Match Group Inc - New (MTCH) — Q1 2016 Earnings Call Transcript

Thank you, operator. Good morning, and welcome to our conference call for the first quarter of 2016. This is Gary Swidler, and Greg Blatt is here as well. I'm going to turn the call over to Greg in a second. Just before we get started, just a couple of housekeeping announcements. The first thing is, we're doing things a little bit differently this time, and there's an investor presentation that was posted on our website. We're going to review those slides on the call today. So I want to make sure everyone's been able to access that. And then we'll open it up for Q&A. Before we do all that, I'd like to remind you that during this call we may discuss our outlook and future performance. These forward-looking statements typically 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. With that, I'm going to turn the call over to Greg Blatt, our Chairman and CEO.

Good morning everyone, and welcome. Following our last quarter's call, we received a lot of feedback about the clarity of our presentation. While I dislike being criticized, we have made efforts to enhance our responsiveness. We hope you find the updated slide format easier to understand and more user-friendly, and we appreciate any feedback you have now or after the call. Overall, we're very satisfied with this quarter. We were also pleased last quarter. We believe we are ahead of schedule since the IPO and are making good progress. We've encountered some positive surprises and few negatives, and in general, we are aligned with our plans. We feel confident about maintaining this trajectory for the remainder of the year and into next year, with developments progressing as anticipated. I'm going to review the slides. I won't go into detail on each one as they are fairly straightforward, but I will provide deeper insights on those that may need further explanation. Slides three and four show the figures we reported, with slide four reflecting our internal view of the business following the PlentyOfFish acquisition. Although it results in slightly less impressive numbers compared to slide three, it gives a clearer picture of our business momentum, which remains strong. On slide five, we present the PMC numbers, both pro forma and otherwise, showing solid growth. You can refer to the notes at the top for additional context. If you look at the Tinder numbers on the next page, PMC excluding Tinder is pro forma for PlentyOfFish and shows a mid-single-digit growth, roughly where we expected. I anticipate we will finish the year stronger than our current position, driven by certain trends we will discuss. We're seeing better results internationally and a slight decline domestically, but overall, we're tracking as expected moving forward. On slide six, regarding Tinder, the results are very promising. Tinder is performing exceptionally well. We have successfully integrated a new management team, combining experienced individuals with those who contributed to our success from the beginning. We're focused on enhancing the core product experience while experimenting with new features and ongoing modernization efforts, all of which have exceeded our initial expectations. We've introduced paid features that improve experiences for both paying and non-paying users, which is the goal of our modernization efforts. We're also in the process of building the advertising business, as we mentioned before. We've brought in Pete Foster, a seasoned veteran in the ad industry, to help develop this area. We expect the pace of growth to be slower than we initially anticipated. At the IPO, we noted that this would be the most uncertain aspect of our plans for the upcoming year. We've brought someone in to help establish a more measured approach regarding new ad formats, technologies, and user experience. We always act with urgency, but we want to ensure that our modernization efforts at Tinder continue smoothly. We will have more updates in the next quarter and the one following. For now, everything is going well at Tinder, and I couldn’t be happier with its progress. Turning to slide seven, I want to focus on the North American business for the next couple of slides. Obviously, it's been an area of focus among investors. And I want to walk through, again, some of the underlying trends here. We've said throughout that the biggest impact on this business has been the rapid transition from desktop to mobile. I think the graph on the bottom-left-hand side which shows that transition over the last four Q1s I think is pretty telling. We went from 37% mobile registrations to 77% mobile registrations over this time period. And you'll see that the mobile conversion gap is pretty significant, with — in aggregate mobile conversion happening at about 63% the rate of desktop. If you assume for a second that everything else in the business was unchanged during this period, that alone would lead to a drop in new subscribers coming in the door of nearly 20% per period. So the fact that the business is actually up, quite meaningfully over this period, I think is quite a testament if you just isolate that factor. I really can't overstate the impact that this has had. I think the good news here is when you look at the mix shift, it's clearly stabilizing. You had 53%, 27%, 8%, we're now at 77%. I can't tell you where it's going to end exactly. But certainly the sheer and absolute numbers mix shift is going to slow dramatically, which reduces this headwind. And also, we've started to put real focus on mobile conversion. Again, I want to be clear when we talk about conversion, that it's a somewhat fuzzy number. Conversion encompasses first-time subscriber conversion, new cohorts, old cohorts, re-subscription conversion, marketing can influence it; all sorts of things influence it, so I want to caveat these numbers significantly. But when we slice through it, and we try and isolate our conversion for pure product improvement, and isolating everything else, Q1 in '16 over Q1 in '15 across the board, we've been able to increase mobile conversion high mid-single digits, so over 5%, and really just starting to put real effort and momentum against that across the board. So we feel really good about this. I think, as we said on the IPO, and we say it again, that we really do see these trends, both the improvement in product conversion and slowdown in mobile mix leading to renewed growth in 2017 on these metrics. So we're, two quarters later, continue to see those trends holding true, and feel really good about it. Switching to slide eight, thought it would be helpful to look at what's happened at Meetic, and what that means for this business. We don't always break Meetic out in granularity, but thought we'd do it here. And this shows a couple of things. One, Meetic clearly went through a downward period, has righted that, and is now, again, going up into the right. Everything is sort of humming. I think the first implication of this is I really do think it debunks a theory out there, which is that these older businesses, either everything other than Tinder or our businesses with hard paywalls or whatever you want to look at are subject to some sort of inexorable downward pressure. I've been saying all along, I do not believe that's true. I think this chart clearly demonstrates it. And the European market is as competitive, if not more competitive than the U.S. market. Tinder is big; you've got… you've got a million different things over there. So I know that most of the listeners on this call are not Europe-focused, but I guarantee you that this is a very analogous situation to our current business here. I also think it's important to show that there was no magic here. They just had really good execution. They improved their product conversion. They improved their marketing operations and efficiencies. And those things are the things that have always driven this business, and they continue to drive it. I think the next thing it shows, and I talked about this a little bit last quarter, was this lag effect in these subscription businesses, which is the underlying metrics start improving several quarters before the PMC numbers follow behind, there's this real lag effect. We then take that, and we transpose it onto our North American situation. We think it's very analogous. We think Q3 '15, so effectively one year behind, was basically the low point for us on the net adds comparison, and this is excluding Tinder and excluding PlentyOfFish for these purposes. And we really saw what we think will be the biggest sort of net decrease in net adds year-over-year. We've now had two quarters that have exceeded that nicely. We expect that trend to continue for as far out as we plot it. We expect those PMC numbers, the average year-over-year PMC numbers, to level out basically at the levels they are right now for the next couple of quarters, and then turn upwards again, getting positive again in the first part of 2017, which is again consistent with what we've been prognosticating, and consistent with sort of exactly what happened at Meetic. So, again, happy to get into more of this in Q&A, I think the key point here really is execution. No magic. Meetic is at continuity-of-leadership. They've executed really well. And contrast that with North America, where in our Match U.S. business, we had three different leaders over a nine-month period. On OkCupid, three different leaders over a 14-month period, that's a lot of turmoil. Leadership matters, continuity matters. All of that against the backdrop of what was a very organization-consuming technology project that started at the end of '14, and persisted through '15 with intensity, continues now, but with diminished and diminishing scope as we drive towards the end of it that should occur this year. So again, I think a lot of things happening now, stable management, experienced management, Mandy Ginsberg and Shar Dubey coming back from Princeton Review, really turning the knobs on execution. We're a new leader at OkCupid today, who we just brought in. So we feel really good about this situation, and with one quarter under the belt of Mandy and Shar, again, seeing really positive signs. Flipping to slide nine, we still hear lots of talk about cannibalization. And I've been saying for a long time that we just don't think cannibalization is part of the story. We think the story is really the mobile mix shift and execution. And I wanted to take one more crack at explaining our confidence in this. As everybody knows, Tinder is a predominantly under-age-35 business. We also know that Tinder really exploded on the scene at the beginning of '13, with rapid growth in '13 and '14. And in '15 we sort of began modernization in Q1. With that backdrop, if you look at our businesses in North America, sliced by age, you look at the top graphs first. These are not the graphs you would expect to see if Tinder had a big cannibalizing impact. What you would have expected to see was a flattening of the line under-35 prior to modernization, and then a big pop in 2015, when modernization began. And that's not what you see. You see pretty steady growth, pre-Tinder modernization, and then a pop on top of it, which implicates real additive growth on the PMC side under-35 once we introduce Tinder Plus. On the 35 side, you would anticipate noticeable differences between the over-35 and under-35 age groups if Tinder were truly the main factor affecting performance in these businesses. However, the performance remains quite similar before and after the introduction of Tinder Plus. This is reasonable since Tinder primarily attracts those under 35, which explains the increase. While the idea of Tinder cannibalization sounds appealing, the data doesn't support it. Looking more closely at new user sign-ups and subscribers, especially among those under 35, the expected effects if Tinder were the main driver are not evident. There is a slight increase in the under-35 demographic for new sign-ups, except for OkCupid, which we will discuss later. Subscriber numbers are mostly flat at Match, with some decline attributed to the mobile trend, which typically draws a younger audience and has lower conversion rates for mobile users compared to older users, but this is not related to Tinder. For OkCupid, though the numbers show a decline, it is undergoing rapid growth and is actively targeting an over-35 audience, whereas it was mostly focused on under-35 users. It's misleading to describe a negative shift when there was a 250% growth in under-35 subscribers during this time, especially while Tinder was gaining traction. Tinder represents a significant expansion of the market, which has been evident from the start. I'm willing to answer questions about this topic further, but I must emphasize again that the data does not support the idea that Tinder is causing any notable decline in our business. Every product influences others to some extent, but we believe the category expansion caused by Tinder far exceeds any potential cannibalistic effects. Turning to slide 10, we discussed the decline in ARPU trends, and what we observed in Q4 aligned with our expectations, as did Q1. However, there have been some concerns raised regarding this issue, so we want to provide more clarity. In the upper left corner, you can see the reported trends in our ARPU. In the upper right corner, we illustrate the change in ARPU over the past year for both hard paywall and soft paywall brands. There is a remarkable consistency, indicating that the downward pressure on ARPU is not due to pricing factors. Instead, it is simply because our soft paywall businesses are growing at a faster pace than our hard paywall businesses, which lowers the overall ARPU. Importantly, there is no erosion or instability in pricing for these products. The hard paywall ARPU is slightly increasing, while the soft paywall ARPU shows some fluctuations, primarily due to a shift in the mix. This is largely influenced by the rapid growth of Tinder in regions where the pricing is lower. Although there is some variability in these numbers, they demonstrate overall stability. Furthermore, when analyzing unit economics and the decline in revenue per unit sold, typically, this is offset by increased volumes. This situation applies here as well, as our soft paywall businesses with lower ARPU are driving significant additional volume. However, focusing on profit is crucial. The ARPU in soft paywall businesses is only 55% of that of hard paywall businesses, while the acquisition cost per subscriber stands at just 26%. When we combine these figures, the total lifetime profit per paying member from soft paywall businesses reaches 89% of the total lifetime profit derived from hard paywall subscribers. Although this primarily represents an increase in volume, in the few instances where a soft paywall subscriber replaces a hard paywall subscriber, the ultimate effect is a decrease in revenue growth but a real expansion in margins. There is a slight negative impact on profits, but it's minimal. When you consider the significant growth in unit volume, this situation is quite positive for us. It's essential to delve deeper to understand why we are not worried about the ARPPU trend at all. We're seeing substantial volume, and the economics remain stable. I won't discuss Princeton Review extensively right now but can elaborate during Q&A. This business is currently undergoing a transformation, focusing on moving online and enhancing cross-sell opportunities. We believe this strategy is creating a valuable future business, and so far, the results are promising, although it's still early days. Slide 12 outlines our outlook, which is clear, and we’re open to questions during or after the call. Overall, we had a successful first quarter, which boosts our confidence in our ability to execute and achieve our goals for the rest of the year. There are a few aspects that have exceeded our expectations, while others have progressed a bit more slowly than anticipated. Nevertheless, we maintain a strong, high-growth trajectory for the remainder of the year. Now, I'm happy to move on to Q&A.

Thank you, everyone. I have two questions about Tinder and one regarding the core Match brands. First, could you discuss the conversion rates from free to paid subscriptions for Tinder by country? Is there consistency across markets, or is the growth in paid subscriptions mainly driven by the U.S.? In other words, is this growth sustainable globally, or does it vary by region? How sustainable do you believe the current trend of 3x to 4x growth in Tinder paid memberships is? Also, how do the retention rates of these new paid memberships compare to other dating services? Are users remaining subscribed for several months or even quarters? Additionally, I appreciate the new disclosures; they look great. Regarding the core Match brands, excluding Tinder and PlentyOfFish, it appears that paid memberships have rebounded from sequential declines in the latter half of 2015 to now showing positive growth. Looking ahead over the next year or two, do you anticipate growth from the core Match brands, excluding Tinder and PlentyOfFish? Thank you.

Conversion rates certainly vary by region. In the U.S. and Western Europe, they are quite similar. However, in the rest of the world, conversion is significantly lower, though that market is also much larger. Less than half of our paying users are located in North America, and I don't have the exact breakdown between Western Europe and the rest of the world, but the distribution is relatively balanced. While conversion rates are higher in North America and Europe, our monthly active users are substantial outside of those regions, underscoring our global presence. Regarding retention and renewal, Tinder continues to outperform our other dating products in these areas. We have gradually introduced longer subscription packages, and not all of them have been renewed yet. It's still early, and we are still analyzing the situation, but current data indicates that Tinder subscribers are doing better than those in our other offerings. For the core Match segment, looking at sequential trends can be challenging, as Q1 is typically a strong seasonal quarter. Therefore, a sequential growth from Q4 to Q1 is expected. Additionally, last year we increased marketing efforts dramatically in Q1 compared to the norm, which caused an even larger sequential decline in those businesses. I find that to be somewhat misleading. Referring back to the Meetic chart I mentioned, we believe that the year-over-year figures for these businesses have essentially stabilized and will start to improve. The comparisons for year-over-year growth should remain steady for the next few quarters, with anticipated growth beginning in the early part of next year. We see signs of this improvement now, such as better conversion rates and net subscriber additions, but there is a lag between these factors and the lower initial PMC numbers. This means that the impacts of re-subscriptions and other elements felt in Q2 to Q4 of last year will be reflected in the first three quarters of 2016 and will then bounce back later in the year and into 2017. Overall, we are optimistic about our progress, but we are aware of the lag effect affecting our aggregate PMC numbers.

Great, thank you.

Thanks, it's Doug. A couple of questions, first, guys, can you talk a little bit more just on the management additions at Tinder, and some of the changes that are taking place there. In particular, the slower rollout just on the advertising, which seems to make sense, just given how well you're monetizing the rest of the business. And then also just where the higher headcount is coming through. And then also if you could talk some of the monetization changes or additions, let's say, that you're considering there over the next couple of quarters, and how we should think about these, as whether they're incremental or more needle-moving kind of things? Thanks.

All right, Doug. Since Sean Rad took back on the role of CEO in August of last year, we have made a strong effort to enhance our management team. We were interviewing several candidates at the same time, and they all joined us simultaneously. We have appointed a new Head of Engineering, Maria Zhang, who brings extensive experience from Zillow, Yahoo, and various startups. She started a couple of weeks ago. We also hired Garrick Coelho as our new Head of International, previously with Google and YouTube. Additionally, Pete Foster is now leading our advertising division, focusing primarily on Tinder, which has significant growth potential. Ferrell McDonald has been brought in to oversee Marketing. These are substantial additions. Meanwhile, Ryan Ogle, who previously managed Technology, and Jonathan Badeen, who ran Product, remain in senior roles, with Ryan now overseeing Product and Jonathan focusing on Strategy alongside Sean. This blend of talent is crucial; it balances maintaining the passion that drove our startup with the experience needed for growth. International operations have become a key focus since a majority of our business is outside North America. Garrick is currently establishing infrastructure to enhance our international efforts, which is quite different from the previous approach. Our marketing team is relatively small, and while Tinder isn't transitioning to a traditional paid marketing model, we see potential for smart, grassroots brand marketing that we've yet to fully explore. On the technology side, as we scale significantly, it's essential to have leaders with experience in operating at that scale, particularly within engineering teams. In terms of advertising, we are experiencing great modernization on the direct side, allowing us to take a measured approach without compromising user experience. Changes in leadership may result in different priorities, but we’re not overly concerned with immediate impacts. We manage our businesses with a long-term perspective; Tinder, in particular, is focused on sustainable growth. We have acknowledged in our outlook that increased headcount expenses at Tinder are expected, reflecting the aspirations and objectives of our new team as they establish themselves. We prefer to grow through existing momentum rather than create it from scratch, and that's the approach we’re taking now. We’re looking to fill critical roles, especially in international operations and product technology, as we have significant product ambitions in these areas. While modernization is part of our strategy, it’s just one aspect of our plans to elevate Tinder beyond its current category. We're committed to investing in the requisite resources and feel optimistic about the direction. Ultimately, while we’re not talking about tens of millions in extra dollars, the increase in staffing can accumulate over time. Did I address all your questions?

Yes, you did. That was helpful on Tinder, thank you.

Great, thanks for the questions. So Tinder, off to a strong start for the year, a million ending subs in the quarter. Can you just flush out the product pipeline for Q2 and the rest of the year? Maybe give some examples of upcoming products that you expect could drive you there, further sub penetration and or engagement? And then also maybe just discuss Tinder MAUs. Are they growing? And how is engagement? And then just off of Match.com, how is the mobile upgrade progressing? Thank you.

On Tinder, regarding your question about the product pipeline, I can't provide specific details since it's a very competitive environment. However, I can say that we have a robust product roadmap with many plans in place. We have a dedicated team focused on modernization, which operates on its own schedule. We have moved beyond reallocating resources between experience and modernization, as this team is specifically working on Tinder Plus. They will continue to introduce new features and optimize existing ones. After launching Tinder Plus, we have improved various features and pricing, which should help drive conversion. We also have some new recognizable features in Tinder Plus planned for this year, and every modernization project we've launched so far has exceeded our expectations, including our first paid a la carte feature, which has been very well received. There are numerous opportunities, and you'll notice a consistent rollout on that front. As for non-modernization efforts, without delving into advertising, you will see a blend of optimization efforts that may not seem significant but are crucial for sustaining business growth. We have some innovative ideas that could transform or broaden our business model, where we will focus considerable resources and energy in the latter half of the year. In terms of Tinder's Monthly Active Users (MAUs), they continue to grow steadily, although growth in North America is slower compared to other regions, which is expected due to the rollout. New signups remain strong, and we are seeing improvements in reactivations and retention, all of which contribute to MAU growth. For Match, we have reinstated Mandy and Shar, who are focusing primarily on Match U.S. We're observing some positive trends. Although execution details matter, we've identified and resolved some minor issues that have caused leaks in user cohorts. We're also enhancing our product, including recent improvements to our Android app and a stronger focus on mobile web, which have led to increased mobile conversions outside of Tinder. Overall, we're feeling optimistic about our execution in Match U.S.

That's great. Thank you.

You're welcome. Next question please. Operator?

Thanks. Two quick ones, can you give us a sense, Greg, of the number of registered users in the platform today on a basis of the MAU, and how that will compare, let's say, to one or two years ago? And then how you think about the pace of conversions from registered to paid over the next few years? Because clearly, historically, you had a very high percent of paid, and obviously with the shift to the premium services you have more registered than you have paid, and kind of tracking that. So if there's any help you can give us on that, I think people would appreciate that. And then secondly, can you go in a little more detail about what drove the marketing efficiency. If there's anything specifically you want to call out that you guys think you're doing better? Thanks.

Okay, first, we're not breaking out the MAU numbers, but I can certainly tell you that our global MAU numbers are dramatically higher today than they were one or two years ago. And that MAU growth continues well. I mean, it's different — Tinder is a bigger driver of it than Match U.S., for instance, but in aggregate, growing nicely. I think on the conversion side, in some ways you can think about it a little bit like ARPPU, which is the ARPPU trend is coming down. On a global basis, conversion is coming down just because of the mix shift, but within each business, conversion is going up. I don't have a systematic way to describe those trends right now. We can certainly think about doing that for the next call. I think that we sort of look at it a little bit differently, which is we do believe that we've got real opportunities to increase conversion within each of our businesses and to grow users within each of our businesses. And that's sort of the way we're organized, and the way we manage it. I think that just by definition, because of the mix shift, you're going to see users going up, and aggregate conversion going down, along with ARPPU going down, but also marketing expense going down. And that's sort of ties back into that unit economic slide that I talked about before. So I don't have a great signpost to give you for sort of consolidated modeling over the next four to eight quarters, but we can think about a good way to articulate that for you for next time.

And then on the marketing efficiency?

Jason, there you're focused on the marketing cost being down as a percentage of revenue in the quarter, is that what your question…

Yes. I mean, just like — I mean there are things that you got to put in place that you're doing better I think now than maybe a year ago, and is there anything you want to highlight that you thought was more visible…

Yes, I think that again a lot of that is mix, right, which is on a consolidated basis, marketing comes down as a percentage of revenue, because — again, it goes back to that unit economic slide that I talked about, which is the marketing cost per subscriber at Tinder — and that's inclusive of the app fees that we pay by the way, those numbers. So when you have more of your subs coming from Tinder, you're paying only 26% of much marketing per sub, as you do at Match. So without any marketing efficiency in the way I think about it, you see a confident improvement in the relationship between those two metrics just because of mix shift. So that's the biggest driver of that by far. Second, we did improve our marketing. Meetic in particular had a solid year of improving their marketing execution, especially on the online side. And I think that overall we're starting to see signs of improvement in our ability to sort of market efficiently in the emerging mobile marketing channels, which I think continues to be really important for the growth in the hard paywall businesses. But predominantly that efficiency you're seeing is a mix shift from the hard paywall to the soft paywall businesses.

Thank you.

Thank you very much for taking the question. And I appreciate all the additional disclosure. I wanted to go back to slide seven in the presentation. And I'm just getting a little bit of some of the trends that we're seeing on that slide. Do you think you have sort of a natural feeling that you'll hit in terms of mobile versus desktop on the branded registrations by platform? I wanted to also understand a little bit how you think mobile conversion as a percentage of desktop also continues to trajectory through '16, but also beyond '16? And then last would be as you look at mobile conversion versus desktop, how does that inform how you spend a dollar of marketing and how you think about the relative ROI between channels when you look out of the business over the next couple of years? Thanks, guys.

All right. On the graph on the bottom-left, which is brand regs by platform, first I want to be clear that brand regs effectively excludes online marketing. You traditionally think of it as online marketing. So, brand regs are word-of-mouth and television basically. And this sort of reflects I think sort of the device habits of our user base, right, so this is where marketing isn't focused on any one channel. This should reflect the general, like, what percentage of our users tends to do most of their stuff on desktop versus mobile? Right now you're seeing about a 77-23 split. Anyone's guess, again I continue to think that desktop is not going away, at least not you know, rapidly. There will always be a use for desktop, and people use it. So whether that 77 gets to 83 or 84, it's not going 92 quickly, I think. So I think that trajectory has slowed down a fair amount. On the online reg, this number can jump around a little bit, because again we're trying to open up more and more mobile paid channels. And so that number we would actually like to see — that's one where we want to push that harder and harder, because we will only spend where it's ROI positive. So that can jump around a little bit. In terms of the gap, the 63% gap, I think that the GAAP has been — look, I guess people have different opinions about this. The gap I think has been a very useful sort of device for looking at the impact to our business over this period of rapid shift. I think if you assume that the rapid mix shift has sort of slowed dramatically, then really what we care about at this point is simply moving up aggregate conversion, and not so much closing the gap, meaning, now 77% — the gap is relevant where the higher number was the 65% of the mix. Now that's the 23% of the mix, to us, it's not so much about closing the gap, it's much as driving up conversion everywhere. I mean, if we can drive up desktop conversion, that's great. It may hurt the gap, but we will do it. So I kind of think about it in terms of like what is our ability to increase mobile conversion generally? As I said, we were able to do over the last year, I think, slightly better than mid single-digit sort of percentage improvement. I think we're increasingly organizing around that phenomenon, and driving that metrics. So I think that we've got certainly a reasonable low-end expectation of sort of what we ought to be able to do going forward, and I think again, if you think about it, if everything else is flat, I mean everything else holds constant, then your increase in conversion should equal — your percentage increase in conversion should increase — should equal your percentage increase in first-time subs coming through the door. So, those are real meaningful improvements to us. We think we can repeat them and hopefully improve them, and we think that's a big driver of sort of again this belief that this tropes is in the process of stabilizing right now and starts to go right — up into the right again, sort of the back-half of this year and first part of next year.

Thank you so much.

Hey guys, good morning. Two questions, first for Greg, I think it was last week or the week before you launched the Tinder Social initiative test in — with a small group of users in Australia, could you maybe just tell us a little bit more about what the milestones you are looking at for that test, and maybe expand a little bit more on the big picture opportunity there? And then just a second one for Gary in the outlook slide under the forecast updates, you mentioned some changes to the tech migration to Match Affinity, maybe just give us a little bit more color there, and any other important initiatives on the backend that are going on? Thanks.

Sure. I think, look, it's a test, it is strategically meaningful and it's the first sort of product change that we've introduced, it sort of lays the foundation for a broader product experience than the traditional one-on-one dating experience. And so, in that respect it's important. At the same time, it's also very complicated. You launch a test like this, and the first thing you're looking at is making sure that you've done no harm. You introduce something like that into what is a very powerful and successful ecosystem, and you want to do it slowly, you want to do it carefully, you want to see whether the intended consequences on all the core behaviors. So that's really where we're right now. I think obviously the positive stuff is obvious, you want to increase engagement, you want to increase usage, you want to increase new sign-ups, and you want to continue improve and create new use cases for the product experience. But it's very early. You introduce something like this into the ecosystem and there is a potential for good and bad, and I think you know, we're one week in, and so, we have certainly nothing to report at the moment. It's complex. And we're excited about the overall direction, but very circumspect in terms of this specific sort of future iteration as to whether or not it is going to start completely move us in that direction or not, certainly we'll have a lot more to say about it on the next call.

And then Dan, in terms of the tech migration; as we kind of talk here of what happened in 2015 and plan for '16, the way we looked at it was you know, when you look at Match, the tech platform was a pretty big distraction to a lot of resources, a lot of people's time. And I think just given where we're and given the mobile shift, we decided that we should push off doing more of the tech migration around Match Affinity and really focus on execution of that business as well, and try to drive subscriber growth at that business. And so that's the rationale for that. That's what we've done. And then the slide kind of lays out there will be some more costs in Q2 to finish that up, and then there really won't be much cost after that for the remaining tech migration.

Yes. I think just — it's been a very big project, it's been very modular, meaning, we postponed one part of it, which is sort of a final piece, which was migrating the Match Affinity business onto the Match platform, but all the rest of it is going to have been completed, and we drive meaningful benefit from it, meaning we will completely rebuild the Match back-end, the Match front-end, create an API that allows the Match back-end to speak effortlessly to the Match desktop web, the Match mobile web, the iOS, the Android app, all of that creates dramatic efficiency. It allows us to deploy former resources on sort of product development as opposed to replicating the back-end part of product development that we had to replicate on each device over and over, so, big impact there. We brought in new management for these businesses, and again, what's the point of bringing new management if you don't listen to them? And their view was to re-prioritize a little bit for the balance of this year, and push that back off, and we'll either do it next year or we will sort of close the — create the efficiency in a different way. I think other things that happen as part of that project, just to note, we took our European business from seven offices down to three offices. We did major tech — not nearly as major, but we basically created the same sort of efficiencies in terms of API and reducing redundancy on the Meetic platform as well. So, lots and lots headwind done and there is still ongoing work to complete it. Yes, I was just giving a note, we also migrated the FriendScout business onto the Meetic platform. So this was a big, big project. All we're doing is really sort of indefinitely postponing one piece of it, which may or may not ultimately happen, but we'll have gotten by the time we're done, which should be by the end of this year. We'll have gotten the vast majority of the expected benefits out of the project. So I don't want to focus too much on the one part that we've pushed off.

Okay, great. Thanks very much for the details.

We probably have time for one or two more questions, operator.

Great, thanks. I just wanted to — since a lot of the other questions we'd have been answered, I just wanted to take a little bit more into the Meetic example, because I think it's really interesting on the turnaround you guys have seen there; can you give us a sense for what happened with pricing over this period, and whether or not how much if at all that was a lever? And then, the chart starts a couple of years or three years ago, right up you guys did the Massive Media acquisition into Meetic, I'm just curious how much of an impact the attrition of Match's users had on that initial decline, and if we were to look at this just purely you know, maybe excluding the acquisitions on a like-for-like basis, would it look any different?

Thank you. We'll focus on the last point first. I'm not sure I heard — it was right after what acquisition? Massive Media, when you guys bought Twoo. This has nothing to do with Twoo. So Twoo is excluded from these numbers. This is purely core Meetic dating. It excludes the FriendScout acquisition. It includes — it excludes the Meetic Affinity brand that we sort of had to runoff on. So this is purely like-for-like, think of it as the Match.com of Europe. Okay? So this is — all that is excluded. I think in terms of rate, again, there's been some — just see, rate — we're pretty confident throughout this period, I'm looking at it now, this is all — this is local currency, right, so there is no FX in this that I'm looking at. Yes, on a local currency basis, I will say the Q3 2014 rate was identical to the Q4 2015 rate. So there was a little bit of — it went up a little bit during this period and then back on a little bit, again, driven mostly by the mix of discounting and package mix and all that sort of — so pricing was definitely not a meaningful driver of this. The biggest driver of it was we improved conversion, we improved marketing efficiency, I mean, it was just — there was always a million things going on, but these are businesses where — look, Meetic, when we bought Meetic back in 2011, it was in a trough, and we built it out and then it sort of stumbled a little bit, and Match had a big stumble four or five years back on the execution front. The core lessons of marketing creative, marketing tactic, product — theory product execution, all of that stuff is — I know it's complicated in any business, but — and I'm probably bias, but I think it's complicated here, especially at large scale. And I think that they just really stepped up their execution, and everything started hitting, and there is no magic bullet or smoking gun. They just did better. And again, we brought a new management there, I want to say the late part of 2013, and that leads to continuity, and just good execution. And they're on a really good run, and we feel really confident that again, you know, not to get prior management, the turnaround in the North American business, we think we hit our low-point in Q3 '15. So the turnaround started then, but we brought in new management and I think that Mandy and Shar, I think they're amazing in execution, and I think that we feel really good that this trajectory will replicate itself in the North American businesses.

Great, thank you.

You're welcome. We're going to take one last question, operator.

Thanks. Two quick ones from me, first of all, Greg, I'm wondering if you could comment a little bit on the advertising landscape for your other brands, the non-Tinder brands. Most of us on the call pay pretty close attention to that, and we've seen a kind of a divergence in performance. So I'm just wondering some comments there. Secondly, Greg, could you remind us your exposure to app store taxes and strategies to mitigate those? Thanks.

Taking suggestions on tactics to mitigate themselves, anyone has a good idea for how to avoid paying Apple. They're 30% open to them. I think that — the numbers are obviously built into the number we've talked about, if you go to the app store, if you go to the unit economic slide we did, where we talked about sort of the soft paywall businesses being at 26% of the acquisition cost of the hard paywall. That's inclusive of the app store fees. So for instance, Tinder pays us 30% sort of payment on every subscriber has, but that is built into those numbers. I think again, if you sort of aggregate marketing costs and the app store fees, you got marketing costs coming down dramatically as a percentage of revenue, you've got app store fees increasing as a percentage of revenue, I think the net of all of those is margin improvement overall, but they're sort of going in two different directions. I think on the advertising side, if I understood your question, sort of ex-Tinder, you were saying there was a divergent; I think you mean that our ad revenue in those businesses is not growing as fast as the market generally. I think you go back to that sort of mobile mix slide, the reality is that not unlike a lot of other businesses, our desktop business has monetized on an advertising side much better than our mobile business. And so, over the last three years as you've seen this rapid shift from desktop to mobile, which we focus on the conversion side, it also had a negative impact on the ad revenue side, where businesses like Match, and Meetic, and OkCupid et cetera, they're in the priorities of what they do. And as they have sort of scrambled to keep up with this mobile shift, there is no question that the ad side has been a very bottom priority, as again, conversion and everything else. So I think it has not been a great period for us on the ad side, driven by, first, did not being a big focus, and the mobile mix shift, I think mobile mix shift is mostly behind us. We now have real focus and real leadership, and I do expect it to improve meaningfully in the periods to come.

Thanks, Greg.

You're welcome. Thanks everybody. We will talk to you next quarter.