Match Group Inc - New (MTCH) — Q4 2016 Earnings Call Transcript

Thank you, operator, and good morning, everyone. Welcome to the Match Group earnings call for the fourth quarter of 2016. Joining me on the call this morning is Greg Blatt, our Chairman and CEO; and Gary Swidler, our CFO. They’re both going to review the Q4 investor presentation that we have posted to the IR section of our website and then we will open it up for questions. Before we start, I’d like to remind you that during this call we may discuss our outlook and future performance. These forward-looking statements may typically be prefaced 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 the call over to Greg.

Hi, everybody. Welcome. Glad to have you with us. Q4 was another solid quarter for us. Just going ahead to Slide 4, from a PMC perspective, it is pretty much what we thought: stronger international growth continues driven by Tinder, Pairs in Japan, Meetic, etc. Little softer North America again given what we talked about last quarter, which is the beginning of the effects of our controlled PMC run-off at Affinity, which again we discussed would have an effect throughout this part of the year. A reminder that gloriously this will be our last quarter talking about pro forma for POF, as that will anniversary and we will never have a look at that again. Moving to Slide 5, Tinder subscriber growth continues to be great, really you think about it from 0 to almost 1.8 million subscribers in under two years on a global basis, really is phenomenal, with no signs of relenting here, seeing it moving up the app chart in terms of gross revenue, really just continues to be a phenomenal success story and going very well. Focusing a little deeper on Tinder at the product side, we have really been cranking here. Again, we’ve scaled up dramatically in 16 in terms of resources. Over the last few months, we have really been focused on three principal projects. One is the web application and the alternative sign up to Facebook, which we talked about last quarter. We expect those to launch in Q2, we think they are real opportunities to expand the top of the funnel and give access to users who currently are not using Tinder for a variety of reasons. Additionally, we sort of paused in Q4 and decided to really tackle some tech debt, and we devoted a huge number of our resources to doing so. We are just hitting such scale not like a number of start-ups that have gone from 0 to where we are as quickly as we have, but usually start-ups have to rewrite their code when they start hitting scale. We hit it very quickly. We were starting to hit crash rates and were beginning to see, especially on Android, some retention issues because the app wasn't loading, just real basic performance issues. We have already reduced crash rates by 90% and started to see retention tick back up in those areas, which is really amazing given the level of success we’re having even with what has been a challenging machine. As we roll that off over the next few weeks both on Android and iOS, it really sets the stage for what we expect to be a very vigorous 2017 product roadmap. Looking at that part again, we plan on doubling tech resources this year as well, we’ve got major updates planned across the board focused on profile, discovery, communication, and monetization. I think Tinder, a year from now, will certainly seem very different than it has in a number of exciting ways. So, there is a very robust idea map and the resources behind it to bring it to fruition. Knowing the space that we do, there is no one else out there who is going to bring this many resources to this battle—bringing guns to a knife fight. We are going to continue to iterate on the product, drive innovation, and I'm really excited about it. Also, we signed a deal with Facebook to provide us with access to ad inventory; obviously, our direct sales continue. We are on track in Q1 to more than triple our direct sales from Q1 last year, but as we integrate Facebook, we’re going to be able to start providing inventory on top of that. Should be integrated in Q2 of 2017 and launched at that point as well; another important step in what I would call our non-urgent drive to build this advertising business. It has taken second place to the direct business with good reason, but we are slowly and steadily building it and we think it has real opportunity to contribute down the road. Moving to Slide 7, we talked last quarter a bit about that we are looking to make some discretionary investments into momentum in Tinder, particularly in the rest of the world. I think sometimes we forget how early Tinder really is in its lifecycle here. Up until through last year, we had spent very little on international marketing. And in Q4, we started playing with putting some money into countries like Brazil, India, Turkey, etc. in what I would call non-traditional marketing ways and are seeing real lift. It’s not traditional marketing like buying this rag and you expect that rag to convert into this, but with positive ROI; it’s more about trying to actually move up baseline and create real viral growth, and we’ve seen some real success with that at very low spent numbers. In Q1 of this year, we're scaling that dramatically. We're going to learn a lot. I don't think we're looking at this like Match, looking to be as precise as we can on our ROI. I don't think that makes sense at Tinder right now. At the same time, we are going to look at it pretty closely and make sure that it at least seems to be making sense. At this point, it may take us a while to develop a fully-fledged measurement system. We will be moving dollars from this channel to that channel and we may end up toggling it back if it doesn't hold, but if it does, we think it will pay real dividends not in 2017, but in 2018 and 2019 as we really entrench ourselves in some of these markets. I mean, we had a day last month where Brazil actually exceeded the U.S. in registrations, and that’s incredible. We are creating real momentum in some markets that, while lower monetizing than western markets, have huge populations and do monetize at a reasonably strong rate. So, we think it’s a really good investment if we can make it work, and Gary will talk about that, putting some margin compression on this year. We will know a lot more after Q1 about how much that’s going to be as the year goes through, but right now, we are committed to doing this and learning about it. Switching to Slide 8, it’s nothing you don't know, but I thought it was helpful to discuss 2017 in the context of 2016 for our non-Tinder brands. 2016 was, as we said repeatedly, really about getting ourselves into mobile alignment, mobile parity if you will. We did work on native apps, underlying technology, and mobile web across the board, and as you can see here, just a few examples of some of the gains that we made in doing so. And that was really the agenda for 2016. We talked a lot about driving up conversion, which we’ve continued to do, and that’s only one of many measurements, obviously, but one that we've focused on. So, we feel like we’ve done a really good job on that piece of it. If you go to Slide 9 in 2017, the plan here has been now about starting to widen the top of the funnel. I think as we look at what’s happened over this two- or three-year push to bring Match, PlentyOfFish, OkCupid, Meetic into the mobile world, one of the things that’s happened is the products have somewhat lost their differentiation, as we focused on making the user interface work in mobile, messaging, and all these things. Prior to this, these four brands had 10-plus years to develop their own personality, and I think some of that has been lost. In this world you need to have a differentiated concept in order to thrive; so, one of our main focuses this year is recreating that differentiation product to product, putting our marketing behind that differentiation, and that’s really our strategy to grow the top of the funnel. Slide 9 shows just a couple of examples. On Match, we just launched something called Missed Connections, which has had a huge response from users. We are also renewing our focus on events. Events have continued, but they haven't really been a focus of marketing the way they have at Meetic, for instance. The whole theory of Match now is becoming more like meeting in the real world. We have location-based features, events, and we’ve got two or three more big product releases over the course of the year. We are going to organize our marketing efforts around those to drive growth in this area. OkCupid, another example. OkCupid has always had an audience that’s a little more educated than the rest of our businesses, a little more eclectic. If you look at the profile on the left here, you will see that all of that was lost in the mobile experience. The old desktop profile would have lots of information about someone, but OkCupid’s profile became effectively one photo. We moved it to the right and added more photos, questions, and answers that made OkCupid so unique. We added a bunch of information as you can see from the stats above that has really driven great returns on user behavior. This is just a sampling of our strategy for 2017, which is differentiation across these businesses while putting our marketing and PR efforts behind it. We believe that’s what is going to drive the increasing top of the funnel throughout 2017. Before I turn it over to Gary, I just wanted to address the big news of the release—that is our impending sale of Princeton Review. Princeton Review is a business that I personally championed buying a few years ago. I think it’s a great business. The theory we had at the time was that the consumer internet side of it would predominate and that we had great expertise in that. I believe that will be the case, but I think, given what we think would be an increased timeline, it made more sense to move that into the hands of an educational player and for us to focus a little closer to home. Therefore, we're glad we got that sale done, at a price we feel good about, and we expect to close sometime in the first half of the year. But we're really focused on dating going forward. Gary?

Okay, great. Thanks, Greg. To that point, the financial information we present here in the slide, starting on Slide 11, relates only to our dating business. We expect to take a hard look at the end of the first quarter at whether Princeton Review should be considered a discontinued operation. With regard to that, we are focused on the dating business and we’re talking about our business now as the dating business only. So, I just want to make sure that’s clear to everyone as we flip through the financial slides. If you go to Slide 11, for the fourth quarter we reported dating revenue of $295 million. If you exclude the impact that FX had on the quarter’s revenue, given the appreciation of the U.S. dollar since the U.S. presidential election, we would have had $297 million of revenue or 23% year-over-year growth. Pro forma for POF, this was our seventh straight quarter of double-digit revenue growth on a year-over-year basis. Our revenue pro forma for POF grew 14%, and operating income grew 33%. We also improved our EBITDA margin on a year-over-year basis again in Q4, as we have done every quarter in 2016, primarily due to the leverage we are gaining from our lower marketing spend brands. I just wanted to point out in our Q4 results that we had a $6.5 million fair value adjustment in the quarter related to an earnout on one of our smaller acquisitions. The earnouts can be quite sensitive to small changes in our forecast for the business. The adjustment does not relate to PlentyOfFish acquisitions, which do not have an earnout, and I just point out that these adjustments tend to be volatile quarter-to-quarter; you shouldn't read too much into those types of adjustments. If you flip over to Slide 12, just looking back on the entire year of 2016, both as we reported and on a pro forma basis for POF, we are very proud of the results that we reported in 2016. As Greg has said, we delivered on what we committed to at the time of our IPO. Our dating revenue exceeded $1 billion for the first time and it grew 15% year-over-year on a pro forma basis for the POF acquisition. In fact, we are above 15% growth on all of our key metrics for the year of revenue, operating income, and EBITDA, when we factor in the POF acquisition. We achieved 36% operating adjusted EBITDA margins for the year, which shows very strong growth here on margin performance. If you flip to Slide 13, you can see our ARPU has been steady throughout 2016. There was some Q4 pressure on international ARPU on a sequential basis from the impact of the U.S. dollar appreciation, but it is steady year-over-year as you can see on the chart on the right. We also made a change to our calculation of ARPU. We’ve had a de minimis amount historically of non-subscriber revenue in our ARPU numbers. We removed that now for our ARPU calculations, and we’ve adjusted the prior periods for comparability. We started to have Boost a la carte revenue for non-subscribers in Q4; it really started in the middle of Q4, and while it’s still a relatively small amount, we believe it will grow larger going forward. To improve disclosure, we have now stripped that out of ARPU for all periods, including the Q4 period. I would mention that both FX impacts, as well as this change in ARPU definition, shaved about $0.01 off of our reported ARPU this quarter. So, we would be at $0.54, not $0.53 in aggregate had it not been for those impacts. If you flip over to Slide 14 for the outlook for Q1 and for 2017 as a whole, it’s important to emphasize that, as Greg mentioned, we believe our business has natural margin expansion. However, we are choosing to spend incrementally on Tinder marketing particularly in the rest of the world, and this spending has essentially kept our margin expectations flat for 2017. This is something we telegraphed on the last earnings call, but that spend is likely costing us 1 to 2 points of margin expansion in full year 2017. On the third-quarter earnings call, we also gave a very preliminary look at revenue for 2017 and we thought it could grow 15% to 20%. That call took place right before the U.S. presidential election; as I mentioned, the dollar has strengthened significantly, especially against the euro and the yen, two critical currencies for us. This has shaved about 1.5 points of our growth rate for 2017 over 2016. There is a significant impact from FX in our outlook that we’ve factored in. It could be wrong, and that’s just the best guess based on where FX rates are now, and it does also affect our Q1 numbers as well as the other quarters throughout the year. Other than that, our expectations for 2017 have not changed dramatically since that call. It’s important to emphasize that when we made the outlook on the third-quarter call, we were in preliminary mode; we’re still going through our financial plan. We have firmed it up since then and reflected all that in our guidance that’s on this page. It’s very much worth noting that we expect revenue momentum to build throughout 2017 as Tinder’s product momentum builds and our North American businesses improve in their performance. We continue to believe that PMC will grow by more than 15% in 2017, largely driven by Tinder, POF, and the international businesses, which are the same businesses that drove growth in 2016. The North American brands will contribute to PMC as we get later in this year. At Tinder, it’s also important to emphasize that revenue growth will be driven both by PMC growth and a la carte revenue growth, and we are focused on maximizing overall revenue at Tinder not specifically subscriber growth. We expect to optimize pricing to maximize total subscriber revenue and a la carte revenue in 2017. I also mentioned earlier the ARPU that has been flat for a while now, and we expect that to continue. We think it could be plus or minus $0.01 in 2017, excluding any sort of unforeseen additional FX impacts. At the bottom of Page 14, we also provide some additional assumptions for 2017. I think it’s worth pointing out that our CapEx is down about $13 million compared to where it came in 2016, and our stock-based compensation is up very marginally and equates to about 4% of revenue. If you flip to Slide 15, we’ve been stating for a while now that we're going to use our cash to deliver, and at the end of Q4 we made good on that by paying down about $40 million on our Term Loan B, reducing the balance from $390 million to $350 million. We ended with net leverage of 2.3 times. We also reprised the 350 that was remaining on our Term Loan B in late 2016, shaving about 125 basis points off of the coupon. So when you factor in the reprising plus the debt paydowns, we estimate over $6 million in interest savings for 2017. Even with the voluntary debt payment that we made, we ended 2016 with $254 million in cash on hand, a number that has been building significantly since our IPO. We also expect in 2017 a mid-50s EBITDA to free cash flow conversion rate.

In terms of the revenue side, I think there is a dependence on marketing. Some of our businesses have very little dependence on marketing. Tinder, even again, even with this sort of rest of world marketing spend surge, is not really going to make a difference in 2017. OkCupid, PlentyOfFish—those businesses are not terribly dependent on marketing. Match, Affinity, etc. are dependent on marketing. It’s true that in any given period, less marketing is likely to help you EBITDA and not really hurt revenue, although it could hurt your revenue down the road. Our forecast is our best mix of our belief on a business-by-business basis concerning marketing spend across the periods; it does move around from time to time. This represents our best guess. Gary talked about the changes from before November 1 to now; it built up business by business marketing plans quarter to quarter and your start looking at logistics of when campaigns will launch, and this is where it has come out. It could move a little bit, but no more so than usual.

Thank you.

Thanks very much. Good morning, a couple if I could. Greg, could you give us a little bit more color on your comments on the Affinity? Yes, we know that you mentioned that in Q3. Just wondering given that most of these are hard paywall assets, what's your commitment to them? Are these strategically important? Could you envision a scenario where you reduce the number of affinity brands? And then one for Gary, could you give us any more color on the PMC outlook now that we are past the pro forma issue with POF—15%—would you be willing to give us any sort of separation between Tinder and non-Tinder assets? Thanks so much.

Okay. On Affinity, the notion of whether something is strategic or not is a conversation that we’ve turned ourselves upside down on many times. I think it’s strategic if it makes us money long term. If it doesn't make us money long term, it’s not strategic. I think that we have a host of brands in Affinity. It doesn't really cost us any extra to keep any of them incremental on. So, we spend marketing against each of them based on pretty strict ROI looking. When you step back and think about the Affinity situation now and its impact on PMC, I thought it might make sense to dig a little deeper on this. You know, all PMC are not created equal. For a given business, some PMC walk in the door very cheap, while others require spending money against them at a good margin; then, you sort of theoretically would spend right up until breakeven on a lifetime value basis. We saw it happening with Affinity. Affinity’s hard paywall brands have always been the lowest margin on a unit basis. It turns out we had a large number of subscribers that we were acquiring what I would call close to breakeven marginal lifetime economics. So, assuming a world where we spent a dollar to obtain a subscriber and we thought that we would make $1.10 off of that subscriber over their lifetime. As we dug deeper, our math shifted. Instead of getting $1.10 for that dollar spent, we were probably closer to $0.95, which means rather than making $0.10 we’re actually losing $0.05. As we dug deep, that turned out to be substantial in terms of our broader profitability and cutting out that number isn't going to mean much to us going forward. Instead of thinking about making $0.10 or, in fact, losing $0.05, we’ll just chalk it up as a wash. In terms of quantification, as we look ahead, the difference between where we were at the high point in 2016 and where we think we will be in 2017 is the loss of almost 100,000 PMC. In terms of profitability, this really doesn't mean much to us going forward; it’s not a huge issue, but it does put pressure on that particular metric. I think Q1 Affinity marketing spend is down more than 30% compared to Q1 last year, which wasn't our original plan, but it doesn’t have much economic consequence; it’s what we call margin and profitability for the business, but it does affect this specific metric.

Gary, do you want to take the…

On the PMC number, we are seeing 15% plus for the year and we have a lot of confidence we’ll be able to move PMC up at least 15%. It’s hard to say exactly how it’s going to turn out for a variety of reasons. Tinder has the possibility to achieve that on its own, but as I said in my remarks, we’re toggling between a la carte revenue and subscriber growth for Tinder and we don't know yet how that’s all going to play out. I wouldn’t read too much into it on the Tinder side other than we have to figure out how exactly we want to monetize Tinder in 2017 with a few more variables than we had in 2016. In terms of the growth we expect from other brands to contribute strongly to the PMC growth, we expect POF to continue to contribute strongly to PMC growth, especially in international markets, Meetic, and our Japanese business. So, the same businesses that have been contributing to 2016, we think will continue to contribute in the future. We won’t see any PMC growth from OkCupid or Match in North America until very late in the year. They won’t contribute much to PMC growth in 2017. Adding in the deduction from Affinity as we reduce our spending, that’s how we arrive at 15% plus. We will update you as the year progresses.

We expect that by the second half of 2017 we will see Match and OkCupid return to year-over-year PMC growth. The Affinity situation puts a cloud over that, but Match and OkCupid are on track. We expect improvements in net ads for Match PMC throughout 2017. Same with OkCupid, which hit our low point year-over-year in Q3, improved in Q4, and we expect improvements in net ads in OkCupid every quarter in 2017. While it’s true that in the early part of the year, OkCupid and Match show limited growth, they will contribute to the overall number as they will have less of a drag on the number in 2017 than they experienced in 2016.

Very helpful, thanks.

Thanks for taking the question. Can you just translate that conversation that we just had on PMCs into revenue a little bit more? Thinking about the 2017 guidance you are at 15% to 20% growth before and now at about 13% to 17%. I know Gary, you called out the 1.5 percentage points of impact from FX. Is it fair to think that the rest there is all in the classic brands? If you could clarify that, or if there's something else? And then also can you just talk about your confidence in having flat EBITDA margins given the doubling of the Tinder tech headcount, marketing investments, and how you see that playing out through the year? Thanks.

As I said, it’s not right to look at the change from 15% to 20% to where we are now and think that that’s really North America weakness, particularly shining through. I think that as we firmed everything up, there might be a little bit of conservatism in it, but we don't see trends that have really changed our overall view on guidance. We attribute the bulk of what has changed to FX—nothing fundamental in the business and certainly not anything in the North American performance in particular.

What was the other…

What is the spend at Tinder on headcount and marketing?

We are expanding our marketing and I put marketing in quotations, I know you can’t see them, just because compared to the other sorts of marketing that we do at our businesses. We are increasing it dramatically. In a business like Tinder, you wouldn't normally expect it to even increase at the rate of revenue growth. You would expect to ultimately get leverage in it unless you remember that we are still in the early stages of this business and really want to get an acceleration in some of these places that are doing well. That said, I don't know how much we are ultimately going to spend. We had success at small levels of spend, and we’re going to escalate that spend dramatically. We’re going to know a lot more by the end of this quarter. I feel pretty confident that we gave a range for EBITDA and a range for revenue, and obviously your margin swings a lot depending on where you end up in those ranges, but we feel good about those ranges.

We try to lay out the maximum amount of spend at Tinder on the marketing, so that’s how we get to the flat EBITDA margin. Obviously, if we don't see it being effective or we can't spend all that effectively, we will pull that back and it will change the margin characteristics for the year, but I think the flat margin reflects a pretty heavy load of spend on Tinder marketing. We have confidence that’s the maximum we would spend there.

If I could just follow-up with one—just on a one-time basis as we kick off the year, is there any color you can give on total dating MAUs and DAUs just to help us level set around the business and the brands?

I actually don't have the number in front of me. I think if you exclude Tinder, as we've said before, last year was not so much a big top-of-the-funnel growth year. So, I think that excluding Tinder, their user base is probably flattish or slightly up overall. The revenue growth continues to be solid. It is obviously growing less than revenue and less than PMC, as you would expect, but it’s growing well again. We see nice strong double-digit growth, stronger in rest of the world than in Europe and the U.S. I think the one piece of insight I want to mention here is the Q4 and even the beginning of Q1 have been a little strange. The election had a pretty profound impact on viewing habits; we saw a 20% decline in registrations during the election period. If you actually look at the map, we’ve seen increases in registrations and activity in states where Trump won, and decreases in states where Trump didn't win. This has been fluctuating, but it caused a little bit of a funk that we’ve never seen before. Again, that’s dissipating, but it was interesting to observe; it does not have real implications for our business in any long-term sense.

Got it. That's helpful. Thank you.

Great. Thanks for the questions. So, Greg, you transitioned to CEO of Tinder in December. Could you discuss the rationale for the move and perhaps the bigger strategic initiatives you're thinking about for Tinder in 2017 and going forward? Secondly, regarding subscriber growth with Match North America and OkCupid returning to PMC growth in the back half of 2017, how should we think about longer-term core Match North America subscriber growth starting in 2018 and going forward? Will we get back to mid-single-digit, high single-digit subscriber growth in 2018 and beyond? Thank you.

You're welcome. I think the Tinder move—with Sean and me working together closely for a while—it became clear that Tinder needed a different expertise and breadth of management. We discussed management changes for a while, and made a CEO change a couple of years ago that didn't work out. Sean stepped back with me acting as Chairman, and as we evolved, it was clear that despite great growth, we were leaving a lot of opportunity on the table through a lack of organizational expertise that you wouldn't expect to have in a CEO with that level of experience. We talked about bringing in a COO; we talked about bringing a new CEO; etc. From an overall strategic perspective, things are going very well and I thought that I could make the biggest impact at Tinder in the near term. That’s where I’m focused now. I believe I am the right CEO for Tinder at this moment, though that may not always be the case. We’re really bringing the level of discipline to the product side that we haven't had thus far. Regarding long-term growth, we haven’t provided any specific guidance or targets for that at this stage, but we expect that by the second half of 2017 we will start to see North American subscriber growth, with mid to high single-digit growth rates achievable in subsequent years. We expect POF International to continue to perform ahead of that. Overall, achieving those growth rates will take time and depend on solid momentum from both new and existing users.

That's great. If I could just have one follow-up. You didn't call out Tinder advertising as a driver. You mentioned PMC growth and a la carte; however, with direct advertising revenue tripling in Q1, what are your views on ad load? In 2016 was it 1 out of 100 swipes that were an ad and where is that going? Will it increase to 1.5 or 2 out of 100 swipes in 2017 when you factor in Facebook and ramping up direct sales? Thanks.

Look, it’s tripling in Q1, but it’s still a relatively small number. What we said last quarter is we expect the indirect revenue percentage of overall revenue to be somewhat consistent. Maybe we can do better, I don’t know, but I’m not sure what the plan is. In our current state of direct sales, ad load and frequency is not an issue; we haven't focused on it at all. One of the first things to test is how much volume we can turn on with Facebook. By the end of Q2, I’ll be able to answer that question with more precision. Right now, it is literally all guesswork since the inventory level is minimal.

Thank you.

Alright, thank you. I just had a couple. You talked about the partnership with Facebook for Tinder a bit, but is there an opportunity to extend that partnership to the rest of your brands? How are you thinking about integrating ads more generally in a way that adds revenue without impacting engagement? Also, as you start to push a la carte features more, do you anticipate any increase in churn if users can use some of these features without upgraded subscription? In that case, does it make sense to start reporting a la carte separately?

Sure! The Facebook partnership is primarily an in-app advertisement product. Outside of Tinder, our app businesses, again, mobile web tends to be bigger. That's why we are excited to add mobile web to Tinder's product in Q2. Currently, our app products don't have much advertising, nor do they have a lot of volume. It’s possible that Facebook could become a solution for our non-Tinder brands as well, though it would likely be more of a 2018 or 2019 mover, as we focus on optimizing our products for our direct business first. As for the impact of a la carte on subscriptions, if we weight more towards a la carte, there may be some natural cost to PMC affecting churn or conversion. If it turns out to be a net positive, we will consider disclosing that, but I don't think it’s necessary at this point.

Yes, it was a relatively small number this quarter since we just rolled it out, but we will look at it going forward and see if it makes sense to disclose it.

Thanks guys. A couple if I can. It sounds like you’re pretty excited about the ROI opportunity for Tinder and some of the marketing experiments you've been running. Can you discuss the competitive environment in these larger markets? Is it pretty open or are there local components you’re competing against? Regarding the Tinder log and web app, have you rolled that out on a test basis in certain markets that could give you an indication of potential low hanging fruit—and what’s the rollout strategy?

In markets like India, there is some competition, but it’s effectively an un-penetrated market. You’re not just competing against other market players, but also cultural shifts. Brazil has a larger history of dating services, but Tinder has cut through that; it appeals to a more diverse demographic. Our hard paywall business has been in Brazil for a long time, and Tinder has significantly disrupted that market. As for testing the Tinder web app products, they are intensive projects. We plan to start testing and rolling out in Q2, targeting key markets without specific indications on the impact until we are confident in our launches.

Thanks for taking the question, maybe two if I can. One, as Tinder's strong subscriber growth continues and you layer on monetization, what engagement trends are you seeing broadly with users, particularly older cohorts? Secondly, regarding Affinity disclosure with lower subscribers and marketing spend, can you quantify the impact seen on a subscriber or marketing basis in Q4?

On the engagement front, Tinder Plus users—the subscribers—tend to be the most engaged customers. They’re using the product consistently, which adds value to the platform. Some features improve engagement over non-subscriber users. On the total level, DAU/MAU has been consistent for years. The numbers of early adopters dropped initially but stabilized over the last 2.5 to 3 years. As for Affinity, we’re discussing reducing marketing spend—every dollar spent in the upper double digits—so that certainly impacts us. This drop in our metrics is directly tied to marketing effectiveness and the decisions on the marketing front. We are hoping to reallocate some of that spend positively throughout the year, meaning not too much is set on day one; changes occur as we go forward. We will keep you updated with how this plays out during the year.

Hey guys, good morning, one for each of you. Greg, as you look out, I know it’s early in marketing spending across the rest of the world for Tinder—growing usage, PMC growth—those were the initial considerations. However, are there any early insights into monetization dynamics online? Typically, emerging markets monetize lower than Western markets. Can you comment on that? Gary, could you dive deeper into the CapEx reduction and how you look at it more from a run-rate perspective?

In terms of our focus on international brand marketing, we’re not looking to just buy registrations or users; we aim to create viral engagement and move the baseline. If we succeed, it should lead to a stronger user experience over time. As it stands now, ROW does monetize lower than Europe and the U.S., but overall, it’s still a significant part of our business. Time will tell how we gauge early returns. As we move forward, we want to be patient and see growth while understanding that the monetization piece will come in due time.

Our CapEx was inflated in 2016 due to Tinder expanding office facilities significantly and moving a data center from Virginia to Texas. For 2017, we expect more normal run-rate expenditures that are appropriate.

Thanks. Maybe two questions. In the past, you've discussed re-subscription conversion and the older cohort conversion as key opportunities. Can you share your expectations for 2017? On capital allocation, you mentioned M&A in the past—what's missing from your portfolio? Would you look beyond your core dating platform?

It’s a great question regarding older cohort conversion—you can dig deep into this. First-time subscribers are really turning with Match and OkCupid, impacting performance positively. We see improvements in our re-subscription metrics and leveling off in the older cohorts, which we expect to contribute positively to growth throughout 2017. Regarding M&A, geography is an ongoing consideration. We look for products that have strong appeal and opportunities we think we could amplify. Overall, anything becomes strategic when it presents a bright future. We see some focus in geographical areas, as well as new development ideas which can supplement our existing product suite. Should anything emerge, we will certainly share that insight. We view M&A opportunistically without making bold predictions—more of a focus on hitting our plan moving forward. Overall, we feel good about our progress, and as Gary mentioned earlier, we're looking forward with our eyes on the future. Now we really hope we can continue to build momentum and respond quickly to market needs, particularly within the Tinder platform and beyond. We're off to Houston—and we’ll see you guys next quarter. Thank you.

Thank you.