Match Group, Inc.
Q4 2020 Earnings Call Transcript

Published: 3 Feb 2021

[Operator:]

Good morning, and welcome to the Match Group Fourth Quarter 2020 Earnings Conference Call. All participants will be in a listen-only mode. . I would now like to turn the conference over to Lance Barton, Senior Vice President of Corporate Development and Investor Relations. Please go ahead.

[Lance Barton:]

Thank you, operator, and good morning, everyone. Today's call will be led by CEO, Shar Dubey; and our CFO and COO, Gary Swidler. They will make a few brief remarks, and then we'll open it up for questions.

[Sharmistha Dubey:]

Thank you, Lance. Good morning, and thank you all for joining the call today. Since this is the first one of the year, I'm going to start out with sharing some of my thoughts and then Gary is going to add a little more color to the financials. The 2020 with some year and even though it feels like we're still dealing with some of the hangovers, all in all, I feel grateful for how we navigated the year both as an organization and as a business. It is remarkable that despite COVID and lockdown having put a real damper to dating and meeting and socializing, we were still able to meet our goal of mid to high teens growth we set out at the beginning of the year. Needless to say without COVID, it would have been an even better year. The thing I wanted to point out is the strength of our portfolio strategy, as well as our ability to pull different levers quickly, which is what allowed us to manage through different levels of volatility we saw throughout the year. And as you're probably aware, COVID has had a resurgence in the second half of Q4 and several large markets, UK being an example, where four of our largest brands have a meaningful presence, are seeing an outsized drag still. But despite all of that, every one of our key brands grew revenue again in Q4, and you know at the beginning of COVID back in March, April, I don't think I could have predicted exiting the year with the 19% revenue growth and more importantly, fueled by all of our major brands. Investors should also take comfort in the institutional strength of the company. In addition to having delivered on business goals consistently these last five years of being a public company, in a year like 2020 with all of our global employees working remotely, we were also able to seamlessly navigate leadership changes and even a full separation to become an independent company. So as I look ahead, one thing I do see the 2020 has done in particular, is a real step change in user behavior, not the least of which is how much of our lives and activity has moved online. And while I do think, as the world gets back to normal, some of this online, offline behavior will rebalance but part of this online shift is definitely here to stay, and this of course has implications to our products, both in terms of how we evolve the experiences on our apps, as well as looking at new use cases we offer to help people connect. And we think this is going to be a big area for us this year. And again, while we set similar levels of goals for ourselves at the beginning of the year, it is important to keep in mind that the pandemic is still disrupting our lives and activities and we continue to see volatility, which makes predicting this year particularly challenging, For instance, in many of our western markets, we generally see positive seasonality post-Christmas and into the New Year. I always like to say single people going home for the holidays and getting nagged by their families, what causes this post-Christmas spike this year. However, as you can imagine, it was less pronounced.

[Gary Swidler:]

Thanks, Shar. Q4 saw our fastest topline growth of the year, 19% year-over-year, a one point acceleration from Q3 levels. Tinder grew direct revenue 13% and the non-Tinder businesses continue to accelerate with direct revenue up 28% year-over-year. All major non Tinder brands contributed year-over-year direct revenue growth in Q4. This was the third consecutive quarter of non-Tinder brands showing growth in aggregate. Pairs, as well as our newer brands Hinge, Chispa, BLK and PlentyOfFish live streaming, all grew rapidly in the quarter. We believe Q4 results would have been even better had COVID lockdowns not sent so many people back inside their homes and colder weather limited people's activities in many parts of the globe.

[Operator:]

. Your first question comes from Benjamin Black of Evercore. Please go ahead.

[Benjamin Black:]

Great. Good morning. Thank you. Thank you for my questions, that too -- a couple on Tinder. I'm a bit curious if you could dig a little bit more into the source of the revenue growth slowed down in the quarter and perhaps how sustainable the drag is likely to be in the first half of 2021. And then secondly on your product roadmap, it'd be great to hear the latest on the Platinum rollout more broadly to non-subscribers and how should we think about the impact that will have throughout 2021? Thank you.

[Sharmistha Dubey:]

Thank you, Ben. So let me maybe first give a broader picture of how the second wave of COVID resurgence is playing out and then I'll get into Tinder-specific impact. So the second half of the -- of Q4 in particular and into the new year as we saw, there has been a surge and COVID and lockdowns and reduced mobility in many markets. In fact, as I mentioned in my remarks, a normal peak season looks a little different this year. UK that we called out specifically, looks to be one of the worst impacted pub -- a combination perhaps of both COVID and Brexit there, but there are also less severely impacted markets throughout Europe. Same-store here in the US as we saw before, California and New York, more impacted than Florida, Arizona, Texas, for instance. Again, few markets in Asia and LatAm have been impacted and sort of similar to what we saw earlier in the year, the impacts are on both new users as well as propensity to pay, particularly a la carte and it of course varies by market. So with all of that said broadly, Tinder specifically, obviously, the geographic exposure was greater. And so if you think about even just markets like India and Brazil alone could create a 100,000 swing in subs at Tinder. And then there is the impact to a la carte, which is when propensity to pay goes down a little bit, that's the first one that gets impacted and it hurts Tinder more because it does have a higher portion of its revenue in a la carte compared to the other brands. So with that all said that hopefully answers the question of what we saw in Q4.

[Benjamin Black:]

Excellent. Thank you so much.

[Operator:]

The next question comes from John Blackledge of Cowen. Please go ahead.

[John Blackledge:]

Great. Thank you. This is for Shar and/or Gary. On the non-Tinder brand performance, as Gary called out we saw further acceleration in non-Tinder brands in 4Q. Can you just discuss the kind of the key drivers of growth in the quarter and then kind of thoughts on expected contribution of non-Tinder brands in 2021 and longer-term would be super helpful. Thank you.

[Sharmistha Dubey:]

Sure. Gary, I can take this. You know we laid this out last quarter, our non-Tinder performance is driven by three main vectors. First, the legacy brands like Match, Meetic, OkCupid, North America, etcetera, they continued to accelerate through product and marketing work. Then there are the new brands like Hinge, Chispa, BLK, which have seen tremendous user and monetization growth. Pairs has been a great contributor. It's opened to new marketing channels, which pose -- which sort of puts it in a really good position for 2021 and then there are a new revenue initiatives like Pop Life which became meaningful contributors and they basically had zero revenue at the beginning of the year. So we do believe that all of these growth drivers in non-Tinder brands are sustainable and they will continue to make strong contributions in 2021 and even beyond 2021, these brands are positioned to contribute a meaningful amount of our growth as our current drivers get further supplemented by emerging brands like Hawaya, Ablo and Upward, for instance. So all in all, we feel very good about a broad set of drivers for growth within our portfolio.

[John Blackledge:]

Thank you.

[Operator:]

Your next question comes from Mario Lu of Barclays. Please go ahead.

[Mario Lu:]

Great. Thanks for taking the question. So you touched upon this in your prepared remarks but curious to see if there are any new developments to Point 2, regarding the potential gross margin or EBITDA impacts from not being able to sidestep, Google Play payments starting in September. And just to clarify, it is the full year guide assuming all Android payment will go through the billing system starting in September. Thanks.

[Gary Swidler:]

Sure. Let me take that one. First of all, just to kind of step back a little bit on what's going on with gross margins. I would say that in general, our cost of revenue, ex the I-app fees is relatively stable. That's despite a lot of initiatives we have in there for video and other things. So we're seeing relative stability ex-I-app. On the I-app side, first. naturally, we are seeing a little bit of an increase from the fact that we have a number of apps like Hinge, Chispa and BLK, that are contributing increasing revenue and are growing quickly. And those are fully paying the 30% across the board to the app store. So the mix of our brand contributions is having some impact on the overall I-app fees as a percentage of revenue. That said, when we look at Apple, which is the largest component of our App Store fees, there is not really flexibility there from Apple and so we'll have to see kind of how that plays out. There's a lot of scrutiny as I'm sure you know related to the app stores and conduct generally and so we'll see how that plays out on the app fronts. On Google, more specifically, they have announced a change in policy that would go effective in September and that would have a meaningful impact on us if that policy change goes into effect later this year. We are having productive -- we have a productive relationship with them and we're having good conversations. They understand the financial impact on us of their policy change. And so we're hopeful that we'll be out to find a solution that will avoid this added cost for us. Our ranges for the year contemplate the impact in Q4 from the Google change. So we'd be lower in the range of that played through and there was no solution higher, if there is, and so we'll see how this all plays out. In general, there is a lot of moving pieces with regulators around the world and a lot going on relate to the App Store fees. So this is going to be a very important year. We'll see how this plays out over the coming months of related to all of those discussions and considerations around the App Store fees.

[Mario Lu:]

Great. Thanks, Gary.

[Gary Swidler:]

Yes.

[Operator:]

The next question is from Lauren Schenk, Morgan Stanley. Please go ahead.

[Lauren Schenk:]

Great. Thanks so much. I guess, as we look to Hinge specifically in '21, how are you thinking about balancing further ARPU growth versus an acceleration in subscriber growth or payer penetration rates, sort of any key KPIs or milestones that you can offer about that business, exiting 2020. And then just a follow-up on your comments on IDFA, obviously a lot of unknowns, but just any sort of range of scenarios or outcomes that you're contemplating in terms of the roll out of IDFA would be great. Thanks so much.

[Sharmistha Dubey:]

Sure. You know about Hinge, our first goal at Hinge was to establish a strong subscription product and then we have since launch two solid a la carte products. The roads and stand-outs, which is the equivalent of super likes on Tinder and that has already surpassed the take rates relative to super likes on Tinder for instance. Roses, interestingly are not just a revenue products, they're actually a fairly effective engagement product that they're getting 2.5 times more likely to lead to a conversation off the platform. So now ALC revenue at Hinge is already becoming a meaningful component of revenue, and it's important to note, at the beginning of 2020, it was basically zero. And, so in 2021, there is a full roadmap to bake both the subscription product which are, and then focus on making the overall product engagement features. The other thing, of course, for Hinge is user growth and towards that end, in addition to the existing markets that we already planned, Hinge's testing in select few international markets. But with this broader view of -- a broader international rollout in 2022. All in all, we are very pleased at how Hinge has been executing on their plan and all the confidence in the world that 2021 will be a great year for them. On IDFA, so obviously, since we're not an ad-supported business, the impact to us is mostly on the marketing spend and the user acquisition efficiency. And, so there are a lot of puts and takes and it is a little bit unclear how this all shakes out. For instance, if the targeting becomes weaker, it will have an impact on marketing efficiency. At the same time it's unclear to what extent rates may or may not come down. In terms of how we measure and our spend -- marketing spend attribution framework goes, we do have experience and evaluating brand spend like out of home and TV etcetera. So net-net I don't think we know quite how the market will sort itself out. I do believe it will eventually sort of itself out in the short term. What sort of dislocation happens, is unclear, particularly, you know, in terms of what the impact will be to our marketing spend efficiency. So we're not really currently building it into our outlook yet. Gary, you wanted to add anything?

[Gary Swidler:]

No, I think that's exactly right.

[Lauren Schenk:]

Thank you.

[Operator:]

The next question is from Brent Thill of Jefferies. Please go ahead.

[Brent Thill:]

Good morning. Gary, I'm curious if you could just walk through the second half of the year and kind of what you are embedding in your own expectations as many of us are envisioning a return to more normal. What are you embedding for the second half of the year?

[Gary Swidler:]

Yes, I mean, Brent, you've watched us for a long time in terms of how we think about outlooks and there is a lot of uncertainty as we come into this year. We're early in the year. And so, naturally, we're trying to be thoughtful about not assuming too much goodness as the year goes on. We're hoping things improve, but -- as we provide ranges and so forth, we're trying to be cautious and thoughtful just because there are so many questions out there. So right now, when you look at kind of the year, for the first quarter, we gave specific expectations which obviously assumes continued COVID headwinds. For the second quarter, we're still assuming some COVID-headwinds and it will be an easier comp in Q2 over last year because obviously there were severe impact from COVID in the second quarter. So that's something we're factoring into our growth thoughts for Q2. When we get to the back half of the year which obviously still pretty far out, we have assumed some reduction in the current COVID headwinds, but not a full return to normalcy for the back half of the year. And we certainly haven't assumed any major resurgence from pent-up demand for dating activity in the second half of the year. It's certainly possible that that could happen. I know people who believe that that's what's going to happen, it's just too hard to predict. And so in our normal way of providing an outlook, we haven't assumed an abnormal level of dating activity a major burst from pent-up demand in the back half of the year. So our plan is to kind of watch this all for a quarter to see how the vaccine rollouts go, see how mobility starts to improve. Clearly as mobility improves, we see dating activity improve. And, you know, how the world starts to open up and as the year progresses, if those trends start to be better than we had been expecting, we will adjust our outlook. But sitting here today, we felt that this was the right approach in terms of providing the outlook for the year, but it is something that could get adjusted later depending on what trends we see.

[Brent Thill:]

Thank you.

[Operator:]

Next question is from Kunal Madhukar of Deutsche Bank. Please go ahead.

[Kunal Madhukar:]

Hi, thanks for taking the question. Actually that's just a follow-up to the last one in terms of the improvement that you're seeing in India with regards to mobility. How is that kind of impacting things like engagement higher MA use, the spend -- the time that they spend on the platform, their activity levels, and more specifically with regard to how one can kind of take that learning from India, that experience from India into other markets as they kind of open up during the rest of 2021.

[Gary Swidler:]

I think Shar is trying to speak, but I can't hear her. So...

[Sharmistha Dubey:]

Sorry, Gary. Hey Kunal, sorry. I was on mute. I didn't realize. You know, while I don't want to extrapolate too much, India has been one of the hardest hit countries, we mentioned that before. And, in more recent weeks, we have seen a real downturn in cases and as people have been coming back to normal. We've actually seen a fairly significant rebound. Now, it was still -- even though it's gotten better in recent weeks, there was a material impact on sub additions in Q4 because the first half of Q4 was still fairly impacted. As much of, I don't want to extrapolate the India specific story, I do, -- we are seeing a correlation between increased mobility and increased activity on our platforms as markets ease out of lockdowns. We've seen that happened throughout summer in a number of other markets that have -- that go through lock periods of lock down and then ease up. In India, again Kunal, the other thing to note about it is, we did pull back a lot of marketing spend there when we saw the real significant impact last year. But things are looking much better there and we're going back in and we -- it will become an area for refocus for growth in 2021 for us.

[Kunal Madhukar:]

Thank you so much, Shar.

[Operator:]

The next question is from Nick Jones of Citi. Please go ahead.

[Nick Jones:]

Great. Thanks. I think it is partly for you Shar. In the shareholder letter, you talked about, and on the call you talked about investing and kind of emerging market to improve the stigma through improving kind of trust and safety. Could you unpack that a little bit, you know, what are these investments and what kind of kind of impact should we expect from these investments. I guess, how material can these investment be to improving the stigma and does that show up in international growth near term or is this more longer-term. Thanks.

[Sharmistha Dubey:]

Yes. So, in addition to everything I said earlier about the importance of trust and safety in the digital world, broadly we have of course I'm seeing the effects of this on our category as we develop this category over the last 15 years, right. And we know for a fight that it has an impact on category perception and penetration and we've done a lot of work in this area, particularly in the western markets. More recently Japan, a good example of a market where we've been very active on this front, from initiatives that we've done on our platforms with features like verifications, our enhanced community and customer care processes. We've worked with local regulators and authorities. We've done a lot of education and outreach through marketing and PR and all of this work has -- very directly in Japan actually allowed us to open up new marketing channels, for instance, out of home, several digital channels, we're hoping we can unlock television advertising soon there as well. And so it was a very sort of short-term definitive things we can point to. But overall, the perception changes are meaningful in the long term for a lot of these higher stigma markets. We're starting to do similar work in India. Which is why I do think we will continue to focus on moderation and safety features, both internally on our platforms. But one of the things we're going to amplify this year, is engaging more with -- outreach with other organizations, third party technologies, partnerships with non-profits, working with regulators and engaging law enforcement. I think it's important. I am personally committed to this and there is a lot of work in leadership we can provide in this area, more generally for additional platforms.

[Nick Jones:]

Great.

[Operator:]

Our next question is from Cory Carpenter of JPMorgan. Please go ahead.

[Cory Carpenter:]

Thanks, Ed. Two questions on Asia. You touched on this a bit Just now on trust and safety, but could you talk about some of your key initiatives and brands more broadly in the Asian region this year. And then secondly, you mentioned Japan as the second largest market today. So we still think about Asia being 25% of revenue longer term, I mean the region or based on your early progress, could it potentially enough being a much bigger part of the business. Thanks.

[Gary Swidler:]

Yes, I'll take the least part of that. Look, in terms of kind of Asia and percentage of revenue, a 25% does remain our kind of medium-term target. We didn't make as much progress on that in 2020 as we would have liked. Because of COVID we're probably in that 17% - 18% range. But Asia is still very strategically important to us. We think there is real opportunity there. We've got a lot of different ways of attacking it product-wise. And we think we ultimately will get there and perhaps surpass it but I think the intermediate term goal is to kind of get to the 25%. We had said that would be in 2023, I think maybe we've gotten one year delayed from COVID. We'll see how things kind of play out. When you look at it, I think Asia being such a big market, you've got to take it in pieces. And so as we did say Japan is going extremely well for us. We've got a great team there on the ground. a great one-two punch with Tinder and Pairs, and we think there is much more opportunity. We've got a Matrimony product as well, which we think makes a lot of sense in that market. And we think there is more opportunity in Japan to work with multiple brands. So that's a major focus for us. India also continues to be a big focus for us, it's a bit of a longer-term play. We've got Tinder there, which has been very successful, as well as OkCupid, I think OkCupid has gotten good traction, but with all of the COVID cases in that market in 2020, we really didn't push as hard. But we are pushing hard again at the start of 2021 with our OkCupid business in India and we remain optimistic that we have some good products to work in the India market. And then, you've got other markets like South Korea. That's a market we haven't quite cracked with the product yet. We think there is real opportunity there and we need to keep trying to find something that works. So there is a number -- it's a multi-product strategy Pairs, Tinder, OkCupid, the matrimony product, Pairs Engage, across the Asian continent. And then, we've got Hawaya which we're still working on the product and feel very good about. That could be a real player in Asia over time, especially in countries where there is a large Muslim populations like Indonesia, we think Hawaya could gain significant share there. So again a bit of a longer-term play, but something that we are actively focused on and working on. And then, we talked last year about Tinder rolling out in-app currency to focus on the Asian market, which we think is important to the Asian market in the way Asian users pay and use the products. We didn't roll that out in 2020, mostly because of COVID, but we are planning to resume that initiative for 2021 and expect to roll out in our currency at first in a couple of Asian markets and kind of go from there. So again, something that got delayed because of COVID, but we are planning to bring that back in 2021. So a lot going on in Asia remains a big focus for us. Our goals remain the same. And we're hoping to make more progress as we turn the corner here into 2021.

[Cory Carpenter:]

Thanks. Very helpful.

[Operator:]

And the last question today comes from Jason Helfstein of Oppenheimer. Please go ahead.

[Jason Helfstein:]

Thanks. Maybe can you comment about the success of Ablo that you mentioned in the letter and you're focused on non-dating applications as you think out and how are you thinking about the monetization of these products and could we see development ad platform to support these apps? Thanks.

[Sharmistha Dubey:]

Sure. You know, so, as more of our lives are moving online, the opportunities for -- in real life connections are decreasing and meanwhile loneliness is on the rise around the world. And there has been some interesting lessons we've learned both from Ablo which was designed with the thesis that during these times when the shift is going on, there are benefits to having deeper connections and conversations and communities with people online. And there is a feature on Ablo called Around the World, which allows people to connect on teams like food and culture, local culture and travel, and allows them share their parts of the world with each other and we're seeing people use that contacts to connect and chat and video chat one-on-one and have sort of deeper conversations with people around the world. And sometimes these might result in relationships. The other big lesson for us was on POF Live, there is a few interesting anecdote and stories which sort of illustrate what it is that we're trying to do here. There was a very recently one of the users on POF Live, with a homeless man who started building the community and his entire -- he's trying to turn his life around with the power of the message of positivity and he has built a real community around it. He talks to people about positive thoughts and he has made 100K on POF Live, and it's turned his life around. One of the other sort of top streamers, there is an ex that, who was suffering from DPTSD who's managed to turn that around and engage and build a network and community on POF Live and he attributes it to having saved his life. So this is the type of sort of human connection that we're trying to enable which is in the context of our mission, which is helping people make meaningful connections. So this is what's informing our belief that social discovery is going to -- which is already by the way popular in other parts of the world, but we think this is going to become more and more popular broadly and hence we're looking into this space for expansion. The -- in terms of monetization, we do believe this sort of a platform lends itself well to virtual currencies and consumables, people gifting one another, etcetera, and those are sort of the initial things we're testing out on Ablo and of course POF Live has a fairly well-established monetization by way of gifting as we know. So you know, we're -- it's still early days and we are going to try a bunch of different things. We do obviously prefer direct-to-consumer revenue as opposed to ad-based models and so that's going to be of course part of the work that we're going to do -- the coming year.

[Jason Helfstein:]

Thank you.

[Sharmistha Dubey:]

All right. With that, thank you all again for supporting us and being on the call today. My real hope is the vaccines come soon. We're out of this pandemic fraught and how soon. And thank you again.

[Operator:]

This concludes the Match Group conference call. Thank you for attending today's presentation. You may now disconnect.