Match Group Inc - New (MTCH) — Q1 2018 Earnings Call Transcript

Thank you, operator, and good morning, everyone. I'm joined on the call by our CEO, Mandy Ginsberg, and CFO, Gary Swidler. They will review the Q1 investor presentation that's available on our IR website and then will take questions. But before we start, I’d like to remind everyone that during this call, we may discuss our outlook and future performance. These forward-looking statements 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, in our periodic reports filed with the SEC. I’ll now turn the call over to Mandy.

Great. Thanks, Lance. Thanks everyone for joining our call to review the company's best results since the IPO back in 2015. We are delivering all time best across virtually all of our key operating metrics, and our momentum is fantastic. I'm sure some of you have joined the call to focus on recent external moves, and I'm going to get to that in a few minutes. But, first, I want to focus on the tremendous progress and results that we are reporting this quarter. So let's begin and turn to Slide 4. Tinder remains the primary catalyst for Match Group's growth as Tinder year-over-year revenue growth in the first quarter exceeded 150%. This increase in revenue underscores that Tinder is clearly more than a subscriber growth story. We have multiple revenue drivers for this business including subscription revenue, à la carte revenue, user growth, and the various ways in which we optimize how we merchandise and price our features. Our focus is on driving revenue growth, so the mix of these components can and it will shift over time. Tinder is still in the early stages of how sophisticated we can be in terms of monetization and pricing given we only started offering paid features three years ago. So there is still room to optimize the various trade-offs between subscriber growth and ARPU to maximize our overall revenue. In Q1, Tinder average subscribers grew 87% year-over-year and added 368,000 average subscribers sequentially. Renewal rates for Gold were higher than we thought, which led us to exceed our Q1 expectations. The continuous strength in this metric makes it apparent that our users continue to see significant value in Gold. The year-over-year ARPU growth in Tinder in Q1 was the highest we have seen in two years driven by two components. The first and most obvious driver is Gold, which was non-existent in Q1 last year. The second, but less obvious component is growth in à la carte revenue from subscribers. On a sequential basis, à la carte revenue grew faster than subscription revenue as we have seen a lift in purchases of à la carte features. We're seeing that Tinder subscribers, both Gold and Plus, are willing to pay for additional features if those features improve the chances to connect with someone. The combination of dramatically higher ARPU driven by Gold and à la carte purchases and strong subscriber growth led to phenomenal revenue growth for Tinder in Q1. Turn to Slide 5, I want to take you through the Tinder products slide. I want to reiterate what I said in the last call. The biggest driver of long-term revenue growth at Tinder are free features that make Tinder a simple, fun, and useful product, creating a vibrant community of users that in turn drives word of mouth. Our monetization features are clearly important, and we're going to continue to develop and enhance these, but most users on Tinder experience the product for free. And while we are actively in development and about to start testing a new revenue feature that will launch in the second half of the year, the main focus for us is to give our customers more reason to use Tinder and more reasons to use Tinder more frequently. When a provider uses features that make Tinder an integral part of their journey, Tinder becomes a weekly part of their social life. The first example is the Feed. We launched Feed to all Tinder users in Q1; it's our first feature aimed at enhancing the post-match experience by delivering a visual experience that helps users spark conversations with their matches. It gives users a better glimpse into the world of their matches, their passion, their personality, the latest adventure, all leading to better conversations and deeper connections. During testing, the Feed drove a 25% increase in conversations with older matches and a 15% lift in overall conversations. The second area I want to talk about is video. We're currently testing our first video feature called Loops. Loops are user-generated two-second looping videos allowing users to show off more of their personality than just the picture. Profile pictures are one-dimensional and long-form videos can feel a bit awkward, but a loop can bring the user to life without that awkwardness. Loops will show the same way pictures do within a profile. They will be in the card stack as users swipe through profiles and Loops will also appear in the Feed. And then, you can see in the slideshow, the free PR we got when we launched courtesy of Jimmy Fallon. He is definitely not on Tinder, but he had fun with Loops in his monologue. On the last call, we also mentioned that we're working on location-based features to enhance the Tinder experience in the real world. The places we go in our daily lives say so much about who we are and what we like to do, since obviously, where our life happens. The first step of our private journey in the real world is Tinder Places. Tinder Places is a new way for users to see potential matches who enjoy the same places they do. Whether it's their neighborhood bar, favorite coffee shop, or a museum they love, they can connect with people who love going to the same places they love going to. This leads to higher quality matches and more authentic conversations. We're currently testing this product in a closed beta with a small group of users in three international markets. In the first three weeks, we've seen these users go to 200,000 social places. Half of those users who open the app engage daily with places, and 96% of users have continued to keep using the feature. This is a good indicator for both interest and sustainability of the feature. It's completely a user opt-in feature, and we have paid special attention to user privacy and control in designing this. We intend to make Places available to all users in these three cities this quarter; again, it's still in beta. The early feedback is promising, and we hope to roll it out globally soon; at that point, when we officially launched Places, we'll share more details about the product. We've also talked about providing women with more control over how and when matches communicate with them. This week, we started testing the message-first setting. We believe users want the option to choose who makes the first move, and we're giving them that choice. These examples are a glimpse into the product innovations we are working on. Also, I am pleased to announce that we settled our IP litigation against Tantan, which will result in a redesign of their U.S. app and annual royalty payments tied to their U.S. user base. This announcement reinforces the strength and value of our market-leading innovation. Turning to Slide 6, I want to talk through our marketing efforts. Tinder has become an iconic American brand. It's all about the fun and adventure of being single, and its viral growth is really unlike anything we've seen in the category. The brand has also resonated globally. Tinder is the top-grossing lifestyle app in roughly 100 countries around the world and the second highest-grossing app globally, non-games, behind Netflix. This growth was driven primarily by word of mouth. In the past few quarters, we have started to supplement that viral growth with marketing spend in order to capitalize on the momentum and accelerate brand awareness to drive additional user growth. In the U.S., our marketing campaigns focus on college-age users by leveraging relevant celebrities and brands. A few examples include a Valentine's Day event with Adam Levine and the expansion of our Tinder-U college ambassador program and a March Madness style contest where 64 colleges competed to win a free concert by music star Cardi B. In international markets, where awareness is growing rapidly, but it's still lower than the U.S., we continue to increase awareness by working with globally recognized brands such as Man City soccer team. Through this partnership, we are creating exciting experiences for Tinder users around the globe. In India, we launched a fun Bollywood-style Tinder video that captured the spirit of dating in India and resonated with young urban Indian women. This effort resulted in almost 2 million views and a wave of press. In Brazil, we hosted a party in Salvador during Carnival attended by many of Brazil's most important influencers. Through PR and social media, Tinder reached tens of millions of Brazilians. The growth of Tinder in unexpected markets like India and South Korea is initial evidence that this cultural phenomenon is of a global nature; however, they are still early in developing markets. And you can see from these examples that Tinder is not using traditional marketing channels like TV; rather celebrity endorsements, brand partnerships, and Internet influencers. Even as we continue to expand our marketing efforts, we expect Tinder will remain a highly profitable and high-margin business well above any of our other brands or businesses in the category. Let's flip to Slide 7. So I want to talk about our other businesses outside of Tinder. Despite headwinds in TV marketing efficiency that I've talked about on our last call, our portfolio outside of Tinder remains stable, and we see opportunities to invest in product and marketing to drive long-term growth. Match and Meetic have both successfully transitioned their businesses from desktop to mobile-first products, leading to big improvements in conversion and engagement. They also remain two of the most recognized premium brands in the U.S. and Europe with a focus on serious intent. In order to continue distinguishing these brands from the competition, it's important we continue to evolve the product and deliver what is truly a premium experience versus alternatives in the market. To that end, we're going to make the move to increase value for users of these brands. For example, we're going to enrich the subscription by rolling in à la carte features that we previously charged for, enhancing the subscriber experience by reducing the number of ads, and increasing customer service levels. These changes are meant to drive word-of-mouth growth and ensure premium positioning of these brands that have historically relied on traditional marketing to grow. We also see opportunities to increase awareness of some of our brands to drive their subscriber growth. OkCupid, for example, ended 2017 with some great product wins, materially increasing engagement, conversion, and overall product appeal. We amplified those wins in Q1 by launching a provocative marketing campaign in OkCupid markets. We saw a 32% increase in aided brand awareness in New York City and a 13% increase in other test markets. More importantly, we saw double-digit registration growth in these markets indicating this is a viable marketing strategy that can help drive top-of-mind awareness for OkCupid. We plan to make further marketing investments into this positive momentum, which should lead to increased awareness and adoption in the short and long term. In Japan, our Pairs brand has seen extremely strong subscriber growth and has benefited from the expertise of Match Group following its acquisition in 2015. We are expanding our marketing spend in channels in Japan and our push in the Pairs brand in Korea. The dating market is still relatively nascent in both Japan and South Korea compared to the U.S. or Western Europe, which bodes well for long-term growth prospects of the business. Okay. Turning to Slide 8. Slide 8 addresses two forthcoming changes to our operating landscape. The first is GDPR and changes in data protection and privacy expectations. We are keenly aware that our customers share more intimate details than they typically share with their broader social networks of friends and family. Therefore, we have always considered protecting our users' privacy a top priority at everything we do. And of course, we've been working to be fully compliant with GDPR regulations by the May 25 deadline. Tinder will be applying GDPR standards globally; our businesses that are not subject to GDPR intend to nonetheless adopt similar privacy standards as required under GDPR. We really want to be a leader in protecting our users' sensitive data. The second is Facebook. We started getting inquiries about how changes at Facebook due to the Cambridge Analytica scandal might impact our business, and then, of course, major questions arose in light of Facebook's announcement last week that they planned on increasing their focus on dating. So let's start with Facebook's recent announcement because I know many of you are focused on this topic. First, let me say we respect the power of Facebook and its global scale. Their announcement about dating included very few specifics; not many details are available for us to analyze. However, we definitely know a few things about the dating landscape that has helped us assess what we think the impact could be. First and foremost, Facebook has been a part of the dating landscape really since inception. We know that people meet their significant others in many ways aside from online dating, including bars, churches, through relatives, friends, and not surprisingly through Facebook. This is a result of introductions from friends and family, of course, but also through a series of subtle features on Facebook designed to introduce new people. In fact, Facebook has over time tried a number of product features to enhance its role as a source for dating. You may remember the 'poke' from the early days that faded. There's also a Facebook Graph Search launched in 2013 which allowed users to search for things like single men who attended Harvard and lived in San Francisco, and that was viewed at the time as a feature that would disrupt online dating. In 2017, Facebook launched discover people to facilitate connections between people who aren't already Facebook friends and a meetup prompt in Messenger showed users people who want to meet up with them. We want to point out that none of these had any discernible impact on our business. We now know that Facebook is going to turn the screw further on the dating continuum including the dating profile, which means users will declare explicitly that they are available to date and invite contact from strangers. I think this point is important. The expectation of overt dating features and apps reflects all the complicated emotions that dating involves: rejection, dissatisfaction, great dates, bad dates, and ultimately, user churn. We in our category have to deal with this by explicitly introducing and promoting dating in our ecosystem. Facebook will have to confront and carefully manage this dating dynamic in their customers' experience. In this context, Facebook focused on connecting daters through flows in their events and group modules, where they probably see some dating-related activity already happening. In my mind, it would make sense for them to tie a dating focus to that aspect of their experience to minimize conflict with their core business. If that ends up being the case, then they won't be competing with what our apps do, just as we don't think bars, churches, friends, and family, nor Facebook today directly competes with us and impacts our dating business. But it's really unclear at this point. Research also says that the vast majority of singles would not want to use Facebook for dating primarily due to concerns regarding data and personal privacy, but more importantly, they don't want to be contacted by strangers on a social network meant for connections with friends and family. This resistance is particularly pronounced among women in the younger demographics. Another strong data point that gives us confidence that Facebook dating is unlikely to have a negative impact on Tinder, which is our biggest growth engine, is the striking result of our introduction of SMS sign-up on Tinder last year. Take a look at Slide 8 on the bottom right; before last year our users could only sign up using Facebook authentication. Within two months of offering Tinder users an alternative to sign-up via SMS, new users went from 100% Facebook sign-up down to only 25% Facebook registration. Even though a Facebook sign-up was the first option on the screen and the most frictionless. Said in another way, users quickly and decisively separated Facebook from their dating experience. The data we show for new user sign-up is for North America, but the trend is very similar globally. Additionally, we saw a meaningful lift in new users joining Tinder after providing an alternative to Facebook sign-up. These were likely users who were previously unwilling to connect through Facebook who now saw an opportunity to finally join Tinder. When we asked our users why they had an aversion to locking into Tinder via Facebook, the answer came back simple: a preference not to mix dating with their broader network of friends and family. We often know that in the context of dating, an intensive community and the brand matters. This is not a utility feature; people want a community of users with similar intent. Dating is so personal, and we see people gravitate to brands they trust and relate to. A 23-year-old who just graduated from college is going to use a very different brand than a 43-year-old single mom who wants a serious relationship. This is not a category where one size fits all; it's never been a winner-take-all category. On average, people use three dating products at any given time, and Tinder has earned and we believe will maintain its place as one of those three, especially among younger users. It took the launch of Tinder five years ago to unlock a huge audience in their 20s, and why? Because Tinder offers its own unique experience, representing a sense of adventure and freedom that we don't believe Facebook can replicate, especially at the expense of their core experience. The global market for potential daters to connect through technology is very large—over 600 million people, which does include China. Of these, more than 80% do not currently use dating products, largely due to the category stigma. We have grown our business by chipping away at the stigma and bringing resisters into the fold. It is possible that Facebook can convince some of the resisters to try dating through technology and therefore they may be able to help break some of the stigma and further expand the category. Given our large product portfolio, we think we could benefit from this. Now, turning to the other Facebook question, is it likely that they change operating policies to our detriment? We don't think so. First, based on discussions with Facebook, we do not expect them to change any policies that relate to us. Second, our biggest dependency was the reliance on Facebook for Tinder login, but we have effectively removed that method I just mentioned. We don't have much reliance on Facebook for anything else. Our proprietary matching algorithms have never relied on Facebook, and now that most people sign up using SMS, most of the profile content is generated by the user. Even for those who sign up using Facebook, we only receive age, gender, and photo; we don't believe that any changes they will make will materially impact our Tinder business. We are going to continue to execute at Tinder and on our other products. We have tons of experience in dating, and all we care about is delivering a better experience for our customers. If we do that with maniacal focus, customers will continue to come back, and they will thrive. I'm incredibly proud of the results this quarter and I look forward to continued great performance. And I will turn it over to Gary, and he will take you through the financial results and our outlook.

Thanks, Mandy. Match Group had an incredible first quarter of 2018 from a financial perspective as we build on the strength we experienced in the back half of last year. We are reporting our highest year-over-year quarterly revenue growth as a public company, and in Q1, we controlled expenses to achieve our best operating income and EBITDA growth in two years, resulting in a meaningful jump in margins. Our outlook for the rest of 2018 is extremely positive with increased expectations for full year revenue and EBITDA. Let's review the slides. On Slide 10, you can see that average subscribers reached over 7.4 million, up 26% year-over-year and up two points from Q4 2017's year-over-year growth. The strength was evident in both North America, which grew average subscribers 17% year-over-year, up 2 points from last quarter's year-over-year growth, and internationally, which grew average subscribers 37% year-over-year, also up from last quarter's growth rate. Tinder continued to be the story as it added 1.6 million average subscribers year-over-year, an 87% growth rate and 368,000 sequentially. Tinder subscriber growth was stronger than we'd expected as Gold renewal rates exceeded our expectations. We said on the call last quarter that our assumptions might be conservative to the extent the one-month Gold renewal rate and reserve rates continue with the trends we were seeing. That indeed turned out to be the case, which helped drive Tinder subscriber growth in Q1 higher than our expectations. We discussed a number of times how Tinder Gold led to a surge in subscriber levels that began in Q3 2017. We expected this surge to moderate as we move further away from the introduction of Tinder Gold. That proved to be the case in Q1 as the 368,000 subscribers we added was a smaller increase than we'd seen in Q3 and Q4 last year, but was higher than we'd expected because of the higher renewal rates. Strength in several of our other businesses also helped our subscriber trends. OkCupid domestically and Pairs in Japan showed particular strength in the quarter, and OurTime in Europe continues to grow. We also continue to see moderating subscriber declines at our affinity brands, where trends are on track with our expectations. The decline at Affinity caused overall subscribers ex-Tinder to be down slightly. Overall company ARPU is up $0.05, 8% year-over-year, to an all-time high as a public company of $0.58. International ARPU benefited from FX rates. On a constant currency basis, international ARPU is up 7% to $0.52. Overall, ARPU was up $0.02 or 3.5% on a constant currency basis. Tinder Gold has had a major impact on ARPU. Tinder's ARPU in the quarter grew 37% year-over-year. Tinder's ARPU continues to trend closer to the overall company ARPU. Tinder's ARPU has also been driven by accelerating à la carte sales, which have increased in tandem with the likes features within Gold. Flipping to Slide 11, you can see that the subscriber and ARPU growth led to year-over-year total revenue growth of 36%, up meaningfully from 28% last quarter. The last three quarters have shown accelerating revenue growth. Excluding the FX impact of $17 million, year-over-year revenue growth would have been 31%. We demonstrated strength in all components of the top line in Q1. Direct revenue grew 36% driven by 26% subscriber growth and an ARPU that was up 8%. Overall, direct revenue, as well as both the domestic and international components, showed accelerated growth. Indirect revenue grew robustly, at 33% year-over-year as we continue to see growth in programmatic revenue at Tinder and increased direct ad sales. Total revenue, domestic direct revenue, and international direct revenue growth rates were all the fastest we have achieved as a public company. EBITDA grew 60% due to the revenue growth and operating leverage. EBITDA margins were 34% in the quarter, up from 29% in Q1 2017. Overall expenses as a percentage of revenue were 72% in Q1 compared to 80% in the prior year quarter. Sales and marketing expense for the quarter was up only $11 million year-over-year, resulting in a decline in its percentage of revenue from 36% in Q1 2017 to 29% in Q1 2018, reflecting the ongoing shift to lower marketing spend in brands. The increase in marketing spend was at Tinder, OkCupid, and Pairs; businesses with strong momentum and product wins, as well as at OurTime, as we continue to roll out that brand across Europe. We reduced marketing spend at our Match, Meetic, and Affinity brands. The Affinity reduction is a continuation of a trend that has been going on for several quarters now. The Match and Meetic reductions were driven by lower efficiency of marketing spend, particularly TV. We continue to be very judicious with our marketing spend in these businesses. Stock-based compensation expense in the quarter declined by 6% to just under $17 million. The decline in SBC and lower depreciation as a percentage of revenue led to operating income growing faster than EBITDA. Operating income margins rose 8 points to 28% compared to 20% in Q1 2017. On Slide 12, you can see that the business continues to generate significant cash. Operating cash flow for the quarter grew 36% year-over-year to $122 million, and free cash flow increased 39% to $117 million. CapEx is only $5 million in the quarter. Free cash flow conversion from EBITDA in the quarter was 85%, above our target of approximately 75% for the full year. Our current trailing 12-month leverage is 2.4x gross and 1.9x on a net basis. Our cash balance of $288 million provides us solid financial flexibility for strategic M&A opportunities, buybacks, debt paydown, or other uses. In Q1, we used $105 million of our cash to repurchase shares to offset dilution from employee option exercises and to pay withholding taxes on the option exercise. We have now repurchased a total of a million shares under our six million share repurchase authorization. By using cash to pay withholding taxes, we reached 1.9 fewer dilutive securities. We do not pay any cash taxes in Q1 and do not expect to be a material U.S. cash taxpayer until 2020. On Slide 13, we discuss our outlook. The strength in Q1 led to a meaningful beat compared to the expectations we laid out last quarter. We expect that strength to carry over to Q2. We've continued strong performance at Tinder coupled with operating leverage and stability across our other brands. Specifically for Q2, we expect revenue of $405 million to $415 million or 32% year-over-year growth at the midpoint. Q2 revenue will continue to benefit from the impact of Gold subscribers that have been added over the past three quarters. Q2 2018 is the last quarter that does not have the Gold effect in the prior year quarter. We expect EBITDA in Q2 of $160 million to $165 million, or approximately 48% year-over-year growth at the midpoint and a margin of close to 40%. We believe that we have largely put the surge in Tinder subscribers from Gold into the rearview mirror. Although the surge lasted a quarter longer than we had initially expected due to the strength we've seen in renewal rates, we think Q2 will reflect a more typical level of sequential additions at Tinder between 200,000 and 250,000. At this level, this will again be the norm, at least until the new Tinder revenue feature is rolled out. As Mandy discussed in Slide 4, highlights how Tinder clearly is much more than a subscriber growth story. It has multiple revenue drivers including subscriber growth, à la carte strength, and overall ARPU improvement, with opportunities to optimize price and merchandise more effectively that we intend to pursue as the year progresses. As a result of continued strength at Tinder, particularly stronger first-half revenues as Gold and renewal rates are running higher than we initially expected, we are raising our full-year outlook by $100 million to $1.6 billion to $1.7 billion in total revenue. At the midpoint, that would be 24% year-over-year revenue growth. As a reminder, our back half of 2018 comparisons will be much tougher given the positive impact of Gold in the second half of last year. Our revenue outlook for our non-Tinder businesses is largely unchanged. We are primarily focused on optimizing profitability in these businesses. We will not chase subscriber growth at the expense of profitability. For the full year 2018, we're raising EBITDA expectations by $50 million to $600 million to $650 million, representing 33% growth at the midpoint, more than double 2017's growth rate of 16%. The higher EBITDA expectations primarily reflect the additional revenue, particularly at Tinder, with less additional IRPs. Margin would be nearly 38% at the midpoint, representing an improvement of nearly 3 percentage points from the 2017 figure. We're expecting to overdeliver on our margin expansion expectation in 2018. We continue to believe that 40% plus is a reasonable long-term target for the company's margins. Tinder continues to experience meaningful operating leverage, even with solid investment levels in product and marketing spend to drive new users globally, Tinder's EBITDA margins in Q1 reached north of 40% for the second consecutive quarter. We expect this to be the case again for Q2, with room for additional expansion over time. We do expect higher Q3 marketing spend at Tinder as we focus intently on the back-to-school opportunity for university students. There are several key items that we're keeping an eye on, which will affect where in our current ranges we land for the full year. These include, first, the new Tinder revenue feature. The new feature is far along in development, and we plan to test it over the coming months and introduce it in the second half of the year. The precise timing and the success of this feature will have an impact on whether we reach the upper half of our revenue range for the year based on the new rate guide. Second, data privacy and regulatory compliance requirements are shifting quickly. Certain shifts that result could require us to make product changes, delay product roadmaps, or dedicate resources to those adjustments. Our outlook includes GDPR and all known data privacy and regulatory impacts. One last note, for everyone's modeling purposes, I wanted to mention that the last time I said our GAAP effective tax rate would be in the low 20% range for 2018. It is difficult to predict the pace of employee option exercise and the impact on tax rates. But based on what we have seen so far, our 2018 GAAP effective tax rate could be meaningfully below the low 20% rate we previously indicated for 2018 and is likely to be volatile quarter to quarter. Stepping back, we could not have hoped for a stronger quarter to start the year. The Q1 performance has led to additional optimism for the full year, and we're pleased to be able to raise our outlook so meaningfully. We believe our outlook now much more accurately reflects what to expect from us this year. We have confidence that Match Group will deliver its strongest year yet as a public company in 2018. We will now answer any questions you may have. Operator, please open the line to questions.

Good morning, everyone. Maybe thanks for addressing the Facebook-related concerns head-on and in particular on Slide 8 here, this chart around Tinder registrations not using the sign-up and how we've seen this pretty significant change there since you launched that. Of course, there are other ways that you interact with Facebook; you spend marketing dollars there. You've also got an advertising sales partnership with the Facebook Audience Network. Are there any other material changes in your relationship that you might expect going forward as they come into this space a little bit more aggressively? Thanks.

Great. All right. Okay. So you pointed out, Dan, that we definitely have a multifaceted relationship with Facebook, and they've been a long-term partner for us. We have been in conversations since the announcement at the executive levels and they've certainly indicated to us that they don't plan to change either the advertising partnership or the advertising relationship. And they dealt with these conflicts with similar relationships in other verticals like e-commerce with Marketplace. The good news is, which I mentioned, is that our reliance on sign-up has declined dramatically since last summer. On the advertising side, what you pointed out, a few of our brands spend on Facebook, particularly Match, Meetic, and our 50-plus brand up here in the U.S. That said, it's one of many channels, one of many digital channels that we use, and it's a relatively small percentage of our spend across all those businesses, within the single digits. And we believe that as long as spending on Facebook is ROI positive, and a sufficient spend for us, and Facebook doesn't misuse our data, which we don't think they will, we will continue to spend there. So regarding the Facebook Audience Network, it's the last question you had; we have a great relationship with them. It makes sense on both sides, but there are definitely alternatives in the market. To the extent we would need to go somewhere else, we would, but at this point, we don't think that makes sense. And then, I just want to sort of take a step back, and all of that said, they announced last week that they are an overt competitor in dating, so we're just going to have to monitor and adapt as needed.

Great. Thank you. Two questions: the 75% of Tinder registrations that don't use the Facebook sign-up, can you just remind what time period does that cover and how long is the sign-up process if users don't use the Facebook sign-up? And then, the second question on Tinder is that the à la carte growth was really strong in Q1; if you could provide some more color, that would be great. And what percentage of Tinder revenue was à la carte in Q1 '18? Thank you.

Okay. Let me tackle the first one. So the rollout started in June/July timeframe, and after about two months, 75% of new users were using alternative sign-up, and I mentioned in my remarks that that chart is U.S.-based, but it's the same picture globally. And just to address questions you had about the process and how easy it is, it's a pretty easy process to download your profile rates. We looked at our numbers; it's virtually identical between Facebook and SMS. The quality of the profile through both of these flows is similar, so we don't see a degradation in quality, and it really doesn't create much more friction for the user. I mean on the à la carte, Gary, you would…

Yes, sure. In the à la carte, I think you should think about sort of two components to it. First of all, Gold has driven à la carte increases generally, so that helps significantly, particularly boosts, which worked very well with the Gold subscription. That's been a component of it. We've also seen a lot of strength in Super Likes lately. So it's multifaceted, with both our à la carte features, Super Likes and boosters driving the strength there. In terms of the percentage, we talked previously about it being kind of a third or so of the overall subscriber revenue at Tinder. As Gold has driven subscription revenue higher, that percentage actually comes down a little bit. So I'd say probably just a little bit south of 30%, around 30% is the way to think about it. But it's not because of weakness in à la carte; it's actually because of the strength on the subscriber side.

Hi, guys. Two questions. Back to the Facebook topic. If we take it up a level, how much of the top-of-the-funnel MAU growth, either organic or paid, comes from Facebook? Not just for Tinder but across all brands. You mentioned single-digit percent of marketing, but what about just inbound traffic? And then, the second question is on GDPR; you mentioned in the guidance potentially some risk around GDPR. Can you just remind us what the revenue or sub-base in Europe is today and what you… any additional color on what might happen post-GDPR? Thanks.

Okay. I will take the first one. So, Ross, Facebook for us is really not an organic channel. It's a paid channel for us. If we look at all the registrations across all of our products, that percentage of registrations from Facebook is really small. It's like around 5%. So it's not a meaningful number for us. In terms of MAU growth across all businesses, the vast majority is organic. It's well over half organic. And if you look at the businesses that pay for acquisition, it's really Match, OurTime, and Meetic in Europe. There are channels that are much bigger, so you’ve got TV and over-the-top in display and search, and Facebook is probably around the third or fourth channel, so we don't see a big risk there. And, you know, as I said, we'll continue to spend, especially if the spend is efficient on Facebook, it's been a good channel, though a relatively small channel for us.

And Ross, on GDPR, just to be very clear: all of the impact from GDPR, in fact, all of the known privacy and regulatory things that we need to deal with are included in our guidance. The GDPR has been a big effort across the company to make sure we comply by the May 25 deadline, and we're on track to do that. We've spent a lot of time, resources, and money to ensure that we're doing what we need to do, which isn't massive amounts, but it's there, and it's all included in our numbers for the year. There are also revenue effects because we're adjusting auto-renewals for our places where we control the payments and so forth. So all that is baked in, but there are revenue and cost impacts of GDPR and all the compliance things that are going on. Again, all of that is baked into our numbers for this year. The thing that is not baked in is what we don't know. So to the extent other jurisdictions put in new privacy things that we need to comply with and we don't currently comply with or other effects happen out of this much more intense focus on privacy, that could potentially move around our outlook. But we think it would be manageable within probably the ranges we have, but that's the thing that's not factored in. The known things, including GDPR, are clearly factored in at this point.

Thanks. So, two questions, one Facebook and then a business question. So, just can you help us understand: Facebook's Terms of Service seems to suggest they can use all the data they learn from you for their own benefit, so any views on that? How do you think about it? And then, there's been a big question about why Facebook is doing this, and those of us who have looked at the sector for a long time have generally believed that people do want to keep their dating and personal behavior separate. When I think about well-gardened, they say Google and Travel; for years they've thought about entering the space and said they would rather just collect an advertising fee from the big players. So maybe you can pontificate a bit more on why you think Facebook is wanting to do this as opposed to trying to maybe extract just a greater tax from you on the advertising side? And then just business-wise, on the reduction of marketing spend, Gary, is this just a function of ROI requirements and you're not seeing it? And just how should we think about if TV continues to be less effective, how you continue to drive growth with paid marketing? Thanks.

Okay. So, number of questions. Let me take the first one, which is around Facebook competing against us with our data. We definitely looked at the Terms of Service, and it does give them broad rights. But what you're bringing up is truly a business ethics question about how they use our data. This is an issue that they've addressed with us head-on in executive-level conversations we've had, obviously since last week's announcement. They have indicated that they are not going to use information about our users that they receive through the authentication relationship, or the advertising relationship, and any targeting that they would do would be based on information that's available for everyone. We've been a long-time partner for them, and honestly, I can't imagine Facebook would want to compromise the partnership—or more importantly, it's a trust issue. User trust is part of these partnerships, and so my sense is right now, it’s still too early to tell. But we have been assured that there's going to be integrity in this relationship. And then, in terms of competition about how we compete, at the end of the day, I really don't think, I'll get to your next question, that people are going to be comfortable mixing their dating life with Facebook, and so user targeting is not nearly as much of a big concern of mine at the moment. And then in terms of why Facebook is doing this, I can't speculate. I'm not sure we sort of laid out the remarks about the challenges they will have, especially in balancing the core user experience with dating, which is a great business, but it's also a business—I mean dating can be tough. Online dating is a factor of that. Someone told me that dating is great when you’re really into someone, but dating in general can be hard. So we deal with all the dynamics around dating, and I think that by introducing a dating feature into their product, they will have to do that too. So I'm not sure I think we'll learn more as more details are told in the market.

And, Jason, in terms of your question on the ROIs on marketing, we're not moving our hurdles in any way. It's not a question of the hurdles being changed. The real reality is that TV has become more expensive, and the cost of bringing in a user that way has gone up as eyeballs have really moved from TV to digital, which is as engaging but isn't as effective. TV has always been a great source for us. So we're trying to maintain our discipline on our hurdles, and to the extent that means we can't spend as much, we are not spending as much. It's as simple as that. Obviously, we’re focused on the impact of that and hoping additional channels open up that we could find effective, and hit our hurdles and if we do, we definitely will do that. In the interim, we're making improvements on the products that we talked about trying to drive more word of mouth to replace some of what we've lost on the TV side in other ways. So that's the strategy around particularly Match and Meetic where the effect of what's happening with TV is the most pronounced.

Thanks for taking the question. Maybe two with respect to the focus around Tinder and growth. One, I want to know how you're thinking about sort of allocating resources, whether it be R&D dollars, product, or marketing behind issues around subscriber growth or monetization awareness on a global scale. One of those areas of focus within the company to continue to drive the momentum. And second, coming out of that, what sort of the message do you think investors should have about growth versus margins for Tinder as we look not only in 2018, but beyond? Thanks, guys.

Sure. Let me take a crack at it. First of all, we have really been investing on both the product and marketing side at Tinder. We see real things we're trying to accomplish in both to keep rolling out product that enhances engagement and drives users, as we talk about, as well as rolling out some revenue features. So we continue to add headcount there; we continue to add top-class engineering talent, AI talent, and we've been spending on product and bringing engineering to drive product. So as far as that goes, clearly, we see that Tinder is our growth engine, and we're investing where we can to drive the product at Tinder. Similarly, on the marketing side, we didn't have to market initially, as Mandy talked about in her remarks at Tinder, and Tinder grew virally around the world out of the box in a way that we've never seen before. But there are still a lot of things to do at Tinder now at this stage of its development, which include continuing to raise awareness of the product in international markets. And we're spending money there in necessary to drive awareness in India, Korea, elsewhere in Asia where we see real opportunity, and we're going to continue to do that. As well as in the U.S., where Tinder needs to continue to evolve in terms of how people perceive the product. We’re spending money there as well. We’re working through further involvement with the younger demographic as people age and turn 18 and go to college to drive some of those users to Tinder. So all those things are key priorities for us, and Tinder is an incredibly profitable business as we talked about. We're spending, I think, very appropriately in both product and marketing to achieve our strategic objectives.

Great. Thanks for taking the question. So, looking at the resegmentation that you did with North America versus international subs, part of the OkCupid allocation looks like subs were growing at least 12% by the end of 2017 in international. Can you just talk about how this has continued into 2018 now? And is OkCupid finding a bigger opportunity outside the U.S. than it has inside the U.S.? And then, the other brand I wanted to talk about is you called out Pairs several quarters in a row now. Can you just talk about how big is that business today? Perhaps can you just contextualize a little bit more where the Japanese and South Korean dating markets are in their evolution?

Sure. Yes. So let me talk about Pairs because we have talked about it, and we’ve mentioned in the slides. So if you look, we do think there is opportunity in the Asian market generally, and I'll talk a little bit about Japan. But in the Asian markets, there's population growth, there is a young population, there's smartphone penetration, and the fact is there’s still a real cultural stigma in dating. So, I equate it to what it was like 15, 20 years ago in the U.S. when online dating first came onto the forefront. On your question specifically on Pairs, it’s one of the biggest economies in the world. It lags in U.S. and Europe in terms of dating penetration for the reasons I just mentioned. It is a high-growth business, and we don't break out the specific business by business, but you can roughly compare revenue to the size of about OkCupid or PlentyOfFish. And for Pairs in particular, it is a product that targets people looking for a serious relationship, and we've seen a real— we've seen real growth in that market despite the fact that there are government regulations, and you actually can't advertise in many channels, including television marketing. So as we, hopefully, destigmatize the market, we will see opportunities to spend more and open up some of those channels. But we just think that in Japan, Pairs in particular has a need for these products, and people are willing to pay for them. The team is strong in Japan, and we think that we can take these learnings and use those for other markets, particularly for South Korea. So we’ll see. But I think there’s some real opportunity both with the Pairs brand as well as Tinder. So, well, talk a little bit about Tinder because you didn't ask me that, but I think that is also a great opportunity for us in Asia and in Japan. We’ve seen real growth in younger segments in Asia, and these are the two main brands; both Pairs and Tinder that we’re going to go after. Then, the last thing, which I just want to address because I think it's one of the reasons why we feel confident and bullish around that market is that there was a real question about whether or not people would pay in Asia, and we've seen in particular in Pairs, it is our highest LTV and our highest ARPU business, so people really are willing to pay for our products.

Mandy, you might take the Pairs question. Okay. And I think, on the international side, ex-Tinder, and Tinder is obviously driving a lot of international growth. But ex-Tinder, Pairs and the new OurTime brand in Europe are probably driving the preponderance of that growth. OkCupid has a small business internationally, but I don't think it's a major contributor to the overall growth that you alluded to. We would consider, however, trying to put OkCupid internationally; we think now that product is working pretty well. We're seeing real resonance in the U.S., and continuing to expand internationally could be part of the plan for OkCupid. In fact, PlentyOfFish also has seen some strength in some international markets, specifically speaking markets, and we could push PlentyOfFish internationally as well. So those are things we are thinking about. The one thing that overall that you highlighted, I also just wanted to mention, is strengthening OkCupid, and we talked about how we are investing behind OkCupid on the marketing side, and we're pleased with the product wins they've had there. You can see that over the past couple of quarters, OkCupid's growth has accelerated meaningfully, and it is performing very strongly, so it is valid to point that out overall that OkCupid is performing well.

Okay. Thank you. I just had a couple; the first one was on Facebook. Can you talk about how the API changes affect how data from public Facebook profiles flow into the Tinder app, or do users that signed up through Facebook have to manually re-enter their information into their Tinder profile? And can they still see friends in common? If not, do you think this change in the user experience will impact in any meaningful way? And then, just a second one on the trajectory of the core business. I think Gary you mentioned that subs may have been down slightly in the quarter. Was that the case for revenue as well? Is flattish growth the right way to think about the trajectory of the core for the rest of the year in the context of your updated guidance? Thanks.

Okay, Chris. Let me take that Facebook question. So in addition to credentials or authentication, really the only information that we get from Facebook API is age, gender, and photo. Then really what happens in the ecosystem—because remember, people want to sort of put their best foot forward and impress people in the dating world. And so they will enrich their profile with additional photos that they give us in that ecosystem. So we get additional photos, buy music from Spotify, which is on the profile, and we use it on the input work and school. So we don't see a lot of friction; users will do that for the reason I stated before that they want to put their best foot forward, and for users who previously signed up their Facebook profile on Tinder remains unchanged.

I think in terms of the revenue question. Revenue is basically flat in those businesses and the non-Tinder businesses. And I think that's our expectation as the year progresses, the revenue is going to stay flat. I think we're thinking along the same lines on the subs side. The question around all of that is something that we've talked about a little bit throughout the call, which is what is the marketing opportunity and do we find opportunities to spend. To the extent we don't find opportunities to spend, that will put some pressure on sub-growth in the non-Tinder businesses, particularly at Match and Meetic, and so that's what we're watching; that's probably where the variability is sub-growth being sort of connected to the marketing spend opportunities. So we'll have to see how that all plays out as the year goes on. But generally, the assumptions around revenue being flat; subs being flat are still kind of our operating principles.

Thanks for taking the question. Just thinking higher level here, in the slides, you talk about 600 million unattached singles globally. If we think about Tinder having maybe around 35 to 40 million—maybe higher MAUs. Could you just discuss how you think about Tinder's TAM and what those potential longer-term penetration of paid subscribers as a percentage of MAUs could look like? Is there any reason that paid member penetration would be structurally lower than other premium services, for example, like Spotify over time? Thanks.

Okay. Let me take a crack at that. And I'm going to try to do this without confirming some of the numbers that you put out, which we haven't really thrown out. But as far as the 600 million TAM, obviously, we think that's the right number. We put in our Tinder's demographic—core demographic being the kind of 20 to 30-year-old range. A rough estimate at the top of my head would be kind of a quarter of that 600 million TAM is probably in Tinder's core demographic globally. So that’s still a very big market, around 150 million people globally ex-China. We believe that Tinder is well-positioned to keep capturing more and more of that market over time. That's why we're spending the marketing dollars; that's why we're focused internationally and putting forth those efforts because we see significant opportunity, particularly in those developing markets globally. In terms of kind of payer penetration level, the only thing we can tell you is we feel very confident that we can drive those numbers higher and higher over time. Obviously, it depends on the product roadmap, and what we roll out, and whether people find those features appealing. But if past is any prelude on that, we continue to have a lot of success rolling out features that users find appealing and are willing to pay for it. In fact, the adoption from a payer standpoint for our recent features has been incredibly strong. We think we're still in that strong adoption point. So we’ll expect to continue to make progress there. This will continue to drive payer penetration higher while what the ceiling is, how it compares with others, is hard to say. It depends on a lot of different things including how we price the different features, what we offer for free. Our category is different than music in a variety of ways; it's different than other categories because it's something that's incredibly important to people, and they see incredible value in it, which is why we've been able to drive overall ARPU up at Tinder. So those are, I think, some of the factors to think about as you think about kind of where the penetration levels can go. But the only thing I’d say is we definitely—our confidence is growing higher; hard to say kind of where that overall ceiling may be, and it will depend on kind of how we approach a variety of different things as we balance everything out.

Thanks for joining the call. The one thing I would say is, we spent a lot of time talking about the announcement last week. But we didn't spend nearly as much time talking about the thing that we love to do and that we deliver every day, which is really product innovation. We feel like we did many years ago, crazy category and are constantly evolving it and disrupting it. I think that I just want to end by saying that the reason that we feel the future is bright is because we've got teams across the globe that are really focusing on how do we create a phenomenal product that really changes. We're going to be in great shape.