Match Group Inc - New (MTCH) — Q1 2019 Earnings Call Transcript

Thanks, operator, and good morning, everyone. Also joining me on the call are Match Group CEO, Mandy Ginsberg; and CFO, Gary Swidler. Mandy and Gary will review the first quarter Investor presentation that is available on our Investor Relations website and then take questions. 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 and our periodic reports filed with the SEC. Now, over to you Mandy.

Good morning, everyone. Welcome to our Q1 2019 earnings call. We had a fantastic Q1, and 2019 is off to a great start. Tinder is driving very strong results, and we have a lot of opportunity ahead of us. We're achieving these results by enhancing the product and delivering the best experience possible for young single people all over the world. We are also excited about international opportunities. We recently announced that we realigned our leadership team to focus on the opportunities we see across Asia-Pacific. This new structure will allow us to accelerate Tinder and to extend our reach through other brands in this region. Our emerging brands are promising, especially Hinge, which I will get into a bit later. I am confident that as we focus on scaling these businesses and improving the product experience, revenue will naturally follow. The last thing I want to mention before I get into the slide is we are seeing positive results with Match's redesign. It gives us confidence in our plan for that business moving forward. If we execute on our strategy, which is growing our existing brands, making new bets and investing in those new bets, and increasing our focus on developing markets, we will have multiple drivers across the company that will produce steady, long-term growth for us. While we are executing our strategy, we'll remain highly competitive by doing what I think we do best, which is delighting our customers by providing the best product experiences across each of our brands. Let's switch to slide four. There are 600 million singles globally, and roughly half are in the region on this slide that we are defining as APAC. This is four times as many singles in this region compared to North America, where half of our revenue is today. We are positioning the company to capture the opportunity we see across this region. A decade ago, this part of the world was not showing much traction in our category, and as a result, we put very few resources focused on the region and we lacked local expertise. Then, things started to change significantly in 2014. First, the adoption of mobile phone apps helped open up the market. Then, we started to see early stages of a huge shift in the cultural norms around dating and marriage across APAC. These shifts have impacted our portfolio in a couple of ways; Tinder emerged as a cultural phenomenon that was able to transcend geography, generating tens of millions of downloads without really any localized expertise or product. Then in Japan, Pairs grew from a small innovative startup to a market leader in less than three years. At both Tinder and Pairs, we leveraged Match Group's deep knowledge of dating products to generate over $200 million in revenue from this region this past year. This is a tenfold increase over 2014. As dating culture evolved in these markets over the last couple of years, we were right there, providing products to help young millennials connect with others in their cities. We believe this is just the beginning of our growth story in APAC. We have plans to aggressively pursue this massive opportunity in front of us. So the big question is, 'How are you going to do it?' We recently realigned our management team to focus on this region. We created hubs in Delhi, Tokyo, Seoul, and Singapore. On the Tinder front, we plan to localize the product and reinforce our leadership position there. Just like in the U.S. and Western Europe, we don't think there will be just one product for everyone. As a result, we plan to continue to introduce more brands to the region to address different segments. In India, Tinder is already the top grossing app overall, and we think there is real opportunity as the dating culture is shifting rapidly, with fewer people opting for arranged marriage. India is the second largest country by population in the world with nine cities over six million people. As more young, educated Indians move to big cities, our products can help them find meaningful connections. Over a year ago, we made the decision to promote the head of Tinder in India to a broader role. We wanted more focus and energy around new products, as well as M&A. Our GM of Match Group in India, who is a great leader there, oversaw the launch of OkCupid, which was our second brand there. Previously, OkCupid had a tiny organic presence there. Since the launch in Q4 just a couple of months ago, momentum is building, and it's become a complementary alternative to Tinder. Downloads in India for OkCupid were up 600% year-over-year in Q1, making it one of the top dating apps in India after just a few months of minimal investments. Our success in India is a template for how we are approaching other emerging Asian markets. We empower incredible talent on the ground who understands the culture, regulatory challenges, and market dynamics. The last few years have provided us with real learnings to invest in the region in a disciplined and focused way. Japan serves as a great example where we acquired an early-stage business with local traction. In 2015, Pairs joined Match Group under the leadership of a young entrepreneurial team with strong engineering and product skills. Pairs is now the market leader for serious relationships. This is another country where there is room for multiple brands. Tinder continues to grow its user base and is one of the top five dating apps in the country. Japan is one of our highest lifetime value markets, as people there are willing to pay for dating services. It's also a place where online dating stigma continues to erode. There's still plenty of work to improve the perception of the category, not just with consumers but also with advertisers who previously were not open to online dating products in their channels. Like India, we have a stellar local leader overseeing our brands in Japan and Taiwan as well. The last area I will cover is Southeast Asia. Tinder is already a top ten grossing app in six countries across Southeast Asia. We see more opportunity to grow our portfolio there. In Southeast Asia, Internet penetration has grown by almost 15% in the last five years. This area has more than a dozen high-density cities with over a million people and more young people are moving to large cities. These are really important factors that create a significant demand for our app. We have a highly talented leader who is spearheading our brands here. I want to wrap up this section, but before I do, there's one more thing I want to call out. We are excited about the Tinder Lite app that will be coming soon. It's a sizable step forward in addressing the needs of consumers there. Tinder Lite will be a smaller app to download. It will take less space on your phone, making Tinder more effective even in more remote areas or regions, where data usage still comes at a premium. As a result of our continued investment and growth in this region, we expect APAC will make up a quarter of our company's total revenue by 2023. Let's turn to slide five and talk about Tinder. In the U.S., Tinder continues to reinforce its position as the leading brand for young singles. Seventy-one percent of the young population, which includes Gen X, Y, and Z, agrees with the statement: Life experiences are the most important moments in my life. They care much more about experiences than things. As a result, there has been a big focus to link the Tinder brand to live events. Three examples on the left-hand side of this slide are Spring Break, Music Festivals, and College Swipe-Off. Tinder ramps Spring Break mode during March. Students could add their Spring Break destinations as a badge to the right of their profile, allowing them to connect and match with students from other schools going to the same place. We saw a 14% lift in enrollments in March for Tinder yields. There is a big trend of college freshmen signing up for Tinder yields. If we can continue to provide engaging, fun, and exciting experiences, these individuals will keep coming back to Tinder throughout their 20s while they're single. Another example of these fun experiences is Music Festivals. There's been a significant boom in Music Festivals over the last five years, and Tinder is capitalizing on this trend with the launch of Festival Mode, which we just announced last week. Tinder users can add a badge to their profile highlighting which event they plan to attend. They can then swipe, match, and chat with others attending that same event. This feature is going to roll out at 12 of the world's largest music festivals across the U.S., U.K., and Australia. We're partnering with two big entertainment companies, AG Worldwide and Live Nation. We're thrilled these partners have incredible reach with a highly-engaged audience. When these brands send out a call to action to music lovers to connect, we think people will find this really compelling. Finally, Tinder just completed its second annual College Swipe-Off, following the success of last year's Swipe-Off, where schools competed for a campus concert performed by Cardi B. This year more than 100 U.S. colleges competed for the chance to win a campus performance by Juice WRLD, whose latest album hit number one on the Billboard Chart a week before the Swipe-Off. We also worked with Cardi B right before she won a Grammy. I don't think we can take the credit for the success of these artists, but with their track record, I'm sure lots of musicians will want to work with us. We saw improvements in engagement similar to the lift we experienced last year. An essential metric we track is female satisfaction and swipe right rates, both of which increased. The last thing I want to mention about Tinder is around richer content. Creating more vibrant content for users to express themselves is a crucial aspect of the dating experience, and video is a fantastic way for us to do this. Last year, we announced the launch of Loops, where users include two-second videos on their profile. It's not surprising that Tinder users who are accustomed to seeing video on various social platforms are hungry for video content. Today, over 60% of our users are watching Loops, and that number is growing. As you've heard, last month, Snap announced a video integration with Tinder, and that's coming soon. Overall, there's great momentum happening in the Tinder business, and the team is hitting its strides. Let's flip to slide six. We have a strong track record of both acquiring and incubating new businesses to drive growth. On slide six, you'll see a combination of these brands, and we're bullish on these opportunities. The current focus across all four of these brands is to invest in scaling the user base and improving the user experience. A little later this year, we plan on shifting more attention to monetization. Just as a reminder, Tinder grew for over two years before we launched its first revenue feature. We're confident that we will have the right playbook and timing to apply to these emerging brands. The Hinge business, which we acquired in December, continues to scale rapidly. There's tremendous growth in the U.S. and in a few English-speaking cities worldwide. London is seeing very strong traction and is now Hinge's second-largest market. If you look at the chart on the bottom left, global downloads for Hinge grew 32% sequentially to over 1.2 million in the first quarter. On the marketing front, Hinge is leaning into its value proposition around helping people find serious relationships, and the tagline 'designed to be deleted' is resonating with users and generating great press. While Hinge does offer a paid subscription, there really hasn't been a big focus on monetization. Hinge's revenue growth to date is due to two things: improvements we've made to the overall user experience and user growth. We're optimistic about what we can achieve from a revenue perspective once we shift our focus to improving the paid feature experience. I want to talk about two other apps we incubated and mentioned on these calls. Chispa, which means 'Spark' in Spanish, is our app for the Latino community, and BLK is our app we launched for the African-American community. Both continue to grow nicely as you see on that orange and red lines. Influencer marketing and performance marketing are working well to drive growth, and we do have plans to continue investment there. Both apps will soon be launching their first revenue features, and we're going to leverage our monetization expertise from across our portfolio. Ship was launched just a few months ago, in late January, and has shown strong user engagement, especially on the East Coast in cities like New York, Boston, and Washington D.C. It is working because of the social aspect of this app. People invite their friends to join the app to help select matches for them, and this social aspect resonates particularly with women, where 60% to 70% of Ship users are female, which is extremely high in our category. When you create a crew, you invite your friends regardless of their relationship status. For some people who have never been in the world of dating, they can now participate from the sidelines a little bit. We think this will help word-of-mouth marketing. The Ship app today is only available on iOS, but the team is in the process of building out an Android version. There has been demand for this platform, and we are excited to get it out there. Overall, in our emerging brands, we're making investments that we think can lead to additional drivers for our long-term growth. Let's turn to slide seven. At the Match brand, we have spoken about our strategy of revamping the product to deliver a high-quality experience. For users over the age of 35, Match is still the first product people try when they enter the category, and if these users are more satisfied, they're going to tell their friends, thus increasing the popularity of the product. We're making solid progress. We launched a significant new redesign. It's simple, modern, and gives Match a bold new look. I think that's really important in this competitive landscape. It's been well-received by our users. The redesign is more engaging, and it’s much easier to connect with other users on specific topics. We've also made several behind-the-scenes changes, improving our algorithms that have led to better quality matches. Finally, we introduced a new matching feature called What If. These What If scenarios are designed to create serendipity. The feature introduces potential matches to users they may not have gone looking for based on common interests, such as going to the same coffee shop or both playing varsity high school sports. The feature leverages the rich profiles we have in the dating category, particularly at Match. Over the years, we've found that these affinities trump criteria, such as age, height, and income, leading to better outcomes. Altogether, these product changes are driving success. Since the redesign, we have seen a 20% increase in four and five-star ratings in the iOS App Store. These are external ratings. Our in-app surveys show that people are now more likely to recommend Match to their friends, supporting our goal of driving word-of-mouth marketing. User likes are up 20%, and messages have increased by 10% as a result of the redesign. This is a big deal in our category, where activities matter. These moves are the first step towards making Match a more premium and high-end product. With that, I'm going to hand things off to Gary, and he can take you through the numbers.

Thanks, Mandy. I'm delighted to report that we're off to a strong start to the year financially. Our momentum from Q4 carried into Q1. Overall revenue growth in Q1 was strong, and Tinder subscribers grew significantly. FX was a real headwind, but we expect it to dissipate in the back half of the year. As the year progresses, we also anticipate that we will benefit from investments we're making in a variety of brands from Hinge to Match, and Tinder revenue growth will continue to roll along. Let's get into the specifics from the quarter, and then I'll update our financial outlook. On slide nine, you can see that Tinder direct revenue grew 38% year-over-year in Q1 as our product optimization efforts in Q4 gave us momentum that continued into the new year. The story was not one of specific new revenue features but rather merchandising optimizations and product and algorithm refinements, which we continue to implement through Q1. Given its scale, Tinder has lots of opportunity to optimize the user experience, which improves outcomes and matching and drives more users to become paying subscribers because they see value in being a payer. As we've said before, 2019 will, in part, be about gradual tweaks to the Tinder product that we're confident will enhance the experience for users and generate subscriber and revenue growth. That was clearly the case again in Q1. Tinder subscribers grew 36% year-over-year in Q1 to just over 4.7 million. Tinder added 1.3 million subscribers year-over-year and 384,000 sequentially; this is the third-best level of sequential additions in its history and higher than any quarter in 2018. Gold subscribers continued to increase as a percentage of total Tinder subscribers. Tinder's ARPU is up 2% year-over-year on an as-reported basis, but on an FX neutral basis, it was up much more significantly. Tinder marketing spend was essentially flat year-over-year in Q1, with North America spend actually down year-over-year. Overall Tinder marketing spend was down over 200 basis points as a percentage of revenue. On slide 10, you can see that average subscribers across the company's brands reached over 8.6 million in Q1, up 16% year-over-year. Tinder drove our subscriber growth again this quarter. We saw some pressure on Match, which impacted North American subscriber growth as we reduced marketing spend there by about 8%. We expect that as we continue to roll out the product refinements at Match that Mandy discussed, our year-over-year non-Tinder subscriber growth will begin to improve. We will also look to increase marketing spend at Match to support the product enhancements and drive user growth, ultimately leading to subscriber growth, assuming we continue to see product success there. Our international subscriber growth was driven by Tinder, which has a larger impact internationally, as well as by Pairs. As reported, ARPU for the company was stable overall at $0.58. It was up 2% in North America but down 3% internationally due to negative impacts from FX. However, on an FX neutral basis, international ARPU is up 5%, and overall company ARPU is up 4% or $0.02 to $0.60. Flipping to slide 11, the company's total revenue grew 14% year-over-year, reaching $465 million for the quarter. Total revenue growth would have been 18% without the impact of FX for total revenue of $483 million on a constant currency basis. North America grew direct revenue 12%, driven by 10% subscriber growth and 2% ARPU growth, while international direct revenue increased 19%, driven by 23% growth in subscribers and a 3% ARPU decline. Indirect revenue, mostly from ads, declined $4 million due to ongoing declines in impressions of non-Tinder brands, coupled with changes to the deal terms in our relationship with partners. Operating income grew 6% to $119 million. EBITDA grew 13% to $255 million. This growth was driven by higher revenues and lower overall marketing spend as a percentage of revenue, partly offset by higher in-app fees, $5 million of higher legal, regulatory, and compliance costs, and in the case of operating income, higher stock-based compensation expense. Stock-based compensation expense in the quarter was up $11 million year-over-year to $27 million, primarily due to the vesting of certain market-based awards at Tinder. Despite this, we remain on track for about $80 million of SBC expense for the full year. In addition to posting strong operating results and cash flow in Q1, our balance sheet remains healthy, with 12 months trailing leverage ending Q1 at 2.4 times on a gross basis and 2.1 times on a net basis, flat to year-end 2018. Despite over $130 million of stock buybacks and cash payments for employee equity awards in Q1, our financial flexibility remains excellent. We have talked before about the strong operating leverage in our business and our confidence in achieving 40% plus EBITDA margins. A large driver of this is the shift from brands that spend a higher percentage of their revenues on marketing, like Match and Meetic, to brands that spend a lower percentage of their revenue on marketing, like Tinder, OkCupid, and PlentyOfFish. Slide 12 shows the impact of this shift in sales and marketing spend for the last nine quarters as a percentage of total revenues. You can see the consistent year-over-year declines. Q1, which tends to be our highest marketing spend quarter, shows the most dramatic impacts. Over the last two years, marketing spend as a percentage of revenue in Q1 has declined by 10 percentage points from 36% to 26%. In fact, if you look at the aggregate amount of marketing dollars we spent in Q1 '19, it was almost exactly the same as our spend a year ago, about $118 million. We have shifted the mix, with Match and Meetic down and Hinge up, for example, but the total is almost precisely the same. What becomes apparent from this data is that our business has the ability to drive growth without increasing marketing spend as a percentage of revenue. We believe that product enhancements are the key driver of growth across our portfolio, which we supplement with generally strong ROI marketing spend. As we enter new markets or introduce new products, we do have to invest in marketing. As we push Tinder into new developing markets where category and brand awareness are low, we expect to increase marketing investments, which we're confident will pay off over time. As we have discussed, we are investing in emerging brands like Hinge, where we see real traction. That said, our marketing spend trend over the past two years is notable. Now let's turn to slide 13 and look at our latest financial outlook. For Q2 '19, we expect total revenue of $480 million to $490 million. This includes the impact of continued FX headwinds, as was the case in Q1, we expect $190 million to $195 million EBITDA in Q2. We anticipate that Tinder will continue to drive growth and that we'll see similar trends in the non-Tinder brands and indirect revenue as what we experienced in Q1. We expect Tinder to have a larger number of sequential average subscriber additions in Q2 than was the case in Q1. This is driven by optimizations we're continuing to make to the product, as well as merchandising changes. Tinder recently crossed 5 million total subscribers, which is a phenomenal achievement for such a young business. The solid momentum in Q1 and our expectations for Q2 give us increasing confidence in our full-year financial performance. In the back half of the year, we're considering investing further in marketing spend, particularly at Tinder and in other global growth opportunities, if we believe these investments will drive long-term growth. Even if we pursue these additional investments, we are targeting margin expansion for the full-year. For the full-year 2019, we expect Tinder additions to exceed our 1 million target. At the moment, we're forecasting more typical subscriber addition levels in the back half of the year compared to the first two quarters of 2019. The precise number of Tinder subscriber additions for the year will depend on two key factors. The first is the renewal rates for our product initiatives in the first half of the year. Because these implementations are recent, we're watching to see how renewal rates fare. The second is the impact of an optimization we rolled out successfully on iOS in early Q2 that we plan to roll out to Android later this year. The precise timing of that rollout, as well as its conversion impact, will affect the number of Tinder subscriber additions in the back half of the year. We believe we can continue to grow Tinder ARPU in the mid-single digits for the year. As you know, we're focused on driving overall revenue at Tinder, not specifically on subscriber or ARPU growth. We remain confident the company's overall year-over-year revenue and EBITDA growth will accelerate as the year progresses as FX becomes less of a headwind and as non-Tinder businesses begin to contribute more. We're happy to be off to a strong start in 2019. Having delivered a solid Q1 and strong outlook for Q2, our Tinder business continues to grow revenues and subscribers meaningfully. We're growing users at our newer businesses like Hinge, Ship, Chispa, and BLK, and we're executing on our strategic plans to return the Match brand to growth. As Mandy discussed, we're also further positioning the company to capture more of the global opportunity with APAC presenting a meaningful opportunity for incremental top-line growth as the culture and behaviors there shift, and smartphone penetration increases. We believe all of this puts us in a terrific position to continue to deliver solid financial performance for our shareholders. With that, I'll ask the Operator to open the line for questions.

Hi, thank you for taking my question. I have two; one for Mandy and one for Gary. Mandy, could you discuss the competitive landscape in the Asian countries you are focusing on with the reorganization and management changes? And Gary, can you share our current starting point for APAC revenues? We aim to achieve a quarter of revenues; where do we currently stand? Thank you.

Okay, I'll take the first part, Kunal. In terms of competition outside of the traditional matrimony players in this region, we are definitely keeping an eye on some regional competitors that have gained traction. The thing to know is that there are a number of Chinese players investing outside of China and spending significant marketing dollars in Asia as well. Obviously, Facebook is jumping in and announced that they are covering more markets in the region. We believe that based on the fact that we have a great head start with Tinder and Pairs in particular, we will be in a great position to compete in these markets. We also know that this is a multi-use app category. Therefore, people who are dating are using multiple apps, and we think that with these competitors moving in, there are opportunities to open up the category even more.

And Kunal, I think in terms of where we are in Asia right now, there are two drivers: There's Tinder and then there's our Pairs business, which is largely in Japan and a couple of other places in Asia. We are building OkCupid in India as well. Those businesses today are driving significant revenue for us, probably around $200 million last year. Our goal is to get the overall Asia revenue up to about 25% of the company's revenue over a five-year period. This is a significant driver of growth for us over the next five years and that's why we are investing and reorganizing in that market.

Thank you.

Good morning, and thanks for taking my questions. So, basically at a high level, you guys are exceeding Tinder subscriber expectations. It looks like you are going to hit 80% of your prior guidance in the first half of the year alone. Investors are curious about what's driving that performance? Gary, in your prepared remarks, you mentioned various tweaks or optimizations to the platform. Could you give us an example or two of those? And what – and it sounds like a mixture of evolutionary drivers and improvements. What gives you the confidence that those sorts of improvements will continue as the company moves forward? Secondly, there's the upside to Tinder subscriber adds that's not flowing through to the 2019 EBITDA guide. Could you elaborate on that? Is that the expectation of ARPU pressure from these newer markets as you blend in perhaps lower ARPU emerging markets, or is it related to the cost side of investing in marketing in like Hinge and Tinder? Could you provide a little more insight into that?

Yes, okay, let me try to answer those as best I can. On the Tinder subs, I mean we have been saying for a long time that we felt there was a lot we could do on the optimization side at Tinder. The way we merchandised the product, and the way we think about the paywall, etc. We have been doing that. We did it heavily starting in Q4 and continued into Q1. The results speak for themselves. As you said, the subs are growing nicely, and the company is really performing well. So we're going to keep doing that, and that's going to continue throughout the year. I don't want to get into too many specifics around the tweaks we are making because we are sensitive to competitive impacts, but you are right, we achieved a significant subscriber increase in Q1 plus what we are expecting in Q2, so we have high confidence we will surpass that. Exactly where we are going to get to is still something that we are not ready to call yet because some optimizations are relatively new. The other thing on EBITDA specifically is we've given a range of $740 to $790 for the year. We're not adjusting that at this point in time. The reason for that is because we see the opportunity to continue to invest. This is primarily on two fronts: one is on Tinder; we're expanding internationally. Tinder is moving into more and more markets. We see opportunity to capture more of the Asian market and possibly roll out other brands or even create new brands for Asia. Those are things we consider as we think about market strategies, and we're approaching it cautiously. Even with these incremental investments, we still expect to deliver improved operating margins for 2019 compared to 2018.

That's really clear. Thank you very much.

Hey, guys, following up on Anthony's question. Can you talk more about pricing specifically regarding how you are doing that? What has been the strategy there? What has worked thus far? What hasn't? And how do you think that's going to evolve? Secondly, on marketing spend, can you talk about how you are thinking about that in terms of evolving around different channels? Is Asia going to be using the same channels that have worked so well in the west? Or, are you going to do things differently there?

Okay, I'll take the first part. As you know, we have had a long history in pricing and price optimization across a lot of our businesses since we have been in this category for a long time. For Tinder, we are early in this journey. When we first launched Gold, it was a broad instrument, as I've discussed in the past. We think there is still a lot of room to optimize price. Until recently, we hadn't done a comprehensive evaluation of global pricing, but we are now starting to test price elasticity market by market. We believe there is some opportunity out there. So, there are areas for us to price up in higher per capita markets like Japan and the Nordics and the U.K., and opportunities to price down in lower per capita markets like Turkey and Brazil. We are focused on optimizing overall revenue, and in the past, we hired a Head of Pricing at Tinder, which has helped us progress in this area.

On the marketing spend in Asia, we do tailor it to some extent to the different countries. We've got people on the ground in each country whose job it is to evaluate what channels will yield us the best return, what resonates with people in those markets. So, the strategy is tailored to the different markets, and I think we're getting sharper at doing that. For example, we ran some TV in India and Korea in the first part of the year. TV in India is a lot cheaper and more efficient than it is in the U.S. while in Japan, TV isn't a viable channel, so we're using other online channels. As we evolve, we'll continue to tailor our strategy based on what works in particular countries.

I'll add that brand awareness is crucial for many of these initiatives with Tinder in Asia. We're measuring the ROI on marketing. For example, in Korea, where we had a significant TV push, we saw a threefold increase in new users, followed by a significant lift in the baseline. We're utilizing this information as we market across other regions, giving us playbooks for different markets.

Okay. Next question, please?

Thanks for taking the question. Gary, could you elaborate on the back-half potential long-term investments to expand on those initiatives? And is there any way to help us quantify or frame the magnitude of what you're considering?

Yes, like I said earlier, these investments largely fall into two categories. You have incremental Tinder marketing spend in some of these Asian markets, where we just expanded the markets we are investing in and seeking to drive user growth. Then there is the investment in new brands or building brands in Southeast Asian markets. It's too early to quantify exactly. If you look back on what we said about Hinge, we said we'd have a $25 million impact on EBITDA for the full year, which was significant given the traction that brand is achieving. I don't think we’re discussing anything close to that size but probably more in the range of about $10 million as we consider our investments.

Great, thank you.

Good morning. Gary, you had a 30% beat on Tinder subs, but only $1 million in revenue flowing through on the upside. Can you discuss what's happening and where you're seeing that growth, and why that would be such a lag? I can follow up with a quick question.

Sure, if you think about Q1, our guidance was around 300,000 subs at Tinder, and we ended up at 384,000. We see some upside from that clearly in Q1, and that did flow through, so Tinder performed pretty much as we expected. But there was about $3 million of FX impact. Last time, we said we thought it would be around $15 million and ended up being closer to $18 million, and that's visible in the ARPU. So FX has eaten into the gains provided by additional subs. There’s a little drop in ad revenue weakness, but when you strip out FX and ad revenue weakness, that basically accounts for offsetting the Tinder subscriber increase. That's basically what happened in the quarter at a high level.

And just a quick follow-up on the advertising business; it's a small percentage of revenue, but the decline in revenue this quarter is concerning. Is this a focus going forward, or are you emphasizing the subscription side?

We've been clear for a while now that the ad business is a smaller priority. We're fortunate to have a strong direct-to-consumer business, which is where we generate bulk revenue. Ads are a few percentage points of the overall company revenue. We're not surrendering it, but it doesn't get the priority that new features do, particularly at Tinder. That’s how we prioritize our resources. Yes, we'd like to do better than declines, but several factors are leading to this weakness. We'll continue to watch these trends closely, but ad revenue isn't our primary focus.

Thank you.

Next question?

Great, thanks. Just a couple of Tinder questions on localization. Have you introduced any versions? How many countries and regions would you expect to localize Tinder, and what's the timing? Second, Tinder number four app in Japan; how big is the opportunity if you can get the flywheel going like you have in a bunch of other countries? Lastly, any reason that Tinder's second-half 19 subscriber additions wouldn't track near one-half levels?

Okay. Hi, John. I'll take the first part of that. In terms of localizing Tinder, we are working on several product localization features. App performance is one that I mentioned. Tinder Lite is coming soon, focusing on the speed and the experience, beneficial for more remote users. We've focused on the recommendation engine based on geography and liquidity in specific cities, which improves matching at a local level—essential. Onboaring is also being refined to retain cultural relevance—like including blood types in Japan. Integrating local payment processors is also essential to reduce friction for subscriptions. Overall, we've talked about investing in local talent; we believe we will uncover unique insights we need as we expand.

Regarding the opportunity in Japan, we've operated there for several years even before the acquisition of Pairs. This is a market that hasn’t seen much growth or traction until the last couple of years; as stigma has started to fade. We believe there's ample opportunity, especially with multiple brands. Tinder has only recently started to focus on Japan but has a meaningful user base. We believe Tinder's price is lower than local competitors; we see potential for uprating. So we'll continue to evaluate these opportunities. As for back-half 2019 Tinder subs, there are two components to note: first, in the first half of the year, we've been focused more on conversion; we will look to push ALC in the second half of the year. Also, some optimizations we've rolled out have been successful; we expect to see effects when we rollout the iOS changes on Android later this year. We will likely see bumps due to this rollout, but are uncertain about Q4 changes. Between those factors, a different focus in the back half and the potential effects from rollouts account for changes in subs.

Thank you.

You're welcome.

Thanks. Just two quick questions; how are you thinking about international growth ex-Tinder? If you don’t want to give specific numbers, can you talk about the qualitative magnitude you see? And how does that evolve perhaps into next year? Secondly, how do you think about pricing in India going forward?

International growth is currently driven by Tinder and Pairs, with some contribution from other brands. We see big opportunities as we are under-penetrated in Asian markets, with plans to drive significant growth from them. Our strategy is comprehensive; we will drive with existing assets like Tinder and Pairs while introducing OkCupid in India. We may expand our portfolio, potentially acquiring new brands to capture market opportunities. It's about executing our plans effectively. On pricing in India, we are focusing on urban markets—currently we're attracting early adopters with higher incomes and education, which is driving ARPU. This may change as we expand, but we expect subscriber acquisitions to offset ARPU declines, with effectively managing price points. The mix helps; countries like Japan and Korea maintain higher ARPU compared to Brazil and Turkey.

Okay.

Hey, guys. Thanks for squeezing me in. A question on Hinge; is that mostly organic, or are you guys doing paid promotion plus word-of-mouth to gain traction in London? Are there engagement and match rates or metrics you're focused on that you're seeing at Hinge? Lastly, as you look at your most penetrated markets on the East Coast or London, what are you seeing in terms of growth of Tinder and Hinge user base? Is it accretive, or is there some cannibalization?

So, even prior to the acquisition of Hinge, we saw an incredible market fit; people loved the product and engaged strongly. There is significant word-of-mouth driving its adoption. We are seeing some of the same in London. We did send the Hinge CEO over for some PR initiatives, and that has also seen success. For metrics, Hinge engagement is comparable to Tinder in the early days, particularly among younger users looking for something serious. Hinge primarily attracts those aged 25 to 30—more serious daters. Thus, we view them as complementary rather than competing applications. Looking ahead, we feel that positioning Hinge this way supports broader user engagement across our platforms.

We’re going to wrap up now as we are over time. Thank you for joining our call, and we look forward to speaking with you again next quarter.