Match Group, Inc.

Welcome to the Match Group First Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to Tani Shelburne, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Operator, and good morning, everyone. Today's call will be led by CEO Bernard Kim and President and CFO Gary Swidler. They'll make a few brief remarks, and then we'll open it up for questions. Before we start, I need 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. During this call, we will discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in the shareholder letter on our IR website. These non-GAAP measures are not intended to be a substitute for our GAAP results. With that, I'd like to turn over the call to BK.

Good morning, everyone, and thanks for joining today's call. I know much of our discussion today will focus on near-term trends and challenges. Both Gary and I will address those headwinds, and we will discuss it in Q&A. And while some of the current trends are challenging, it does not dissuade us from what we believe is long-term opportunity. So I want to start with the big picture and that opportunity. As we look at the state of the dating industry today, one thing remains very clear. For those daters looking to go on a date and meet someone in real life, our apps empower people to make meaningful connections like no other platform. In today's dating scene, many people still hold on to that nostalgic, romantic idea of meeting someone organically. However, the reality is that chances for a spontaneous meet cute are becoming increasingly rare. Even in settings like bars, where social interactions are expected, single daters looking to meet someone are actually on their phones, using apps to navigate their social and romantic lives. Our apps are strategically designed to bridge this gap, leveraging technology to serve as a springboard to get you on a great date that may not have happened otherwise. That's why dating apps have become the primary way people meet today, particularly in more developed markets like the US and Western Europe. Surprisingly, there are still so many people who don't use our apps and many more who aren't actively dating, creating a massive opportunity and a significant runway for growth as we aim to redefine the meet cute and create safer places for all singles to find a meaningful connection. Over the last two years, we've made meaningful progress at Match Group. Our brands have executed against well-defined product and marketing initiatives. Tinder continues to be an iconic brand worldwide and the entry point to dating for each new generation. Hinge has been a standout, demonstrating tremendous growth based on their brand promise for intentioned daters to get out on great dates. We are more confident than ever that the business is well on its way to generating a billion dollars in revenue. Hinge is resonating well in markets that we've entered and being very thoughtful about the user experience to help ensure that we're building a great community and truly delivering on our mission. We've launched several new apps tailored at select demographics where we see real potential. And these platforms within our emerging brands portfolio have performed very well. In particular, we want to call out the progress on Archer, which is focused on gay men and demonstrating really strong momentum. The app recently hit more than 700,000 downloads since it launched last year. Engagement is up even more, growing triple digits, which indicates that we have a strong ecosystem and users who are loving it. I also want to point out that we've achieved this growth without significantly increasing our investment in marketing since the beginning of the year. The Archer team is revved up and continues to innovate the user experience to make it the most dynamic and engaging app for this community. Across the portfolio, we've continued to deploy resources more efficiently. The HyperConnect team is working on projects with most of our other businesses and has fantastic talent that we believe will continue to add value to our various brands. Now we get a lot of questions about monthly active users. And I want to remind everyone that our business's approach is very different from other social platforms. Our goal is to see real single users find a date and then get off of our apps. We focus on attracting singles who want to make real connections and satisfying our daters who are earnest in their intentions by delivering great experiences. Tinder's international scale and reach has never been matched by any other dating app, and it's critical that we keep the ecosystem vibrant. For example, Tinder took decisive action by changing its community guidelines and moderation practices mid last year, which better enabled the removal of users who are not on the app for its intended purposes. While the improvements to the ecosystem and benefits to the brand are undeniable, these actions did contribute to some of Tinder's MAU declines over the past nine months. We believe that actions like these are in the best interest of Tinder's long-term success. So we are willing to accept fewer MAU in the short term to create a safer ecosystem and better outcomes for our daters. Diving a little deeper into Tinder, we have heard loud and clear that some users, especially the Gen Z cohort, are looking for more from their dating apps. We have been in this business a long time and we have consistently adapted our offerings to best serve the needs of different generations. And we understand and recognize that expectations of apps are changing. Tinder is working tirelessly to execute against their strategy, and I'm incredibly confident in the team's ability to satisfy these evolving expectations that users have. By the end of the year, we expect to have a significantly improved product. Similarly, pressures on discretionary consumer spending, especially among Tinder's younger user base, have negatively impacted Tinder's a la carte revenue. The team is doubling down on its efforts to improve the efficacy of its current ALC features and introduce new offerings at affordable price points. we expect to see improvements in ALC trends by the back half of the year. We know we have work to do to satisfy every new generation of daters. The Tinder team is working to improve the dating journey at every point of the experience. Through innovation, especially with AI, we believe we can improve the quality of profiles, matching outcomes, safety features, and the post-match experience to make the entire Tinder platform more modern and deliver on their brand promise. I've asked our chief technology officer and his central innovation team to work even more closely with Tinder's product team to expedite all these efforts which are underway. And given Tinder's vast scale and knowledge about relationships and dating, there is no dating app better positioned to take advantage of these advances in technology. Tinder has become an industry-defining, highly profitable business over the past decade. We have been innovating to solve some of the user pain points. As a result, we will have a healthier, more satisfying, and ultimately more valuable experience for daters to enjoy. And I am confident that Tinder's momentum will come back. We believe we have real market opportunity and the right teams and strategies in place to get to that next level of growth. And we are determined to deliver that for all of our stakeholders. We continue to see significant growth runway at Hinge and our emerging brands portfolio. we're executing on our turnaround plan for Tinder, and our central innovation teams are bringing renewed vigor to product innovation. We are excited to continue this work as giving people new, exciting ways to connect is what motivates us every day. And with that, let me turn it over to Gary.

Thanks, PK. And hello, everyone. Thank you for joining us this morning. Our business demonstrated strong financial performance to start the year, with FX neutral results coming in ahead of our expectations. Match Group's total revenue was $860 million, up 9% year-over-year and 12% FX neutral in Q1. Revenue per payer grew 16%, while payers declined 6% year-over-year. We experienced $2 million more in FX headwinds than we anticipated at the time of our last earnings call. We generated $267 million of free cash flow in the quarter. Tinder likewise delivered 9% year-over-year direct revenue growth, 12% FX neutral. Hinge grew direct revenue 50% year-over-year, ahead of our expectations for the second consecutive quarter. MGAsia's and Evergreen and Emerging Brands' direct revenue declined 6% and 4%, respectively, year-over-year, although MGAsia was up 7% FX neutral. Azar grew direct revenue 20% year-over-year, FX neutral. The emerging brands collectively grew direct revenue 23% year-over-year. We welcomed some new demographically focused apps to the E&E portfolio. Archer continued to show strong user growth, as BK mentioned, and the app experience continued to evolve to better satisfy the target audience. Q1 Tinder direct revenue was $481 million, driven by RPP that increased 20% year over year to $16.52 due to the effects of the U.S. price optimizations and weekly packages we rolled out starting in late Q1 2023. There was better stability at the top of the funnel at Tinder in the first quarter, with new users down only 4% year over year on a like-for-like basis, factoring in that we exited two countries. While Tinder also experienced a decline in monthly active users in the quarter, the decisions we made to change Tinder's policies and moderation practices starting last summer to enable easier elimination of users who are not on the app to really connect led to an approximately 2 million decline in Tinder MAU. This decline included bad actors and users who were some of the least engaged on the platform. We will fight this comp all year, but we'll have it fully anniversary by the end of 2024. We believe that these actions are beneficial to the overall ecosystem health, and we are already seeing signs of improvement in key engagement metrics that we track. For example, Tinder's ratio of daily active users to monthly active users reached some of its highest levels, well north of 40% in Q1, an improvement of 14 basis points versus Q1 of last year. Although impactful to MAU, we believe this was the right decision for the ecosystem. Tinder's payers declined 9% year-over-year in Q1 to just under $10 million and were down $255,000 sequentially, just slightly worse than our expectations. While growth in subscription revenue at Tinder was strong at 17% year over year, primarily due to the increase in RPP, Tinder continued to experience pressure on a la carte revenue, which was down 13% year over year in the quarter. We believe the decline in ALC revenue stems from user declines and lower average purchase volumes, in part due to weaker consumer discretionary spending among its younger user base, among other reasons. The weaker growth in ALC is a continuation of a trend that has been going on for a while now, but has been becoming more severe of late. Our Hinge brand continues to perform very well. Hinge direct revenue was $124 million in Q1. Hinge payers were up 31% year-over-year to $1.4 million, while RPP of nearly $29 was up 14% year-over-year. Hinge's downloads continue to be strong in both core English-speaking and Western European markets, growing approximately 20% year-over-year globally in Q1. We're confident that Hinge is in the very early stages of its monetization efforts, with payer penetration defined as payers to monthly active users just above half that at Tinder, providing ample room for expansion. The user growth trends, global expansion opportunities, and monetization runway give us optimism around Hinge's long-term outlook. We believe Hinge is on track to become a $1 billion revenue business. Match Group's Q1 AOI was $279 million, up 6% year-over-year, for a margin of 33%. Operating income was $185 million in Q1, down 7% year-over-year, for a margin of 21%. Q1 Match Group AOI and OI each benefited from the increase in revenue as a result of growth at Tinder and Hinge, partially offset by an expected nearly $30 million or 20% year-over-year increase in selling and marketing expenses and an increase in cost of revenue due to higher app store fees. The increase in selling and marketing spend was primarily at Tinder, Hinge, and certain emerging brands, offset by declines in marketing spend at multiple other brands. Operating income was further impacted by increased SBC expense due to increased hiring activity to support product development efforts, unusually high forfeitures in the prior year period, and other factors. While SBC expense rose, the grant value of awards to employees was approximately flat year over year, as we focused on controlling the level of new equity awards to employees, which impacts future period SBC expense. Additionally, OI was impacted by a 94% year-over-year increase in depreciation expense due to increases in internally developed software placed in service, including at Tinder and HyperConnect. We repurchased approximately $200 million of our shares in Q1 at an average price of approximately $35 per share on a trade date basis, reducing our share count by approximately $6 million. This represented a deployment of roughly 75% of our Q1 free cash flow, delivering on our commitment to deploy more than 50% of our free cash flow for share repurchases. With our net leverage below our target at 2.3 times and $800 million remaining on our share buyback authorization, we expect to continue returning at least 75% of our free cash flow to shareholders for the remainder of the year. For Q2 24, we expect total revenue for match group of $850 to $860 million, up 2% to 4% year-over-year, and 5% to 6% FX neutral. We expect direct revenue at Tinder to be $475 to $480 million in Q2, flat to up 1% year-over-year, up 3% to 4% FX neutral. The user growth and ALC revenue headwinds at Tinder, plus the effect of the anniversary of various monetization initiatives we implemented starting in late Q1 of last year, are impacting Tinder's direct revenue growth rate, which is below our target for the business. The Tinder team is focused on implementing monetization initiatives to strengthen revenue growth. These initiatives include revisions to existing ALC features and introducing new offerings. We expect our product work to lead to significantly better year-over-year trends in ALC revenue in the back half of this year. These initiatives are in addition to the extensive work being done to improve the app experience and the health of the ecosystem. We expect Tinder payers to decline at similar rates year-over-year in Q2 as they did in Q1, leading to a modest improvement in sequential payer trends in Q2 compared to Q1. We continue to anticipate positive sequential payer additions at Tinder in Q3. Across our other brands, we expect Q2 direct revenue of $360 to $365 million, up 5% to 7% year over year, 8% to 10% FX neutral. Within our other brands, we expect Hinge to deliver $125 to $130 million of direct revenue in Q2, year over year growth of 38% to 44%. We expect match group AOI of $300 to $305 million in Q2, roughly flat year over year, and margin of 35% at the midpoints of the ranges. We expect overall Q2 marketing spend to be about $25 million higher than in the prior year quarter, largely due to increased spend at Hinge, Tinder, and some E&E brands. We opted into Apple's new App Store policies in the EU on April 1st, so we expect at least $5 million per quarter of IOP fee savings going forward, assuming no further changes in App Store policies. We're complying with our settlement agreement with Google, which requires us to adopt Google Play billing, user choice billing, and or developer-only billing across our brands. This change is creating some modest conversion headwinds for us, but we're working to adjust to this new reality, and Google is making improvements on their end as well. Reflecting our Q2 expectations and the latest trends at Tinder, we currently expect low single-digit year-over-year direct revenue growth rates at Tinder for the remaining quarters of 2024, although they could be higher if some of the product initiatives deliver or ALC revenue or other trends improve beyond our current expectations. This updated rest of year outlook leads us to anticipate low to mid single digit year over year direct revenue growth for Tinder for full year 2024. Given this, for the full year, we expect total company revenue growth to be near the lower end of our previously stated 6% to 9% year over year total revenue growth target range, unless there is a material over delivery of our expectations by our other brands, particularly Hinge. For both Tinder and the whole company, we currently expect FX to be about a one-point year-over-year headwind in the back half of the year. We remain focused on delivering AOI margin of at least 36% for Match Group in 2024. We are continuously evaluating the previously disclosed investments in marketing and product innovation at Tinder, Hinge, and in new experiences and will adjust as appropriate. Our outlook is for Match Group to generate nearly $1.1 billion of free cash flow in 2024, and we expect to utilize at least 75% of our free cash flow for capital return for the remainder of the year. We believe that at our current stock price, our shares remain the best investment we can make with our capital. With that, I'll ask the operator to open the line for questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Benjamin Black with Deutsche Bank. Please go ahead.

Great. Thank you for taking my question. It'd be great to hear what's giving you confidence that Tinder net ads will return to sequential growth in the third quarter despite steady declines in pairs we're seeing today. Is there something that you're seeing maybe as it pertains to conversion trends that you can point to that's driving this optimism? Thank you.

Thanks, Ben, for the question. First of all, in terms of trends that we're seeing at Tinder, I just want to point out a few different things. So first of all, you know, conversion has improved dramatically. And that's in part because, you know, we've lowered pricing. Sorry, we've raised pricing. Sorry. We rolled out weekly subscription packages, which as a result of that are lower prices, and that has led to improved conversion, right? But those subscribers that are signing up for the weekly subscription packages, are there for a shorter duration period. So they're in the payer count for less time. So that's one of the trends that's going on inside of the business. We also have declining user base. We have declining MAU. And so we need conversion to work harder. We need to generate more payers on a smaller user base. So those are the trends that are happening. If you look at the payers on a year-over-year basis, we talked about how payers declined 9% in the first quarter, and we expect payers to decline at a similar level in the second quarter. I think if you do the math, you'll see that we need the product initiatives that we have planned at Tinder to improve the user trends and to improve conversion sufficiently that the 9% year-over-year decline happens. in payers improves a little bit to 8% or 7%. If that happens, the math would show you that you get sequential payer improvement in the third quarter at Tinder. And so that's what we're focused on. I think we have enough initiatives, enough product work going on to improve MAU to drive conversion so that we should see the sequential improvement in payers by Q3. And the other thing I would point out, which I think is probably obvious but just want to make sure, is that we've had a lot of noise in the Tinder payer count, especially sequentially, as a result of all of the payer actions we've taken, all the price changes, weekly subscriptions, et cetera. It's created a lot of noise for the last little while. We're largely getting that behind us now, right? The big changes that were made in the U.S., which were very significant, happened starting in the late first quarter of last year and really affected the second quarter. So the payer count information should start to get a lot – smoother or a lot easier to understand. There'll be less significant changes going forward. And so I think the metrics will be much more clear for people. So we're looking forward to that as well.

Great. Thank you very much.

The next question comes from Nathan Feather with Morgan Stanley. Please go ahead.

Hey, everyone. Thanks for taking my question. So when thinking about how to reignite user growth at Tinder, Are there any case studies you draw on internally from the rest of your portfolio, especially with some brands now around for three decades, where a brand successfully evolved the product to appeal to the next generation? And how do you incorporate key learnings from that for where Tinder's at today? Thanks.

Thanks, Nathan, for that question. Sure. We have a lot of great examples across the portfolio of products that show true evolution. We've consistently seen that true product innovation can lead to material impacts on the user experience. We know that this can appeal to new demographics and expand the total industry. Our portfolio of brands, which have existed for more than 10 plus years, is a major benefit. Years ago, OkCupid introduced the freemium model, which gained traction with late millennials who have not yet embraced the hard paywall business like Match.com or Hinge. When Hinge launched, it was based on connecting friends of friends for dating, but eventually Hinge's growth stalled, so they did a full product teardown, which was a really big and bold, tough decision, and redesigned Hinge from the ground up to focus on creating great dates and an app that's designed to be deleted. And users around the world are now flocking to Hinge. And if you look at Tinder, it was a massive innovation for the whole category. Tinder took the mobile phone and created an unprecedented experience that everyone loved. We talk about the swipe, but the double opt-in was also a category changer for women who were suddenly in much more control of the attention that they received. So we know what works, but we also know what doesn't work. We're listening to our young daters today and working to address their need. What we've learned from all of these lessons across the portfolio and the learnings that we have from our users is that product changes that we need to make need to be big and bold to drive real change. We can't make small little changes to product and expect a massive impact. We're really lucky because we have people across the entire company that have launched products, love building them, and are super motivated to capture the opportunity ahead. So we're going full steam ahead on our strategy and we're confident that it's going to work.

The next question comes from Ken Kowalski with Wells Fargo. Please go ahead.

Thank you for the question. Appreciate it. You maintain the margin guidance for the full year despite revenue expected to come in toward the lower end of previous expectations. It would seem from the outside that you should take the opportunity to invest more in marketing to get Tinder net payer growth in 3Q. What are we missing here? Why not be more aggressive here at this point?

Great question, Ken. Like we said earlier, It's really the product experience that needs to resonate first and foremost. While marketing is a component of top of funnel growth, it needs to be combined with evolving product experience that resonates with users. The answer to your question is that we really don't see a compelling reason to increase marketing to achieve payer growth. It really needs to come from product innovation. Our marketing today is much more about improving the Tinder brand narrative and making sure that Tinder is top of mind for daters. While we do expect this to have some positive impact on users, particularly women and Gen Z, it's not a lever we can pull to drive short-term payer growth. And remember, Tinder's marketing spend is more about brand marketing and not direct response. So it isn't about spending more just to simply hit a quarterly payer number. Thanks for the question.

Thank you.

The next question comes from Jason Hellstein with Oppenheimer. Please go ahead.

Thanks for taking the question. Maybe I'll ask, and some of this you did allude to, but maybe elaborate. So what's changed specifically since February at Tinder? which is driving the low-to-mid single-digit revenue growth versus the prior 6% to 8% as subs are still expected to turn positive in the third quarter. Just elaborate. I mean, obviously you talked about some of the kind of safety things you've done to the platform, but just elaborate a little bit more. Thank you.

Why don't I take a shot at that, Jason? So, you know, a couple of things have changed. I mean, one, you know, our year-over-year payer growth expectations have come down a little bit, right? We had the negative nine the first quarter, and we're predicting something similar. We'd like to see, obviously, improvement in that metric. As I mentioned to Ben, you know, we're confident that all the product initiatives and things we have going on will lead to that in the third quarter. So that's what we really need to see. And I would point out sort of two specific things that have really changed since we did our last earnings call. You know, the first thing, and we talked a little bit about this in the letter and the remarks, The first thing is that we've seen increasing ALC weakness in this economic environment at Tinder. And so, you know, that's putting pressure on revenue because the purchase volume that a user is making is lower than it was previously. So we have initiatives in place to try to resolve that, but that's a critical driver of revenue, and that's putting more pressure on revenue than what we expected three months ago. And then, you know, because we have declining Mao, and I talked about how we need to drive conversion, we need initiatives to really drive the revenue growth. And so, you know, we have those going in a number of different ways across the world, but those have been delivering a little bit less than what we were expecting when we last provided the outlook in February. So we need those initiatives to work a little bit harder. And, you know, we'd like to see, obviously, improvement in Mao as well. That would help us. offset some of the pressures we've seen. So those are the things that have really moved the ALC degradation a little bit more severe headwind there, and the fact that some of our monetization initiatives have been under delivering a bit versus what we'd like to see. But as I said to Ben, if we can get modest improvement in year-over-year payer growth, that will still lead to the sequential payer growth in Q3. And so, you know, sequential payer growth in and of itself doesn't lead to year-over-year revenue growth. We need to see year-over-year payer growth and year-over-year revenue per payer growth combined. That's what leads to, you know, year-over-year revenue growth. And so that's what we need to make sure is working the way we want it to.

Okay. Thank you.

The next question comes from Chris Kuntarich with UBS. Please go ahead.

Great. Thanks for taking the question. Maybe one around your product efforts. Last year was more focused on pricing, and now that focus seems to be shifting towards product tweaks that should be driving more conversion events. Can you just talk to us about the visibility you have into those monetizations from last year versus the conversion-focused product tweaks ahead of you? Thank you.

I'll take that one. Last year, we implemented a number of monetization initiatives, which we know how to do really well, and we have a great team behind it. That drove short-term revenue growth at Tinder. But to really achieve long-term growth at Tinder, we need to reimagine the product to better satisfy women and Gen Z. This is a much more significant undertaking for sustained long-term growth. and less certain than implementing monetization optimizations and initiatives. We are confident that we have the right team in place and we're focused on this and the series of planned initiatives that we will deliver to improve the product experience we feel really strong about. This will drive user growth, payer growth, and revenue growth over time. So to be clear, What we're talking about is not really a series of conversion tweaks, but a longer-term strategic undertaking. Thanks for that question, Chris. Thanks.

The next question comes from Dan Salmon with New Street Research. Please go ahead.

Okay, great. Thanks for taking the questions. Good morning, everybody. I'd like to talk about AI a little bit and just first to ask about any of the early learnings you've seen from the tests of the AI photo selector on Tinder. And I think the wording in the letter was about launching it more widely in the summer. Just curious if you had a little bit more details on the timeline, if that's first half of the year or later on in the summer months, and maybe just more broadly your view around AI development around the company. BK mentioned how HyperConnect has been helping a lot of businesses, and I know AI is a specialty there. I'm sure Will Wu's got a lot of attention, a lot of his time focused on this, but just more broadly how you're thinking about the roadmap for AI-based products across your suite of apps. Thanks.

Thanks for that question. I absolutely love talking about AI and Photo Selector. And Will worked closely with our HyperConnect team in conjunction with our Tinder team to create this great feature that we think is really scalable. And to really go back to that dater experience, when a dater makes a decision to download Tinder or one of our other apps, they're really putting themselves out there. And the first step that we ask daters to do is create a profile. That immediately can be a barrier to entry. Some of our users can kind of put their hands up in the air and say, okay, I'll do that later. But we now can help a person create a profile using AI and overcome that barrier. We're testing it right now and we're launching this summer. Now I've tried it myself and I personally have over 10,000 photos on my phone and I wouldn't even know where to start if I were building my own dating profile. But Photo Selector magically chooses 10 photos for me, goes through all 10,000 photos in less than a minute, and it actually ended up showing parts of my personality that I wouldn't have really thought to showcase. Based on the 10 photos that they picked, my profile would show that I went to a Taylor Swift concert, love to cook, and I love my dog. If I was doing this on my own, I'd probably just stick my corporate headshot, which is an okay photo, but it really doesn't tell much about me. If we can help people create better profiles, we believe that this is going to get to better matches and have better conversations, which lead to better outcomes. This is just one example of the power of AI, and we plan to expand on this throughout the entire dating journey. Thanks for that question.

The next question comes from Justin Patterson with KeyBank. Please go ahead.

Great. Thank you very much. Good morning. I wanted to ask a bit about Hinge. You had outlined the path to $1 billion in the letter, so I appreciate that. I wanted to actually dive into margins around that. As we see Hinge scaling, moving toward that $1 billion, revenue target, and what do you think about margin potential there? Can it get closer to tender over time? And then just maybe perhaps an update on where hinge margins are today. I know in the past you've signaled that those were approaching the corporate average, so here is a case. Thank you. Thank you.

Thanks, Justin. Why don't I take that? So, you know, hinge margins are expected to be in the high 20s percent range for the year, so short of the corporate number. And they're about stable with where they were last year. And I would point out really a couple of things going on that are affecting the hinge margins. The first thing is we're making a significant investment in marketing really across all the markets that Hinge is focused on. So there's 17 markets. We're not marketing in every single one. But there's a significant effort going on on the marketing side to build brand awareness, especially in these newer European countries. And the revenue generation lags that. So it's an investment, and the revenue will start to help generate operating leverage for the business, Over time, we're generating more revenue from Europe this year than we did last year, and that will continue to grow. So that's one thing that's going to lead to improved margins at Hinge over time. The second thing is we're making a big investment in people there. You know, we continue to expand headcount, particularly in product development. you know, to continue to build out a better and better product experience. And so that investment is happening up front, but those investments should lead to revenue generation, which also should lead to operating leverage over time. And so I'm confident that as Hinge scales, The investments that we're making in marketing, the investments in people will pay off, and the margins will start to approach company levels. I think we have a good line of sight to get there. Where exactly hinge margins land is really going to depend on how fast and how big that business scales to. So, you know, the more scale it achieves, the more I have confidence that margins will continue to improve. I think there's a path to get to company levels. I think there's a path that they could be higher, but we'll have to see how that plays out and at what rate that that plays out. I would tell you that you know, Hinge margins, Hinge is investing more in marketing dollars than Tinder does. And that's because Tinder has such a high level brand awareness in all the markets where it operates. You know, it was a big viral sensation when it burst onto the scene. It hasn't had to spend the marketing dollars that, you know, others who came after it, including Hinge, have had to do. So, you know, I think Hinge is always going to have margins that are below Tinder's level for that reason. We are spending a little bit more marketing at Tinder. And so, you know, the gap is closing a little bit as Hinge improves its margin. But I do believe that, you know, that's the dynamic we have, that Tinder is, you know, the higher margin business, but the Tender is a higher margin business, but that Hinge will be somewhere around company margins. And that all assumes no change in App Store fees, which of course could be a big margin driver as well. So we'll see how that all plays out. But those are the dynamics that I see as Hinge continues to grow and mature.

Great. Thank you.

The next question comes from Corey Carpenter with JP Morgan. Please go ahead.

Thank you. Gary, could you expand on how you're planning to maintain your 36% or better margin target this year despite the softer revenue outlook? And more broadly, are there any incremental areas you've identified to reduce costs? Thank you.

Sure. Happy to take that. So, first of all, I would say, you know, early the year, you know, we provided an outlook of 6% to 9% total company year-over-year revenue growth. And we were prepared to deliver 36% margins even at the low end of that. So what's happened in terms of the performance thus far this year, we still have a plan to get the 36% margins even if we're toward the lower end of our previously stated total company revenue range. Now, obviously, we need to prepare for contingencies. And I'm not expecting this to happen. But if there were further deterioration to maintain that margin level, we have to take some additional actions. And so to your question, the first place we would look are things that don't impact revenue significantly. So corporate overhead, as an example, we would look to try to adjust areas that won't impact revenue generation. I don't think there's massive opportunity in those kinds of areas because we've been judicious and we've been fiscally responsible for a while. But that's a place that we could definitely look. After that, you start to get into areas that have more effect on revenue. So marketing would be one. Obviously, we have a very large marketing budget, over $500 million for the year. We try to be very judicious with marketing across the businesses. We monitor for a return on that investment, of course. But the good news is we don't lock into a lot of marketing commitments. And to the extent we have to make adjustments there, we can. And we can be very nimble. But again, there could be knock-on effects on revenue generation if we adjust marketing. I think we're pretty well optimized on the marketing side. But that would be another place to look. It's a big expense line for us. And then, as we talked about a lot on the last earnings call and people are aware, we've got a number of innovation bets that are going on right now that are critical to driving future growth. Those tend to be, you know, very margin dilutive in the early years because we're making investments in those businesses and they're pre-revenue. In the event that we needed to find other places to look at, we would look at all those bets even more carefully. We are consistently reevaluating them, but that would be perhaps a luxury that we would not have as much of. Again, there would be knock-on effects on revenue in the future years, on growth in the future years. if we curtailed some of those, but we'd have to look at that. So those are the trade-offs that you have to make. And, you know, obviously they get tougher and tougher, you know, if things were to deteriorate. So we're, you know, the job one is really to generate improved trends, improved revenue growth, and avoid the need to, you know, to take any further cost actions.

Thank you.

The next question comes from Yagal Arunian with Citi. Please go ahead.

Hey, thank you. Good morning, everyone. I want to follow up on the product side and particularly around women and Gen Z. For women, you called out better product recommendations, better outcomes there, and you're calling out here and talking on the call a lot about being bolder on the product side. So can you just – Help us understand what that means on the Boulder side. What are the product expectations around the women in Gen Z and how we should think about that? On the safety side with losing MAUs as you did that and cleaned up some of that, understand the impact on the MAU loss. How should we think about not the comps year over year, but how you expect that to drive improvement? over time and how we should see that. Thanks.

Great question. Gen Z and women and women's experience in particular is our top priority. They are literally the most critical demographic for all dating apps. We know that women need to feel empowered and respected when they're on our apps. We have a series of initiatives to improve outcomes for women to make sure they're getting great matches. Now, on the trust and safety side, we have a very aggressive approach to removing bad actors, especially when we get reports from users. But recently, as we mentioned in the letter and in my opening remarks, we changed Tinder's community guidelines to remove people from Tinder who weren't there to date. Whether they were trying to grow their social media following or were not very active, they had negative impacts on user perception of the Tinder product. So we made this change, and as Gary said, we think we lost about 2 million MAU, but it was the right call for Tinder because it's more important that we're delivering great matches and authentic users and also getting them out to meet in real life. These trade offs are important and the team has continued to evaluate and make hard decisions if it yields a healthier ecosystem. i'm going to give you an example tinder is going to start off start requiring face photos. We believe that will be great for the ecosystem because it'll increase the authenticity of people's profiles. But we also think that it's very likely to impact MAU as we weed out some people who are really not there to date, or it actually creates extra time to get comfortable with this change. However, as I talked about earlier, AI Photo Selector will help make selecting photos easier, and we believe this will minimize the impact on MAU. This is something that we'll test and monitor, but we obviously think this is the right call for the user experience and the wider ecosystem. Thanks for that question.

The next question comes from Jane Lee with Evercore ISI. Please go ahead.

Great. Thanks for taking the question. A couple. First, if you can talk about the macro assumptions they came to this guide. Are you assuming that what you're seeing today in macro persists and any improvement in payer growth is purely driven off, say, pricing optimization or product development? And also, one on E&E, this interesting call out on Archer, if you can double click on, you know, the growth mostly coming from user and conversion or any particular price action you've taken. And how should we think about, like, growth driver for this product or for emerging in general the next year, just given your comments in the letter of emerging starting to offset evergreen potentially next year? Thanks for talking.

So let me jump in and take some of those. I mean, first of all, at Archer, I would just point out it's a pre-revenue business. So really what's happening is that we're seeing strong user growth. We haven't yet gotten to the point where we're monetizing that business. I think that can come in the relative short term because the key thing to enable us to monetize is to grow users sufficiently that there's liquidity in the market. We're getting to that point where we have enough users, daters on that app. And so we can start to roll out some initial monetization features. You know, that is part of the strategy. And as you asked about, you know, I would think about the emerging brands as a series of businesses, a series of bricks that are kind of like stacked on top of each other. So we've got a number of demographic apps in that portfolio, and we're generating more and more revenue because we're stacking more and more bricks of demographically focused apps. So we have one focused on the Asian community, we have one focused on the Hispanic community, one focused on the black community, one focused on the gay male community, and all of those are generating revenue. And that's a growing pool of demographically tailored apps generating revenue. And obviously, as we get Archer to the monetization stage, that will be a bigger piece of the equation. And so we've got moderating declines going on at the evergreen brands because we're managing those businesses to a sort of managed decline, a reasonable level of decline. And we're able to generate enough revenue in the emerging brands now to basically offset the declines that we see consistently in the evergreen brand. So that's what's happening in the E&E brand as a whole. And what we're trying to do is reduce redundancies there, use a common tech platform, and be as efficient as possible and drive as strong margins as we can in that business we're taking out you know a significant amount of cost we've estimated 60 million and so we'll have a you know a a business that should start to grow again modestly um if that all comes to fruition at margins that'll be you know quite attractive from the corporate perspective that's the goal um in the e e businesses um I think you also asked a question about macro trends. And what I would say is we're not assuming a significant change in macro, which is really having the effect on Tinder ALC. So that's where it's relevant. In the Tinder ALC, what we're trying to do there is find other ways to offset the macro trends by adding offerings, by adjusting offerings, by offering things at different price points, all of those things together to offset the headwinds we're seeing. But for the rest of the year, we're not assuming significant benefits. changes in the macro environment. But, you know, we've done this once before, if you remember, you know, way back when, you know, we adjusted the way we were merchandising a la carte offerings at Tinder because we started to see some pushback on them. We were offering more expensive bundles in a weaker economic environment, and so we adjusted our merchandising. And we're looking at, you know, similar kinds of changes, again, to adapt to a tougher macro environment, adjusting the pricing, adjusting what we offer and how we offer it so that we think we can, you know, improve the demand and cater better to the current economic climate, especially among those younger users at Tinder. So hopefully that responds to your questions.

Yeah, perfect. Thanks.

The next question comes from James Henney with Jefferies. Please go ahead.

Great. Thank you for taking the question. In the letter, you reiterated your confidence in sequential payer growth in Q3 and slowing user declines in the back half of the year. So I'm just curious what this would imply for Q4 payers and to the extent you can talk about Q1. Thank you.

Sure. Thanks, James. Happy to take the question. And so we're expecting, as I talked about as it related to Q3 sequential payer ads, we're expecting improved year-over-year payer growth as the year goes on. We haven't seen that yet, but it's critical that we generate that through either product initiatives to drive conversion and or MAU improvement. And so we need to be on the path to see improving year-over-year payer growth as the quarters go on. I still think that we have a path to get to year-over-year payer growth in Q4, but obviously the weaker trends at the beginning of the year make that path a bit tougher. And so we have more wood to chop to get there by Q4, and we need initiatives at Tinder to drive us to that outcome. I do want to say that, you know, I'm sure you understand this, but there seems to be some confusion between users on the one hand and payers on the other hand. So I want to explain, you know, how we use those terms. You know, we talk about new users at Tinder, which really means registrations, new sign-ups, sometimes, you know, downloads or uses substitute for that, and reactivations. That's new users at Tinder. And we also talk about MAU, which we refer to here. Collectively, all of that is users or user growth at Tinder. And that is critical to be able to, you know, drive improved trends. And so we're very focused on initiatives to do that. Improvement in users, in new users or users collectively at Tinder, is what will enable us to drive year-over-year payer growth. Because obviously payers come as users improve. There's a lag, but people sign up, they're on the platform, and we ultimately convert them into payers. And so those things are related. So the fact that we believe we can get stronger user growth in the back half of the year through all of our product initiatives, app ecosystem cleanup, etc., should generate improved payer growth as well. Maybe we won't get quite to it at the very end of this year. It may go into next year, but we're right now positioned to see improved payer growth in Q4 and then going into Q1 as well. And so that bodes well for the longer term trends in the business because as we improve the user growth, And as we have initiatives driving conversion, we should start to see improved payer growth and therefore improved revenue growth as well. That's the goal. That's what we're trying to achieve through the four-pronged strategy that Tinder is executing on. So hopefully that addresses your question, James.

Yes, thank you. Okay.

I think we have time maybe for one more question.

The next question comes from Curtis Nagel with Bank of America.

Please go ahead. Terrific. Maybe just one real quick one and then a follow-up. Gary, for you, just mentioned initial headcount coming into Hinge. Any other parts of the business where we'll see growth? And then just one on the ACL products, right? Any risk, I guess, of cannibalizing subscription revenue? It sounds like you're going to take some features, right, that you have in premium. put them into ACL offerings at more affordable price points. And then just what is the assumption in terms of contribution from a la carte in terms of revenue growth in the back half of the year?

So just, we don't have a lot of time, but I'll try to answer that relatively quickly. On the Hinge headcount, you know, I did mention we are making significant investments there. It's primarily in product development. You know, we do have a significant investment plan to the company overall on the headcount side, but I do think that will moderate as the year goes on. If you look at headcount costs, They're up a lot in the first quarter year over year, but there's some SBC effects and other things that I think will normalize. And so I think that headwind will abate as the year goes on. Hinge is the primary place where we're investing in headcount. And I talked a little bit about the margin consequences there. There is some additional investment at Tinder and in some of the central innovation AI efforts. Those are the primary areas where we're investing in headcount. We're being really judicious elsewhere across the company. So that's kind of one piece of it. On the a la carte cannibalization, that is a factor that we grapple with. There is the potential risk for a la carte to cannibalize subscription. And so we need to test and manage every new feature that we roll out on the a la carte side, which we do to make sure we understand the cannibalization. If it's revenue accretive, we're still comfortable doing that, but you might see knock-on effects on subscribers, but overall better generation on the a la carte side. So that's something that we manage, that balance. It's a critical skill that we have, and we're going to continue to do so. We have a lot of a la carte products and adjustments in the pipeline for Tinder in the back half of the year. So I'm expecting a la carte revenue growth in the back half of the year or improvement from where we are now, at least. And I do think that the percentage of Tinder's revenue that we generate from a la carte should start to increase as well as we're growing a la carte. I don't think it'll be dramatic. It's around 20%, probably tick up to 21%, 22%. So that's what we expect to see in the back half of the year as we roll out more of these a la carte-focused initiatives at Tinder. So hopefully that addresses your question. I think we are out of time, but I'll turn the call back over to BK.

Thanks, Gary, and thanks, everyone, for joining today's call. Gary and I appreciate your questions, and thank you so much for your interest. We're all really excited about the business that we're building and the opportunities ahead. We look forward to continuing the conversation and have a great day. Thank you all.

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