Q4 2019 Earnings Call
[music].
Good morning, and welcome to the match group fourth quarter 2019 earnings Conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Star then zero on your telephone keypad.
After today's presentation, there will be an opportunity to ask questions to ask a question. You mean press Star then one on your telephone keypad to withdraw your question. Please press Star then too.
Please note this event is being recorded.
I would now like to turn the conference over to land Spartan Senior Vice President of corporate development and Investor Relations. Please go ahead.
Thank you operator, and good morning, everyone. Joining me on the call today, our CEO, Manny Ginsburg, President and Kevin CEO Shark Bay, and CFO and COO, Gary Swindler Mandiant, Gary will review the Investor presentation that is available on our Investor Relations website, and then open it up for questions.
Before we start I'd like to remind everyone that during this call. We may discuss our outlook in future performance. These forward looking statements maybe 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 FCC.
Where do you Mandy.
Thanks Lance.
[laughter] bittersweet moment for me is I'll be stepping down as CEO at the end of can month. After 14 years here at the company I want to thank everyone listening today, especially investor should think great supporters of this business over the last few years.
It's been an emotional decision for me because I Love This company and I passionately believe in our mission to help people find meaningful relationship.
But after a challenging too much for me personally it was the right.
And it is never easy to leave a place she loves the timing seem right.
Spectra started a new chapter as an independent company.
More importantly, if there's an incredible leader who is taking the range for me I.
I'm extremely excited that started to bay will be taking over as CEO batch grip on March 1st She's been an incredible partner of mine for 14 years, most recently acting as a match group President.
She knows these businesses inside and out.
As CEO of tender she ran product and revenue among other areas. There it has been instrumental and not businesses success.
Sure I was trained as an engineered I T in India, not only she a brilliant analytical and action oriented executives, but she's just an amazing people leader our instincts on growth levers are unparalleled.
She unquestionably has division and experience to take this business forward I'm confident we won't Miss a beat during this transition.
Gary and I'm going to walk you through the slides, we aspire to be on for any queuing. It you might have let's jump into the slides starting on page four to talk about how fantastic. Our results were in 2019, and while we're confident we're well positioned for the future.
2019, with another milestone year for match group as total revenue exceeded $2 billion for the first time.
And there was once again the primary growth driver as direct revenue exceeded $1.1 billion just five years. After the first monetization features lunch.
They enter 2020, the investments we've been making in growth areas outside of tender are starting to bear fruit.
We've seen increased momentum at Henderson, okay to bed and strength in international markets across Europe and Japan.
As a company, we're able to leverage best practices across the portfolio to aggressively pursue areas of untapped opportunity and we think that these opportunities can be drivers for growth for the business over the next five years and beyond.
We believe the businesses and a great position Ashar takes over and as we approach they expected separation from IC.
Let's turn to slide five.
There are three critical focus areas for tender this year first and foremost is trust and safety.
The second areas around innovation to drive more engagement and successful matching and then the last area user growth and monetization.
We recently announced a slate of new features using cutting edge technology dedicated to safety, including a strategic investment in partnership with a personal safety App called me light.
New life proprietary technology allows our users to access real time security assistance. This is something that no other dating App currently offers.
And then my integration allows our U.S. members to share details about upcoming Dave via their timeline feature Daters can include who they're meeting where and when they're meeting their day.
They also have the ability to easily and discreetly trigger emergency services, if they're feeling uneasy oren need assistance.
The first of its kind added safety measure to help tender members protect themselves when they've taken their interactions off the app and into real life.
These features won't be limited to tender as we'll be rolling out and in light across our brands.
Personally very excited about this feature and I know schar shares my commitment around user safety.
The second thing we introduced its soda verification, which is also debuting on tinder.
Members will be able to self authenticate through a series of real time posed selfie.
He sell things are then compared to existing profile photos using human assisted AI technology.
Profiles with verified photos will display.
Blue Checkmark.
The feature is currently testing in select markets will become more widely available this year.
Tinder will also clip daters with a comprehensive safety center to keep users important about all tinder safety initiatives.
We're undertaking these efforts because the safety of our users is paramount to us and the more tools. We can offer users to protect themselves we think the better.
The first half of this year has a meaningful portion of tenders roadmap dedicated to this important safety work. We also believe these improvements across our portfolio will go a long way to maintain the trust of our users, especially for our female users.
The second area of focus for tender is product innovation.
Our goal is to make the overall experience more engaging by giving our users more things to do on tender and therefore more reasons to come back again and again.
White Knight is a great example, this we created an immersive content experience that gave you. There's a reason to spend time on tender beyond the core matching experience.
Lets users connecting based on the share contact of their swipe not experience.
We are rolling Swipe night out to 10 markets in Europe and Asia later this quarter.
We also want to make the utility of tender better and more efficient we'll be introducing features to give members more control over their experience tender you. As an example of this way this type of feature where we enable users to limit their matches only to other college students. It was well received particularly with female users.
We believe there's opportunity to introduce both free and paid features to enhance the experience.
We're also introducing features it gives users more ways to express themselves and show their interests, which we think is especially important to the gensix audience.
Common interest and self expression are particularly important in markets, where the dating culture is not as explicit as it is here in the U.S. for example, and providing more alibi to connect and meet is really important.
We're not expecting the dating culture to adapt to western norms in these countries, rather we're adapting the tender product to fit the dating and social norms in these markets.
Last but certainly not least is growth both in terms of users and revenue.
User growth is driven by both exciting and effective product features as well as our global marketing efforts.
We're pleased that our Q4 user growth remained strong with double digit growth across our regions.
Some user growth Austin occurred naturally due to tenders place in the cultural landscape. It happened last year in Brazil, but the chart topping song Jennifer and we saw it happen. Once again started this year with a Dolly Parton challenge, which was awesome.
Tinder has a long list of features plan for 2020 to drive monetization, but it's worth calling out two areas, we think that theres, a lot of opportunity and where the teams really focused on.
First the Tms any great ideas in the works for a healthy all the card or consumable features which will give users, especially power users additional advantages and benefits on tender.
These premium features will be offered with appropriate premium pricing.
Second as we even study a number of our developing markets, particularly in Asia. It's clear that recurring subscription models are not the way consumers predominantly trend that.
Pays you go and in App currency models are more popular ways for consumers to pay therefore, the tender team is hard at work on new monetization approaches to better serve these markets with models that are more typical and these geographies.
And just to give you a little more contacts the way tenders plan product cadence is set for this year. The first half is gonna be focused on enhancing the core experience, including the trust and safety efforts I talked about and putting in place infrastructure to enable the Asia Pac monetization features later this year, we will see the rollout of new Ali.
Our features targeted at power users and other monetization features.
Okay, Let's turn the page to page six.
The hinge in 2019 hinge team is focused on refining the product and user experience all driving further growth with two exciting and creative brand campaign.
Product and marketing efforts allowed us to grow downloads over 100% year over year.
I'm extremely pleased with the progress made at hand as it has quickly become a leading app in the extremely competitive North America and UK market.
We've also increased revenue by approximately 400%, we're just starting to focus our efforts on monetization.
We see meaningful opportunity to increase both conversion and ARPU it hinge and if the progress we've made on Tinder. Since 2015 is any indication of the potential we have a lot of opportunity left.
As you can see at the bottom right slot part of the slide hinges conversion rate and ARPU are currently much lower than that of tender.
We get tuners relative conversion ARPU levels. We believe we can improve hinge monetization for registered users by three acts from where it is today that coupled with its rapid user growth. We believe sets hedge up for meaningful revenue upside over the next few years.
Okay. Cupid has made huge strides not only in international growth markets, such as India, but also in North America.
The business has achieved eight consecutive quarters of around 10% year over year growth.
This has been driven by a combination of refocusing the product on its core features and running provocative marketing campaigns and these campaign to once again, how people buzzing about okay Cupid.
Internationally the growth plan, we've been executing in India is working well and serves as a template for additional geographic expansion.
We are already starting to see similar signs of success in Turkey in Israel and have plans to invest in growing the brand in a number of other countries as the year progressive.
Our approach has been to test learn and scale and we think it's been a prudent way to scale in international markets.
Flipping to slide I want to highlight a few areas of strength in international markets.
Slide eight highlight some recent strength we've seen in Europe. In addition to the continued strong growth we've had in Japan.
We've been working hard for the past couple of years to improved growth at me Tech, we made numerous product improvements and enhanced our marketing campaign to emphasize real relationship.
These efforts have helped new subscribers in music had a six year high last month, largely driven by improvements in conversion.
The Ourtime business in Europe has been growing double digit and we see no signs of that slowing down given the demand we see in the over 50 demo throughout that region.
Japan also continues to be a bright spot for us with both pairs and tender gaining market share and outpacing category growth.
There's plenty of opportunity to further scale brand marketing as well right now there are restrictions prohibit our category for marketing on TV.
That channel opens up it would be an additional huge win for us for that business.
I could both helped increased brand awareness and continue to ROE. This demand is still exists there.
And you can see either a lot of exciting growth initiatives that we're investing in across the company.
We believe these initiatives will be additional drivers of growth for match group.
It's been an amazing run for me over the last 14 years and I'll Miss being a part of the next chapter, but I know short and the rest of the management team is ready and has levers to drive our growth well into the future with that I'll hand, the call over to Gary to discuss our financial performance.
Thanks, Mandy before I jump into my remarks, I just want to thank you for all the years of dedicated service to this company and to the dating category you influenced so many people's lives, both our customers and our employees you've been inspirational leader and all but at the company have loved working with you you'll be missed but I know we are a terrific hands with sharp.
As our CEO, we all wish you much health and happiness.
Now, let's turn to the company's performance as Mandy said, we had a phenomenal 29 team and believe the business is in excellent shape heading into 2020, we have a clear strategy for continued global growth and we're executing well on our plans. Let's first review Q4, and then I will discuss our outlook for 2020 in more depth.
On Slide 10, you can see the total average subscribers grew 19% in Q4, the same strong level as in Q3 19.
Tinder added 1.54 million subscribers on a year over year basis, 36% growth.
Tenders Q4 subscriber additions were impacted by changes to the cancellation flow contained an apples iOS 13 upgrade, particularly by apples forced adoption of Iowa 13 for all users globally in December which led to a higher level of cancellations than we had been expecting had the upgrades have been more voluntary.
Part of users.
Now onto their subscribers grew about 1% in Q4 year over year. This was the first quarter of year over year growth in non tender subscribers since Q4 2016.
On last quarter's call, we said that we expected non tender year over year subscriber growth in Q4 and that came to pass the growth is being driven by an array of brands, including hinge payors, Okay, Cupid cheeseburger and be okay.
In Q4 overall company ARPU was up a penny year over year to 59 cents tenders ARPU increased 4% year over year in the quarter.
North American ARPU was up 4% year over year International ARPU was down 1%, but up 1% on an FX neutral basis on an FX neutral basis total company ARPU was up 2% year over year.
Flipping to slide 11, you can see that the company's Q4 total revenue was $547 million for year over year growth of 20%.
Total revenue growth would've been 21% were $5 million better without the impact of FX.
Tinder direct revenue grew 39% in the quarter.
Indirect revenue stabilize in Q4 as we've been expecting.
Operating income grew 19% an EBITDA grew 22% in the quarter EBITDA margin improved by a point over the prior year quarter.
Selling and marketing spend declined as a percentage of revenue again this quarter by nearly five points to 18% or lowest level as a public company.
In Q4, we spent down at a number of the legacy brands and only increased spending modestly at the growing brands. We also delayed to 2020. Some spend we had planned India and Australia due to widespread protests and wildfires in those countries respectively.
The overall reduction in marketing spend was mostly offset by IP free growth and higher legal expenses and product development costs.
At the end of every year, we like to step back and review our financial trends over the past several years to avoid focusing solely on the quarter by quarter trends.
Tutors growth has been exceptional going from negligible revenue in 2015 to over 1.15 billion indirect revenue in 2019, the CAGR of 123% you just don't see that very often especially at the margin level that tinder has.
As you can see on slide 12, Tinder has clearly propelled match group over the past five years to total revenue growth of 20% annually.
But I want to reemphasize something that man, he said, which is that we've been successfully turning around several of our brands and we've made a series of important new beds. These strategic moves have positioned us to drive real and accelerating growth in a non tuner brands starting in 2020.
We're also executing on our strategy of growing international direct revenue, which now comprises roughly half the company's direct revenue up from one third in 2015.
Asia Pacific revenue is trending towards our goal of 25% of total company revenue it was up to 17% of the total in Q4 19.
In particular markets like Japan, where we have the two leading brands in pairs and tender or becoming major revenue markets for us with rapid growth.
Growth it brands like tender, which rely less on paid marketing coupled with spending discipline at several of the other brands have enabled us to expand margins significantly over the past five years with EBITDA margins going from 33% in 2015% to 38% in 2019.
We believe there is room to expand our margins above 40% in the long run, especially of legal expenses, which increased $38 million year over year in 2019 decline and our non tuner brands contribute more.
Slide 13 shows that in 2019, we made about $37 million of investments into hinge on our other emerging brands. This level of discretionary investment in new beds about 2% of revenue is a very manageable level for the company of course. This excludes all the investing in people product and marketing that we're doing glow.
Finally to expand our other profitable brands like tender.
As you can see from a chart hinges, making fantastic progress and we expected to be close to breakeven in 2020.
And still has a lot of work to do but we're confident it's on track to profitability.
In 2020 were planning to invest in a variety of our other businesses that we believe are showing traction. These include all blow a person to person text and video chat app that our team incubated in 2018 and launched in 2019.
We're thrilled that Google named a below the 2019 app of the year.
Hello, showing strong user growth and we're investing into that momentum.
Our chief HSPA and be Okay apps have done a great job building their user bases in the Hispanic and African American communities in the U.S. and they already have monetization underway.
We have confidence that they will be solid profitable contributors to our portfolio and then not too distant future.
Overall, a significant portion of the investments we plan to make this year is designed to achieve our goal of deriving a quarter of our revenue from Asia Pacific by 2023. These include pairs engage targeted at the matrimony market in Japan, and Okay Cupid in several Asian markets.
We've talked about the opportunity we see in the untapped and rapidly growing Muslim demographic globally, and we're planning to invest in a small app in Egypt that we bought last year to address that demo we're investing the team in the product and in marketing to drive user growth.
Slide 14 shows that we started at the time of our IPO with net leverage of 4.1 times.
From there we've reduced leverage significantly even while returning over 1.2 billion capital to shareholders through share buybacks and dividends. We ended Q4 19 at 1.5 times net leverage below our target.
As we announced in December we will be paying $3 per share of cash consideration or approximately $840 million an accurate at the time of the separation from I see we intend to use cash on hand at a new debt raise of about $500 million to fund this amount.
Including our assumption of 1.7 billion of Exchangeables My C., we believe our net leverage will be about 4.2 times when the transaction is expected to close in Q2.
We're highly confident that through a combination of EBITDA growth and some debt Paydown, we will de lever to under three times net leverage over the 18 months following the separation.
In fact, we believe we can de lever, even more significantly than that unless we find appealing M&A or investment targets.
If you look at the right side of Slide 14, you can see that we generated $620 million or free cash flow in 2019, and converted nearly 80% of our EBITDA to free cash flow.
On slide 15, we have our latest financial outlook.
On our last earnings call, we provided a preliminary outlook for 2020 and now that we've completed our financial planning process. We're reaffirming what we said last time.
2020, we believe we can achieve mid to high teens revenue and EBITDA growth.
We expect tinder to be the primary growth driver for US again in 2020, adding a similar amount of direct revenue year over year as it did in 2019.
Over the last couple of years, we've targeted 1 million or more average subscriber additions for tender at the start of the year and that is our target again for 2020.
Well that is our target there are few things worth noting.
The new cancellation flows in iOS, 13, which negatively impacted our cancellation rates in Q4, especially late in the quarter, we'll have a carryover negative impact on Q1 sequential net additions a tender.
It was 13 adoption ramped up from under 20% in October two around 85% in January including a step change at the end of December when there was a force upgrade to Iowa 13.
As the existing tuner paid members encounter this experience for the first time cancellations rise. This elevated level of cancellations is expected to be concentrated in the month of November through February.
The high levels of adoption rates already reached for iOS 13 give us confidence that its effects on tinder cancellations will lessen after Q1 20.
Importantly, despite the sequential net net adds math, we're expecting a very healthy Q1 for tender with revenue growth in the mid thirtys percent range and even higher growth in new subscriptions.
It is also important keep in mind. The key focus is of our tinder product roadmap this year, which may be went through.
We have a number of important Alec hurt features planned primarily to target power users willing to pay a premium for special advantages and benefits on Tinder. These features which we plan for the second half of 2020 or more focus on ARPU increases.
Additionally, as we expand tinder in Asia, where customers are more accustomed to pay as you go models as opposed to buying monthly subscriptions, we plan to adjust our monetization models. It is important that we customize our product to the preferences of users in each country and that is a major objective for tinder in 2020.
We have a lot of experimentation plan this year to settle on the right monetization models in all these countries. This makes estimating subscriber additions ARPU improvements difficult to pinpoint with precision at this time, particularly on a quarterly basis as you all know, though our focus is on delivering our revenue goals not driving specific.
Hi, guys.
Also it's important to recognize that the roadmap for Tinder is loaded in the first half of the year with important safety initiatives and laying infrastructure groundwork for the new monetization models in Asia that we plan to rollout in the second half of the year.
With all this considered we have confidence in the full year growth expectations and subscriber net additions at Tinder that I mentioned previously.
Given the product cadence as well as the iOS impacts, we expect hindered sequential average subscriber additions to be more weighted to the back half of the year. We also expect solid single digit year over year growth and ARPU at Tinder in 2020.
We believe that are non tender businesses will contribute increasingly to the company's revenue growth as 2020 progresses hinge pairs, okay, Cupid meetic cheeseburger and be okay are all on solid growth trajectories and our live streaming project a plenty of fish should add solid revenue growth as well.
Notably the focus on monetization hands will help drive improvement in revenue growth of non tender brands, but depending on what levers we pull growth in non tender average subscribers may be impacted but again, we're focused on revenue optimization not driving specific capesize.
In 2020, we expect to increase marketing spend at a fairly large number of our brands that are showing momentum.
For example, as Mandy mentioned, Okay. Cupid is planning to take its playbook and momentum to a number of Asian markets, including Malaysia, and Indonesia, where we expect to see increased marketing spend.
We're also planning to invest in marketing for our Muslim focused product and our new pairs engage product in Japan.
We anticipate that our 2020 EBITDA will also be impacted by approximately 25 million of higher legal costs year over year, primarily in the first half as well as by approximately $5 million to $10 million of separation related costs, the bulk of which we expect in Q2 as the deal closes.
For Q1, 20, we expect total revenue of $545 million to $555 million for year over year growth of 17% to 19% and EBITDA of $170 million to $175 million. The Q1 EBITDA range reflects the heavier marketing push we're planning to make as well as $10 million of year over year.
Higher legal costs.
The other items for 2020 that we list on slide 15 are generally pretty straightforward, but I did want to point out a few things.
First the impact of the separation the search that we don't expect to be a full domestic cash taxpayer until 2022, one year later than we previously had expected.
Second we're assuming an incremental 500 million dollar debt raise in 2020, which will increase our cash interest costs as well the $1.7 billion exchangeables will be assuming from IC upon the separation.
Last we're expecting capex in 2020 to be higher than has been recently, because we plan to remodel one of the former IC buildings in la.
As we begin 2020, our fifth full year as a public company the businesses in terrific shape Tinder has grown like few other companies before it we're working to attract the next generation of users expand the business globally and drive continued outstanding revenue and profit growth.
Away from tender, we successfully achieve growth at many of our other brands and have made new bets that have begun to payoff or are well positioned to do so.
We landed in a good place with the terms of the separation from IC and are confident we'll have the financial flexibility, we need to invest in or acquire businesses, where we see strategic fit.
We believe there are few companies poised to deliver the combination of growth profitability and free cash flow generation over the next five years that we expect to deliver we've been best in class in terms of these metrics since our IPO and we believe our strong track record, we'll continue 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 one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys.
At any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then to at this time, we will pause momentarily to assemble our roster.
The first question John Blackledge of Cowen. Please go ahead.
Great. Thanks, two questions first maybe congratulations on your strong leadership in execution and chart congratulations on being named.
Oh sure just kind of curious about your view of the strategic direction and investment strategy for Tinder and the non tender assets relative to Mandeep view and then second question will be on Gary Aside from Iowa 13.
Any other kind of swing factors for the 1 million plus some tinder net add guide for 2020. Thank you.
Thank you John This is actually a great question for me to start my first call with and I know some feel wondering if and what changes but this change.
I want to say, if there ever was continuity and strategy and operating rhythm management change. This is probably its mandy and I have had a long partnership obviously, but we've worked very closely and running this business, particularly over the last couple of years and my taking over does not change our core strategy.
At the highest level the way I think about it we are a technology company in the service up a very fundamental human need the need for love and meaningful relationships Mandy and I have seen this category develop in the us in Western Europe.
When we started about 3% of people, Matt online and today that numbers over 40%, but not only is that now the number one way people need in developed markets. There are now independent studies that show that these relationships that started online or actually stronger on happier than traditional lines.
So we're committed to bringing the same level of success and much of the rest of the world, where we think at category penetration is still quite low.
So in the near term growth levers continue to be tender international video and new bats that both Mandiant Gallery mentioned like can't engine, our demographic specific apps.
But I did want to take us slightly longer and broader view and point out a couple of things about our business.
I've been here a long time with what gets me, particularly excited now about this category is that we have both technology and consumer behavior and acceptance reach a point that allows us to evolve our products from and almost pure introduction service, but the.
You know swipe and search to match the message type of a paradigm to a much richer live and fun experience for people to discover me in Florida and truly date online.
And this is going to allow us to create new surface areas on the app for our users to engage wet and in turn this opens up new monetization mechanics, we haven't tried on our apps before.
The other thing I want to point out we have a very large global at a high intent user base and we monetize the rather small portion of it to a small number of revenue features and eliminating subscription model.
We haven't yet tried offering additional products and services that enhance their dating journey.
I personally have a long experience with product in revenue and I know the teams are working and some interesting new engagement and monetization mechanics across our various platforms, including tender and I hope to be able to talk more about these as the yield progressive.
Yeah, you want to take the sure so.
John I know, there's a lot of focused obviously on the on the net adds number in the million.
I just want to remind you again, we focus on driving revenue at Tinder, not particularly driving just a sub number just the ARPU numbers, we look at it in combination.
Sitting here today, one month into the year or so what we're saying is that we think we can do a million sub additions or better for the year and we have a lot of confidence in hitting that target. We know, it's an important sorry to hit but as I talked about in my remarks, and maybe talk about in her remarks theres a lot of different swing factors that are going to affect.
The trade offs that we make it kind of where each of these capesize, namely ARPU and subscriber additions land.
Charges talked about it as well we're focused on tailoring the product.
In the Asian markets, which may lead to more Alec heart and more ARPU less than subscriber lives.
We're focused on a lot of different prognosis got an extremely busy product roadmap at tinder all through this year and so as we've seen on upfront.
On a platform of scale like we Havent tinder, even small things can sometimes lead to significant wins. So we're going to try and lot of different things. We have a lot of confidence we've got a lot of interesting things to roll out and I think if we execute better we get some bigger Windsor, we're expecting that number of 1 million certainly could be higher but it will depend on what we choose to focus on and where we have success.
There is on the Allen card side, whether it's on the subscriber inside or whether it's on both of those things, which obviously would lead to two upside for us overall. So that's what we have to do we're busy executing this we've got a lot of conference the senior team and the product team that they can execute we've done a lot of things to consider and we'll certainly see how the year plays out.
We're mindful to revenue goals, we need to deliver subs are clearly a component of that.
And we're going to make a number of trading losses year progresses to land in a place that I think everyone.
We will feel good about.
Thank you.
Thanks, John The next question comes from Doug and most of Jpmorgan. Please go ahead.
Thanks for taking my question.
Jerry was hoping you could just go into some more detail on the Fourq you a sub dynamics you talked about iOS 13 ramping up late in the quarter can you give us it sounds like that's more of a churn thing can you give us a sense on how you feel about gross adds in the quarter and also whether there were any other factors that may have impacted.
Is there anyway to quantify.
IOS.
13, and then how that plays out as you go into these first few months of 20 to 20. Thanks.
Yes, so I try to go through some of that in my remarks, but I know there's a big question. If you will have and there's a lot of moving parts to it. So let me try to kind of step people through this.
Methodically. So you don't unlike a lot of apps out there like Netflix where people rarely just delete there the app entirely from their phone on maybe the cancel their subscription, but they don't necessarily duly deanna daters behave differently as they meet people as things are happening in there in their lives. They do tend to delete the app.
And reinstall the App as well so we are a periodic usage business, which is different than a lot higher subscription businesses that you are used to season and so the Apple changes that were made did affect our business more than many other subscription businesses as they are out there as they changed the cancellation flow and what we do see is.
Matt.
For for people who.
To lead the App when they hit that new cancellation flow for the first time, we see an elevated level of cancellations if not the case for the second or third well timed encounter that cancellation flow through now we've seen a few months of data on this and we're confident that that's the case, it's really the first time that they encounter that new cancellation flow.
And what we've been able to see as this has rolled out is that the curve that we see on the elevated cancellations really follows the adoption curve.
For the iOS 13 upgrade so the cancellations ticked up with a little bit of a delay, but they basically ticked up.
As iOS 13 was adopted and so that started kind of in the 20% range back in October. When this was when I was 13 was verse rolled out but now the adoption there is probably in the 85% to 90% range. So with that tells US is pretty much everyone, who can has got iOS 13 at this point.
Okay, and so we have confidence that the effect of the higher cancellations from Iowa 13 is going to dissipate now that we kind of reached the ceiling in terms of GRI upgraded to iOS 13.
The thing that surprised us in Q4 that we hadn't been expecting is that instead of allowing people to voluntarily upgrade to iOS 13 overtime Apple required all users to do it towards the end of the quarter because of that led to us a step change in the cancellations.
We were not expecting when we talked about our fourth quarter expectations on our last call. So that was really the surprise. So it is a churn issue.
If you look at our gross adds they're extremely healthy they continue to increase sequentially the increased in Q4.
They are they grew again in January so I have confidence they're going to grow for the first quarter. So gross adds really are strong and is really is ultimately a cancellation issue, which we think will dissipate I think the effect is going to linger through Q1, there may be some tiny impact on Q2, but I think ultimately we're going to get through this and we.
And that the impact is really boxed in interest validated cancellations from kind of the November timeframe.
To February so that's why.
As we as we talk about our outlook for the year and a 1 billion net adds if you look at it if we we have confidence in our number and so if that number is lower and the started the year. It means that we expected our product roadmap and and the lessening of the impact from the iOS 13 upgrade is going to lead to.
A stronger number of net add later in the years that we can hit the million and I think sitting here today, that's what we have.
Confidence and we're hard at work on the roadmap to make sure that we are able to achieve that and thats, where we sit today.
Again, I just want to stress, we focused over on revenue and so we'll have to determine what trade offs, we make between the net ads growth and our current growth in ARPU growth and so we'll see how that works out, but again as I said to John and answering the last call.
We see that small wins can really lead to a big impacts on the tender platform.
One of things in the Hopper to get US there. So we'll see how the year kind of progressive and lays out.
So we feel good that we are having this temporary headwind from the iOS cancellation flow, but it's going to dissipate and an overall the year looks to be in good shape for us.
How many acres under.
The only thing I want to add I know, we've said in the past about the stock effect of a new features that we launch and how when we expose a new feature to the entire user base you still see an abnormal inquiries and growth path and then eventually that levels out this is sort of.
Think of those as.
You know elevated terms and RVR strikes and so as the vast majority of our paid members and counter does the new experience for the first time, we're seeing an elevated level off a termination, which ultimately is going to level out.
Great. Thank you both for the detail.
Okay. Thanks to.
The next question comes from Kunal Madhukar of Deutsche Bank. Please go ahead.
Hi, Thanks for taking my question.
Regarding Facebook dating back on.
So on its fourth quarter call on Facebook said.
Facebook dating is going really well, it's become a little bit computing services and we expect to continue growing so we get that consumers use multiple labs and given facebooks immense global user base. It is not surprising that they move it even people know that thought booting services.
This concludes last year you actually some statistics, that's just at the Facebook.
Did not really impacted or workable other brands. So how is that impacting other brands of north impacting other brands.
Sure.
Well, let me take that looked at all.
So as you said.
The fact that Facebook launch standing over a year ago internationally, and then late last year and you add our fundamental view has not and not changes not changes.
We thought it change based on the data that we're seeing.
Awareness certainly for Facebook dating is growing and they've been promoting it inside of their app.
Of course, we are not going to underestimate that given how many millions and millions of users around the platform.
Next is lower so why not.
Try to.
Try it.
That said.
We watch pretty excessively every Casey I across all of our brands.
And we really have not seen any correlated negative impact on any of those brands. Even the brand that we were more concerned about what we thought there could be more overlap, we just havent seen it.
There has been a lot of multi app usage.
35, or using three to four assets still growing until not surprising that that one of these apps or there could be incremental usage through sold of Facebook given sort of how low the friction. It up we also we haven't could affect any other platforms has also been watching clearly on tinder.
Ill.
We believe there's very little overlap on tinder.
Obviously, our largest app it young people a 19 year old age 20 year old there's just not signing up.
For Facebook.
The pricing, that's probably where their parents would be and over time places like in Asia.
More people, who use product and the more rich the competitive landscape is we actually think could help normalized the category and rise.
Hi that rise I'll shift actually could be beneficial for the category.
So we are still cautious.
And we will never have too much shifts around this because they're big player, but we think that we can compete and the reason we can compete because we will continue to.
To aggressively innovate our product that's the one thing we do every single day, we do think that that provides an advantage.
Thanks might be wish you the best.
The next question comes from Eric Sheridan of VBS. Please go ahead.
Thanks, So much maybe two if I could want on earnings can be a lot of investors have also reached out to pass along thanks for leadership over the last couple years.
Domain, which well going forward a more back to earnings maybe for Gary.
Sorry, just thinking through the revenue commentary on slide 15, you talk about picking your given most of.
Rose and comparable level of incremental revenue dollars turning away from Tinder can you just walked through a baby.
The building blocks of the non tender business, how that momentum through 2020, progressive and understanding some of the investments behind building that momentum as well. Thanks so much.
Sure happy to do that so if you go back in time, a little bit we've been talking about your tenure be our growth driver and then the non tender brands in aggregate beatings flat.
And we were saying we're going to try to get those back to growth and the reality now is that.
A lot of the brands in the non senior bucket have returned to some level of growth. So we think it was significant that we achieved overall subscriber growth and non tuner brands year over year in the fourth quarter now with a milestone that we're shooting for and I mentioned that we hit it.
And our plan really is to derive overall growth from the non tuner brands in 2020 and effective subs grew in Q4, and then we see the trends that are positive on a large number of than onto your brand gives us confidence that were on the path to get there. So I think that the growth will start out pretty modestly in.
In 2020 and in the early part of the year, but it will ramp and progress over time.
As we get through the year and so we feel good about that obviously kind of where we end up on our overall guidance range.
We will be impacted by how much growth, we're able to drive out of the non Tudor brand as well of course is where we end up specifically on the tender side, but those are some of the swing factors.
In the outlook.
I think when you kind of look at the individual brands and I highlighted some of this on in our in my remarks.
Hinge is starting to grow nicely, we feel great about the progress made user growth wise, we're starting to get to the point now where we're focusing on monetization. We think that will drive revenue for us in 2020 pairs in Japan has been a revenue growth story for a while for US now and the outlook is very good for that business. Okay. Cupid has been.
In a turnaround story in North America, we've gotten into the point, where it's growing close to 10% as Randy said and.
We feel good about the old rotate Cupid not only in North America, but also it's always international efforts are those are very early days and so that's going to take a while to contribute to growth chief spot be okay are still businesses that we're investing in but in general are starting monetization and we feel like they should add to the revenue picture as well and now.
We've been able to get Meetic back to some level growth in Europe, it's modest.
But it is in the positive comp as well so we feel good about that obviously turning things from a drag into a contributor even if modest is very helpful. So.
On the other side of the ledger, you've got the affinity businesses.
Some of which we've been running down and we continue to run down and not really invest in from a marketing standpoint and match has been a place where we've been working on the product we've been working on marketing. We've made some progress we haven't quite gone into point, where we can put it into the growth column, but we continue to get to work on it and we're in we're hoping that as the year progresses.
Match will show some improvement so those are a lot of moving pieces. The story is a little bit more complicated just send you an aggregate it's flat, but we see enough green shoots in a lot of these businesses or even better than not actual revenue growth contribution that we feel good and the question is how much growth can we drive out of those businesses.
Then on the other side of the coin you've got on the investments, we're making in kind of longer term bets in appears engage matrimony business, which we think can contribute revenue for us, but it's a longer term play it's probably late 20 into 2001 or beyond that it's going to really contribute for us. The same is true of the Muslim.
After we're focused on so I think thats, how we look at it you know hinge was something we made investments in we've gotten into the point now where it's going to contribute revenue 20, and ultimately get the profitability chief BLK kind of a similar trajectory and our goal is to kind of keep moving either the legacy brands into the growth category or make these investments and dry.
The new bats into the revenue contribution category as well so that is the business. We're in we feel good about the trajectory of virtually all of these businesses and that gives us a number of additional growth drivers beyond just tender that really kind of round out and help us diversify the overall financial.
Well, the business and and so Thats, what Weve why we feel we're in good shape as we enter into 2020.
Thanks, much for the color.
You're welcome.
Next question comes from Brent Bill of Jefferies. Please go ahead.
Good morning, Gary North America revenue declined sequentially for the first time ever is this all related to the Apple iOS change or any other reasons behind that in North America.
Let me take that I think this is not the way that we look to the visit you sit in either year over year trends are much more important all our businesses like the tender there's just real seasonality in our business are always happen since I've been here, especially quarter to quarter in Q.
For because people in Q4 to the obvious the focus more suite and you asked for example, Thanksgiving and Christmas more on their families and less on dating naturally and we see that showing up on our numbers and.
I bet that if you look at 2018 Q3, Q4, you probably see sequential revenue growth is negligible as well.
We just expected to be deceleration between those two quarters.
And it also in Q4 at the lowest marketing spend.
For most of our businesses. That's when it's just not ideal time spend marketing because you just don't have the right.
Sense of the attention in the tally for Ferrari for Daters.
In fact this years passed in Q4, we had lower marketing spend it Matt the lowest we've had it not because we've been selling expense.
We are excited about the year over year subscriber growth at the non Sinderbrand and we do think that this does set us up well for next year. So I would again not look at this potential business not really right with it but the year over year is probably the more relevant metric.
Thank you.
The next question comes from Benjamin Block of Evercore ISI. Please go ahead.
Hey, Thanks for the question and Monday, Congrats on on a great run and we wish you all on the success in the future.
I have a quick question on on and how would you say trends or are there you know trends in terms of features users monetization the geographic rollout how these tracking against your internal expectations and separately.
I would do to describe the competitive environment and you know what are some of the you know the deliberately you think you can pull in 2020 and 21 to help narrow that ARPU and conversion got you mentioned with with Tinder, and then separately sales and marketing came in well below our outlook.
How much of this was related to the timing said that you mentioned and what portion do you think we can be attributed to the path.
You are newer run rate going forward. Thanks.
Hi, let let me take the up the end question, Gary can take the marketing one.
The last couple of the first of all we feel great about his so.
The last two years is really focused on user growth.
And now I've talked about kind of putting the spotlight on monetization which included.
We've got new features merchandising pricing all the things that we have done for many many years and have a proven playbook.
There are number of proven revenue featured on Tinder and our other brands that we just haven't put on hedge yet.
And we keep it that's a real opportunity and of course, we sort of make whatever feature relevant the hens and adapt that feature to the hendi the system, but like I said. This is that if we really really early on the early innings.
Monetization playbook on his and.
We expect that we focus on pricing that obviously drive subs that we're going to find the right mix. It optimizes revenues. So we're not too hung up on sub number RP. We're just trying to figure out the maximization of.
The levers.
And then you asked about competition.
It is clear that hand is incredibly competitive and gaining huge traction among the relationship mine millennial and not just in in North America. The international market, we see a really nice growth in the UK in Australia.
His targets.
A different segment of the market then Tinder for example, because its users tend to be more serious not that there's not some overlap, but tinders core demos really the young college audience. It's more around yeah, just more social a little bit more fun and enhance it mostly for urban.
One hills and I'm like Okay, I am job now I need to get serious thought my life, including within life and so we think that having this product for this placement market at really fit seamlessly into our portfolio and we think it is definitely competitive and we are seeing it gained ground against other competitors in that relationship focus today.
In terms of the marketing shift we beat our EBITDA expectations.
And that was in part driven by a marketing shipped out it probably wasn't neighborhood of $5 million are so there are a couple of reasons for that we first of all the fourth quarter is generally a time, where we tend to be pretty judicious because it's not a great time to spend.
$30 in gets strong returns and so when we don't see opportunities. We just kind of is it saves money push out to the next quarter and so that was a part of what was going on given it was Q4, we didn't see returns that we thought where appropriate we didnt spend the money into the second which I alluded to in my remarks is there were a couple of plays where we are planning to spend marketing.
All ours in India, and Australia for our Tinder brand as well as our okay cubit brand that because of things that were going on in the countries. There protests in India and wildfires in Australia, which I was you were totally out of our control. We decided just didn't make sense. Hispanic marketing dollars in those countries. So we're going to come back as things have come down and spend that hopefully in the.
First quarter.
I don't think its right to say that does kind of a new kind of run rate level. I think we're going to go back to our more typical levels of marketing spend and we have a lot of things underway to do that Q1 is a good marketing spend quarter for us we're planning to try to be aggressive across a lot of these brands, where we see the opportunity for growth as well as a lot of these new bets that we were.
On a drive in 2020.
So you know our strategy remains unchanged, even though we did have this dip in sales and marketing as a percent of revenue in Q4, because our our job is to drive growth and we want to make those marketing investments that we've got a lot of platforms, where we see positive signs of potential growth or growth itself that we want to invest in so.
I think you have to look at Q4 as a as an artificially low level and some things are out of our control that drove the shift out plus the discipline, we typically have in Q4, especially and.
We're going to kind of go from there.
Great. Thank you.
And the last question today will come from Michael <unk> of Goldman Sachs. Please go ahead.
Thank you for the question. This one is just on Tinder. So with the new revenue feature is concentrated in second half and primarily focused on Holic hard power users can you just talk a little bit more about the single digit growth outlook for ARPU in 2020.
How should that phase throughout the year and are there any examples of the Alec hard opportunities that you see for 10 or they can share with us today. Thank you.
Hi can take this medium Garo you already talked a little bit about tenders roadmap cadence and to focus on all the card. So maybe I tried to.
Lay out a framework of how to think about monetization our platform models generally and then tender or specifically.
If you think about content platforms, you, mostly pay for access and subscription models makes sense there.
On platforms, such as games, you pay for advantage it and it lends itself more to a consumable pay model.
We are supposed to a unique in a lot of ways up until about three years ago. We we had only pay for access subscription models on most of our platforms.
And then we started experimenting with a couple paper advantage features a and on tinder up, particularly and they've done really well and they already contribute north of 25% of our direct revenue.
So we think we haven't real opportunity to do more on to pay for advantage area and hence the focus on all the cards I can't get into specifics of what it is that we're planning, but we've got some cool stuff the teams experimenting with.
And then one other part of what we're saying about these Asian markets in particular.
These are markets, we are starting to play meaningfully in but consumers are not used to the recurring subscription model and so in these markets does it real opportunity to tailor even our access features into more of a pay as you go model and so that's why I'm sort of the trade off between.
Subscribers on ARPU plays out we're going to do a lot of experimentation. This year are ultimately as Gary and Mandy keep saying we are in the business is maximizing revenue and that's what we're focused on and we'll see how it all sort of levels out, but there is going to be a lot of work in this area fought for tender.
This year.
Right.
Before I wrap up I just wanted to quickly.
They just one last word which is again. Thank you so much for all the department of people on this call and our investors I didn't debate how.
Trade Paradise be about my personal life at I've always been an open but we've always been accompanied it's been very transparent and I'm kind of made that that and the outdoor and the kind words have been humbly. So thank you for that.
The Alaska with utilized feel like I'd need to think are the people at this company and course in this room. It isn't an honor come to work with these incredible human beings and I've got to work with every single day with Gary and his expanded role COO and Shire, who you guys are going to love getting to know.
And I, just think that they've got experience the passion.
In addition to take this business for it and I wish them last but they really don't need any they really have would it take in the future. There's often times that SAR and I would tell the team and the board. We got this and I can guarantee you that they've got so with that thanks for joining the call and again, thank you for everything.
This concludes the question and answer session in the match Group Conference call. Thank you for attending today's presentation. You may now disconnect.
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