Match Group Inc - New (MTCH) — Q3 2016 Earnings Call Transcript

Thank you, operator, and good morning, everyone. Welcome to the Match Group earnings call for the third quarter of 2016. On the call we have Greg Blatt, our Chairman and CEO; and Gary Swidler, our CFO. They’re both going to walk you through the Q3 Investor Presentation that we have posted to the Investor Relations section of our website and then we’ll open it up for questions. Before we begin, 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 behind us, I’ll now turn over the call to Greg.

Thanks, Lance. Hi, everybody. Good to be here reporting our fourth quarter as a standalone public company. All things considered, it’s generally gone according to plan. Tinder has great momentum. Our previously desktop businesses are completing their transitions to mobile-first businesses and coming through the drag that transition has created, and our outlook is strong. We’re going to flip slides now from our presentation. We’ll try to add color, but won’t spend time reciting what’s clearly on the page, so we can get to Q&A as quickly as possible. Starting with Slide 4, obviously another strong quarter on PMC growth across the board, although international continues to outpace domestic really for two reasons. One, Tinder is just a larger percentage of our international PMC than it is of our domestic PMC and Tinder is obviously our fastest-growing business, so that accelerates the relative growth rate. And even excluding Tinder, the international business continues to grow more quickly. Turning to Slide 5, Tinder continues to do great. Outperforming on PMC growth, I think, at the beginning of the year, we talked about our goal of doubling PMC by the end of the year that would get us to $1.6 million. Obviously, we ended Q3 at over $1.5 million. So we’ll easily beat that beginning of the year target, frankly, if we haven’t beaten it already. I think Q3 was a record for net ads, really a couple of things going on there. One is just continued strong performance in general. But there’s also—if you remember, at the end of Q2, we sort of launched a new Tinder Plus feature that has created a real conversion lift. I want you to remember, there’s always a stock and flow effect when you do that. So there’s an initial surge in conversion then typically settles down higher than it was before the new features were launched, but lower than it sort of post-launch peak. So I think when you look at that and you combine it with the fact that Q4 is seasonally soft in the dating business season, I think looking ahead, you’ll sort of look at Q4 more in line with sort of a Q1, Q2 sort of net ads than the Q3 one. I think here you’ll see we’re giving you both ending PMC and average PMC. As you know, in general, our metric is average PMC due to the early stage of Tinder, we’ve been providing ending PMC. I think in a couple of quarters we want to transition just back over to average PMC to keep things simple. But we wanted to give you both for a couple of quarters just so that you could see them side by side. Flipping to Slide 6, I want to talk a little bit about our product strategy at Tinder. It is growing rapidly. It’s very robust. This is a product business. As we’ve expanded this year, both at the senior level and across the board, our ambitions, our ideas, and our throughput have all increased substantially. And I think that our product strategy is all about growth, and I just wanted to talk about a number of the different fronts that we’re attacking on. In the first bucket, which I’ve called under the hood, these are all things that consumers don’t really see or notice too much, but they’re incredibly important. Obviously, security integrity, spam, things like that are important. But when we think about speed and reliability, the fact is that, in many geographies, our app doesn’t perform very well. People get knocked out of the funnel. It’s slow to react. We’re putting real resources against fixing that. I think when you look historically at companies like Twitter, Facebook, and Google, as they’ve focused on speed and reliability, especially internationally, it’s driven real growth. So we think this is a real driver for us over the next couple of quarters. The next bucket widening the top of the funnel. Again, these are things that may not seem that sexy, but we think have real growth potential. The first is an alternative sign-up. Right now, you need to have a Facebook account in order to log in to create a Tinder account. That’s generally fine in the U.S., but in a lot of international territories, having that requirement is a big hindrance, places like Russia and Japan, where we’re starting to get real traction. Facebook doesn’t have a lot of adoption there. So we’re just not available to a huge number of people. Even in the U.S. and sort of other developing countries, there are a lot of people who just don’t like linking up a dating product, or frankly a number of products, with their Facebook account. And so we think again that this will provide a real growth opportunity over the coming quarters. Next, we’re launching a web application. Right now, you have to have a native iOS or native Android app to access our services. When you look at Match Group’s other products, the vast majority of even their mobile usage happens on the web. Now, we recognize that the demographics are different and we don’t expect that same ratio to hold. But our Tinder.com URL gets over 5 million unique visitors a month. Right now, we basically just have a message that says, go download an app. We are creating a fully functional web version of Tinder, both for desktop and mobile. Again, we think this has the opportunity to really expand our user base—not sexy, but I think just numerically it’s going to be very significant. Product experience, which really is where most of the energy and a lot of the creative thought is, is a huge roadmap here. Obviously, this stuff tends to be competitive, so we’re not going to go into much detail about it. But Tinder Social, which we launched a quarter ago, we’re going to have some new iterations and evolutions of that coming out in the very near future. We’ve got lots of other what I’d call use case expanding concepts in development that will come out over the next quarters. And obviously, we’ll continue to do what I’ll call, bread and butter experience and enrichment like we did with our Tinder Anthem feature, which is powered by Spotify, and our recent photo optimizer feature. So those sorts of things will continue to come indefinitely. Finally, obviously, we spent a lot of time and energy on monetization. We just launched our boost feature a la carte a few weeks late. We hope to get it out beginning of October, still not fully rolled out globally, although it’s close to being done or we're sort of doing a staggered rollout. Really great early returns, we think is going to be a significant contributor, and returning our attention to the advertising side. We’ve been talking for a while about our struggles to get the resources necessary due to the tech work we need to grow that advertising business. We’re making real progress there. We moved off LiveRail, which was the Facebook tech platform we had before. We successfully transitioned over to Google, and we’re empowering our data management partnership and a whole bunch of other things, but there’s still a lot of work to do in order to get the ad business where we wanted it to be. So just a sense of what I think is an unparalleled breadth and scope and variety of work being done. As we continue to add tech and product resources, we really do some things that—this is the ultimate competitive differentiator. We don’t think anyone will keep up with us in terms of the rapidity and velocity of product innovation and evolution. We couldn’t be happier with where we are right now. Flipping to the next slide, we’ve talked a lot over the last year-and-a-half about the transition to mobile in our previously desktop businesses and the downward pressure on conversion that that had and the impact that had on the business. We’ve also talked a lot about the fact that, over the course of last year, we really see the mobile migration slowing. And that plus the combination of our having reorganized ways to free up more tech and product resources to work on mobile should combine to start turning that conversion story around. I think this chart very much shows what we’ve been up against. Conversion is a fuzzy metric. A lot of things can impact it—traffic sources, brand mix, device mix. Sometimes you actually do product changes that drive conversion down but are good when you increase traffic to registration ratios, etc. We’ll track it quarter-to-quarter in a mark-to-market way. But I think, if we step back and you look at it over a long period of time, you can clearly see that there’s been a big downward pressure here, a major headwind which is now mostly behind us. I think this chart shows 30-day conversion, which is basically the ratio of registrations that converts to a subscriber within the first 30 days. That’s a big part of our business. There are a lot of other parts of conversion as well. There’s re-subscription conversion. There’s older conversion, meaning later than 30 days. They’re not all at the same place. We’ve sort of focused on this one first. So this is where we’ve made the most progress. But the rest are tracking along. I think that it feels good over the last couple of years to be saying this is what was happening and this is what would happen. And I think it’s clearly been borne out and we’re making really good progress here and we expect this to be the big leveling off in the downward pressure that we’ve had in these businesses over the last couple of years. I think is ending, as we said it would over the course of 2017, and we’re excited about sort of that return to growth that we see coming. Flipping to Page 8, we’re in portfolio business. Many of you are in portfolio businesses. And if you know, it’s rare that everything goes well. I thought it made sense sort of a year into being public to sort of take stock of what’s gone sort of the way we hoped or better and what happened. We’ll start with the underperformance. I think, Match Affinity, which is our collection of demographically-based businesses, our time which is for sort of the 50 plus group, definitely our biggest most successful business in that area, has been something of a downward drag on it. It’s a great business. Its older demo makes it especially defensible and sort of immune to competition. It’s a little slower on the transition to mobile than the other businesses because they were really excited about the fact, we’re launching a brand new TV campaign in the coming days. But as we’ve dug in, we’ve seen that we’ve definitely in certain marketing channels been over-calculating LTVs, lifetime values, and that sort of effectively for the last year or so overspending to some extent on marketing. We’re now going to pull that back a little bit, which should ease down PMC over the next few quarters after which we should be able to start building again. So there’s going to be a natural downward pressure on that business over the next couple of quarters just as we pull back marketing on a lifetime basis, whether it’s profitable as we thought it was. But again—long-term a very strong business. OkCupid has been talked about a lot. It’s a great business. There has been a lot of management change there over the last year. A lot of self-inflicted wounds. We brought in great new leadership earlier this year and we’re very confident that we’re on the right track. But definitely it was a knock to our 2016 expectations. And finally, advertising. We’ve talked about this a lot. I think we changed the leadership midway through this period or sort of earlier this year. In doing so, we came to grips with some things we hadn’t fully understood. I think on the non-Tinder side of the business, we underestimated the downward pressure on ad impressions that the transition to mobile would bring. As we’ve optimized our product for mobile, conversion comes first and that has taken a toll on ad inventory. I also think that we underestimated the industry-wide shift away from premium direct mail advertising. I mean, that was a big part of the growth plan for the non-Tinder businesses. So I think we’ve definitely seen some pressure there. I think on the Tinder business, it’s the same story, which has just been a matter of getting the resources necessary to drive this. And the lesson is, when you’re a very small part of the revenue system and everything is optimized around something else, it’s just hard to get the resources that you need and that’s where we are right now, and we’re getting them. We’re creating dedicated teams. As I said, we were halfway there now. We’ve made a lot of progress on the advertising side on Tinder. But I think we’re definitely not where we thought we’d be. It’s fair to say that we’ll be a little slower there next year than we expected as well. I think when we look ahead, we expect a meaningful increase in ad revenue, but we don’t really expect it to increase materially as a percentage of our overall revenue, and think that’s a little bit slower in coming. Hopefully, there’s some upside there. But after a year of sort of not being able to get it done as quickly as we want, we’re tamping that down. On the other side of things, which is obviously where we spend a lot of our time, it’s great. Tinder is a rocketship. We’ve talked about that a lot and I’m sure we’ll talk about it more in this call. Match is doing a phenomenal job—it really has gone to a mobile-first business. I think that the mobile products are not all the way there yet, but are certainly ahead of where we thought they’d be and are doing great pressure launching a new TV campaign there over the next couple of days and have an incredibly exciting product strategy for next year. Meetic is hitting on all cylinders with an all-time high in PMC and should have a record year next year, really doing great across the board. PlentyOfFish and Pairs are 2015 acquisitions that are absolutely meeting or exceeding our acquisition plans, contributing real growth, have great acquisitions, and will continue to be great growth drivers next year as well and continue to do their job as solid EBITDA contributors. So overall, I think there’s a bunch of performing businesses that are doing as well or better than expected with a few drags. I think overall, we definitely met our marks that we set for ourselves at the beginning of the year and are very well set up for 2017. So with that, I’ll turn it over to Gary, who will talk about a number of things including 2017 and then we’ll get to Q&A.

Thanks, Greg. If you turn over to Slide 10, on the left-hand side, you can see dating revenue grew year-over-year at 22%, which was ahead of the range we expected on our Q2 call. Tinder, PlentyOfFish, and our international business have performed better than we had expected. Princeton Review saw an unexpected revenue drop. Normally there’s a jump in SAT takers in the summer, while the kids are off from school, they prepare for the test in the fall once they return to school. We didn’t see that jump this summer. This is a lingering impact that we’ve been talking about all year that’s been felt industry-wide after the once-in-a-decade change to the SAT test earlier, although we’ve finally begun to see some of the test takers come back very recently. Princeton Review’s revenue mix continues to shift consistent with our plans. Its online revenue was up 17% in the quarter, while the lower margin but larger offline revenue piece did fall by a similar amount, and that’s what caused the overall revenue drop. We continue to stay focused primarily on Princeton Review’s EBITDA, which turned positive in the quarter, as we expected, and was up 55% from last Q3. Overall, operating income grew 57% and adjusted EBITDA grew 34% to $111 million, that’s also ahead of what we expected on our last earnings call. Strength in Tinder, PlentyOfFish, and our international businesses and lower than expected marketing spend drove those results. Our adjusted EBITDA margin improved strongly year-over-year as has been the case all year long. It reached 35% overall and 37% in dating. The margin improvement is largely driven by the fact that a larger percent of our revenues were derived from brands with lower marketing spend. That’s something we’ve been talking about all year. Operating expense declined in the quarter by 7 points, as a percent of revenue, and sales and marketing expense declined by 4 points. If you go over to the next Slide 11, this is the pro forma for PlentyOfFish. We are going to include this slide one more time after this quarter and then we’re going to get to the anniversary through the acquisition that happened in Q4 last year. So we won’t need to go through the pro forma result anymore after the next quarter. But it is in here for completeness, and as you know, how we look at the business. If you go over to Slide 12, on ARPPU, there has been a great story for us this year. But you can see on the left-hand side, we’ve seen real stability in ARPPU all through the year. It does move around a bit in a narrow range. It moved a little bit between Q2 and Q3. But what you can see in Q3 is basically at or above the level it was at in Q4 of 2015. So great story with very stable ARPPU. We do expect a decline in ARPPU in 2016 compared to last year after we acquired PlentyOfFish and because of the tremendous growth we’re seeing from Tinder, both of which are adding a lot of PMC at lower rates than our other businesses. What we anticipate as pressure on ARPPU through 2016 has been much less than we did expect. A lot of this has been because of the a la carte revenue, which we’re driving, which really muted the mix shift driven ARPPU declines in 2016. We think that overall ARPPU could—will continue to vary quarter-to-quarter. It could still decline a little bit. But as we take an initial look at 2017, and we’ll talk about this more, because we take an initial look at 2017, we see a fairly stable ARPPU for next year as well. If you go over to Slide 13, is a slide, we’re putting in regularly. We think the company has tremendous cash flow generating characteristics. We have low CapEx. We’re expecting mid-50s free cash flow conversion in 2016, which we’ve talked about, and yes, we still trade at that kind of mid to high 4% cash flow yield. So we think that’s still very attractive cash flow yield. And when you combine that with our growth characteristics on revenue and EBITDA, we think there are few other companies that match up to those very critical metrics. On the right-hand side of the chart 6 – 13, you can see that we now have $231 million of cash on hand at the end of the third quarter. Our leverage continues to come down and we think there are some things we can do in the debt markets now, given the run-up and strengthening in debt markets and the strength of our company that could drive our debt costs down fairly meaningfully over the next little while. If you go over to Slide 14, on the financial outlook, I’ll spend a little bit more time here. I think first thing is, now that we’re in the fourth quarter, it’s worth noting that our full-year dating revenue expectation has been very consistent from the fourth quarter of last year into the first quarter of this year. We put in a range that was roughly $1.1 billion to $1.14 billion. We still believe we’re going to be near the midpoint of that range. So we’ve had very good predictability on our dating revenue all through this year. What it will boil down to is low 20% revenue growth, mid-teens for PlentyOfFish, pro forma for PlentyOfFish, and that’s all despite a little bit more weakness than we expected from OkCupid and Affinity and our ad business ramping a bit slower than we expected. Tinder has obviously really exceeded expectations, as Greg talked about, and Pop has done well, and our international business has done well. These have offset some of the soft spots that we’ve seen elsewhere in the portfolio. In terms of dating adjusted EBITDA for 2016, we’re coming in at a $400 million to $405 million range. That’s in line with what we communicated in our last earnings call. When we laid out the outlook there, we had for Q3 and Q4, we have sequential revenue growth ranges for those two quarters, and we also had a range of EBITDA margin expectations. If you work through all that math, you end up with a range of $401 million to $406 million, and we’re basically saying, we’re $400 million to $405 million, so essentially very close to the range that we had, if you do very precise math from the last call. If you look at Q4 specifically, we expect dating revenue to be in the middle of the range of $292 million to $301 million that you get if you work through all the math from the numbers in our last quarter slides. The key drivers of that are Tinder Boost, which as Greg said, is being rolled out right now to both subscribers and non-subscribers at Tinder. We had originally planned to roll that out a little earlier in the quarter. So we thought we’d get a little more of a pickup than we’re going to get, but even though it got delayed, we’re going to still get a nice contribution from the Tinder Boost feature in the fourth quarter, but it’s not quite going to be as beneficial as we expected. PlentyOfFish also contributed strongly and should contribute strongly in the fourth quarter. So when you combine the Boost impact and PlentyOfFish's performance, this will help offset our lower ad revenue and the impact of some slightly lower marketing spend that we had in Q3 that will fill the effect of that in Q4. In terms of dating adjusted EBITDA in the fourth quarter, we expect the margins will come in just slightly below the mid-40s range that we expected at the Q2 call. This is caused by a bit more continuing investment in Tinder than we had anticipated at that point and also the ad revenue being offset by the Tinder direct monetization that comes with lower-margin revenue, we’ve talked about that previously as well. But we’re seeing a little bit of that impact in the fourth quarter, and plus we did have this marketing spend shift from Q3 to Q4. So overall, the second half of the year from an EBITDA perspective is going to be right where we expected. But we did have a little bit higher than we expected EBITDA in Q3. We’re going to see that impact offset in Q4. The other thing just to point out on slide, The Princeton Review. We expect to continue to be slightly profitable in Q4. It should add about $1 million to our overall 2016 EBITDA. So that’s a recap on 2016 and the fourth quarter. Let me also turn to 2017. We’re in the middle of our 2017 strategic planning process and we still have a lot more work to do. We expect to be in a position to give you more precise and in-depth views on our Q4 call in late January. But at this point, we thought it would be useful to give you at least a glimpse of what we’re seeing so far in the dating business. On the revenue front, as you can see on the slide, we believe we can achieve 15% to 20% growth over 2016. Tinder will continue to perform very strongly, as will PlentyOfFish, and we’ll get increasing contributions from most of our other dating businesses. We think we’re well-positioned to deliver that kind of growth again in 2016. In terms of the EBITDA line, it’s a little bit harder to be precise about that at this point in time. But we did want to go through a few other things that will affect what we come out on EBITDA. There are really three or four key areas of discretionary spending, which we’re analyzing and that are going to affect where we come out in 2017 from an EBITDA standpoint. The first is Tinder, where clearly it’s a case of investing its strength. We’ve seen a fair amount of Tinder headcount growth this year, mostly in product and technology, and we expect to continue that next year; we’re just not sure to what extent. We’re also loading in a much larger budget for next year for Tinder on marketing and promotion. It is typical Match-style advertising, which is why we put the word marketing in quotes on Slide 14. But it’s really the product launches, PR, and things like that really devoted to drive international growth and to help spur interest in the product as we roll out new product developments. Away from Tinder, we’ve been saying for a while that as conversion improves, we’ll increase marketing spend after a down year in 2016. We are anticipating a relatively significant marketing increase next year, and that always creates an in-period market contraction because of deferred revenue treatment. We intend to deploy more of this spend early in the year to maximize its impact in our seasonally strong period. We’ve also built in some budget in 2017 for investment in new businesses. We invested heavily in Tinder, as we built it up over several years. We haven’t done much of that over the last couple of years, and we plan on starting that again next year as we look to find some ideas we’ve been developing. So overall, we’ll see how this all plays out. We know you’re for more details and we’d like to provide them, but we’re still working through the process. We’ll talk about this more next quarter. What we can say at this point is, we’re confident in solid revenue growth and the areas that we’re looking to invest in and invest into our strengths and where we think it makes a lot of long-term success.

Hi, thanks for taking the question, guys. Just wanted to know on Tinder. Would you guys exceeding your expectations in subscriptions at micro transactions? I was wondering why dedicate resources to advertising at all when it may undermine the consumer experience? We found that consumers don’t like advertising on mobile and you’re so successful on subscription so far? Thanks.

Thanks, Brandon. I think the first, I guess, the answer is, we were not one of the variables in the business. We said all along that as we put in place the technology to be able to sort of start running real advertising volume. So the first thing we’re going to do is test it and we’re going to test it for consumer impact. So I think the basic premise of your question is absolutely right. We will not run advertising in a manner or at a frequency that is likely to—not is likely to, that will demonstrably have an adverse impact on the consumer experience at all. We have confidence that we can do that in a way that will not have that impact. But as I said, we sort of tamped down the numbers a little bit as we’ve looked ahead, in part to be conservative to account for that, in part because of the timing of getting it all going, all of which is related to, as you say, the success we’re having on alternative sources of revenue. So I don’t think it needs to be either or. I think there is a level of advertising at Tinder that will not adversely affect the experience. I think what I’d say is that success we’ve had in the other categories has made it less imperative to nail that precise level of advertising down sooner than we might otherwise have done.

Great, thanks. And one more quick question on the launch of web for Tinder. Is that a margin opportunity for you guys? Do you think even in the United States, say, you could drive consumers from the app to mobile web to potentially avoid Apple and Google taxes?

I would call that a gem of an upside. I think it really depends on what kind of conversion we end up getting on the mobile web. In our other businesses, we’ve talked about how the mobile web tends to convert not as well as the native app. As we said, in certain of our businesses, as we’ve improved the mobile web, we have gotten to the point where it is economically better to sort of keep people on mobile web as opposed to the app. I don’t know where it can end up at Tinder. We’re certainly not factoring that into our sort of thinking. But lots of things are happening with the mobile web—mobile browsers getting much better, the experience is getting richer. Frankly, I think to some extent, the mobile web is becoming more competitive over time with the native applications. And as that happens, that should be a natural sort of margin enhancer. But we’re certainly not building like that into our near-term numbers.

Thanks so much for taking the questions. First one understood on 2017 and it’s still early, how you think through this? But we think through the numbers and investors look at it outside looking at, how should we think about what a dollar invested in the business in 2017 and beyond? And what that does to the arc of revenue growth? How are you thinking about ROI developing, as you look at some of these investments you’re going to make as we move from 2016 into 2017? And then maybe one on the balance sheet, you continue to bring the leverage down. Any update on where you’re comfortable getting the leverage to and how that might inform the way you think about capital long-term? Thanks, guys.

Thank you. I think it depends on the bucket. Let’s take the buckets of incremental spend separately because I want to expand a little bit on what Gary talked about in terms of the margin issues for next year. I think it is in a margin expansion phase naturally. Tinder is in a margin expansion phase and the non-Tinder businesses are in margin expansion phase. There are a number of things that are discretionary, but we think smart that we think will have a near-term impact of offsetting to some degree that expansion, and we did it for different reasons and they have different predictability of ROI. So the easiest one is the increase in marketing spend in our non-Tinder businesses, right? That is something we’ve got a long track record of doing. Notwithstanding the fact that we’ve discovered recently in our all-time business, we’re overspending a little bit. I want to be clear on that—that maybe we’re getting $0.98 back on a $1 instead of $1.5. So it’s not—we’re not-there’s very little waste that goes on in our marketing spend. In general, I would say that, on an LTV basis, we tend to expect a solid double-digit return on that sort of marketing spend, somewhere between 20% and 40% positive ROI on that spend. You don’t get all that in year, and so it tends to be margin constricting when you rapidly increase that spend amount. But that is sort of solid. In an ideal world, we are gradually increasing spend every year at increasing conversion levels and that’s what fuels sort of margin expansion growth in these businesses. But when you do a sudden surge like we’re doing next year, there is margin contraction there. In terms of investing in new businesses, obviously, so speculative. When you do that, sometimes you get a positive return, sometimes you don’t. But when you get a hit like Tinder, it is astronomical return. So we probably won’t let on Tinder—I don’t know, don’t quote me—even though you will probably—$20 million, I don’t know what it was—a small amount of net money in before we started cranking positive. So that’s sort of thing you’ve got huge returns. So that’s something that, because of the speculative nature, we will keep limited. But we think it’s money well spent in a period of what we consider to be real strength.

I think, Eric, your second question was about the balance sheet. We don’t have really any changes to our strategy around—we’ve been pretty clear that we don’t want to stockpile cash. We carry a reasonable amount of debt. We’re very comfortable with the amount of debt that we carry. But we’re going to use our cash to chip away at it. We haven’t quite paid down debt yet, but we’ve been building up the cash. But we’re in a position to do that if we want to. We will chip away at it over the course of the next little while, we targeted gross leverage under three times. We’re going to be there pretty shortly. Obviously, we don’t think this is the right time to do buybacks, given our low flow. Dividends probably short-term don’t make sense for us either. We could be opportunistic on M&A, but we’re not particularly focused on that, given all the opportunities we have internally. At some point, we’ll find something interesting to buy. But for the foreseeable future, we’ll gradually chip away and continue to bring our leverage levels down.

Next question.

Great, thanks. A couple of questions. So in terms of the core Match trends ex-Tinder, it looks like North America subs were down about 80,000 in 3Q, international plus 60. Just wondering if our math is right there and how that should turn in the fourth quarter. And then for Greg’s comments with a sudden surge in kind of non-Tinder marketing spend. Can core Match get back to mid to high single-digit sub growth in 2017, or beyond? And then just one other question—percentage of Tinder revenue that’s a la carte and what’s boosting offer to subs and non-subs going forward? Are all the a la carte products going to be available for non-Tinder plus subs? Thank you.

Thank you. Given what your math—you’re math is right. I don’t know.

I checked his math this morning. He had in his report and but…

Look, our North America PMC for Q3 was always going to be sort of the trough in our short turnaround than we think on an average a year-over-year sort of basis. And we think again in terms of year-over-year PMC comparison that’s the case. We do think our turnaround that we’ve talked about is, as you can see from the conversion chart and the fact that we’re ramping up spend, is still very much directionally on track. I think obviously, the softness we had in OkCupid and in our time this year and our sort of pullback on marketing spend there sort of potentially delays that crossover point. At the same time, we’re ambitious that we can reallocate a bunch of that spend to Match into other places profitably. So I think that’s something we’re going to figure out over the next two or three quarters. But certainly, the overall directional trend is right and we do expect it to cross over next year and return to growth. I think do we return to mid to high single-digit growth next year? No. I think we’ve always said that sort of 2016 was a trough; 2017 is when we start getting it going again. I do absolutely believe that the non-Tinder businesses should be able to grow mid to high single-digit PMC on a longer-term basis. We see it happening at Meetic. Again, Meetic is doing great. It’s having that kind of sub growth and Tinder is growing robustly in Europe. It’s not terribly different than what we have here. You have to do we’ll move ahead, I mean it’s a very competitive environment. Each of these businesses are sort of transitioning through this conversion trough at different paces for different reasons. But long-term, we continue to have the exact same outlook that we’ve had on the growth potential of those businesses. I don’t think we disclosed the relative contributions of a la carte and subscriber revenue. Obviously, to-date until very recently, we’ve only had one a la carte feature, which is Super Likes, and that’s only been available to subscribers. Boost is our first sort of foray into a la carte transactions for subscribers and non-subscribers alike. So far so good, but too early to sort of plot out a long-term revenue mix between the two. As I said in the past, the decision to make something a la carte feature or a subscription feature is really tactical. Right now, for instance, with both Super Likes and Boost, you get a certain amount of them as part of your subscription and then you pay for more of it, and you could reconfigure those ten different ways to shift revenue from subscription to a la carte. So I think of that as pure pricing optimization and that will occur and sort of go up and down over time.

Great, thanks. Just curious in the commentary around sort of the lifetime value calculation. How much of that has been deterioration of that lifetime value, and I realize this is only relative to one sort of small segment? Is it related to mobile? Is it related to just shorter lifetime on that particular platform, given the demographic? Just sort of curious what the math is behind that change in LTV? And then on—just on Tinder and the commentary that you had around mobile advertising, I guess, somebody sort of referenced a similar question earlier. But is there a sense that that advertising on Tinder is going to have the kind of demand that you’re expecting for just given the broader, I think, weakness in sort of run of mobile advertising that we see not just within dating, but kind of across everything that’s non-Facebook, Google, and a handful of other sites?

In terms of the LTV, LTVs have been going up across our businesses, including our time. What really happened is that we over-calculated an increase in LTV and market is against it. Meaning, we’ve made some product changes; they increased LTV, but there were some downstream. There was some pull-forward involved and our general formulas didn’t sort of pick it up as well as it should have, which is a mistake again—we rarely make. We pride ourselves on measurement in these areas and spend hundreds of million dollars a year over the years to track it very well, which is frankly why it was frustrating even with just several million dollars to see that we were sort of doing it wrong. I think the LTV trend overall is up. It’s driven by a combination of pricing, and there’s really been very little change in duration. I think again, we’ve got the LTV as a subscriber as conversion has come down over the last year; the value of the registration by definition has come down a little bit. And so you sort of measure LTV, both on the registration side and on the subscriber side. On the subscriber side, it’s continued to go up. On the registration side, it’s gone down, which has been an increase in LTV partially offset by decline in conversion. As we showed you in that chart, that’s reversing itself and sort of shifting forward. The biggest macro trend that we’ve had has been on the conversion side, driven by the mobile shift, and again, we’re sort of putting that mostly behind us. On the advertising demand side, I think, you’re certainly right. Everyone knows that in this sort of mobile world, there have been a few large advertising players who demand most of the attention. I think that’s surely a hindrance to Tinder if it were sort of an advertising-only business that was entirely predicated on building all its revenue that way. I think starting from the base that we are, I think, we see plenty of demand to grow our ad revenue meaningfully in a way that it doesn’t, to the earlier question from Brandon, undermine the user experience. But we’re going to figure that out over the next year as we begin to test higher volumes of advertising.

Great. Thanks a lot.

Hi, guys. Good morning. Greg, when you look at the outperformance of Tinder PMC, as you discussed, which was your original forecast at the beginning of the year. Can you dive in a little bit to the demographics? Are you seeing younger users more inclined to pay, or are the older users picking up the app in the first place? Just a little color on that would be great? And then second, on the advertising rollout, discuss sort of getting the back-end set by moving over from LiveRail to DoubleClick? I’m just interested as to what are the near-term priorities now? Is it filling out the sales force, agency relations, or is it really now driving into ad products and starting to run a little bit more? Thanks.

On the PMC trends, I think it’s been strength across the board, both. It’s been sort of uniform outperformance in terms of both geography and age demo against our initial expectations. I think part of that is we haven’t really screwed anything up, meaning most of the things we’ve gotten have worked and they’ve worked really well. You always build in some level of, well, this won’t hit, or this won’t, whatever. I think we just executed really well. The product has continued to keep pace with the user demands. It has proven to be a very well monetizing, well renewing, and well retaining sort of product. I think some of that stuff you just don’t know until you have some time behind you. So I think that’s gone really well. On the advertising side, we did, I think I said last quarter, we sort of built up our human infrastructure maybe a quarter or two in advance of what we needed to do just because we—the technology side wasn’t keeping pace. So certainly don’t need to build up a sales force in any meaningful way at this point. I think it’s about testing ad units, frequency, getting the right supply in the door, both direct and some level of third-party, and having the volume sort of test the frequencies, the cohorts, etc. As we said now to a number of questions, we’re not going to rush it. We’re going to make sure it doesn’t hurt the customer experience. We’re confident that we can do it in a way that won’t. Again, I think it’s great sort of engaging but not interrupting advertising. We’re going to do this in a way precisely, because we’ve got such great revenue traction everywhere else, where we’re not going to trip on ourselves in terms of the user experience.

Thanks for taking the question. Greg, I was hoping to get your latest thoughts on whether Princeton Review is strategic to your business and whether you would actually consider some strategic structural alternatives here? And also can you help us understand the normalized growth rate for PlentyOfFish better just as it fully lapped here in October? Thanks.

On the Princeton Review, I think Gary talked about the performance—obviously there on a strategic basis, there are a bunch of things that are happening there that we’re really excited about. I think the deterioration in the legacy business is forcing the mobile transition faster than we had expected, and there’s always some friction there. I think in terms of whether it’s strategic, you can get tied up in those words. I think obviously, it’s not the dating business. The dating business is our main focus. I think that by definition, it’s strategic. As to whether we consider anything, I think the best way I say it is, I think it will be less surprising for something to happen there than in any of our other businesses, but I’m not going to predict any transaction happening; that’s not sort of the way we do things. I think we continue to believe in that business. We think it has a lot of upside. We don’t think it’s a meaningful distraction. At the same time, it is definitely not central to what we spend most of our time focusing on. Again, we don’t go business by business. I think that as I said before, I think that we expect our non-Tinder businesses to be able to grow in the mid to high single digits PMC. Long-term, we think it will be somewhat less than that next year. PlentyOfFish is probably the fastest growing of those businesses next year. So you can triangulate from those things I’ve already said to the best of your ability. But we really don’t want to—the portfolio makes it very hard to sort of give our growth rates on a kind of business by business basis.

Thanks, guys. Just can you give us an update on the overall size of Tinder on a user DAU basis? And then as you start rolling out some of these new features, you’ve been rolling out the paid products now for a number of quarters. How do the retention rates look in some of these cohorts? And how do the U.S. and the international markets differ from a retention standpoint? And then, Gary, on the 2017 outlook, just want to make sure we’re still on track to see the non-Tinder legacy plus POF EBITDA grow in 2017; just want to confirm that? Thank you.

On the DAU/MAU question, again, we don’t disclose it. I can tell you it continues to grow—both DAU and MAU continue to grow nicely. I think in terms of retention, unlike—unfortunately, when you roll out revenue features, you can see impact vary sort of instantaneously on the ecosystem. I think with some of these other pictures it’s less clear. I think certainly overall, retention and reactivation is sort of—reactivations continue to increase. Retention is generally been stable over the last few months and sort of up and down. We’ve had some bugs that have brought it down and then some lifts that have gone up, so it’s sort of been a little all over the place. But in general, MAU and DAU continue to increase. DAU to MAU continues to stay generally stable. I don’t have—I’m not aware and don’t have in front of me any meaningful difference between, in general, the U.S. and Europe tends to act relatively consistently on those metrics, with the rest of world being a little bit more all over the place. But in general, I would say those metrics have been stable. Growth has been good and those metrics have been stable. Regarding your 2017 question, we talked about single-digit PMC growth in the other businesses that translates to similar levels of revenue growth as well as modest EBITDA growth. So that’s what you should expect for 2017 across those businesses. Obviously, we’ve talked about, we’re spending up significantly on marketing, so factor that in.

I think we have time for one more question.

All right. Great, thanks! I just have a couple of questions. So for Tinder next year in terms of the various pieces of growth, do you think the bigger driver is top of the funnel traffic growth, which is, I guess, going to be helped by marketing, or is it also driving conversion and increasing to pay penetration rate for that app? And then a second question and this is just a follow-up from earlier. In terms of the conversion headwinds for the core business, I think you said that those are mostly behind you next year. So in order to get back to high single-digit growth over the long-term, is that purely a function of more efficient marketing spend, or is there still some conversion tailwinds there? Just trying to understand the pieces of that? Thank you.

In terms of whether the top of the funnel growth is sort of the bigger driver of revenue growth next year than continued monetization, I haven’t done that math. My instinct is that top of the funnel growth tends to have more of a deferred impact. Meaning, we’re still very early in the monetization sort of stage of things, and that tends to drive very rapid growth. I think the way our—unlike a—unlike the Match business, for instance, where the big majority of new subscriptions take place in the early days of a user’s lifespan, Tinder is much more widely distributed across sort of the age of a registration. I don’t mean the age of a person, but how long someone has been on Tinder. So you sort of get— you get revenue payback from user growth much quicker on Match than you do on Tinder. And that’s just the nature of soft paywall business versus a hard paywall business. So I think they’re both incredibly important. One tends to have more longer-term effect and one more near-term effect, but I haven’t calculated the relative mix for next year. In terms of conversion headwinds, as I said in the earlier slide, the 30-day conversion, which is sort of near-term conversion is doing very well. I also just said that’s the biggest part of conversion in these businesses. But it’s ahead of some of the other businesses—some of the other parts of conversion, be it lease-up conversion, older co-work conversion, etc., all of those things go into sort of driving subscriber growth. As we’ve said throughout, it’s going to be over the course of 2017, which is as we increase marketing spend and as those things follow behind on conversion, where you start to see that real return to growth. And what drives more efficient marketing in part is improvement in those conversion metrics. We’ve got new creative and that sort of stuff coming in, somewhat dependent on that, but it’s mostly driving those metrics. So that will happen over the course of 2017. They’re all sort of following that same direction driven by the slowdown in mobile and that reallocation of resources to mobile product work. So I guess that’s it. Thanks a lot, guys. Again, we’re excited about where we are right now. We’re excited about 2017. We have gone through this planning process—lots of exciting things on the product roadmaps, both for Tinder and at Match and some of the other businesses that we think it could be a great year. We’re really excited about it. Look forward to talking to you guys next quarter.