,300,000 while RPP of nearly $27 was up over 8% year over year again in Q3. Our Match Group Asia business saw direct revenue decline 5% year over year to 77 20% year over year as implementation of a new AI driven matching algorithm continue to drive meaningful increases And conversion. While Lazar has been a real bright spot, Hakuna and Pairs saw year over year direct TV ad campaigns.

Speaker 3

At our Evergreen and Emerging Brands, direct revenue declines moderated to 3% year over year, which was a notable improvement compared Q2, which itself was better than Q1. Indirect revenue was $15,000,000 in Q3, up 3% year over year, Driven by an increase in ad impressions. Q3 adjusted operating income or AOI was $333,000,000 after just Surpassing $300,000,000 for the first time ever last quarter. It was up 17% year over year, representing a margin of 38%, up 3 points year over year. Operating income was up 16% year over year of total revenue.

Speaker 3

The quarter included a final $3,000,000 escrow payment to Google in July.

Speaker 4

Selling and

Speaker 3

marketing costs, including SBC Costs including SBC expense increased $24,000,000 or 18% year over year, primarily due Increased spend at Tinder and at Hinge as it continued to expand internationally, offset by lower spending at multiple other brands. Selling and marketing spend was up 1 point as a percent of total revenue at 17%. G and A Costs including SBC expense declined 6% year over year and dropped 2 points as a percentage of total revenue to 12% as legal Grew 7% year over year, primarily as a result of higher compensation expense due to increased headcount at Hinge and were flat As a percentage of total revenue at 11%. Depreciation was up 62% year over year or $7,000,000 to dollars or 10% year over year in Q3 to $40,000,000 primarily due to higher interest costs due to the floating rate structure of our term loan, while interest income increased $7,000,000 given higher rates we're earning on our cash balances. Our gross leverage was 3.3x Trailing AOI and net leverage was 2.7x at the end of Q3, below our target of less than 3x.

Speaker 3

We ended the quarter $713,000,000 of cash, cash equivalents and short term investments on hand. During the early part of the quarter, we repurchased Through September 30, 2023, we have reduced outstanding shares by 2.8% from our beginning of the year share count, net of shares issued under employee equity programs. We now have $667,000,000 remaining on our one share buyback program, providing ample ability to continue to buy back shares. As we discussed in the letter, The company has minimal capital expenditures and significant free cash flow generation. We disclosed in May that we intend to return at least 50% of our free cash flow to shareholders via buyback or other means.

Speaker 3

We intend to use the remainder of our free cash flow first To invest in our businesses, which continues to be the best way to drive shareholder value, as we have shown with newly incubated apps like Chispa, BLK, and now Archer, As well as with various new product initiatives. We're confident we're funding the right new bets through our P and L. But M and A has always been a meaningful component of our strategy as well, and we intend to maintain financial flexibility to pursue M and A as a second use of free cash I want to emphasize though that the bar for M and A is high and we expect acquisitions will be in our category or near adjacent and Turning to our financial outlook for Q4 'twenty three, we expect total revenue for Match Group of 855 $865,000,000 up 9% to 10% year over year. This range reflects $27,000,000 more of FX headwinds of the approximately $7,000,000 quarterly revenue that we derived from Israel given the ongoing events there. It also reflects approximately $3,000,000 less than we previously expected because of trends we are seeing in our ad sales business, where we've seen a number of advertisers There's delay or pull scheduled Q4 campaigns.

Speaker 3

Also note that Q4 tends to be a weaker quarter sequentially than Q3 as data That said, we continue to expect significant FX volatility as we've seen over the past 3 months. At Tinder, we expect direct revenue to be up approximately 11% year over year in Q4, a second consecutive quarter of double digit year over year direct revenue growth and again reflecting seasonal trends. We expect FX to be less than a 1 point year over year headwind. Our outlook attempts to factor in the likely impacts of a weakening consumer as well as the resumption of U. S.

Speaker 3

Student loan repayments on Tinder's More discretionary a la carte revenue. We expect Tinder RPP to increase year over year in Q4 at slightly greater level in Q3 and Tinder payers to decline slightly more year over year than in Q3. The additional year In Q4, we expect Tinder's sequential payer count to be negatively impacted as weekly package subscribers continue to fall out of the payer count, but without the Offsetting benefit of the initial rollouts of weekly packages in large markets that we had in Q2 and Q3. We estimate this to be more than a 200,000 negative sequential impact to payers. We expect Hinge to deliver meaningfully accelerating year over year direct revenue We remain confident that Hinge's momentum will lead it to deliver approximately $400,000,000 of direct revenue in 2023.

Speaker 3

We expect MG Asia direct revenue to be down mid single digits year over year in Q4. We expect similar year over year Direct revenue growth rates for hyperconnect and payers in Q4 as in Q3. We expect our Evergreen and Emerging Brands direct revenue to decline mid single digits year over year in Q4 with continued strong growth at the emerging brands. We expect indirect to be down modestly year over year in Q4 given the weakening ad demand with advertisers pulling or delaying several campaigns. We expect AOI of $305,000,000 to $310,000,000 in Q4, representing year over year growth of 7% to 9 And margin of 36% at the midpoints of the ranges.

Speaker 3

We expect overall marketing spend to increase modestly year over year in Approximately 5% top line growth and deliver slightly better AOI margins than we did in 2022, consistent with our recent expectations. Our 2024 with momentum to deliver 10% plus year over year total revenue growth early in the year. The most critical component to that level of revenue growth for the full year will be the ability of Tinder's ongoing marketing and product initiatives to deliver as And believe the most likely outcome is for full year 24 year over year total revenue growth in the high single impact on our outlook. These factors could drive our revenue growth outlook positively or negatively. We've assumed FX to be a 2 point headwind for full year 'twenty four total revenue growth, but that also could change materially given current macro conditions.

Speaker 3

We believe we can deliver AOI margins at least at the same level as we expect to deliver in 20 3, there are a few anticipated margin headwinds that are out of our control, including app store fees and compliance Costs related to the EU's Digital Services Act. There is also some uncertainty around digital services taxes in certain markets such as Canada, which would AOI. We have attempted to incorporate the impact of the Google settlement into our 'twenty four margin outlook. We are currently deep in our planning process for 2024. We're contemplating investments in innovation and particularly in AI to Drive new sources of monetization, resolve user pain points to increase our products value and potentially build new apps that can deepen our TAM penetration.

Speaker 3

We're also in other areas to help offset the impact of increased spend in these areas. We also expect to limit hiring to positions that are vital driving growth. Our current expectation is for Tinder to deliver direct revenue growth in the high single digit range next year through a combination of RPP growth and improving year over year payer growth throughout the year. We expect the non Tinder brands to collectively deliver Direct revenue growth in the high single digit range in 'twenty four. At Hinge, we expect similar year over year direct revenue growth as in 'twenty three, in excess 35% and a continued focus on driving share gains in its core and European markets.

Speaker 3

We're pleased by the momentum We've seen in the business over the past two quarters. It is the result of a lot of hard work from many people across the portfolio. We're confident that this Momentum will carry into 2024. Importantly, our setup entering next year is much better than it was for 20 And we will now begin the question and answer session. With that, I will ask the operator to open the line

Operator

And our first question comes from John Blackledge of TD Cowen. Please go ahead.

Speaker 4

Great. Thanks. Gary, maybe could you discuss further kind of the puts and takes of your initial view on the 2024 revenue growth And margin assumptions? Thank you. Sure, John.

Speaker 4

Let me give it a shot at unpacking some of that for you in a little more detail. I think on the revenue side, the biggest kind of swing factor for 2024 Performance is really of course related to Tinder. How well the execution continues to be, how much delivery of growth Tinder delivers in 2024. And as we've talked about many times, we feel really good about how the team is executing The product velocity, the marketing initiatives. And so we've been planning for this for a while and we are aware that Tinder needs to deliver in 2024 on both top of funnel and on improving payer conversion and overall payers and revenue.

Speaker 4

And so that is probably the biggest swing factor As we look at the 2024 revenue guidance. The second factor that I would point to and we called it out is the macro environment. We're particularly monitoring Tinder on that front because there's a lot of younger users there with less disposable income. There's a lot of a la carte revenue at Tinder, which tends to be a more discretionary purchase. And so we're watching to see what happens in the Economies globally as we turn the corner in 2024.

Speaker 4

We know the consumer has held on well to this point, but we're increasingly nervous about what's to come in the months ahead. And we're factoring that into our thoughts on outlook for 2024 revenue as well. And then You've got the events in the Middle East, the horrific events going on in the Middle East, that we're obviously monitoring very closely as well. We quantified the impact of that on our Q4, but obviously much more challenging to get visibility on what's going to happen Across the Middle East and what the impact is going to be on our business specifically was obviously a more minor concern, but nonetheless, something we're trying to factor in as we think about 24. And then last, but sort of relatedly to the economy and what's going on in the Middle East as well is what happens with FX rates.

Speaker 4

We use the forward curve to predict the FX impact for the coming year and we've done so again this year. But as we've Distantly and repeatedly, the forward curve tends to be not always the best predictor of actually what's to come. There's been a lot of volatility In FX rates, I think it's fair to assume that that volatility is going to continue as we go forward. And so that's another swing factor on our 2024 revenue growth outlook. I think those are the biggest ones.

Speaker 4

Obviously, there are others, but I would call those out. On the margin side, which you asked about in addition to the contribution from Tinder, I mentioned that we're Analyzing the incremental marketing spend at Hinge at some of our newer growth businesses like Archer and the League and also at Tinder. I think we will have some guardrails on the increased marketing spend at Tinder. I don't see that being more than a point or 2 of Revenue next year incrementally, but it's something that we're analyzing as we go through our planning process and we'll have more of an update as we get into the early part of next year. But we do recognize that we need to continue to build the brand narrative at Tinder and to supplement the viral growth with marketing As B.

Speaker 4

K. Talked about in his remarks, and I think that we can offset the incremental marketing spend at Tinder should we choose to do that With reductions elsewhere across the portfolio, which is something that we've been doing through the course of 2023. And then last, I would point to innovation, Which I called out in my remarks as well. We think it's critically important that we make the proper level of investments in innovation To drive more users into the brands, and to increase the value of our products to the users, we think that AI is really providing us With a once in a decade opportunity to do that and we want to make sure that we harness that opportunity and make the right level investments in AI. We're still trying to calibrate what that means in terms of hiring, in terms of adding capabilities.

Speaker 4

We want to do this in a disciplined way and we're cognizant That we're still very early on in AI and what it requires and what the opportunity is. So we want to calibrate this properly and it's something that we're And we'll have more on that as well as we sort of make some final determinations and provide a more detailed outlook In February for 2024, but I would say the marketing investments, the AI investments are the 2 biggest kind of swing factors on margins that I would point to for 24. So I hope that's helpful and answered your question with a little more detail. Thank you. Thanks Gary.

Operator

The next question comes from Shweta Khaledjuria of Evercore ISI. Please go ahead.

Speaker 5

Okay. Thank you for taking my question. Could you please provide a high level overview of the top of mind product and feature investment areas for Tinder that you think We'll have maximum impact on Bayer growth next year. Thanks a lot.

Speaker 2

Thanks, Shweta, for that question. I can take that one. There's a lot going on with our Tinder team and this is our daily grind, but we continue to evolve the product experience that resonates with our users and we're continually listening to what Gen Z says and wants out of our product And we have to daily continue to improve our experience and surprise and delight our daters. When it comes to payer penetration, in 2023, we reset the RPP levels. So we have to be continually mindful of new ways examples.

Speaker 2

I see 2 key areas of potential new revenue opportunities at Tinder. Today, our merchandising is very Western centric. We believe that there are real opportunities in international markets to tweak our monetization approach to drive more payer penetration by offers and surfacing built specifically for those markets and cultures. Additionally, like I mentioned earlier, I believe a la carte is another area of focus for us. Our 2 primary ALC products were launched Over 7 years ago.

Speaker 2

So I think now is the perfect time to revisit those and add to the portfolio of ALC products. We've also seen a great success with weekly package offerings with our younger users. We believe this can actually these learnings can translate well into our ALC offerings, especially with our current economy. As I mentioned earlier, only 15% of our a la carte users are non subscribers. So I think there's Ashley, like a big opportunity for us to drive new payers into our paying ecosystem.

Speaker 2

Like Gary mentioned, we are in the middle of our 2024 planning and we plan to share more as we typically do in early 2024. Thanks for the question.

Operator

Thanks, BK. The next question comes from Justin Patterson of KeyBanc. Please go ahead.

Speaker 6

Great. Thank you very much and good morning. I was hoping you could comment on when you think weekly payers can get back to more normal growth. You alluded to a less sequential volatility within the letter, but Curious if you have a more view there. And then related as we're a few more months into this now, I would love to hear you comment on just Your learnings on accretion and lifetime value from these weekly plans.

Speaker 6

Thank you.

Speaker 4

I just want to make sure I understood your question. You asked about weekly payers returning to year over year growth or payers more broadly at Tinder?

Speaker 6

Yes, sorry for the confusion there. Payers more broadly since we have the weekly volatility within there, and let's say assume that's going to normalize sometime next year.

Speaker 4

Okay, understood. Thanks for the question. I just want to maybe set a little bit of context before I dive into the specifics of your And if I'm not mistaken, I think this is probably my 32nd earnings call and probably on all 31 that have come before this one, I've talked about how the company focuses on revenue growth, not specifically on payer growth or revenue per payer growth. And our goal is to drive Sustainable strong revenue growth through a combination of payer growth and RPP growth. And in some years the product roadmap tends to be more heavily on payer growth and in some years the product roadmap tends to be more focused on RPP growth and we're somewhat agnostic.

Speaker 4

I understand that Investors prefer to see a better balance between payer growth and RPP growth and we want to be able to deliver that and certainly this year has been outsized on the RPP side Versus the payer side, because of conscious decisions we made, we looked at the level couple of years, which led to a big opportunity this year to price optimize in the U. S. Market. And so we did a big focus on making that happen. And you can see in the RPP numbers and particularly in the RPP increase that we've seen in the U.

Speaker 4

S. That there was significant room to adjust pricing In 2023 and we've done that which has enabled the company to go from 0 or essentially flat revenue a couple of quarters ago To 11% revenue growth at Tinder towards the end of this year and deliver the double digit revenue growth that we wanted to get to 1 quarter earlier. So we feel good that we've hit our revenue goals for the year and we're well positioned on that front. And so now as we turn our attention to 2024, It's reasonable to assume a more balanced approach between payer growth and revenue per payer growth as we about the product roadmap. We've been able to see this for a while now.

Speaker 4

We've been planning for it. The Tinder team has been working to deliver a better balance. And I think that what you can expect to see is that over the course of the coming quarters, the year over year payer growth will gradually improve. And so that's what we're assuming in our outlook for next year and we are positioned to deliver Marketing initiatives to improve top of funnel, which is critical to driving payer growth and product initiatives, which are intended to both drive top of funnel as well as increase payer conversion. Now just to quantify the Impact of the pricing initiatives that we did this year, it probably reduced payers in the U.

Speaker 4

S. By 500,000. So you can think of it as because the pricing was lower than what was competitively appropriate, the payer count was essentially You know overstated it by that amount and so now we've made the adjustments on pricing and that has adjusted the payer number to a lower base That is paying a higher rate, but it's clearly very RPP and revenue accretive to the business. And so, that is kind of where we've gotten to and what the outlook is from a payer perspective. I know that the weekly subscribers Have also introduced some volatility on the payer count, but that's more of a sequential item.

Speaker 4

And I think that has largely kind of washed out by the end of this year. And then as we get through next year, I think you will have a much more normal payer base from which to grow through marketing and product initiatives. And then I think on your question around LTV, of the weekly subs, we're confident that not only are the weekly subscribers, helpful from a revenue accretion standpoint and an RPP standpoint, but that they are positive on an LTV basis. We've been monitoring the renewal rates and the resubscription rates of these subscribers and that's been meeting or even exceeding Our expectations and so we think that this is a long term win. It's not some short term thing that we've done.

Speaker 4

It's clearly a long term Healthy thing to do for the ecosystem and we're confident of it. And as I think you probably know, we've tested weekly subscribers On other brands of ours, so it's not just a Tinder. We've been testing them for a while, I think more than a year at some of our smaller brands. And the metrics that we've seen there are consistent with what we're seeing at Tinder. So we now have a lot of data around re subscriptions and renewal rates And we're confident in our understanding of the LTV of these subscribers and the fact that it's a positive LTV and it's Frankly meeting a need as BK said for what younger users want, they're comfortable with the higher priced but lower duration packages and so that's what we're delivering and

Operator

The next question comes from Cory Carpenter of JPMorgan. Please go ahead.

Speaker 7

Thank you. Can you expand on your decision to settle the Google lawsuit before trial? Just how you think about this outcome for Match? And then more specifically, Gary, could you talk about the financial impact embedded in your 2024 outlook from this? Thank you.

Speaker 4

Sure. So first of all, I would say that we're pleased with the outcome of the settlement. Getting the litigation resolved from perspective is a good thing. There's always uncertainty when you're going into a trial, and we feel good that we've been able to provide shareholders with certainty around this topic for at least the next few years. And more importantly, we've been able to provide our users With a choice of billing, which is something that we have consistently said is critical to our users, something that we want to be able to provide.

Speaker 4

And we're happy that we have the opportunity now to provide user choice billing to our consumer base. So we think that's a real positive. Now unfortunately the terms of the settlement are confidential. There's not a ton of detail that we can go into, but let me try to unpack Some of the pieces for you. And if you go back all the way to October of 2021, That's where Google wanted to start implementing the change in their billing policies.

Speaker 4

And we're sitting here now More than 2 years later effectively and Google had asked us to escrow $40,000,000 Against the incremental costs from October 21 through the lawsuit and as part of the settlement we basically said We basically agreed that we won't owe any amounts prior to the end of this year. And so what that means is everything that we've been processing on credit cards For the last 2 plus years, there's no incremental fees owed. And I think if you go back to our earnings release in May of 2022, We estimated that the change in policy was probably about a $6,000,000 per month cost. And so you can probably do the math on those savings over that period of time that I just enumerated. So that's clear value.

Speaker 4

We don't owe any more money and we're getting back to $40,000,000 so that's how we calculate the initial piece of value. And then there's the second piece of value, which is the ongoing arrangement that we're entering into with Google, a new partnership With Google across their myriad services, which includes distribution, includes marketing, includes cloud services, it includes other things that we do with them. So it's a broad partnership. And basically the settlement agreement, the new partnership agreement says that we will implement user choice billing. We will pay the Fees that are required under that policy, which is 11% 26%.

Speaker 4

And as a result of the new broad partnership, We're going to get benefits such that we essentially offset the impact of the implementation of user choice billing. And so we view that as largely neutral in the 2024, 2025 and 2026 period And we'll kind of go from there. As you also, I'm sure know and asked about, There's a lot of changes afoot on the regulatory front, on the legal front related to App Store policies. There's frequently You know, decisions coming down that basically question the fairness of the current policies. And so as a result of that, we think it's likely that over time there will be more change to the App Store ecosystem.

Speaker 4

Importantly, we haven't assumed any changes in our financial outlook for 2024 as a result of any regulatory or legal actions. But I think it's fair to assume that over time there will be some and so we'll quantify those at the appropriate time, but we certainly expect to get the benefits of whatever changes Occur in whatever jurisdictions globally they occur in and they're occurring in a lot of jurisdictions. So that's something that we're continuing to watch and we'll continue to monitor and discuss with you as things evolve.

Speaker 8

I'd like to add a

Speaker 2

couple more points. And Gary, that was a great summary

Speaker 6

of where we are.

Speaker 2

I feel now that we're like today starting and going forward, Feel like we're in a good place with Google and it really reduces the amount of distractions that we've had as a team and we can really focus together on growth. I view this as a reset of our relationship and it helps our partnership with Google on many fronts from marketing Surfacing on their store, to promotion of our brands and then being at the table to really collaborate around innovation, AI, cloud opportunities. I believe that this can significantly benefit our business and we look forward to actually working much closer with Google on many of these different fronts. We're also very confident now with our relationship with Google that will help our brands continue to Innovate, but also improve the ability to reach Android users worldwide and we can focus day in and day out on how we can grow together and drive product innovation.

Operator

The next question comes from Benjamin Black of Deutsche Bank. Please go ahead.

Speaker 9

Good morning and thanks for taking my question and thanks for the disclosure on Hinge. And actually specifically on Hinge, could Can you talk about some of the initiatives that have supported this recent momentum that we're seeing? Also, I'd be curious to hear if you anticipate Similar headwind to payers in the launch of weekly subscriptions like you've seen with Tinder. And then lastly, In the past, you said you expect Hinge to be a $1,000,000,000 business over the next few years. Just given the strong fundamental trends that you're seeing right now, Nick, could you perhaps give us an update on your thoughts as to when that milestone could be it?

Speaker 9

Thank you.

Speaker 2

Thanks for the question, Benjamin. I can take this one. Hinge is a great product and has a super clear brand narrative that continues to resonate in English speaking markets Along with the European markets that we've just expanded to, they've really done a great job of focusing on single high intent daters and has Tremendous momentum and fantastic word-of-mouth. The combination of natural and driven user growth Alongside monetization initiatives is driving accelerating revenue growth. The team continues to build on this position of strength.

Speaker 2

To answer your question on weekly subs, the weekly subs at Hinge is actually similar to that at Tinder, But it's less apparent because of Hinge's continued top of funnel strength. Like Gary mentioned, we continue to believe that Please subscription packages were the right decision for the company and are strong driver of revenue growth and it's what daters want. Now to kind of tackle your $1,000,000,000 question, we expect Hinge to generate $400,000,000 in direct revenue this year And we expect a 35 plus percent growth rate for next year. So we're basically adding about 1 $140,000,000 plus in revenue for next year. So if you extrapolate that growth rate as well as revenue that we're adding, we can get to about $1,000,000,000 in maybe 4 to 5 years.

Speaker 2

Thanks for the question.

Speaker 9

Thank you.

Operator

The next question comes from James Pini of Jefferies. Please Go ahead.

Speaker 8

Thanks for taking the question. Just one for Gary. Are the Tinder U. S. Price increases still impacting the sequential Payer growth in Q4 or is it really just a weekly subscriber churn dynamic and the weaker top of funnel?

Speaker 8

Just wanted to put a finer point on that. Thanks.

Speaker 4

Sure. Just to make sure that everybody understands like you do James, I mean the way we implemented the U. S. Price Optimizations in Tinder in the U. S.

Speaker 4

Was that not everybody saw the price changes immediately. It's only after you churn for a period of time as a subscriber, as a payer that you see the higher prices. And so the of that is sort of moving its way through the Tinder payer base on a gradual basis. I would tell you that by now probably a majority maybe 60% or so Our Tinder payers have seen the higher prices, so there's still a tale of people who are going to see them over time. And There's still a modest sequential impact from all that in Q3.

Speaker 4

I expect there'll be a slightly less slightly more modest, I guess, impact on that in Q4. And that will continue and keep declining as an impact, but still be there as a lingering impact for the next few quarters. But it is fairly modest. Frankly, it's why you can't really see it on the chart that we have on Page 13 of the shareholder letter. It's such a small impact and so it's modest but it's still there and will continue to be so for a bit longer now.

Speaker 4

And I would just say on the sequential impacts generally, you've got the impact from The U. S. Price increase at Tinder, which is this modest impact that is continuing. And then obviously, we've had the impact from the weekly subs. I think the impact from the weekly subs that we've introduced in 2023 will largely be neutralized by the end of So that's not an ongoing lingering effect into next year, as is the case with the U.

Speaker 4

S. Price optimizations. Now I do want to point out that we're going to continue to optimize prices, introduce weeklies in other markets. They're going to be smaller markets than the U. S.

Speaker 4

Or some of these key international markets. But Optimizations are something that Tinder is meant to be doing at all times. We didn't do it for a while in the U. S. And we played catch up this year.

Speaker 4

But in general, there's an always on kind of optimization. There's opportunity to roll out weekly subs and price optimization in other markets. And so we'll do it. But because it's going to be in smaller markets, The effects of that will be much more modest over time. This year was the bigger shock to the system, and we're working our way through that and we should be through that

Operator

The next question comes from Lauren Schenck of Morgan Stanley. Please go ahead.

Speaker 8

Hey, everyone. This is Nathan Feathering on for Lauren. Can you talk to the seasonality of Tinder marketing within 3Q and to what extent, if any, it impacted payer growth during the quarter? And then maybe taking a step back more broadly,

Speaker 2

When we originally launched the It Starts With A Swipe campaign, we plan to have multiple phases throughout the year. So seasonally with Tinder, end of July going into August tends to be slower months for Tinder. So we took the opportunity between these phases To refresh the content for the balance of the year, it's important to note that during this time period, we're Still targeting young women and we did not see the same pullback in new users with this demo. We expect Take an overall step back in new users and have some impact of payers in Q4, which we've already articulated. We have learned a lot from this.

Speaker 2

I'm pushing the team now to have a consistent steady beat on marketing going forward, especially in our larger markets. In that time period, we're also able to reallocate some spend into our college outreach marketing and the launch of our matchmaker feature. Both of these campaigns integrated well known wrappers and targeted our Gen Z demographic, but was Closely knit in with product innovation at the same time. As you can all see, these campaigns have created a tremendous amount of buzz and excitement around

Operator

The next question comes from Yigal Arunyan of Citigroup. Please go ahead.

Speaker 10

Hey, good morning guys. Let's ask about Tinder Premium and the early signs of change in that tier. And then what contribution is expected in both in 4Q and in the preliminary outlook for next year? Thanks.

Speaker 2

I can take that one. I'm really proud of the product that the team has built and launched into the market. The amount of invites for Select that have gone out are still at a very low level. Tinder and the team have been working really hard to Optimize the onboarding process and help users and select members really understand the value proposition. So we're continuing to iterate, learn from our users and we'll continue to ramp up the number of invites.

Speaker 2

We do continue to feel optimistic about the financial potential of the product and we believe that it will continue and we can generate Tens of 1,000,000 of dollars of revenue in the next year.

Operator

The next question comes from Dan Salmon of New Street Research. Please go ahead.

Speaker 11

Hi, Craig. Good morning, everyone. So I've got a 2 part question here. I just want Circle back on macro a little bit. I know you mentioned the impact of higher interest rates, the conflict in the Middle East in the shareholder letter.

Speaker 11

But Could you elaborate a little bit on what you see as deterioration in macro condition, especially in light of Considerable GDP growth and a resilient consumer in the U. S. And then second related part, Maybe could we just circle back a little bit on the impact of student loan repayments? It sounds like it's one of the things Impacting a la carte, but it also seems like there's some changes to how younger users engage with a la carte in the first place. So Perhaps you can parse that a little bit more.

Speaker 11

Thanks.

Speaker 4

Sure. Let me give that a try, Dan. I think on the student loan repayments, This was first announced in July that there was going to be a resumption and we've been watching the trend at Tinder a la carte since then and we have seen some weakness in U. S. Versus the rest of the world where this is obviously not an issue.

Speaker 4

On the Tinder a la carte revenue, it's probably 1 or 2 points of annual growth that it's costing. And we're looking at the cohorts from an age perspective of people at Tinder that we would expect would be impacted By potentially having student loans to start repaying again, and that's where we can see that there is that impact. So we have enough data global it's first announced, we've been watching it through October when the bills came around and now people have to start paying them here in November. So it's definitely something to watch and something we're trying to factor in to our Q4 and 2024 Outlooks and I think we've been able to do that. So that's one factor.

Speaker 4

On the other side that you mentioned, the other thing that you mentioned Around the resiliency of the consumer, of course you're right that the consumer has held on well through the course of this year. And GDP growth in the most recent quarter has been very strong and that's all correct. I think what we're focused on though is Are we kind of getting to the end of the consumer strength and we're starting to see signs as we look at macro data around savings rates, around credit card Delinquencies and things like that, that indicates to us that there's some potential risk around the consumer. So sitting here Trying to prognosticate what's going to happen in our business and with the consumer for 2024, I think the trends that we're seeing around Some evolving consumer weakness leads us to be cautious about 2024 and to try to factor in Some possibility that the consumer really does weaken over the course of 2024. It feels like the prudent thing to do right now as we're providing the initial outlook.

Speaker 4

I'm more than happy to be wrong on that and for somebody to come back and say, you guys were too conservative, that didn't happen in the economy and things ended up being Stronger than expected in 2024, but I think that right now kind of taking into account all the factors that we know, It does indicate to us that being a little bit more prudent on our expectations around the consumer makes sense. And given that we have a lot of consumers at Tinder Who are on the younger side, who tend to have less discretionary income, we could feel a little bit of that impact and so we've tried to factor that in. If it ends up not being the case, then I would say there's upside to our expectations for next year. I think we're out of time. Hopefully that was helpful, Dan, and for everyone else's questions.

Speaker 4

Thank you for asking them this morning. We appreciate everyone joining and we look forward to talking to everyone again on our next earnings call for

Operator

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.

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Earnings Conference Call
Match Group Q3 2023
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