Match Group (MTCH) – Update and Investor Conference – December 15, 2023
Investor Conference
Top-of-Funnel at Tinder
Swidler walked us through a marketing blunder from the Match team. Top-of-funnel trends were recovering directly based on its successful Tinder marketing campaign during the spring and summer. For whatever reason, it halted this spend later in the summer to focus on a different back to school campaign. I’m not sure what data the team was looking at to make this pivot away from what was working, but they made it none the less. Top-of-funnel momentum subsequently dried up and has since started to recover as it turned the national marketing engine back on. This lesson will lead Tinder to having an “always on” portion of its marketing budget to avoid repeating this frustrating mistake. It cost the team about 2 additional quarters on the path to recovery. Again, frustrating.
The main concern here is that the app just doesn’t appeal to GenZ or women. Well? The marketing campaign was explicitly leading to a spike in growth among GenZ women specifically. This team really just needs to execute better and my patience to wait for them doing so is dwindling. It continues to work on infusing more serious, intentional dating profile tools into Tinder as that is what GenZ clearly wants (see Hinge). I occasionally use Tinder to try to meet that special someone. The app doesn’t look much different to me aside from added dating filters, which are actually a welcomed change.
Overall, Tinder top-of-funnel has been down by mid-single digits Y/Y throughout 2023. CFO Gary Swidler told us that lapping price hikes in Q2 will lead to progress here throughout 2024. He thinks they’ll be in “a lot better shape” here in a year and growth should turn sequentially positive in Q2 or Q3 next year.
- Subscription revenue for Tinder continues to perform well and a la carte revenue continues to struggle.
- Student loan payment resumption has impacted Tinder and Match in line with leadership expectations.
- It may look to hike prices on Tinder outside of the USA in 2024.
Hinge
If only Hinge traded as its own public company (but with access to Match’s large database). This app is thriving. All of the work on debuting it across Western Europe in 2023 should lead to more explosive growth in 2024. It has its eyes on Asia and Latin America for 2025 expansion plans.
Match Group Asia
Azar continues to grow quickly thanks to upgrading its AI matching algorithms. Hakuna and Pairs both continue to struggle. For Pairs specifically, some help may be on the way. Based on Japan’s very low birth rate, the government and Match are now partnering on go-to-market for the Pairs app. Between that and newly legalized TV marketing there, the uniquely elevated dating app stigma should slowly fade away. Pairs caters well to the 18% of Japanese people willing to use dating apps. It doesn’t do well with expanding that 18% as the rest are not as comfortable with using them. It’s addressing that now.
Final Key Notes
- Swidler called out a change in Apple’s 10K risk disclosures. It now calls app store regulation likely. This would be a margin boost for Match’s business.
- It doesn’t see anything that it wants to buy. So? More buybacks.
“We have strong margins, cash flow and returns. When I look at the stock, I struggle to understand where people’s heads are at. But that gives us the opportunity to buy back more stock. And I’m optimistic we’ll look back in a few years and say, we should have bought even more than we were buying back in 2023.” – CFO Gary Swidler
Update
The Fed pause is good news for Match group specifically. Why? Two reasons. For one, its balance sheet carries quite a bit of debt. Leverage ratios are in good shape, but this could allow the firm to get aggressive on those ratios to buy back more shares at today’s depressed valuation. Secondly, it will likely lead to downward pressure on U.S. dollar currency swaps. With a whopping 50% of its revenue not being collected in dollars, FX headwinds should quickly turn to tailwinds to prop up its growth. In a perfect world, I would have added to this name like I did with PayPal and Lemonade following the Fed Statement. I didn’t.
Candidly, it’s not because I consider the position to be full. I’m willing to break that rule in some instances, just not in this one. This has been the black eye of my portfolio with part of Tinder’s struggles being micro-based and self-inflicted.
New leadership is about a year into their tenure. Revenue growth for Tinder has accelerated, partially thanks to much easier comps, and Hinge continues to dominate. Still, old excuses are being replaced with new excuses. Leadership last year rightfully called out poor product innovation and “not getting enough product shots on goal” as the reasons for slowing company momentum. It further called out old leadership almost being too proud to spend on external Tinder marketing when that was dearly needed.
Fast forward to today, and the excuses have changed. Several quarters into ramping up product iterating, macro headwinds are being blamed on a recently lowered 2023 guide while other companies cite easing macro headwinds. Its continued weak top-of-funnel trends are being blamed on Tinder needing to better cater to GenZ. At some point, this becomes the new team’s fault and leaves me wondering if this app truly is a dinosaur. With all of that said, online dating is a secular growth story and this is the clear share leader. The market resembles an oligopoly with Match commanding most of the power. For this reason, I’m not yet ready to let go. Figure your sh*t out, Match.
