Match Group, Inc. (NASDAQ: MTCH)Q1 2019 Earnings CallMay. 08, 2019, 8:30 a.m. ET

Contents:

Continue Reading Below

Prepared RemarksQuestions and AnswersCall ParticipantsPrepared Remarks:

Operator

Good morning and welcome to the Match Group First Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Lance Barton, Senior Vice President of Corporate Development and Investor Relations. Please go ahead sir.

Lance Barton — Senior Vice President of Investor Relations and Corporate Development

Thanks, operator and good morning everyone. Also joining me on the call are Match Group CEO Mandy Ginsberg and CFO, Gary Swidler. Mandy and Gary will review the first quarter investor presentation that is available on our Investor Relations website and then take questions. Before we start, I'd like to remind everyone that during this call, we may discuss our outlook and future performance.

These forward-looking statements may be preceded by words such as we expect, we believe, we anticipate or similar statements. These statements are subject to risks and uncertainties and our actual results could differ materially from the views expressed today. Some of these risks have been set forth in our earnings release and our periodic reports filed with the SEC. Now over to you, Mandy.

Amanda W. Ginsberg — Chief Executive Officer and Director

Good morning, everyone. Welcome to our Q1 2019 earnings call. We had a fantastic Q1 and 2019 is off to a great start. Tinder is driving very strong results and we have a lot of opportunity ahead of us. We're achieving these results by enhancing the product and delivering the best experience possible for young single people all over the world.

We're also excited about international opportunities. We recently announced that we realigned our leadership team to focus on the opportunities we see across Asia Pacific. This new structure will allow us to accelerate Tinder and to extend our reach through other brand in this region. Our emerging brands are promising especially Hinge, which I will get into a bit later. I'm confident that as we focus on scaling these businesses and improve the product experience revenue is going to naturally follow. And the last thing I want to mention before I get into the slides is we are seeing positive results with Match's redesign, it gives us confidence and our plan to that business moving forward. If we execute on our strategy, which is growing our existing brands, making new bets and investing in those new bets and increasing our focus on developing markets, we will have multiple drivers across the company that will produce steady and long-term growth for us.

And while we are executing our strategy, we will remain highly competitive by doing what I think we do best, delighting our customers by providing best on product experiences across each of our brands. Let's flip to Slide 4, there are 600 million singles globally and roughly half were in the region on this slide that we're defining as APAC. This is four times as many singles in this region compared to North America, where half of our revenue is today. We are positioning the company to capture the opportunity we see across this region.

A decade ago this part of the world was not showing much traction in our category, and as a result, we put very few resources focused on the region and we lack local expertise. Then things started to change significantly in 2014. First, the adoption of mobile phone apps helped open up the market, then we started to see early stages of a huge shift in culture and — the cultural norms around dating and marriage across APAC. And those shift had an impact on our portfolio in a couple of ways. Tinder emerged as a cultural phenomenon that was able to transcend geography. It organically generated 10's of millions of downloads without really any localized expertise or localized product.

And then in Japan Pairs grew from a small innovative start-up to a market leader in less than three years. At both Tinder and Pairs, we leveraged Match Group's deep knowledge of dating products to generate over 200 million in revenue through this region this past year. This was a 10 times increase over 2014. As dating culture evolved in these markets over the last couple of years we were right there, providing products to help young millennials connect with others in their cities. And we believe this is just the beginning of our growth story in APAC. And we have plans to aggressively pursue this massive opportunity in front of us.

Okay. So the big question is how you're going to do it? We recently realigned our management team to focus on this region. We created hubs in Delhi, Tokyo, Seoul and Singapore. On the Tinder front, we plan to localize the products and reinforce our leadership position there. And just like in the US and Western Europe, we don't think there's going to be just one product for everyone. As a result, we plan to continue to introduce more brands to the region to address different segments. In India, Tinder is already the top grossing app overall and we think there is real opportunity as the dating culture is shifting rapidly and less people are opting for arranged marriage.

India is the second largest country by population in the world with nine cities over 6 million people. As more young and educated Indians move to big cities, our products can help them find meaningful connections. Over a year ago, we made the decision to promote the head of Tinder in India to a broader role. We wanted more focus and energy around new products as well as M&A. Our GM of Match Group in India, who is the great leader there oversaw the launch of OkCupid, which was our second brand there.

Previously, OkCupid had a tiny organic presence there. Since the launch in Q4, just a couple of months ago, the momentum is building, and this become a complementary alternative to Tinder. Downloads in India for OkCupid were up 600% year-over-year in Q1 to become one of the top dating apps in India only after a few months of investment and minimal investment. Our success in India as the template for how we are approaching other emerging Asian markets. We empower incredible talent on the ground, who understands the culture, regulatory challenges and market dynamics.

And the last few years really has given us a real learnings to invest in the region in a disciplined and a focused way. Japan is a great example of where we acquired an early stage business that had local traction. In 2015 Paris joined Match Group, the young entrepreneurial team with strong engineering and product jobs. Pairs is now the market leader for serious relationships. This is another country where there is room for multiple brands. Tinder continues to grow its user base and it's one of the top five dating apps in the country. Japan is one of our highest lifetime value market. People there are willing to pay for dating services.

It's also a place where online dating stigma continues to a road. There's still plenty of work to do to improve the perception of the category, not just with consumers, but also with the advertisers who previously were not opened to online dating products and their channels. And like India, we have a local stellar leader who is overseeing our brands in Japan and Taiwan as well.

The last area I will cover is Southeast Asia. Tinder is already a top 10 grossing apps in six countries across Southeast Asia. We see more opportunity to grow our portfolio there. In Southeast Asia in the last five years, Internet penetration has grown by almost 15% and this area has more than a dozen high density cities with over 1 million people and more and more young people are moving to large cities.

These are really important factors that make the need for our app high. We have a highly talented leaders who is spearheading our brand here. I want to wrap up this section, but before I do, there is one more thing I want to call out. We are excited about the Tinder Lite app that will be coming soon. It's a big step forward addressing the needs of consumers there. Tinder Lite will be a smaller app to download, it will take less space on your phone, making Tinder more effective even in more remote areas or regions, and keep in mind these are regions where data usage still comes at a premium.

As a result of our continued investment and growth in this region, we expect that APAC will make up a quarter of our company's total revenue by 2023. Let's turn to Slide 5 and talk about Tinder. In the US, Tinder continues to reinforce its position as a leading brand for young singles. 71% of the young population, which includes Gen X, Y and Z all agree with the following statements. Live experiences on the most important moments in my life. They care much more about experiences than things. And as a result, there's been a big focus to link the Tinder brands to live events.

Three examples on the left-hand side of this slide are Spring Break, Music Festivals and College Swipe Off. Tinder ran Spring Break Mode during March. Students could add their Spring Break destinations as a badge right of their profile. It can connect and match with students from other schools who are often going to the same place. We saw a 14% lift in enrollments in March for Tinder U. We also see a big trend of college freshmen signing up for Tinder U. If we can continue to provide engaging and fun and exciting experiences, these folks will keep coming back to Tinder throughout their 20's while they're single. Another example of these fun experiences is music festivals. There been a big boom in music festivals over the last five years and Tinder is capitalizing on this trend with the launch of Festival Mode, which we just announced last week.

Tinder users can add a badge to their profile, just like on Spring Break Mode, highlighting which event they plan to go to. They can then swipe, match and chat with others attending that same events. This feature is going to roll out in 12 of the world's largest music festivals across the US, UK and Australia. We're partnering with two big entertainment companies AEG Worldwide and Live Nation, we're thrilled these partners have incredible reach with a highly engaged audience.

When these brand send out a call to action to music lovers to connect, we think people will find this really compelling. Finally, Tinder also just completed its second annual College Swipe Off following the success of last year's swipe off where schools competed for a campus concert performed by Cardi B. This year more than a 100 US colleges computed for the chance to win a campus performance by Juice Wrld. His latest album hit number one on the Billboard chart a week before this swipe off.

We also worked with Cardi B right before she won a Grammy, and I don't think we can take the credit for the success of these artists. But with this track record, I'm sure lots of musicians will want to work with us. We saw improvements and engagements similar to the lift, we saw last year. An important metric we track is female satisfaction and swipe right rates and both of those metrics increased. The last thing I want to mention about Tinder is around richer content. Creating richer more vibrant content for users to express themselves is really important part of the dating experience and video is a great way for us to do this. Last year, we announced at Tinder the launch of Loops where users included two second video on their profile. It's not surprising that Tinder users who are accustomed to seeing video on tons of different social platforms are hungry for video content.

Today more than 60% of our users are watching Loops, and that number is growing. As you've heard last month Snap announced a video integration with Tinder and that's also coming soon. Overall, there's great momentum happening at the Tinder business and the team is hitting its stride.

Let's flip to Slide 6, we have a strong track record of both acquiring and incubating new businesses to drive growth. And on Slide 6, you're going to see a combination of these brands and we're bullish on these opportunities.

The current focus across all four of these brands is to invest in scaling the user base and improve the user experience. A little later this year we also — we will plan on shifting a little bit more focused to monetization. And just as a reminder, Tinder grew for over two years before we launched its first revenue feature. We're confident that we will have the right playbook and timing to apply to these emerging brands.

The Hinge business, which we acquired in December continues to scale rapidly. There's tremendous growth here in the US and then the few English speaking cities around the globe. London is seeing very strong traction and now it's Hinges second largest market. If you look at the chart on the bottom left, global downloads at Hinge grew 32% sequentially to over 1.2 million in the first quarter.

And then on the marketing front Hinge is leaning into its value proposition around helping people find a serious relationship. Designed to be Deleted tag line is now out there, it's been resonating with users, and it's getting some great press. While Hinges does offer a paid subscription, there really hasn't been a big focus on monetization. Hinge's revenue growth to date today is really due to two things. Improvements we've made to the overall user experience and then user growth.

We're optimistic about what we can achieve from a revenue perspective once we shift our focus to improving the paid feature experience. I want to talk about two other apps we incubated and we've talked about on these calls, Chispa, which means spark in Spanish is our app for the Latino community and BLK is our app we launched for the African-American community. Both continue to grow nicely, as you see on the orange and red lines.

Influencer marketing and performance marketing is working well to drive growth and we do have plans to continue investment there. Both apps will soon be launching their first revenue features and we're going to leverage our monetization expertise from across our portfolio.

Ship was launched just a few months ago late January has shown strong user engagement, especially on the East Coast in cities like New York, Boston and Washington DC. It's working I think because of the social aspect of this app. People ask their friends to join the app to help select matches for them and this social aspects that I mentioned is really resonating particularly with women. 60% to 70% of Ship users are female, which is extremely high in our category.

When you create a crew, you invite your friends regardless of their relationship status. To some people who have never been in the world of dating can now participate maybe from the sidelines a little bit. We think this will help word of mouth marketing. The Ship app today is only available on iOS, but the team is in the process of building out an Android version. There's really been demand for this platform and we're excited to get it out there.

Overall, in our emerging brands, we're making investments that we think can lead to additional drivers to our long-term growth.

Let's turn to Slide 7, at Match brand, we have spoken about our strategy of revamping the product to deliver a high quality experience. For users over the age of 35 Match is stil, the first product people try when they enter the category.

And if these users are more satisfied, they're going to tell their friends and increase morality of the product. We're making solid progress, we launched a significant new redesign. It's simple, it's modern and it gives Match product a bold new look and I think that's really important in this competitive landscape. It's been really well received by our users.

The redesign is more engaging and it's much easier connect with other users on specific topics. We've also made a bunch of under the hood changes, improving our algorithms that have led to better quality matches. Finally, we introduced a new matching feature called What If. These What If scenarios are designed to create serendipity.

This feature introduces potential matches, the users may not have gone looking forward based on things like you both love go into the same coffee shop or you both played varsity high school sport. The feature leverages rich profile that we have in the dating category particularly at Match. Over the years, we've seen that these affinities like going to the same coffee shop or both playing varsity high school sports Trump criteria such as age, height and income and lead to great outcomes.

Altogether, these product changes are driving success. Since the redesign, we have seen a 20% increase in four and five star ratings in the iOS app store. Now these are external ratings. We also looked at internal ratings. Our in app surveys show that people are now more likely to recommend Match to their friends.

This proves that our goal of driving word of mouth marketing and reality is working. User likes are up 20% and messages increased by 10% as a result of the redesign and this is a big deal in our category where activities matter. And these moves are the first steps to making Match a more premium and high end product.

And with that I'm going to hand things off to Gary and he can take you through the numbers.

Gary Swidler — Chief Financial Operator

Thanks, Mandy. I'm delighted to report that we're off to a strong start to the year financially. Our momentum from Q4 carried into Q1. Overall revenue growth in Q1 was strong and Tinder Subscribers grew very nicely. FX was a real headwind, but we expect it to dissipate in the back half of the year. As the year progresses we also anticipate that we will benefit from investments we're making in a variety of brands from Hinge to Match and the Tinder revenue growth will continue to roll along. Let's get into the specifics on the quarter then I'll update our financial outlook.

On Slide 9, you can see the Tinder direct revenue grew 38% year-over-year in Q1 as our product optimization efforts in Q4, gave us momentum that continued into the New Year. The story was not one of specific new revenue features, but rather merchandising optimizations and product and algorithm refinements, which we continue to implement through Q1. Given its scale, Tinder has lots of opportunity to optimize the user experience, which does two things — improves outcomes and matching and drives more users to become paying subscribers because they see value in being a payer. As we've said before 2019 will in part be about gradual tweaks to the Tinder product that we're confident will enhance the experience for users and generate subscriber and revenue growth. That was clearly the case again in Q1. Tinder Subscribers grew 36% year-over-year in Q1 to just over $4.7 million. Tinder added 1.3 million subscribers year-over-year and 384,000 subscribers sequentially. The third best level of sequential additions in its history and higher than any quarter in 2018. Gold subscribers continue to increase as a percent of total Tinder Subscribers.

Tinder's ARPU was up 2% year-over-year on an as reported basis, but on an FX-neutral basis was up much more meaningfully. Tinder marketing spend was essentially flat year-over-year in Q1 with North America spend actually down year-over-year. Overall, Tinder marketing spend was down over 200 basis points as a percent of revenue.

On Slide 10 you can see that average subscribers across the company's brands reached over 8.6 million in Q1, up 16% year-over-year. Tinder drove our subscriber growth again this quarter, we saw some pressure at Match, which impacts the North American sub growth as we reduced marketing spend there by about 8%.

We expect that as we continue to roll out the product refinements at Match that Mandy discussed, our year-over-year non-Tinder subscriber growth will begin to improve. We also will look to increase marketing spend at Match to support the product enhancements and drive user growth and ultimately subscriber growth, assuming we continue to see product success there. Our international subscriber growth was driven by Tinder, which has a larger impact internationally as well as by Pairs. As reported ARPU for the company was stable overall at $0.58. It was up 2% in North America, but down 3% internationally, because of negative impacts from FX. However, on an FX-neutral basis, international ARPU was up 5% and overall company ARPU was up 4% or $0.02 to $0.60.

Flipping to Slide 11, you can see that the company's total revenue growth was 14% year-over-year, reaching $465 million of total revenue for the quarter. Total revenue growth would have been 18% without the impact of FX, for total revenue of $483 million on a constant currency basis. North America grew direct revenue 12%, driven by 10% subscriber growth and 2% ARPU growth, while international direct revenue increased 19%, driven by 23% growth in subscribers and a 3% ARPU decline.

Indirect revenue mostly from ads declined $4 million due to continued declines in impressions of the non-Tinder brands, coupled with the impact of changes to the deal terms in our relationship with fan. Operating income grew 6% to $119 million. EBITDA grew 13% to $155 million. The growth was driven by the higher revenues and lower overall marketing spend as a percent of revenue, partly offset by higher in-app fees $5 million of higher legal, regulatory and compliance costs and in the case of operating income, higher stock-based compensation expense.

Stock-based comp expense in the quarter was up $11 million year-over-year to $27 million, primarily due to the vesting of certain market based awards at Tinder. Despite this, we remain on track for about $80 million of SBC expense for the full year. In addition to posting strong operating results and cash flow in Q1, our balance sheet remain very healthy. 12 month trailing leverage ended Q1 at 2.4 times on a gross basis and 2.1 times on a net basis, flat to year end 2018 despite over $130 million of total stock buybacks and cash payments to net settle employee equity awards in Q1. Our financial flexibility remains excellent.

We have talked before about the strong operating leverage in our business and in our confidence in achieving 40% plus EBITDA margins. A large driver of this is the shift from brands that spend a higher percentage of the revenues on marketing, like Match and Meetic to brands that spend a lower percentage of their revenue on marketing, like Tinder, OkCupid and PlentyOfFish.

Slide 12 shows the impact of this shift in terms of sales and marketing spend for the last nine quarters as a percent of total revenues.

You can see the consistent year-over-year declines. Q1 which tends to be our highest marketing spend quarter shows the most dramatic impacts. Over the last two years marketing spend, the percent of revenue in the first quarter has declined by 10 percentage points from 36% to 26%. In fact, if you look at the aggregate amount of marketing dollars we spent in Q1 '19, it was almost exactly the same as our spend a year ago, about $118 million. We have shifted the mix, Match and Meetic are down, Hinges up, for example, but the total is almost precisely the same. What becomes apparent from this data is that our business has the ability to drive growth without increasing marketing spend as a percent of revenue. We believe product enhancements are the key driver of growth across our portfolio, which we supplement with generally strong ROI marketing spends.

As we enter new markets or introduce new products, we do have to invest in marketing. As we push Tinder into new developing markets where category and brand awareness are low, we do expect increased marketing investment, which we're confident will pay off over time. And as we have discussed, we're investing in emerging brands like Hinge where we see real traction. That said, our marketing spend trend over the past two years is notable.

Now let's turn to Slide 13 and our latest financial outlook. For Q2 '19, we expect total revenue of $480 million to $490 million. This includes the impact of continued FX headwinds as was the case in Q1. We expect $190 million to $195 million of EBITDA in Q2.

We anticipate that Tinder will continue to drive growth and that we'll see similar trends in the non-Tinder brands and in indirect revenue as what we experienced in Q1. We expect Tinder to have a larger number of sequential average subscriber additions in Q2 than was the case in Q1. This is driven by optimizations we're continuing to make to the product as well as by merchandizing changes. Tinder recently crossed 5 million total, that is ending, not average subscribers, a phenomenal achievement for such a young business.

The solid momentum in Q1 and our expectations for Q2 give us increasing confidence in our full year financial performance. In the back half of the year, we're considering investing further in marketing spend, particularly at Tinder and in other global growth opportunities. If we believe these investments will drive long-term growth. Even if we pursue these additional investments, we are targeting margin expansion for the full year. For the full year 2019 subscriber additions at Tinder should exceed our 1 million target.

At the moment, we are forecasting more typical subscriber addition levels in the back half of the year compared to the first two quarters of 2019. The precise number of Tinder subscriber additions for the year will depend on two key things. The first is the renewal rates from our product initiatives in the first half of the year. Because these implementations are recent we're watching to see how renewal rates fair.

The second is the impact of an optimization we rolled out very successfully on IOS in early Q2 that we plan to roll on to Android later this year. The precise timing of that roll out as well as its conversion impact will affect the number of Tinder subscriber additions in the back half of the year. We believe we can continue to grow Tinder ARPU in the mid-single digits for the year.

As you know though, we're focused on driving overall revenue at Tinder, not specifically on subscriber or ARPU growth. We remain confident the company's overall year-over-year revenue and EBITDA growth will accelerate as the year progresses. As FX becomes less of a headwind and as non-Tinder businesses begin to contribute more. We're happy to be off to a strong start in 2019, having delivered a solid Q1 and strong outlook for Q2. Our Tinder business continues to grow revenues and subscribers meaningfully.

We're growing users at our newer businesses like Hinge, Ship, Chispa, BLK and we're executing on our strategic plans to return the Match brand to growth. As Mandy discussed, we're also further positioning the company to capture more of the global opportunity, with APAC presenting an opportunity for meaningful incremental top line growth as the culture and behaviors there shift and smartphone penetration increases.

We believe all of this puts us in a terrific position to continue to deliver solid financial performance for our shareholders.

With that, I'll ask the operator to open the line for questions.

Questions and Answers:

Operator

Yes, thank you. We will now begin the question-and-answer session. (Operator Instructions)

And the first question comes from Kunal Madhukar with Deutsche Bank.

Kunal Madhukar — Deutsche Bank — Analyst

Hi. Thanks for taking the question. Two if I may, one for Mandy and one for Gary. Mandy, can you talk about the competitive landscape in the Asian countries that you're targeting with the reorg that you are targeting with the reorg — with the management reorg. And, Gary, can you tell us where we have started. What is the starting point for the APAC revenues. So when we are trying to get to a quarter of revenues where are we now? Thank you.

Amanda W. Ginsberg — Chief Executive Officer and Director

Okay. I'll talk to — take the first part Kunal. So in terms of competition, outside of the traditional Matrimony players, which exist in this region, we are definitely keeping our eye on some regional competitors that have gotten some traction. But the thing to note is that there are a number of Chinese players that are investing outside of China, spending significant marketing dollars in Asia as well. And then obviously Facebook is jumping in. And recently announced that they're covering more markets in the Asia region. We believe that based on the fact that we've got a really great head start with Tinder and Pairs in particular that — we're going to be in a great position to compete in these markets. And we also know that this is a multi-use app categories. They're for people who are dating or using multiple apps, and we think that with these competitors moving in, there's maybe opportunities even open up the category even more.

Gary Swidler — Chief Financial Operator

And Kunal, I think in terms of where we are in Asia right now, the way to think about it first of all is there's really two drivers. There's Tinder and then is our Pairs business, which is largely in Japan and a couple of other places in Asia, we're building OkCupid in India as well. And so those businesses today are driving significant revenue for us probably on the order of $200 million or so last year, but our goal is to get the overall Asia revenue up to about 25% of the company's revenue over a five-year period. So a significant driver of growth for us over the next five years and that's why we're investing and reorganized in that market.

Kunal Madhukar — Deutsche Bank — Analyst

Thank you.

Gary Swidler — Chief Financial Operator

Okay, next question please.

Operator

Yes, thank you. That comes from Anthony DiClemente with Evercore.

Anthony DiClemente — Evercorea — Analyst

Good morning and thanks for taking my questions. So basically at a high level, you guys are crushing Tinder Subscriber expectations. It looks like you're — you're going to hit 80% of your prior guidance in the first half of the year alone. So investors want to know that's excellent, what's driving that outperformance, Gary in your prepared remarks, you mentioned various tweaks or optimizations to the platform. So maybe just give us an example or two of those and what — and it sound like a collection of evolutionary drivers and improvements. So just what gives you the confidence that those sorts of improvements continue as the company moves forward.

And then maybe second question would be related to the upside to Tinder subscriber ads, that's not really flowing through to the '19 EBITDA guide as you flow through the benefit of those higher subs. And just wondering why not. Is that the expectation that just can be some ARPU pressure from these newer markets as you blend in, perhaps lower ARPU emerging markets or I know you mentioned the cost side. So investing in marketing, and like Hinge and Tinder and emerging markets. So maybe just a little more on that as to why — we're not seeing it flow through to higher EBITDA guidance? Thanks.

Gary Swidler — Chief Financial Operator

Yeah, OK. Let me try to answer those as best I can. So on the Tinder subs, I mean, I think we've been talking for a long time now that we felt there was a lot we could do on the optimization side at Tinder. The way we merchandise the product, the way we think about PayWalls and so forth. And we've been doing that we did it heavily starting Q4, we continued into Q1 and obviously the results kind of speak for themselves as you said, where the subs are growing very nicely and the company is really performing well. So we're going to keep doing that and that's going to continue to take place throughout the year.

I don't want to get too many specifics around the kind of tweaks we're making because we are sensitive to the competitive impacts of that, but I will say that we — in addition to the things that we did through the first quarter of the year we did roll out a pretty significant update to the way we merchandise gold. And as we've always talked about gold is an extremely compelling offering we've seen that in the numbers around gold for the last six quarters or so, certainly in late '17 into '18 and as we refine how we merchandise that just like any other product, the better you merchandise a great product, the more sales you make, more people take you up on it and that continues to be the case with Tinder Subscription, Tinder Gold more specifically. And so we're continuing to refine that. We have work to do, we've got team focused on it. And we're continuing to make a lot of progress. And so you're right, with what we achieved from a subscriber additions perspective in Q1 plus what we're expecting in Q2, we get about 80% of that 1 million number that we had given last quarter. So that's why we're saying we have high confidence we're going to surpass that.

Exactly where we're going to get to is still something that we are not quite ready to make a call on yet, some of these optimizations are relatively new. They either happen in the first quarter or some of that have even happened over the last few weeks so they've been in the market a very short time. And we want to see how all that plays out and roll through from a subs perspective. Plus one of the optimizations we've done on iOS only and we're planning to roll that around to Android but that probably won't happen until sometime in the middle of the year. And so we'll see how that affects Android subs. And that will affect our sub number for the back half of the year. So there's a lot of moving pieces. I think they are still early and that's why we haven't made the call quite on EBITDA and where we are for the year really, revenue and EBITDA.

But obviously as I expressed in my remarks, we feel good about where the trends are going both on revenue and EBITDA for the year driven by Tinder and the upside from all the optimizations that we're putting through in that product. And that's before we get to other things, later in the year, which we still have insights. The other thing on EBITDA specifically, we've given a range of 740 to 790 for the year, we are not adjusting that at this point in time and the reason for that is largely because we see a lot of opportunity to continue to invest and really that is on two fronts, primarily one is on Tinder. We are expanding internationally on Tinder getting into more and more markets, but we see opportunity, we see opportunity in markets that we haven't quite gotten to from a marketing spend perspective yet where we are getting feet on the ground and we see more opportunity.

And so to the extent we have product success at Tinder and ultimately subscriber and revenue success, which has been the case so far this year, we want to try to reinvest some of that into the business, into Tinder and position ourselves for long-term growth in some of those markets, particularly in Asia and so we're going to spend some of that upside. And more specifically even outside of Tinder, we see that opportunity in Asia that Mandy spent quite a bit of time talking about. And we may roll additional of our brands into Asia or even build a new brand for Asia, those are things that we're thinking about as we analyze and think about each market. And we've done it success with OkCupid in India, obviously a lot more to go there, but we could replicate that in other markets in Asia.

Even with those incremental investments in marketing at Tinder and even with things we might do to build brands, to capture more of the Asian market opportunity, we still expect to deliver improved operating — improved EBITDA margins for 2019 over 2018. So we will spend some of the goodness. But, we'll still see some of it drop to the bottom line and that's how we're thinking about the rest of the year. So we have an adjusted EBITDA guidance at the moment, but those are, I think the moving pieces on revenue, on EBITDA, on our investments and how we're thinking about the balance of the year, given the trends that we clearly see thus far in 2019.

Kunal Madhukar — Deutsche Bank — Analyst

That's really clear. Thank you very much.

Operator

Thank you. And the next question comes from Ben Schachter with Macquarie.

Ben Schachter — Macquarie — Analyst

You guys — following up a little on Anthony's question, can you talk more about pricing, specifically around how you're doing that. So what has been the strategy there. What does work thus far? What's not work and how you think that's going to evolve. And then the second question is just on the marketing spend, you talk about how you're thinking about that in terms of evolving around the different channels? Is Asia going to be using the same channels that have worked so well in the West or are you going to be doing things differently there in terms of the channels, you're spending on?

Amanda W. Ginsberg — Chief Executive Officer and Director

Okay. I think the first part. As you know, we've had a long history in pricing and price optimization across a lot of our businesses. Since we've been in this category for a long time and for Tinder we're pretty early in this journey. And when we first launched Gold, it was a bit of a blunt instrument which I talked about in the past. We think there's still a lot of room to optimize price. We hadn't really up until the last few months or starting sort of back in Q4 did a comprehensive evaluation of global pricing. And we're now just starting to test price elasticity, looking at market by market, and we do think there's some opportunities. So there's definitely areas for us to price up. So a higher per capita markets like Japan and in Nordics and in the UK.

And then also, we look at opportunities for us to price down and lower per capital markets like Turkey and Brazil, and at the end of the day as we sort of said again and again we look at those, there's obviously going to be trade-off between ARPU and conversion. But we look at how do we optimize revenue overall especially, even if we drop price worth revenue accretive. Late last year, we hired ahead of pricing at Tinder, which is great and putting real more investment in that area. And like I said, we've got — we're really kind of early innings and into the pricing journey and we feel like we've got lots of opportunity ahead.

Gary Swidler — Chief Financial Operator

I think on the marketing spend in Asia, we do tailor it to some extent to the different countries. We've got people on the ground in each country whose job it is to evaluate what channels will yield the best return, what makes the most sense in those markets and really resonates with people in those markets. So the strategy is tailored to the different markets and I think we're getting sharper at doing that. So we did run some TV in India and Korea in the first part of the year. If you look at TV, for example in India, it's a lot cheaper and more efficient than it is in the US overall. We're not doing that in the US, we found opportunity to do it in India.

And when you contrast that let's say with the Japanese market, TV is not something that's available to us. And so, we're using a lot of other online channels as opposed to TV, but if TV were to open up in Japan, we think that be a terrific channel for us as well. So as these markets evolve, as we get better and better tailoring our marketing spend and targeting in those countries we'll continue to evolve our strategy. The only other thing I wanted to point out is we think about Asia and kind of tailoring our approach there. There's also some room to potentially tailor our approach on the revenue side, because the revenue models that we've used thus far in particular at Tinder across the world may not be perfectly tailored for some of these Asian markets. So we may think of other sources of revenue in Asian markets, we may think of different pricing and different kind of packaging approaches in these markets.

So different things resonate in those markets. We will tailor our revenue models in those countries. So that's probably a little bit further down the line, as we get a little bit smarter and sharper in these countries, but we do see opportunity to adjust a little bit on the revenue side as well as on the marketing side, as we expand our business into the Asian markets.

Amanda W. Ginsberg — Chief Executive Officer and Director

And I'd just add one more thing, not only is brand awareness really important in a lot of these initiatives with Tinder in Asia, but we do look at sort of the impact of the ROI on marketing. So for example, in Korea, where we do a big sort of push on the TV side, not only do we look at which we did in Q4, we look at the number of new users who come in during that bliss, which we saw sort of a big increase of three times more users coming in, but then we also measure the baseline after that, do we see a lift and we are actually seeing pretty significant lift in baseline, once we do sort of a big push. And what this is doing, if we go kind of market by market it's giving us playbooks and informations about what is going to work in different types of markets. And we use that playbook in new markets as we evaluate opportunities.

Gary Swidler — Chief Financial Operator

Next question please.

Operator

Yes, thank you. And that comes from Douglas Anmuth with JP Morgan.

Douglas Anmuth — JPMorgan — Analyst

Thanks for taking the question. Gary was just hoping you could elaborate a little bit more on the back half potential long-term investments, if you could expand on those initiatives, and if there's any way to help us quantify or kind of frame the magnitude of what you're thinking there in terms of dollars? Thanks.

Gary Swidler — Chief Financial Operator

Yeah. So like I said earlier, I think they largely fall into the two buckets, you've got incremental Tinder marketing spend in some of these Asian markets in particular, we just expand the roster of markets that we're spending and trying to drive user growth in. And then potentially something around new brands or building some brands in some of these Asian markets. It's a little bit early, probably to quantify. If you look back for example, at what we said about Hinge, if you want to use a frame of reference, that was a brand that we were investing in and we are trying to drive this year and we said that would have a $25 million impact on EBITDA for the full year, which obviously is a big number given the traction at that brand.

So I don't think we're talking about anything close to that order of magnitude, plus we're only talking about probably half of the year here. But that gives you a frame of reference. So it's probably on the order of 10-ish million dollars or something in that neighborhood as we think about expanding the Tinder marketing spend and the investment in the other markets, but we want to maintain some flexibility, we come up with a great idea or have the chance to invest in a great brand, whether it's something that we pickup from a founder or we build ourselves.

We want to be able to spend that money and again we're going to do it in a way that maintains our margins and improves upon last year's margin. So it's going to be spending the upside if you will.

Douglas Anmuth — JPMorgan — Analyst

Great, thank you.

Gary Swidler — Chief Financial Operator

Okay.

Operator

Thank you. And the next question comes from Brent Thill with Jefferies.

Brent Thill — JefferiesA — Analyst

Good morning, Gary. 30% beat on Tinder subs. But only $1 million revenue flowing through on the upside. Can you just talk to what's happening there and where you're seeing that growth and why that would be such a lag? And then I can follow up with a quick follow up.

Gary Swidler — Chief Financial Operator

Okay. Sure. Yeah, look, I think if you think about kind of the first quarter and knowing that our guidance was was around 300,000 or so subs at Tinder and we ended up at 384. We've got some upside from that clearly in Q1 and that did flow through. So Tinder performed pretty much as we expected, but there was about $3 million or so of FX incremental to what we expected. If you remember, last time we said we thought it would be about $50 million, it end up being about $18 million and that's visible in the Tinder ARPU for the quarter, where I said that it was 2% on an as reported basis, but up more. It's probably mid-single digits on an FX-neutral basis.

So really it is FX that has kind of beaten into the gains that were provided by the incremental Tinder subs. It pretty much offset, there's a little bit of a drop of ad revenue weakness probably, but when you take away the FX and the ad revenue weakness that basically accounts for offsetting the upside in the Tinder sub. That's really kind of what you saw in the quarter at a pretty high level. But I think that explains kind of why you didn't see it flow through. But that's really the only thing that kind of caused a little bit off our expectations.

But Tinder perform really well. The other business performed well too. And we feel great about how Q1 came through.

Brent Thill — JefferiesA — Analyst

And just a quick follow on the advertising business realized that that is small percentage of the revenue, but from a decline perspective as one of the worst quarters you've had in terms of the decline. I know you called out couple of the metrics around that, is this a focus going forward for you or is this something you're going to deemphasize and push more on subscription side?

Gary Swidler — Chief Financial Operator

Well, look, I think we've been pretty clear for a while now that the ad business for us is some incremental revenue and but it is a non-urgent priority for us. It is not our primary focus. We're fortunate to have a really strong direct from the consumer business, that's where we generate a vast vast bulk of our revenue as are a few percentage points of the overall company's revenue. And so we're not surrendering it, but it doesn't get the priority on the product road map that new features get particularly at Tinder, and I think that that is a logical business decision. We're dealing with prioritization, we're dealing with scarce resources and we tend to prioritize our bread and butter, which is the consumer generated revenue as opposed to the ad revenues.

So that's how we're thinking about it. Obviously, we'd like to do better than the declines we're seeing. Some of that is driven by the changes in the economic with fan, which is just like we're going to deal with for another couple of quarters until that kind of goes away. Some of it is the fact that impressions are fewer on mobile than they were on desktop. So that's hitting some of our other brands.

So we're going to deal with those trends. We've been dealing with them for a while, probably will be kind of the similar next quarter as they are right now. And then we'll take a look at this, I don't know if this will be the long-term trend. What we're not emphasizing building out ad revenue right now, as I said, as we think about Asia, we think about how that market monetizes it — monetize a little bit differently and I could see us trying to generate more indirect revenue from that market over time. But we'll have to see.

I think that's further down the road. So I think short answer is, we're not prioritizing ads. We're kind of going be status quo for a little while. Not a big piece of what we do. But over time, that strategy could evolve and we'll see where it takes us, but it's really not a main focus for us as we think about prioritizing things within the product.

Brent Thill — JefferiesA — Analyst

Thank you.

Amanda W. Ginsberg — Chief Executive Officer and Director

Next question.

Operator

Yes. Again that comes from John Blackledge with Cowen.

John Blackledge — Cowen — Analyst

Great, thanks. Just a couple of Tinder questions. On localization had you introduced any versions, how many countries and regions would you expect to localize Tinder and kind of what's the timing. Second would be Tinder number four app in Japan, how big is the opportunity, if you can get the flywheel going with Tinder in Japan like you have in a bunch of other countries. And last question would be for Tinder second half '19 sub ads. Any reason why they wouldn't track near one half levels? Thank you.

Amanda W. Ginsberg — Chief Executive Officer and Director

Okay. Hi, John, I'll take the first part of that. So in terms of localizing Tinder, some product localization features we're already working on. So app performance is one that I I talked a little bit about. Tinder Lite is coming soon. And so, and which is really all about the speed and the experience, which we think is going to be really beneficial for people and international markets where we are a little bit more remote. The other area that we worked on over the past quarter, couple of quarters is the recommendation engine. So and this is based on geography and liquidity and some cities around the globe. It's really important to get matching right even down to the neighborhood level. So that's something that we've been focused on just to make sure that overall matching and the activity improvements happen across the globe. Then there are couple of others that are little bit more less under the hood and little more visible, which we are planning on making progress on in the future.

So if you think about onboarding and people joined Tinder they fill out a profile information and it's important that we capture things that are going to be relevant in that dating culture. And so what you don't see on on Tinder app today are things that are very much geared toward local dating culture. So I'll give you one example. In Japan, when people like come to dating, people share their blood type, it's almost like a horoscope, that certainly doesn't exist in a lot of other countries. But those are the kind of things that like as we understand regional nuances, specifics, we can really prioritize, what actually matters when it comes to dating. And then little less sexy, but well but important when it comes to revenue and billing payment does vary country by country and things like carrier billing or payment providers are ways that there is a way that we can reduce friction to to obviously impact adoption for our subscription products.

And I think that overall, we've talked a lot about making investments of heads on the ground, across Asia. And with that, I think that we're going to have much more insight and be able to prioritize the needs of these markets. That's on the localization front. I can talk a little bit about, I think your next question was, how big is the opportunity in Japan? So for Japan we've actually been operating in Japan for a long time.

Even prior to the acquisition of Pairs. And it's really bid. It's one of those markets where we have not seen a lot of growth or traction until really the last couple of years when things started to really take off and I attribute to really just stigma starting to move pretty quickly in that market. And so we think that there is definitely opportunity in that market. Tinder haven't focused on Japan till recently, yet we've had obviously meaningful user base there, and it's number four in revenue, but I think there is real upside. And as we looked at — I told you we went through this exercise of really trying to understand the steady price elasticity across the globe. And what we found is that Tinder's priced meaningfully lower than any of the other local players.

So there's still some opportunity for pricing upside there too. And like I said, what we've seen is that this is a market where there is real appetite for not just one brand but for multiple brands. So we'll continue to evaluate those opportunities there.

Gary Swidler — Chief Financial Operator

And John, I think on your — your question around Tinder Sub during the back half of the year. I think there's a couple of things going on in the way we're thinking about the year. The first is — the first half of the year, we've been focused more on conversion, we'd like to see what we can do on the a la carte side in the back half of the year.

So we're evaluating some things on that front as well that could affect the sub trends. The second thing is, we've rolled out some optimization that have been successful. I mentioned the one on iOS and we plan to roll that out on Android probably in Q3. So as you know, whenever we roll out something new that has real impact, you tend to see what we call the stock effect, a little bump that happens when we first roll out a feature that drives conversion up in a — in a bit of a step function.

So we're going to see that in Q2, with the change we've made on iOS. We'll probably see that in Q3, with the roll out of that on Android, so you're going to see those two little bump. I don't know yet kind of what, what Q4, holds in particular. So between those two things the focus that's going to be different in the back half of the year potentially than it is in the first half of the year conversion in the front half ALC in the back half and also these little stock affects, these little bumps from rolling things out on iOS first and Android.

Those are some of the things that account for the changes in subs that you see kind of quarter-on-quarter.

John Blackledge — Cowen — Analyst

Thank you.

Gary Swidler — Chief Financial Operator

Okay. You're welcome.

Operator

Thank you. And the next question comes from Jason Helfstein with Oppenheimer.

Jason Helfstein — Oppenheimer — Analyst

Thanks. Just two quick questions. So obviously, how are you thinking about international growth ex Tinder? If you don't want to give specific numbers, can you talk about qualitatively or magnitude or something. And then, and then kind of how do you see that perhaps into next year. And then also how do you think about pricing in India going forward? Thanks.

Gary Swidler — Chief Financial Operator

Okay. Let me take a shot at it. But I think international growth, it is right now being driven by Tinder and by Pairs with a little bit of contribution from some of our other brands as well, but we've said — — we see big opportunity because we are under-penetrated, particularly in these Asian markets and our plan is to drive a lot of the growth for the company over the next few years from that market, and it's going to be through a combination of things.

Obviously, we're going to keep driving the stuff we've got Tinder and Pairs, that's critical. We've brought OkCupid into India. We think we can drive growth from that. We're going to look to release either existing brands that we have. We're building new brands, and that's why I've talked a little bit about some of the investment we make, we may make.

We also may buy some things in the Asian market and then invest in marketing, like we did at Hinge and try to drive that. So we think it's going to be a multi-faceted approach to that market and overall to hit the goal that we've set to drive quarter of the company's revenue over five years from that market.

So we're moving all the assets into place and we have a pretty clear strategy to do it and now it's about executing on that strategy. I think on the pricing question particularly in India, I think you asked. Right now — and this is true for a lot of these Asian markets where we're attracting kind of people in the urban markets, densely populated cities tend to be higher income better educated that's kind of the early adopters of Tinder. And that's the case right now, and it's one of the reasons quite frankly that people maybe don't see as much degradation in ARPU as they might be expecting as we expand in these international markets because we're able to hold price pretty well as we expand in these international markets.

You don't see probably a bigger drop off for Tinder in these international markets on the ARPU side, as you might expect, because we are targeting some of these (inaudible) and the pricing we're able to achieve is not that different. Not that much lower than we able to achieve in the western markets. That will change potentially over time as we go broader into these markets, go deeper into these markets from a customer standpoint, but given the size of these markets, the number of subscribers, we can pick up, if we do that will be more — the number of subscribers more than offset any degradation ARPU and it will be revenue enhancing for us. So that's our strategy, but I think that's going to take a long time to play out. So that any pressure on ARPU probably won't be that visible as we expand internationally for a while. Plus if you look at the international markets more broadly. It's a mixed story.

So what you do, India, which is the market that does price a little bit lower. You also have markets like Japan markets like Korea, that tend to price pretty well in line with some of the Western European and North American market. So we're able to manage that mix and obviously we're fully in control of pricing, we're able to manage that mix, so that you're not seeing a drop off in ARPU and that's why we have confidence that for the rest of this year, we're going to continue to see kind of single-digit increases in ARPU at Tinder overall, even as we drive more subs from international markets. Hopefully that helps. It sounds like we have time for maybe one more quick question.

Operator

Yes. And the last question comes from Ross Sandler with Barclays.

Ross Sandler — Barclays Bank PLC — Analyst

Hey, guys. Yeah (inaudible) question on Hinge, I mixed it up a little bit. So on the London story is that mostly organic or you guys doing pay promotions plus word of mouth to kind of get that traction? And are there things like engagement or you can match rate or whatever metrics you focused on early days at Tinder that you're seeing at Hinge as these markets grow. And then lastly on Hinge. If you look at your most penetrated markets on the East Coast or I guess London. What are you seeing right now in terms of the overall growth of the user base for Tinder and Hinge combined. Is it, is it accretive, is there some cannibalization, any update on, on the kind of inputs lay between Hinge and Tinder?

Amanda W. Ginsberg — Chief Executive Officer and Director

Okay. I will address those. So, the one thing I'll say is even prior to acquisition for Hinge, which we sort of watch for a while. We saw this incredible market fit where people just love the product and they're really engaged in this product. And so the word of mouth marketing was really one of the things that made this acquisitions, the most compelling. We're seeing in London as some of the same. First of all, we also had the CEO of Hinge. He was over in London recently and promoting just through PR, but we are seeing real traction in the UK, it also tends to be an early adopter market in London and we're spending a little bit of marketing, but really not a whole lot.

In terms of the Hinge metrics, we are continuing to see really good engagement metrics and it's roughly comparable to what we see at Tinder especially in the early days. And in terms of population, it is a different population that we are addressing so while Tinder is 18 to 25, a little bit younger, a little bit more casual, a little bit more sort of college-oriented when — and you show up and you're 19-year-old, you're not looking for something more serious, but when you get your first job and you're 26 years old and you're working in New York then, then you are looking for something more serious.

So in some ways that — think about it as these users are kind of, they grew up with apps when they were in college and now they're looking for something serious and intent really matters. And that's why one of the big areas of focus for Hinge is leaning into the marketing around serious relationships and intent. So we think that are very complementary to other and serve a different demographic. And as we looked at Hinge, one of the other reasons that we like Hinge is we had Match which skews a a little bit older, more serious we had Tinder, which is little younger and less serious and so Hinge really sort of fit perfectly into the portfolio gaining traction with that sort of 25 to 30-year-old at higher intent. Right.

Gary Swidler — Chief Financial Operator

Okay. We're going to wrap it up because we're already past time. But thank you everyone for joining our call and we look forward to talking to you again next quarter.

Operator

Yes, thank you. Your conference call is now concluded. Thank you for attending today's presentation. You may now disconnect your lines .

Duration: 62 minutes

Call participants:

Lance Barton — Senior Vice President of Investor Relations and Corporate Development

Amanda W. Ginsberg — Chief Executive Officer and Director

Gary Swidler — Chief Financial Operator

Kunal Madhukar — Deutsche Bank — Analyst

Anthony DiClemente — Evercorea — Analyst

Ben Schachter — Macquarie — Analyst

Douglas Anmuth — JPMorgan — Analyst

Brent Thill — JefferiesA — Analyst

John Blackledge — Cowen — Analyst

Jason Helfstein — Oppenheimer — Analyst

Ross Sandler — Barclays Bank PLC — Analyst

More MTCH analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

Find out why Match Group is one of the 10 best stocks to buy now

Motley Fool co-founders Tom and David Gardner have spent more than a decade beating the market. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

Tom and David just revealed their ten top stock picks for investors to buy right now. Match Group is on the list — but there are nine others you may be overlooking.

Click here to get access to the full list!

*Stock Advisor returns as of March 1, 2019

Motley Fool Transcribers has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Match Group. The Motley Fool has a disclosure policy.

Source Link:
https://www.foxbusiness.com/markets/match-group-inc-mtch-q1-2019-earnings-call-transcript

[0.654619]

Comments

comments

Advertisement