Match Group Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 2, 2023

There are 13 speakers on the call.

Operator

Good day, and welcome to the Match Group Second 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 Tami Shelbourne, SVP 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 discuss our 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.

Speaker 1

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. K.

Speaker 2

Cole:] Thanks, Tani. Good morning, everyone, and thank you for I've spoken at length about the changes we've undergone. Through all the change management, I believe our teams have Gelled well and have become stronger together. However, I also believe that gelling well is not enough. Leaders need to be intelligent, Determined and have the right goals and people around them.

Speaker 2

We must challenge our teams to inspire and deliver. And that is grit. Grit has been evident in our team meetings, product roadmap execution, marketing and budding AI Our teams are buzzing with excitement and I am too. Although our numbers are great, we are just at the beginning of our turnaround. There are still many single people who have yet to try our services and many more who need to come back to our apps.

Speaker 2

I am certain That if we keep executing and innovating, we will achieve our goals of helping our members get out there in real life, make new connections And enjoy their dating experience. The energy in our LA office where many Tinder team members are Teams are executing on their product roadmaps and marketing initiatives and the results of their hard work are clearly showing. We have product and marketing Momentum and people are starting to think about Tinder differently. Our new it starts with a swipe marketing campaign is delivering. Most importantly, By increasing overall new user sign ups and reactivations at Tinder and is having an impressive impact on our brand consideration and Ted, the Tinder roadmap we showed you last year was not the sexiest as it delivered on core experiences and optimization, but it was Right one as our results now show.

Speaker 2

Our product and design teams are preparing an exciting refresh of the Tinder experience in the These innovations will be amplified by great marketing. We are excited about the future of Tinder and we believe we're just getting started. Hinge continues to fire on all cylinders leading to exceptional user and revenue growth. Hinge is now a top 3 most downloaded dating app in 14 countries. And while we're driving new users and growing as expected, we're also taking the learnings from our Other brands and applying them at Hinge to maximize growth.

Speaker 2

Our businesses in Asia are Solidly course correcting now. Azar's revenue momentum has been driven by their new AI enabled matching algorithm, and Hakuna In Japan, we're ready to roll out ads on TV for the first time ever. We believe this channel unlock will help Improve user trends for the category. Our evergreen and emerging brands have unified on the same platform, which should lead to improved efficiency, innovation, speed to market and cost savings. One of our teams just launched Archer, a social first dating app built for gay, bisexual and queer men, which is now live in New York Citi and is planned to roll down nationally by the end of this year.

Speaker 2

I'm really proud of Archer and the team that has brought it to life. The app is Beautiful and speaks directly to the needs of the community and we're excited to see it flourish. Last point before I hand it over to Gary, every Tech company needs to innovate to stay relevant. I've outlined a few areas of innovation already, but we'd be remiss To not talk about generative AI and the enthusiasm and concern it's created for industries at large. This technology is Enhance trust, authenticity, and respect, and ultimately lead to better matches and dates in real life.

Speaker 2

I believe this technology is also really fun and engaging and when applied correctly can drive curiosity and make the dating AI to eliminate awkwardness, make dating more rewarding, and surprise and delight users, all in a way that focuses on authenticity and maintaining the highest ethical and privacy standards. We remain committed to innovation and providing our users with the best possible dating experience. It's full speed ahead at Match Group, and we're energized, motivated, and feeling really good about our future. And with that, I'll turn it over to Gary.

Speaker 3

Thanks, BK, and hello, everyone. Thank you for joining us this morning. Our financial performance in Q2 improved dramatically as a result of the strategy we implemented when BK became In mid-twenty 22. In particular, the focused product and marketing initiatives at Tinder have really started to deliver financial results. We firmly believe the momentum there plus continued strong performance at Hinge and thoughtful operating adjustments and financial discipline across The company position us well for the future in terms of growth, profitability and free cash flow.

Speaker 3

Match Group's total revenue for Q2 was a notable headwind once again and $3,000,000 more severe than we anticipated at the time of our last earnings call. Total revenue for Match would have been $844,000,000 up 6% year over year on an FX neutral basis. Q2 direct revenue, which is revenue we earned directly from our users was $816,000,000 up 5% year over year, 6% FX neutral. This was driven by a 10% year over year improvement in RPP to 17.4 While total payers were down 5% year over year to $15,600,000 On an FX neutral basis, Q2 RPP was up 12% year over year company wide. Tinder outperformed our expectations in the quarter as The revenue momentum we saw from price optimizations in the U.

Speaker 3

S. And weekly subscriptions over delivered. Q2 Tinder Direct revenue was up 6% year over year at $475,000,000 up 7% FX Neutral. Tinder RPP was up 10% year over year at $15.12 due to the U. S.

Speaker 3

Price optimizations and weekly packages. Tinder saw solid year over year subscription revenue momentum throughout Q2 With June direct revenue growth reaching 8% year over year. Tinder payers declined 4% year over year, 184 1,000 sequentially as the price optimizations in the U. S. Led to conversion declines.

Speaker 3

After testing pricing changes in Canada, the U. K, the activation trends in the U. S. In the quarter following the launch of the new marketing campaign, it starts with a swipe and we saw lifts in other geographies as well. The lift has been pronounced among females and younger users, Tinder's focused demos.

Speaker 3

Many of Tinder's Upcoming initiatives are aimed at further strengthening top of funnel in key markets around the world. Our Hinge Brand continues to perform very strongly. Hinge grew direct revenue 35% year over year, an 8 point acceleration over Q1. Hinge experienced strong user growth in both core English speaking markets and its European expansion markets, leading to 50% year over year download Hinge payers were up nearly 25% year over year at nearly $1,200,000 while RPP of over $25 was Over 8% year over year in Q2. Our MG Asia business saw direct At Hyper Connect, Azar grew direct revenue 24% year over year as implementation of a new AI driven matching algorithm Led to meaningful increases in engagement and conversion.

Speaker 3

Azaar also saw some stronger than expected seasonal trends in Q2. While Azar has been a real bright spot, Hakuna and Paris saw year over year direct revenue declines in Q2. The Japanese market continues to experience subpar user growth, although we're optimistic that being able to start to market on TV this fall could improve trends. At Evergreen and Emerging, direct revenue declined 5% year over year, which was also a notable Compared to Q1. The emerging brands, including Chispa and BLK, continue to grow direct revenue strongly year over year.

Speaker 3

Indirect revenue was $13,000,000 in Q2, down 7% year over year, but consistent with Q1's total as prices per ad impression Operating income was $215,000,000 in Q2 for a margin of 26%. Q2 adjusted operating income or AOI was $301,000,000 exceeding $300,000,000 for the first time ever. It was up 5% year over year, representing a margin of 36%. Q2 AOI and margins were above our expectations as Tinder outperformed and we continue to achieve cost savings across the company. Overall expenses, including SBC expense, were up 4% year over year in Q2, excluding depreciation and amortizationimpairment We incurred approximately $6,000,000 of severance and similar costs in the quarter.

Speaker 3

Cost of revenue, including SBC expense, grew 4% year over year and represented 30% of total revenue, flat year over year. App Store fees increased $18,000,000 year over year, including the $8,000,000 escrow payment to Google. The last required escrow payment of approximately $3,000,000 was made in July. Selling and marketing costs, including SBC expense, Increased $11,000,000 or 9% year over year, primarily due to 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 flat as a percentage of total revenue at 16%.

Speaker 3

G and A costs, including SBC expense, declined 3% year over year and dropped 1 SBC expense grew 9% year over year, primarily as a result of higher compensation at Tinder and Hinge and were flat as a percent of total revenue at 11 Reductions in force and capitalizing more product development costs in Q2 than in prior in the prior year quarter, Mostly at Tinder and our emerging brands helped lower these expenses in the quarter. Interest expense increased 12% year over year in primarily due to the floating rate structure of our term loan, but interest income also increased meaningfully given higher Rates were earning on our cash balances. We ended the quarter with $741,000,000 of cash, cash equivalents and short term investments on hand. Our gross leverage was 3.4 times trailing AOI and net leverage was 2.8 times at the end of Q2, below Our target of less than 3 times. We repurchased 1,000,000 of our common shares in May June at an average price of approximately $32 per share, totaling approximately $33,000,000 which utilized a small portion of the recently implemented $1,000,000,000 share buyback program.

Speaker 3

We began buying back shares in the open window after our last earnings call, but we weren't able to buy back as many shares as we had intended over the past 3 months due to the stock price run up, which occurred after the window had closed. We will revisit buybacks again after this call, mindful of our updated Capital allocation policy. For Q3 'twenty three, we expect total revenue for Match Group of 8 $75,000,000 to $885,000,000 up 8% to 9% year over year. We expect a significant acceleration of year over year RPP growth in Q3 3 compared to Q2, particularly at Tinder due to the U. S.

Speaker 3

Price optimizations and weekly packages. We expect FX to be less than a 2 point year over year tailwind in Q3. At Tinder, we expect direct revenue to be up close to 10% year over year With FX slightly more than a 2 point year over year tailwind. This level of growth would be a quarter ahead of our expected pace. The building momentum gives us confidence in achieving solidly double digit year over year direct revenue growth at Tinder in Q4.

Speaker 3

We expect Tinder payers to decline mid single digits year over year and to be down sequentially in Q3, But by less than in Q2. This is better than we had been anticipating in part due to the decision not to implement Klein is also due to Tinder's new user trends still being below desired levels as well as the fact that pricing changes are still rolling through The U. S. Payer base. While user trends have improved notably over the past few months, we remain focused on Turning to user growth through marketing and product initiatives in order to drive better payer and revenue growth.

Speaker 3

We believe strongly that we Over the coming quarters, we expect this to even out. We're confident that these shorter packages are long term accretive and bring other meaningful benefits such as increasing conversion, especially among younger users and females. We expect Hinge to deliver meaningfully accelerating year over year direct revenue growth again in Q3, driven Continued strong performance in Hinge's English speaking markets, continued European expansion and various monetization initiatives. We remain confident that Hinge's momentum will lead it to deliver approximately $400,000,000 of direct revenue in 2023. We expect Match Group Asia direct revenue to be close to flat year over year in Q3.

Speaker 3

We modest improvement in year over year direct revenue growth rates for Hyperconnect and limited change for Pairs in Q3 compared to We expect our Evergreen and Emerging Brands direct revenue to decline low single digits year over year In Q3, with moderating declines at the Evergreen Brands and continued strong growth at the Emerging Brands. We expect Q3 indirect revenue to be up modestly year over year in Q3 as we begin to see some overall improvement in the ad sales market and we continue to And add opportunities across our platform. We expect AOI of $320,000,000 to $325,000,000 in Q3, Representing year over year growth of 13% to 14% and margin of 37% at the midpoint of the ranges. We expect overall marketing spend to increase year over year in Q3 by about 2 points as with apps, including Archer and The League. We expect IAP fees to continue to be a year over year headwind in Q3, Though we have stopped placing funds into the Google escrow after July per the terms we agreed to.

Speaker 3

We expect to continue To be cautious on spending in all other categories within our control. We expect to incur approximately 2,000,000 We're excited by the momentum we've In the business over the past few months, we're confident that the strategies we've implemented, changes we've made and approach we've taken are setting up for more consistent top line growth at strong levels of profitability. While we're pleased with the progress, we recognize there is more to do, Especially at Tinder, we're delivering stronger user trends and sustained payer and revenue growth is squarely in our focus. We're confident the company is headed in the right direction And look forward to continuing to provide our stakeholders with updates on our performance in the coming quarters. With that, I'll ask the operator to open the line for questions.

Operator

Thank you. We will now begin the question and answer session. Jim comes from Cory Carpenter with JPMorgan. Please go ahead.

Speaker 4

Hey, thanks for the question. I think for Gary, could you Expand on what you saw in testing that led you not to raise Tinder prices in international markets. And then just any way to help quantify how big of an impact That specifically, you expect it to have on Tinder payers and RPP in the second half of the year? Thank you.

Speaker 2

Corey, this is BK. I'll take the first part of that question and then Gary can take the second part of the question. When our new management team took over Tinder, We asked the teams to go and extensively test pricing globally. What we wanted to do was really kind of understand the member value that we Providing versus the price point that were live in the marketplace. This led to micro decisions around rollouts of pricing optimizations.

Speaker 2

So we did test Our pricing in the U. K, Canada, Australia, EU and Japan and we did not see the revenue benefits that we saw in the United States. Part of this was due to that these markets were already priced competitively like Gary mentioned in his comments. The reality is that the U. S.

Speaker 2

Actually hadn't adjusted prices for quite some time. So there wasn't as much room for versus where we were in international markets. So I think that generally our price Points were already higher in the U. S. Versus where we were internationally.

Speaker 2

An example I can give is on gold pricing 1 month subscriptions In the U. S. After pricing optimizations, we're actually at parity from where we were priced in the U. K. We tested this throughout the entire Quarter before making this decision to stay put in international markets.

Speaker 2

Gary?

Speaker 5

Yes. So, Corey, on the payers, There's a lot going on there and I'm going to try to unpack it for you a little bit because you've got variability that's been introduced by The price optimizations, you got variability that's been introduced by the weekly subscription packages and they're rolling out at different times. First, we have the effects from the U. S. Ones And then from the international one, so there's a lot of movement in the numbers.

Speaker 5

Obviously, they are better As a result of deciding not to roll out the price changes in the international markets and they're meaningfully better than they would have been had we done that. But what's also happened since the last time we chatted on an earnings call is that we've more slowly rolled out Pricing changes in the U. S. Market and so right now that's affecting the Q2 payers numbers, it's going to have some lingering effects in Q3 and likely into Q4 as we continue to slowly show those pricing changes to the U. S.

Speaker 5

Payer base. So that's kind of one thing that's happening. That's happening a little bit more slowly than we initially expected, But we obviously test and adjust and we think that's the right thing to do. And then of course the change that you mentioned around the weekly around the payers, The pricing changes not having been introduced internationally. So there's a lot of different pressures going on here.

Speaker 5

It will continue to roll through over the coming quarters. I do think that overall the 3rd quarter sequential trends are going to be meaningfully better than what we saw in Q2, which was down 100 and 4,000. And overall, I think once we get through this year, as we turn the corner to 2024, the noise that has resulted from all these changes, which are in our control Around introducing weekly subscription packages and price changes will have largely burned through and will be into a much more normal cadence of payer additions.

Operator

Our next question comes from Jason Helfstein with Oppenheimer. Please go ahead.

Speaker 5

Jason, are you there? It doesn't sound like we have Jason. Operator, maybe we should move to the next one.

Operator

Our next question comes from Josep Squali with Truist. Please go ahead.

Speaker 4

Great. Thank you very much. So, Gary, staying on the topic of Pricing for Tinder, what percentage of the user base is now being impacted by the price increase and how much more headroom do you see in RPP in Q3 and the rest of the year?

Speaker 5

Thanks. So I would estimate that roughly 50% of the U. S. Payer base is now paying the higher prices. Just so you understand our approach around this is that payers don't see or pay the higher prices until they churn off and are off Tinder for a period of time And then when they come back again, which happens frequently as you know, then they see the higher prices and become a higher pace a higher payer.

Speaker 5

So we think that's fair to the consumer and is the approach we've taken which is why it's taking time for this to roll through the U. S. Payer base. From an RPP perspective, we saw the 10% year over year lift in RPP in Q2 at Tinder. And I think you should expect to see Accelerating increases in RPP in Q3 and Q4, which is going to drive significant revenue acceleration as well at Tinder Over the course of Q3 and then into Q4.

Speaker 5

We are adjusting prices pretty meaningfully. The weekly subscription packages are having a significant Contribution in RPP as well. So that's a big driver of the overall revenue performance and performance at Tinder this quarter and for the next couple of quarters.

Speaker 4

That's very helpful. Thanks, Gary.

Speaker 5

Sure.

Operator

Your next question comes from Alexandra Steiger with Goldman Sachs, please go ahead.

Speaker 6

Great. Thank you for taking my questions. Could you please double click on the new refreshed Core experience at Tinder that is launching later this month and how you expect these new features to drive either engagement and or monetization on the platform? Then on a related note, what are some other new features at Tinder that you're excited about that could potentially have an impact in the near to medium term? Thank you.

Speaker 2

Thanks, Alexandra, for the question. So if you actually look at Tinder today, it's really similar to the product that was launched 10 years ago. I tried the app when I was in Los Angeles about 10 years ago, and I tried the app today, and it felt pretty similar. So what I've done is I've challenged the teams To make Tinder feel more vibrant and alive, going through like an overhaul and potential refresh of the product What the teams were able to do creatively is to look at ways to bring more depth into member profiles And also keep that core experience intact. This is actually coming from extensive testing with our core users and direct feedback from Gen Z And our younger users.

Speaker 2

I think this experience will have a more modern look and feel and drive engagement, Which will lead to more success on the platform and more conversations. But there is a balancing act here. The swipe is critical for Tinder's identity and experience and people come in to swipe profiles. People love it. So I want to make sure that Members engage in more meaningful ways, so we have to make sure that we're balancing that swipe experience with a great UX that delivers a new That resonates with the new generation of users and I really believe we've nailed it.

Speaker 2

I feel really positive About the work that our product and design teams have done together and we'll be rolling that over the next couple of months.

Operator

Our next question comes from Mario Lu with Barclays. Please go ahead.

Speaker 7

Great. Thanks for taking the question. So similar follow-up in terms of the Tinder second half features. You mentioned in the Jerhollow letter, We'll be focused on Gen Z as well as AI capabilities. So just wondering if you could expand a bit more on why you're confident that these features Will drive engagement and monetization?

Speaker 7

And then also, does this imply that Tinder coins is no longer in the roadmap? Thanks.

Speaker 2

Thanks Mario for the question. Our Tinder roadmap was designed and structured in a way that we could focus on Delivery that could drive real wins for us in the first half of the year and build momentum for us throughout the entire year. We're successful in rolling out pricing optimizations and weekly subscriptions and that has built that freedom and momentum to really think Creatively about what we deliver for the second half of the year. So I'm really actually excited about some of the great initiatives that we have in the second half of the year like the product refresh that I mentioned earlier and also the launch of our premium experience. Kinder coins is still on the roadmap and we're currently testing and it's an iterative process to figure out what the best value proposition for our members.

Speaker 2

So we're testing it right now, but we don't see it contributing to 2023 revenue. But when I generally think about the features on the roadmap, I have to make prioritization decisions and with the advent of generative AI and the excitement and The enthusiasm that we're seeing across all of our different teams, I've made the call to prioritize generative AI initiatives with Tinder over other initiatives like

Operator

Our next question comes from Dan Salmon with New Street. Please go ahead.

Speaker 4

Great. Good morning, everyone. Thanks for taking the questions. I guess it's a 2 parter and BK highlighted a piece of it there. And so I'd like to just ask about the Tinder Super Premium Tier, premium tier a little bit more.

Speaker 4

So you're rolling it out in the U. S. This fall. Just any color you can give us on how How it will be? Is that going to be impactful, say, weekly subscription sound like they've been so far?

Speaker 4

Or The number of power users or the so called whales, is that too small to be material? And then just the second part, you're rolling it out in the U. S, any early thoughts On the potential for the product like that a product like that on a global basis? Thanks.

Speaker 2

Thanks for the question, Dan. The general concept is that we are providing an experience for a small percentage of our Tinder members And the value proposition is basically give these members a better way to get high quality matches faster and sooner And make the experience overall even more fun. We've been actually testing multiple components of this experience With our members today and we're seeing actually real benefits. So I'm personally really excited about these testing results. It's really early right now, so we don't know what the final pricing is yet.

Speaker 2

But at a high level, if you actually take a small fraction of our payers At higher price points, you actually get a number that's in the tens of 1,000,000 of dollars on an annual basis. So I think that's actually Pretty impactful. This is an area that I have a lot of experience in where a small segment of users drive a High amount of monetization. So this I see as a real opportunity for us.

Speaker 4

Very helpful. Thanks, EK.

Operator

Our next question comes from Benjamin Black with Deutsche Bank. Please go ahead.

Speaker 8

Hi, thanks for taking my questions. I have a follow-up on Tinder Pair trends. But With international pricing now sort of off the table for the time being and the disruption from U. S. Pricing seemingly coming To an end, when you pair that with improved conversion trends from weekly packages, I'd be curious to hear about your outlook for Tinder Peer net additions for the Q4, I mean, should we anticipate positive sequential growth there?

Speaker 8

And I know it's early, but should we be thinking about the balance between RPP and payer growth as we look forward to 2024? Thank you.

Speaker 5

So I think the way to think about the rest of 'twenty three, first of all, Ben, is that the year is largely about increasing RPP. As I mentioned earlier, we saw a dramatic increase in Q2. We're expecting even greater increase in Q3 And then continued acceleration into Q4 because of the weekly packages and the price optimizations. On the payer side as a result of all these things playing through the payer base, we're seeing year over year declines in the mid single digits In terms of payers and that's something that I expect to continue for the next couple of quarters. And there's a few different Drivers of that.

Speaker 5

Obviously, the decisions we're making around weekly subscriptions and pricing Is part of that. And the other part of it of course is what we're seeing on new user growth. And so new user growth is getting stronger, But it's not to the point yet that we'd like to see it at, but we're driving that up further and further. And so we continue doing that with marketing initiatives And with product initiatives, I think as that turns more positive, we'll be able to drive improved year over year payers growth as well. As we think about 2024, as I mentioned in an earlier answer, a lot of the volatility from The initiatives we're doing this year around revenue, around pricing and weekly subscription packages should have rolled off.

Speaker 5

And then we expect to see a more balanced impact from payer increases next year as well as from revenue per payer increases. But I would caution that it really does depend on what we roll out from a product standpoint. So for example, We're going to roll out and we're tending to roll out the new premium tier late this year. That will be a driver of 2024 performance And that is clearly a revenue per payer play, not specifically a payer play. So we have to look at kind of what the product roadmap is to make some determinations.

Speaker 5

It's too early for us to kind of go through the whole product roadmap for 2024. We will provide more color on all of that in the upcoming quarters. But again, I would like to see and we're targeting a more balanced contribution of payers and RPP to drive overall strong Tinder revenue growth next year. We're encouraged by the progress we've made on top of funnel and that's clearly something we have our eyes squarely on and we want to keep improving which is what will help enable us to drive stronger year over year payer growth next year After this year being more of an RPP story. I hope that helps answer your questions.

Speaker 8

It does. Thank you.

Speaker 4

Okay, great.

Operator

Our next question comes from John Blackledge with Cowen. Please go ahead.

Speaker 9

Great. Thanks. Unhinged, could you just provide some more color on the key drivers of the revenue acceleration in 2Q and Kind of continuing into 3Q. And then what have you seen? I think it's early, but what have you seen with the new weekly sub tier launch at Hinge?

Speaker 9

Thank you.

Speaker 5

Thanks for the question, John. So, what we saw in Q2 for Hinge and what we're expecting to see in Q3 and Q4 as you said It's really direct revenue growth acceleration through the course of the rest of the year. And there's really three things going on in the business They're kind of layering on top of each other that are leading to that revenue acceleration and we've already seen it in the most recent quarter. The first is continued very strong user growth in core English speaking markets. The second is user growth as a result of the expansion to new markets, And the third is a variety of monetization initiatives that we've rolled out including the new subscription tiers that we've talked about before We rolled out earlier this year and those are continuing to drive revenue growth from an expanding user base in the core English speaking markets As well as the Continental European markets.

Speaker 5

So that's why you see this effect of compounding revenue growth as we proceed forward with the Hinge business and The visibility into that is fairly good at this point. The other thing that you asked about was weekly subscription packages. So, as you know, we haven't had those across the portfolio in prior years. We've been rolling them out across a number of the brands over Of course of this year, we started with a couple of our smaller brands. We saw real success there.

Speaker 5

We rolled them out to Tinder. We've obviously seen real success there as well. And so it makes sense for us to use that knowledge and those learnings and roll them on to Hinge as well. It wasn't something that we were specifically planning for this year, But we decided to do that as well. We've rolled them out successfully over the last 3 or so weeks at Hinge and we're seeing basically Similar impact from weekly subscription at Hinge as what we've seen at the other brands.

Speaker 5

So it's always slightly different at each brand, but in general We're seeing improving conversion, improving renewal rates. And so what that's doing is giving us confidence That we're going to hit approximately 40% year over year revenue direct revenue growth for Hinge for 2023, Which will get us to around $400,000,000 of revenue and we'll see growth rates in Q3 and Q4 That are continuing to accelerate over what we saw in Q2. So all systems go with an extra jolt of improvement at Hinge from the weekly subscription pack.

Speaker 9

Thank you.

Operator

Our next question comes from Shweta Khajuria with Evercore ISI, please go ahead.

Speaker 10

Thank you for taking my question. Just a high level question for you, BK, on AI. So you touched on it in your prepared remarks as well as in the letter. Could you provide a little bit more context Or concrete examples of where you're already leveraging AI enabled technology at Tinder and Hinge and how You think that could impact top and bottom line for those 2 businesses in particular? Thank you.

Speaker 2

Thanks, Shweta, for that question. This has been a really exciting moment for our company Match Group. AI has really inspired our technologists and product people across the entire company to really think about ways that we can create new experiences, But also solve for key, dating, what I call kind of pain points. So what I've kind of harnessed that like energy and the Data that we have as an organization around delivering great products over the next couple of months, that solve against some of these problems. So I will use Tinder as an example.

Speaker 2

Sometimes people are really excited to jump into the Tinder experience. They download it off the App And then in that exact moment where you have to upload 5 pictures, people get generally nervous or uncomfortable like what is the right picture that I've taken over The last year to make my dating profile great. So sometimes those people just literally turn out of the process and say maybe dating apps are not for me. We could use AI and we're actually creating a photo selection feature that we're testing that can take the stress away, that Look at your photo album and say, okay, these are the 5 best photos for your Tinder profile, but also still like remaining authentic That person in the profile that they want to create. I really think that AI can help our users build Better profiles in a more efficient way that really do showcase their personalities and stand out in the marketplace.

Speaker 2

When it comes to the organization, we have a lot of different teams kind of like raising their hand and saying, hey, like I want to work on some really exciting AI ideas. But internally we've created these centers of excellence where AI engineers are coming together and collaborating on features That I think could benefit multiple brands across the portfolio. An example I would use is, Hyper Connect is actually working on AI features And then in E and E, our teams are working on AI features that are that could be great for Plenty of Fish, Mediac Match and OkCupid. So there's a lot of creative ideas and concepts that we're currently testing and we plan to roll out these features in the coming months. We know that this is a really big opportunity that could have like a really meaningful impact on users, their experience and our business.

Speaker 2

But at the same time, we have to be really thoughtful about making sure that we're giving the right thought to authenticity And ethical and privacy concerns. So we're doing all those different things as we roll out these features. Thanks for the question, Shweta.

Speaker 6

Thanks, BK.

Operator

Our next question comes from Justin Patterson with KeyBanc. Please go ahead.

Speaker 11

Great. Thank you very much. Good morning. Gary, you've alluded the Q4 growth rates a couple of times between Tinder And Hinge, I'm curious, could you provide an update on your 2023 revenue outlook, where you think you'll land on that 5% to 10% range? And then thinking about just the AOI margin side, you did improve the language on that to increase versus 2022.

Speaker 11

How should we think about that magnitude of increase and the puts and takes to get there? Thank you.

Speaker 5

Sure. So let me kind of unpack the revenue outlook. I stated in my remarks, right now I think we're looking for 6 To 7% year over year total revenue growth for the Match Group, so above the bottom of that range and within the range that we provided the 5% 10%. And that includes the 8% to 9% year over year revenue growth outlook that we provided for Q3. If you go further, we said Tinder is expected to deliver approximately 10% year over year direct revenue growth in Q3 And solidly double digit, so assume better than the Q3 number in Q4 as we see continued acceleration in Tinder's growth.

Speaker 5

If Tinder is able to deliver solidly double digit growth in Q4, it's logical to think that the overall company is going to deliver A similar kind of growth rate as well as has been the general pattern. That's how the math works out. And so if you layer the Tinder growth and then you have Hinge, Which is accelerating from the 35% that we have in Q2 and accelerating through the rest of the year. And then if you look at the other businesses, They're down mid single digits is our expectation for Q3. So I think we might see a little bit of improvement there.

Speaker 5

Certainly, there's a path for a little bit of improvement. And I think when you boil all of that together, you've got the components that get you to double digit growth for the company In Q4 and then the 6% to 7% overall for the full year. So I think those are all the pieces And tells you where we're going and I would say that the clarity in all of this and our confidence continues to improve which is obviously very good to see. And then from an AOI margin perspective, the driver really is The level or the magnitude of Tinder growth as it continues to grow, it's high margin revenue and that obviously is helping the overall Company's AOI margin. So sitting here today, we could see a path to at least 50 basis points of margin improvement on a year over year basis 2023 over 2022, but obviously that will be impacted by What Tinder and some of the other businesses do as the rest of the year progresses.

Speaker 5

And then we also will have some decisions to make In terms of marketing spend levels at Tinder, as we see the effects of all of its marketing and what it's doing from a user growth perspective, but obviously it's helping. So It's possible we're going to want to spend into that strength. And then the newer apps like Archer and the League, if we see those take off like we're hoping in the back half of the year, It will make sense to spend marketing dollars into those businesses as well to help set us up for a strong Q1 next year, which is our Most important quarter of the year and to give us the right level of momentum into 2024. We've talked before, we didn't have the momentum we'd like to see coming in to 2023, which made payer growth and revenue much more challenging in the early goings of 2023. We'd like to make sure we're set up well to drive accelerating revenue growth into 2024.

Speaker 5

I think the organic trends are obviously very good, but to the extent we can Supplemented with marketing spend, we will do that to give us the momentum we want into 2024 as well. I hope that helps you as you think through the trends on AOI and on revenue.

Speaker 11

Thank you.

Operator

Our next question comes from Lauren Shanks with Morgan Stanley. Please go ahead.

Speaker 7

Hey, you've got Nathan Feathering on for Lauren. So continuing on the AOI thread and given the impressive 2Q operating income result, What are kind of the 1 or 2 key drivers which could lead to further AOI upside in the back half? Thanks.

Speaker 5

So, as I mentioned on the last call, I mean, I think the biggest variable is what level of growth we're going to get across the company and specifically At Tinder, we've seen a pretty dramatic acceleration just over the last 3 months versus what we were expecting Because the initiatives, the revenue initiatives are really working better than we thought. So we have to see how that continues to proceed through the year, but obviously we're feeling Better and better about the revenue growth trajectory of Tinder and frankly across the company where we've seen dramatic improvements pretty much everywhere. So That's I think the biggest variable. And then on the other side of it is the marketing spend primarily. I think everything else is pretty known in terms of what we're going to do.

Speaker 5

Our hiring is pretty muted, what the App Store fees are going to be. And so the biggest variable is marketing spend. It's obviously entirely within our control. But to focus on additional growth for 2024 and beyond, we're going to calibrate the growth that's being derived from the businesses, the benefits we See from the marketing spend we're doing and try to figure out what level of marketing investment we want to make in the various businesses towards the very end of this year. Obviously, we'll provide lots more color on what we think is going to happen in Q4 on our next call.

Speaker 5

But we're very happy to see the outperformance that's giving us Some really nice choices to make and we're thrilled to be in that position right now.

Operator

Our next question comes from James Heaney with Jefferies. Please go ahead.

Speaker 7

Thanks for the questions. Would love to hear a little bit more about just what you're seeing in Japan. Are there any things that Malgosha and the APAC team are focused on to reaccelerate growth in that market specifically. I mean, it sounds like a Pairs brand campaign is in motion, but Curious if there's anything else that the team has planned. Thanks.

Speaker 2

Thanks, James. Great question. The Japanese market has remained challenging for us. What we can do is put the right team in place And we're really excited about the new CEO that has joined us and is overseeing Pairs. I think he's going to do a really fantastic job.

Speaker 2

In tandem with that, it's really great that Mel Gosia is on the ground running the business and she really has hit the ground running, Meeting with all the different teams and then instituting product changes that I think will be impactful in the marketplace. So we're exploring all the different options that we can do to jump start the business in Japan. But what we're really excited about in the short is being able to advertise for the first time on TV in Japan. We actually believe that this channel unlock could be really meaningful. And you're right in saying that we are ready.

Speaker 2

The second that that is available with the Pairs marketing campaign That we're really excited about to be on television for the first time. Thanks for the question.

Speaker 7

Thank you.

Operator

Our next question comes from Brian Fitzgerald with Wells Fargo. Please go ahead.

Speaker 5

Thanks. On Archer, we wanted to

Speaker 4

ask if you could provide any specifics on the rollout and how you're approaching that from a marketing perspective and Any early indications around the strength of the product market fit? Thanks.

Speaker 2

Thanks, Brian, for the question. We're really proud of the Archer team And the experience that we're providing for gay daters. When it comes to an indication on how it's performing, it's still really early. It's only been live in the New York Market for about 10 days, but daters are happily creating profiles right now. Our plan continues We plan to roll out nationwide by the end of this year.

Speaker 2

When it comes to marketing, I'm really inspired by the approach that the team has Taken. They're doing events with social influencers. They just recently had a big event on Fire Island in New York City. And we're really excited about the creative marketing efforts that the teams are executing against. Thanks for the question.

Speaker 4

Thanks, P. K.

Operator

Our last question comes from Jason Helfstein with Oppenheimer. Please go ahead.

Speaker 12

Hey, thanks for getting me back in. I should have played Mega Millions, I guess, I hit the Earnings call lottery getting both at the same time. Just quick question on weekly subs. So If the mix of weekly subs increases, does that increase churn? And how do you think about managing your outlook if there is Less visibility around churn.

Speaker 12

And then how do you is a weekly package more like a la carte and historically, Europe was more a la carte already. Just maybe just broadly, how are you thinking about that? Thank you.

Speaker 5

Sure. Let me take that one. First of all, It's important to point out that weekly subs are new to us and we're still learning from the trends we're seeing there, especially around renewals. We don't have As much data as we'd like. Obviously, we have much more data around monthly subscriptions and longer term packages.

Speaker 5

So you're right, it's newer, it's harder to manage, It's harder to determine the outlook. We've gotten better at it just over the last few months and we'll continue to get better at it as we get more data and time goes on. And it's also important to point out that we don't really manage our outlook or we don't provide an outlook based on payers and revenue preparer. We provided based on revenue where we have a lot better visibility because frankly the revenue impact from the weekly subs has been much, much more stable. It has been the impact on the payer count that has been more challenging to analyze.

Speaker 5

So we're providing the best outlook we can On payers and RPP drivers within revenue because people keep asking us about it, but the reality is we don't Look at it that way as much as we do on the revenue side, that's what we're targeting. So it has introduced more variability. It has made things more I do think it will get better. And you're also right, there is more churn. These people come on for a short time, they go off.

Speaker 5

And so we're seeing that dynamic, but the good news is the conversion rates are up, the renewal rates are strong and it is helping especially with younger users Who are really liking the weekly subscription packages and so that's a real positive for the business. And also I'd point out that All of this is a testing process. The business is a dynamic business. We're constantly readjusting. We've introduced this new Type of subscription package now and there has been real demand for it and so we need to keep testing.

Speaker 5

And so Right now, we're giving our best outlook for Q3 in terms of payers being better than they were sequentially than in Q2. It's still early to say what the impact is going to be on Q4. There's a lot of variables around kind of all these things working themselves through the payer system. What I can tell people with a lot of certainty is the revenue growth is accelerating and that's the main thing that we care about and are focused on. The revenue preparer Is accelerating and some of this variability is going to be reduced as we get towards the end of this year.

Speaker 5

So That will make things a little bit more kind of clearer from a visibility standpoint. And we'll provide as much updates and information as we can. But I would discourage people from using payers as a proxy for top of funnel strength. What we're seeing and what indicates that there's top of all strength is improvement in the new registrations or new user sign ups And reactivations and we provided that chart in the letter which clearly indicates that a 10% year over year improvement from a growth rate perspective In those top of funnel metrics. That's showing us that we're bringing in more people in, which is very critical, and we're going to continue to drive marketing and product initiatives To do that, which should continue to help us grow from a top of funnel perspective, obviously, we can continue to convert those people and that will ultimately drive payers And that's something we're going to we're expecting to see over the coming quarters, which will help drive payers and ultimately contribute to revenue.

Speaker 5

That is the metric that we're focused on To see the overall health of the business, the payers, we can impact that by pricing decisions we make and product decisions we make. If we rolled out a dollar subscription, the payer numbers would go up, but it might not be revenue enhancing. So we've got to consistently test and adjust To drive overall revenue for the business, not specifically a metric like payers or even RPP, and that's the way that we You'll think about the business and think about how to drive long term value for shareholders.

Speaker 12

Thank you.

Speaker 5

Hopefully, that's helpful, Jason. We are glad you're safe And we're able to join the call. And we thank everyone for joining this morning and we look forward to talking to you all again on the next earnings call. Thank you so much.

Operator

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

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Earnings Conference Call
Match Group Q2 2023
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