Match Group Inc - New (MTCH) — Q2 2016 Earnings Call Transcript

Thank you, operator, and good morning, everyone. Welcome to the Match Group earnings call for the second quarter of 2016. We are very delighted to have everyone join us today. Here with me is Greg Blatt, our Chairman and CEO; and Gary Swidler, our Chief Financial Officer. You can find an investor presentation on our website that we're going to run through those slides on the call to you today. And then we will open it up to Q&A afterwards. But before we get started, I’d like to do a few housekeeping things and remind you that during this call we may discuss our outlook and future performance. These forward-looking statements are typically 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 things over to Greg.

Thanks, Lance. Good morning everybody. Q2 was another great quarter. I know people get caught up sometimes in the minutia of this process, like our revenue, our EBITDA beat, etc. From that perspective, this is clearly a really good quarter. But we look at it on a broader basis, long-term. Are we building the businesses we set out to build? Are the things we wanted to be happening actually happening? From that perspective, we also think Q2 is a really good quarter. But we look at quarters, and we expect that to continue going forward. We’ve laid out a plan that connects with the IPO. We’ve been delivering on it consistently quarter-to-quarter. And here the big point before we get to the slides: Tinder growth is fantastic. We’re investing in big product initiatives to drive that growth well into the future and we couldn't be more optimistic about its outlook. Our other international businesses also continue to do great across multiple territories. We’re driving meaningful conversion improvements primarily through mobile product work, which is on schedule to deliver our North American businesses back to PMC growth in the first half of 2017. These are the big building blocks of our plan. We're on track on all of them. Really, the only part of the plan we're behind is building our ad business, which we said from the outset could be the shakiest in terms of timing and predictability in how quickly it would ramp. And even that’s only behind because of everything else that Tinder has been doing so well, that it's been demanding double attention. But we’ve ramped up in the ad business to tackle this opportunity, and we’re actually committed to doing so. So, we are really confident about where we are. We feel good about sort of the predictability and the fact that the things that we thought would happen have happened. And we really do expect this progress to continue. Now let’s hit the slides. On Slide 4, pretty straightforward. Great growth at Tinder, PlentyOfFish, real good performance at Meetic. North America is on pace for its turnaround. We will talk about that in some detail a little bit later. We got some headwinds at OurTime. So we cut back on marketing spend in the quarter, which helped EBITDA in Q2, but hurts revenue a little bit and will hurt both a little bit next quarter. As an aside, hopefully the upside of that is that it debunks the myth that Tinder explains all things in the dating category. OurTime is sort of without competition. It’s a little behind in our mobile progression just because of the allocation of resources to it. And we’re quite confident with the brands and our ability to bring that back through continued product work and marketing. But that is a little stumbling block in the quarter. Also really exciting, the Japanese market is starting to pick up for us. We had solid performance in our Pairs business, which we acquired last year. Tinder in Japan is taking off, and Match Japan, which has been around for a long time, is at an all-time high in terms of PMC and has good momentum there. The second-biggest economy in the world, I think. It has been a long-term category resistor. So if we can get this trend to continue, it marks real upside for our business. On Slide 5, obviously Tinder just continues to roll. On track, on PMC, we did a June release that focused on Tinder Plus, a series of optimizations, a few new features, just continues to show the elasticity of modernization in Tinder. The improved conversion increased ARPU, renewal rates continued to be great. And you look at the graph on the bottom right, on a global basis excluding games, Tinder is now the number five grossing app in the world, behind only Netflix, HBO, Spotify, and LINE. Really getting into some heavy company there and really just on a fantastic roll. I think the headline going forward is we’ve more than doubled the headcount in the last 12 months predominantly in product and technology. We expect that to continue. There are far more exciting things for us to do than we can, given our resources. We've got a new management team firmly in place now. It's really starting to operate effectively, and we’re scaling underneath it against a wide variety of initiatives. So, we feel really good about it. One of those initiatives, Tinder Social, we launched in the U.S and several other English-speaking countries last week. This is sort of a big deal, not because it’s a new product feature, but because it really is an entire new playing field for us to play on. A natural adjacency, it expands our audience, reduces the stigma associated with the dating category, really unlike a feature that you launch. This is a playing field that you should expect us to be playing on for a while, meaning we’re going to launch feature after feature in this area without neglecting the core business. But we really think this is an exciting opportunity for us, and we’re really going to invest heavily in it. Switching to Slide 7, just sort of playing off Tinder Social's example, we really have become an amazing and unparalleled product and technology operation in this category. We got over 500 people across the company who are working on product and tech. We know this category is going to continue to grow nicely. So the challenge for us is to make sure that we are offering the products and services that people in this growing category want. Product is the key to that, while we have separated product groups across the businesses; they are increasingly working in a coordinated fashion. This slide is intended to demonstrate that. It sort of has three buckets. One is where individual businesses develop a feature that works really well; our ability to rapidly deploy that feature across all our other businesses. It's something we're doing. You've got the Android Native App at Meetic, Premium Privacy Offering we developed at Match that we've now rolled out at Meetic, OkCupid, and Tinder, etc. So, there is a whole bunch of things that have been pioneered in one certain business and then deployed across the other businesses. Next is sort of the big initiatives that we know we need to attack in the category. Messenger Bots or something that are coming, and we’ve got the Meetic team working on that. The Match team is working on artificial intelligence and its matching algorithms. Meetic is working on third-party integrations, Match Location features, etc. So, these are all things in a coordinated fashion rather than having all these teams working on the same thing at the same time, we are sort of divvying them up so that you're really getting the scale benefits of a unified product team, even though it's organized individually. And then finally incubating new businesses. Tinder was the last meaningful business that we’ve launched internally, but before that, there have been a bunch, some of which had some impact, some of which didn't, and we continue to be very focused on that. We're testing a new app right now. We've got another one that we expect to test in the remainder of this year, and then there are three additional products that we’re working on. There are standalone products that we think have potential. So, we expect to continue to be an R&D shop, a product shop, a technology shop, and when you look across the category, there is no one else who can come anywhere close to that. So we really are in it for the long-term in a growing category. We think this is a big competitive advantage. Switching to Slide 8, I want to spend some time on this because we’ve talked about conversion a lot for a while, especially mobile conversion. It's been a headwind for us in the last few years. And we told you we think it's going to start turning around both because of increased product focus and the slowing mobile mix shift. On this slide, you start to see the evidence of that, and it really is the underlying key to the turnaround in our North American businesses that I know people are focused on. On this slide, we see the slowing mobile mix shift trend we’ve been highlighting. 74% of mobile in Q2, the pace of the increasing mobile shift has certainly slowed. We talk about conversion. We see that mobile mix shift has been a big driver of conversion, and we see here real improvements in the 30-day conversion number, 7% up year-over-year in Q2 across all our businesses. I said before that conversion can be sort of a squishy number. A lot of things can impact it: pricing, discounting, reg capture, new marketing channels, etc. So we don’t want to be too granular here, because it can be misleading on a period-to-period basis. But when you blend it all in together, and look across the business across platforms, it really is demonstrative. Ex-Tinder, we were up 7% year-over-year. This is driven by much greater than 7% improvement in mobile where the focus is. So the mobile number is meaningfully higher than 7%, and that's really where we put our focus. I think that from a North American perspective, if you pull PlentyOfFish out of this, which sort of is in these numbers. You see that prior to Q1, we had seven straight quarters of this number declining. Okay. So we’ve been on a continuous multi-year conversion decline, which turned in Q1 of this year. And now we’ve got two solid quarters of conversion improvements after that, and that's really why this turnaround is on track. The other piece of the turnaround is marketing. We’ve told you that we cut back on marketing as conversion declined because the ROI decision is strong; that’s just basic math. We also told you that we would start to increase marketing spend as we rebuild conversion. So if you look at this year, North America ex-POF, ex-Tinder, Q1 through Q3 of this year we were down year-over-year in marketing spend, right. So you'd expect to have the PMC trend that we’ve had because we’re not spending as much on marketing. As conversion builds, which is now doing, we’re going to start increasing spend. We expect Q4 marketing spend in those businesses to be meaningful year-over-year and we expect that to continue into 2017. So, you really have two things going on. You’ve got improving conversion and increasing marketing, which take us from effectively the trough in average PMC that we’re at right now in these businesses and builds it back up into growth in the first half of 2017. If you think back to that Meetic analogy side from last quarter, it show that the first thing that starts to change is your quarterly net ads number, which is your change in subs in period. It hit the trough in terms of year-over-year decline, then the decline starts to get smaller and then they turn positive. This quarter is the fifth consecutive quarter for our North American businesses in which net ads are down year-over-year. But it's also the smallest decline, and we expect it to be the last one for a while. Next quarter, we expect that line to cross the horizontal line. We expect Q3 to be positive in terms of net ads, and we expect that to continue. So again, we are on schedule for our North American rebound. The same schedule we laid out and connects with the IPO that we’ve been touting each quarter. The evidence is coming through in terms of the improved conversion and the declining net ads lot, and we expect that to continue to go positive next quarter. Switching to Slide 9, our advertising business: we are going to drive meaningfully more ad revenue at Tinder in '16 than '15, but not as much as expected. The primary constraint has been internal competition for product resources. The reality is in order to build the ad business you need to do things to the product; you need to add in a variety of capabilities. And the reality is that they have not been able to get on the product roadmap. We've been focused on building Tinder Social and launching that. We've been focused on the Tinder Plus initiatives, and there really is the bottleneck at this point in terms of our ability to get the advertising business up and going. We’re now building a dedicated product and tech team to deliver that. Similarly to what we did with Tinder Plus, if you remember throughout last year it was always a question of whether we were going to work resources to Tinder Plus or to other things. Now that's no longer an issue. We’ve got a dedicated team. We are working to create that dedicated team in advertising. But again, there are just so many exciting things going on that we just haven't been able to get on that roadmap. So, we expect that to change in the balance of this year. On our other businesses, we’ve been able to increase CPMs nicely year-over-year, but impressions are down, driven by mobile and that's just a fact of life. As we've rebuilt our mobile products, they’ve been primarily focused on direct revenue, and now we need to begin to optimize them for advertising as well to start getting additional impressions and that sort of thing. Start building native placements and creating a more endemic advertising business in our mobile products. Next steps, that will go through here, but if you can see they're all sort of technology enabled which is why getting on the roadmap is so important. I think that looking back and sort of looking at the impact for the year, you've got a slower than expected revenue ramp. It's meaningful. We expect to have big increases in Q3 and Q4. We just haven't done the product work to enable it. Nonetheless, we ramped up the business to be able to do that. We grow and hedge meaningfully. We are going to have approximately $10 million higher run rate this year on OpEx relating to advertising than we did last year without a meaningful increase in revenue. So the short-term impact of that is a margin squeeze in the second half. Long-term impact is we are fully committed to this business. It is not a question of us not wanting to do this; we’ve built up the team to do it. We’ve got a bottleneck on products and technology sort of in the businesses, not in the ad sales group. We are working to break that down, but we are committed. If I sort of knew then what I knew now, we’ve sort of delayed hiring a quarter or two and sort of ramped up a little bit later; probably but we've taken the position on Tinder, in particular, and we’re going to be aggressive that at a business of this stage being able to mark expenses to revenues perfectly symmetrically is just not viable without leaving opportunity on the table and we're in growth mode here. So it certainly is a little bit of a negative on the back half of the year in terms of EBITDA margin, but it's very positive in terms of our overall outlook, and we expect this to be a meaningful contributor next year. I also should make the point the other way. We make it again later, that we completely offset the indirect revenue shortfall with the direct revenue surplus, which is really where the product and technology resources went. In other words, we had to make a choice. We could launch Tinder Social and drive the Tinder Plus revenue and drive the ad revenue all in the same period. We just didn't have the resources; we're getting them and again we feel very positive about where this is, it's just coming a little slower than we expected. With that, I will turn it over to Gary for some financial stuff.

Great. Thanks, Greg. If you slip over to Slide 11, for the Q2 results, you can see we had a very strong quarter from a revenue, operating income, and EBITDA growth standpoint. Slide 11 listed it on an as-reported basis. Back on Slide 16, we show it on a pro forma for the POF acquisition basis, which is how we look at the business, and it's strong across all metrics. We had outperformance by Tinder and Match North America. It was partially offset by weaker performance at Match Affinity, OkCupid, and our advertising business as Greg just went through. We exceeded expectations on EBITDA, as we spent a little less on marketing in the quarter and we also shifted some expected costs from Q2 to Q3. Non-Dating business was flat year-over-year because the SAT test prep revenue remains lower than we expected after test redesign. Our Non-Dating business did move closer to profitability in the quarter and continues to execute on its strategy of moving the business online and increasing cross-selling. The Company's margin improvement story also continued well in the quarter, as a larger percentage of revenue is derived from brands at lower marketing spend. Operating expenses, particularly sales and marketing, declined as a percentage of revenue in the quarter. If you flip to Slide 12 on ARPPU, ARPPU was really positive for us in this quarter. Our ARPPUs increased sequentially in all regions. We saw stability to slightly positive moves in rate across our North American brands. Tinder saw improvement in ARPPU this quarter compared to last as the a la carte revenue which they sell only to existing PMC drove higher ARPPU. Tinder ARPPU internationally was up very strongly. I’m going to now turn it back over to Greg to say a few things about the outlook and then I will take you through the details.

Yes, just looking at the full-year, our revenue expectation is unchanged from what we said in the last quarter. There is a mix shift as I mentioned, higher direct revenue mostly from Tinder replaces indirect revenue, again mostly from Tinder. In terms of EBITDA, our numbers come down a little bit due to increased ramping of headcount at Tinder. As I said, we're pushing hard there to do all the things we want to do. There is a meaningful increase there. We exceeded our headcount expectation already for the year a while ago, and as we brought in the new Management team and we started to lay out the ambitions and plans, there's just so much to do. So, I said that could happen. I’ve been saying that it's happening all along. We're excited that the opportunity justifies the investment. Additionally, the higher direct revenue that we have, and remember the ad revenue comes with IAP fees, and so that's just math. So, overall this number comes down a little bit but it's really all driven by increased opportunity, increased aggressiveness, and we feel really good about the fact that we're in a position to invest in these businesses as we are. Gary, if you want to take the quarter-to-quarter?

In the quarter, we are seeing 2% to 3% sequential dating revenue growth. During our fourth-quarter call, we projected a 5% to 7% sequential revenue growth for the year, but our Q1 performance surpassed expectations, as did our current Q2 results. This 2% to 3% aligns well with the range we provided in the Q4 call. As Greg mentioned, we are executing our IPO plan and achieving our forecasted results. Regarding EBITDA margin, we had strong performance in Q2, and we expect margins to remain consistent with Q2 in the upcoming third quarter. For the fourth quarter, we are projecting 4% to 6% sequential dating revenue growth, which aligns with our earlier forecasts. This is largely due to a significant shift from indirect to direct revenue. We anticipate fourth-quarter margins will be in the mid-40% range, typical for this time of year, where margins generally increase. For the Non-Dating segment, we focus on progress in our strategy and positive EBITDA rather than revenue growth. We expect modest profitability in the second half to counterbalance first-half losses, anticipating the business to be slightly profitable for the full year. Historically, the third quarter is the strongest for Princeton Review, and we expect this trend to continue. Our business maintains strong cash flows, with projected mid-50s adjusted EBITDA to free cash flow conversion rates for 2016. Historically, our performance is consistent, with light capital expenditure needs forecasted at 3% to 4% for the year. Based on current stock prices, we expect about a 5% free cash flow yield, which we believe compares favorably to similar companies in the market. Since our IPO, we have significantly increased our cash reserves, from $50 million initially to $174 million at the end of Q2. Our leverage has decreased as our EBITDA has increased, with a gross leveraged ratio of 3.5x and a net leverage of about 3x. We plan to continue reducing leverage below 3x gross through cash utilization, particularly as we have substantial domestic cash to reduce debt. Unless a compelling M&A opportunity arises, which we don't anticipate short-term, we believe the best use of our cash is to continue deleveraging. That concludes our formal presentation; we are now ready to take your questions.

Thanks for taking the questions. First, I just wanted to ask you about Super Likes. It feels like they’re driving more in incremental revenue perhaps than incremental PMCs. Can you just talk about that a little bit, kind of your outlook going forward? And then there’s obviously a lot of talk during the quarter about some of the potential benefits from the App Store shift in economics. Can you talk about that as it relates to both Apple and potentially Google going forward for you? Thanks.

Sure, Doug. Super Likes contribute significantly to both PMC growth and conversion rates. There are numerous features available behind the paywall, and different features attract different groups of subscribers. For instance, some users may choose to subscribe to avoid the daily right swipe limit, others for additional Super Likes, and some for the Passport feature. We have internal metrics that help us understand what drives these subscriptions, and Super Likes are a key factor. Subscribers also have the option to purchase extra Super Likes, which increases ARPPU. If you consider the details, it’s an important contributor to both aspects. We’re continually working to optimize the presentation of features, whether as subscription offerings, à la carte options, or both. We're still refining this process, but currently, it plays a crucial role in both areas. Regarding App Store updates, Apple has changed some policies, while Google has not. While there are minor benefits from Apple's adjustments, they aren't particularly significant for us. Our business model revolves around periodic consumption, where users engage for a while, then pause, and return later. This pattern doesn’t align well with Apple's new rule about not being inactive for over 60 days, so while there are advantages, they aren't material. Overall, it seems like a shifting landscape in App Stores, especially as they face more competition from mobile web, which is our primary business. It’s likely that regulations will continue to change at both Apple and potentially Google, but we do not have special insights on that. For now, the changes don’t significantly impact our business, but future developments are possible.

The next question, please.

Hey, good morning guys. Maybe one question for Greg, and one for Gary. Just spend a little bit of time on Tinder Social a little bit more and what you think about long-term for monetization of the investment there. Is it the type of model where sort of freemium / premium model fits, where advertising fits, or maybe the sort of value-added commerce services around that type of social behavior? And then, Gary, just to understand the movements in revenue guidance and dating revenue being maintained for the year, you came in above the guidance range for sequential revenue growth in the second quarter. Were there some things that just sort of came forward a little bit? Just if you could shed a bit more light on that. Thanks.

On Tinder Social, I think that people buy Super Likes on Tinder Social. Tinder Social, when it drives swipes, drives people to the right swipe limit. So our current monetization system in and of itself works on Tinder Social, and in fact we saw a nice little pickup this weekend in monetization after we launched Tinder Social. So I think the first response to that is that it fits within our existing monetization framework. Beyond that, I do believe that it presents multiple, especially as we build out in the directions that we think we’re going, multiple opportunities if you start to go into sort of not just who am I going out with, but where am I going, it starts to create events and sponsorships, and a whole bunch of things I think are less obvious on sort of the core Tinder product. But I think that the initial purpose of Tinder Social is about engagement, broadening audience, etc. It is not being laid out for monetization opportunities in the near-term. It's really about driving engagement, bringing in new audiences, and sort of creating a more coherent tool for planning your social life out. And we think it’s a big first step and we think it will both drive monetization in its current form, but also does present additional opportunities.

And then, Dan, on your question around kind of the revenue trends, as we talked about in the slides, Tinder and Match North America really drove the outperformance in the second quarter. So we had some higher revenue there than we were expecting. In the third quarter, we’re seeing some softness in our Affinity business, some softness in the advertising versus what we expected, which Greg went through, and then we’re seeing some strength in Tinder. So those are kind of the moving pieces in the second and the third quarter.

Yes, I think the loss or sort of the shortfall in ad revenue that we talked about is most pronounced in Q3 and Q4 because that’s when we had it building. I also, as we said, cut back on some marketing spend in Q2 on Affinity and that will have a revenue impact that really hits in Q3. And so that’s really the Q3 story. Again, made up by Tinder somewhat and made up even more so in Q4 by Tinder as that continues to roll.

Thanks, guys. I had two or three questions real quick here. So first on Tinder, how do you guys compensate Tinder employees given that it's a fast-growing startup amidst other wholly-owned and acquired entities? Did they get Tinder equity or Match equity? And if the current strong trajectory continues and the market may or may not necessarily appropriately value Tinder, I know it's fairly early post your IPO, but would you consider doing something strategic like IPOing or spinning Tinder at some point? Any thoughts on that idea? Second question is just on Tinder DAUs. Can you give us an update on that number today versus the 9 million you talked about a year ago? And that's one. And then the last question, Greg you said that the PMC growth ex-Tinder will start to stabilize and pick up when you increase marketing exiting this year, so should we expect that to grow kind of mid-single digits or how should we think about that ex-Tinder piece in 2017? Thanks.

There is a lot to unpack. Regarding Tinder compensation, we provide salaries to our Tinder team and have also issued equity. Similar to what we did at Match under IAC, employees at Match, including myself, received equity in Match, even though IAC was the public company. People at OkCupid also received equity, even as they were part of Match. Currently, Tinder employees generally hold Tinder equity along with some Match equity, depending on individual circumstances. This is consistent with the equity programs we’ve implemented historically at Match and IAC, focusing primarily on creating value through Tinder equity. As for strategic decisions, we are open to possibilities. We usually get asked when Match will spin off from IAC, and now the focus is on Tinder. However, I believe there is less operational integration between Tinder and IAC compared to the integration between Tinder and the rest of Match Group. While spinning off Tinder is a possibility, it is not something we are considering in the near-term, as the integration is fostering much of Tinder’s growth. For instance, the success of Tinder Plus has benefitted significantly from the expertise and resources of Match Group. The monetization process has proceeded more smoothly than I have seen in similar contexts. If we observe a significant discrepancy in valuation between Tinder as a standalone company and Match Group, we would certainly address it. But it’s too early to explore that currently. Regarding growth rates, if you’re referring to North America excluding POF and Tinder, we are witnessing strong growth in our international business outside Tinder, as well as at POF. Focusing on those three businesses, we are currently in a trough, which should persist for another quarter. In Q4, we expect the average PMC decline to start improving significantly, turning positive in the first half of 2017. When it comes to year-over-year average PMC growth from 2016 to 2017, there will be some fluctuations, with declines initially followed by recovery in the second half. I anticipate modest growth for those three businesses in 2017, though we aren’t ready to fully discuss expectations for that year just yet. As it stands, my expectation is for modest year-over-year average PMC growth in those businesses from 2016 to 2017, while Tinder, POF, and Meetic outperform. For the long term, we maintain our view of these businesses growing average PMC in the mid to high single-digit percentage range, with both operational and revenue leverage supporting that growth. I need to check the latest on this, but the Daily Active Users are significantly up compared to last year. While we don’t disclose specific numbers, they have notably increased beyond the 9 million we mentioned, I believe in Q4 or during the IPO.

Thanks for taking the questions. Maybe just two. One, when you layout the investments you’ve sort of called out for the back part of this year. How should we think about the first part of next year as you move into ’17? Is this a scenario where you continue to see places to put money to work to invest for the long-term or to continue to drive subscriber and user value, or how should we think about leverage on these investments as we move past the second half of ’16? Second question would be on geographic expansion. You called out Japan on this earnings call. Just curious how you’re thinking about some of the other geo's where you see potential for either organic or inorganic growth on a global scale? Thanks.

No, I do agree.

Great. Thanks for the color.

Great. Thanks. Couple of questions. For Tinder, could you talk about the Tinder Plus release in June, the new features? It appears to be mainly incognito features. Are they rolled out currently in all geographies? Were they tested in markets prior to launch? And just your expectations for conversion and/or engagement. And then separately, in the slide deck you mentioned Match U.S. and Canada saw no seasonal decline in average PMCs for the first time since 2013. Just discuss the drivers, and if you could also update us on the timing of the Match.com mobile web offering, kind of update how that's going? Where we’re at? That would be helpful. Thank you.

On the June launch, it was influenced by several factors. The main new features included privacy controls, which serve as a conversion driver and attract a demographic that our other products do not reach. This is fundamental to the growth of the subscription business. We also made various optimizations that may not be immediately visible, including adjustments to packages, pricing, and rate cards, which although not glamorous, enhance performance. I believe the incognito features have been rolled out globally. While we did not specifically test it at Tinder, we have implemented similar features in some of our other businesses, allowing us to gauge what resonates with users. There are differences across our products, but there are also many similarities. We developed the incognito feature at Match, then adapted it for OkCupid, and now for Tinder. While we didn't directly test it at Tinder, we have gathered valuable insights from other platforms. What was the other question?

On the Match sequential PMC stability?

Yes, I believe execution and consistency are key factors. We experienced improvements in our Android platform, achieved greater marketing efficiencies, and enhanced our registration capture rates, which is the percentage of app downloads that lead to registrations. While we discuss conversion rates from registrations, we also focus on the traffic-to-registration conversions where we've seen significant success. There isn't a simple solution that dramatically increases conversion rates; it all comes down to effective execution, which is vital for our business. Regarding mobile web improvements, we are making progress across various areas. You should start to see notable changes in mobile web by the end of this quarter or early in the fourth quarter, definitely within this year, as our product team is focused on these enhancements.

That's great. Can I ask one more question?

Sure.

What’s the mix of Tinder subs male, female?

In Tinder, the subscriber base is predominantly male, more so than the overall user demographic. This could pose a challenge for a company like Match because only subscribers can interact with one another. However, in a soft paywall model, the mix of paid users is not critical to the ecosystem; what matters is the overall user mix, which is quite healthy for Tinder. The launch of the incognito feature is our first female-focused initiative, and we are already observing an increase in female users. This presents a significant opportunity, similar to our experience with OkCupid and other businesses, where initial features were geared towards male users, but adding female-oriented features helped achieve a better balance. The key takeaway is that, from the perspective of user experience and ecosystem health, the ratio of paid users is not particularly important; the current state is that it leans male.

Thank you. Thanks so much.

Thanks, John. Go to the next question please.

Good morning. Now thanks for the question, just a couple. I’m wondering if you could give us a little color on OkCupid and what’s happening there was called out, and if you could help us understand if there are any particular issues there that you’re working on? And then on OurTime, when you talk about the mobile conversion improvements, how is OurTime working on the mobile side? Is the age issue there making the mobile transition more difficult, and does that lead to lower expectations going forward or increased difficulties? Any additional color? I appreciate it. Thank you.

OkCupid was a significant contributor for us over the past three years, experiencing substantial growth but has now leveled off. Looking ahead, I believe OkCupid is well positioned. While we appreciate the hard paywall businesses for their strong cash generation, they tend to grow at a slower pace compared to soft paywall businesses. OkCupid is a soft paywall brand with a strong reputation and excellent product, which is reflected in customer surveys. It has a unique identity and a special place in the market. However, we've faced several management changes, including the departure of the original founding team. In hindsight, we did not adequately strengthen and integrate OkCupid into the wider organization, which left it unprepared for challenges. Last year, it struggled to maintain the brand excitement and awareness it historically had, particularly around data issues, and did not keep pace product-wise over the past 12 to 15 months. We now have new leadership in place and are undergoing significant institutional changes, which makes me optimistic about its long-term prospects. OkCupid is ideally positioned to target a rapidly growing demographic, giving me confidence in its future. Regarding OurTime, the transition to mobile has been slower for us compared to some other brands due to its older demographic. I don't have the exact figures, but OurTime is further behind in mobile adaptation. Last year, during our major product and technology consolidation efforts, People Media did not receive the level of attention it required because our resources were stretched. As we focus on development, Match has taken priority over People Media, which has contributed to the current challenges. We didn’t expect the recent headwinds to be as impactful as they have been, but I understand the reasons behind them. We also haven’t executed a major marketing campaign in a few years, but we are changing that now. It's about putting in the right focus and energy, and like OkCupid, I believe OurTime is well positioned. There is little competition in the market, and its audience is growing—we just need to devote more attention to it.

Thanks, Greg.

Thanks. I’ve asked in the past, is there a way to think about pre-registration growth in the conversions to paid? And is there a trend you can cite there? I know you put the conversion trends for this quarter, but any kind of trending to think about? And then also, we’ve seen some changes in senior leadership. So just maybe give us some color there. Thanks. Brand leadership, not senior, well some of the changes at the brand level.

I believe most of the changes occurred in the previous quarter, unless I'm mistaken. We have a new leader at OkCupid, Elie Siedman, who has been in position for three months. We announced his appointment during the last call. While I anticipate he will make significant contributions, it is too soon to see tangible results. Additionally, we did hire several people at Tinder, but again, those changes are from prior quarters. I don't think there have been major changes in the last three months. However, we did experience a substantial influx of new leadership at Tinder from Q1 to Q2, including new roles in engineering, international management, finance, and marketing. Outside of that, things have remained relatively stable.

What about Sam leaving?

Sorry, but that occurred on December 31. We announced back in November that I would become CEO and Chairman, while Sam would be moving on, and that took place on December 31.

He went on the Board and became Vice Chairman. He is still involved but he is obviously not an executive here anymore. Now he has a new role.

That's right. We have been in this mode for about six and a half to seven months now. I believe it has gone relatively smoothly, although there is always change. Our execution has been strong, and I’m not aware of any issues with the new leadership transition in various areas. Things are coming together well, and our execution is improving. Regarding your earlier question, we should find a better way to frame our long-term consolidated outlook. It’s challenging because of the diverse growth paths, as we assess it from a business-by-business perspective, making it somewhat of a reverse engineering process. We see trends including improved conversion rates within each business, especially after several quarters of decline due to the mobile shift. However, in some businesses where we reduced marketing spending this year, we’re not seeing significant growth in registrations, as these are inherently market independent. We plan to increase our efforts again in Q4. There are many moving parts, but we generally expect user numbers to rise, while penetration might remain flat or slightly decrease as user numbers grow and adjustments are made. The average revenue per user is expected to decline modestly as PlentyOfFish reaches anniversary milestones and Tinder continues to grow, but this decline will be much less significant compared to the past year and a half when we saw a major shift with Tinder's growth and PlentyOfFish entering the mix. These macro trends are consistent with what we outlined during the IPO. We will continue to address the need for a consolidated model, which is not straightforward, but we will work on it.

Thank you.

All right. Great. Thank you. Just had a couple of questions. I guess first, how did PlentyOfFish perform in the quarter relative to your expectations? And as it relates to your efforts to increase revenue per user, how is that going, and have you been able to follow that same playbook as OkCupid? And then just secondly on the advertising business, I guess part of the challenge at least in the near term that with programmatic the opportunity you might be somewhat more limited and you really need to also ramp the direct sales efforts to capture some big budget advertisers. And do you get the sense that the demand is there or just a function of putting the people in place to capture that demand? Thanks.

I think POF has been pretty much on plan. Since we bought it it’s been up or down a little bit and it's had this upside, but in general it's on plan. So we really feel good about it, driven again mostly by this increasing modernization and sort of rolling out these features going very well, sort of again, boringly as expected. So that's good. In terms of the ad stuff, we think it could be a mix of direct and programmatic. Again, I’m learning this world on the fly, but it's becoming a more complicated world. You’ve got private marketplaces that are direct sold but sort of programmatically delivered. And so you get these worlds blending. We’ve ramped a sales force. We are going to be in that world as well as the straight programmatic world. We do think that's an important part of our growth. I think the problem for us is that we haven’t really even landed exactly on what the ad unit is, and what the frequencies are, and all the rest, because we haven’t really been able to get touch the code in a meaningful way to sort of create that. So we’ve sort of been selling what we’ve had to sell, and we’ve grown revenue in that way. But we’re reluctant to sort of really push that ahead meaningfully until we sort of are able to more systematically assess what we want this business to look like, and we haven’t really had access to do that yet. We expect to do that in the balance of this year, and we expect to be poised to sort of really start growing that revenue in 2017. But we certainly don’t think there’s a lack of demand. We don’t think there’s a lack of resources dedicated to direct sales, and we think that it will make a meaningful part of that business going forward.

I think, operator, let’s try to just get one last question in here. I think that's all we have time for.

Yes. Hi, guys. I wanted to just ask, I know it sounds ridiculous because they are very different products, but the phenomenal one has been so strong. I wanted to know if there’s been any effect on your business. Has Pokémon Go affected Tinder usage in the last couple of weeks, particularly that's so big in some geo's where you are particularly strong with Tinder for example, New York City. Also if you could comment a little bit, I saw some interesting ad units, more native-style ads built into Tinder. I think it was for Mike and Dave Need Wedding Dates, some movie. Can you describe these type of ad units, and do you think kind of custom ad builds like this is a way to really drive high CPMs and could be a significant portion of revenue longer term or is this just a one-off?

Regarding Pokémon Go, I haven’t conducted a detailed analysis. I do know that this past weekend was Tinder’s most successful ever. I haven't observed any correlation or assumed one, nor have I actively sought it out. From what I have seen, the answer would be no. Concerning customer ads, I'm familiar with that type of ad unit, and we've implemented similar strategies before. One aspect we can provide is the opportunity for engagement during and after the experience. I believe this will certainly be a part of our business moving forward. I see it as a CPM driver. However, I can't yet address how well it will scale with private marketplaces, programmatic, and more traditional direct sales, as we haven't fully rolled that out. Nonetheless, I anticipate that these ad units, particularly those that are not just native placements but also higher engagement and higher CPM units, will be integral to Tinder's ad business in the future.

Okay, thank you. And one last question if I may, I know this is not really you anymore Greg, but I wanted to know if you have any insight into the thinking that I see on what they want to do long-term with their ownership in Match and how you might see those shares getting more into the tradable world?

I think that's a great question for Mr. Levin and Mr. Schiffman on tomorrow's IAC call. So I would simply say that I don’t have any information other than what we’ve talked about before. So you’ll have to pose that to them.

Thank you very much.

All right. Thank you everybody. We will see you next or talk to you next quarter. Thank you.

Thank you.