Q1 2022 Match Group Inc Earnings Call
[music].
Good morning, and welcome to the match group first quarter 2022 earnings conference call.
Currently all participants are in a listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad.
We will be facilitating a question and answer session towards the end of today's call.
As a reminder, this call is being recorded for replay purposes.
I would now like to turn the call over to Bill Archer head of Investor Relations and corporate development.
Thank you operator, and good morning, everyone.
This call will be led by CEO Shar debate and CFO in CLO garris, whether they will 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 our earnings release, and our periodic reports filed with the SEC.
With that I'd like to turn the call over to share.
Thank you Bella.
Good morning, and thank you for joining the call today.
On our last call in February I made a comment that this past year has been remarkable for match group in many ways, even though the broad overall it has been a bit disorienting times.
And coming out of the this first quarter if the world is in a very different place than at the beginning of the year.
Our business is not immune to the macroeconomic headwinds such as the war in Ukraine, the strengthening U S dollar against foreign currencies at levels, we haven't seen in a while and lingering variants of COVID-19, and despite it all our business grew 20% in revenue in the first quarter of 2022, but it's strong.
Growth across the portfolio.
It is this strength in our core business that reminds me what makes our position in the online dating category, so unique and resilient.
Online dating is not an overnight fad it is a category and a business model that has built and grown steadily over time.
This is not serving a fickle user need I often say this if you look at plasma as hierarchy of human needs right about food shelter and security is loved and relationship.
The need for relationships and dating is not going to go away.
The market opportunity for our head for dating is massive.
Over 700 million connected singles around the world are eligible to use our products and only half of the eligible Tam in the western markets of U S and Western Europe have ever tried a dating app.
And that number is much lower across the rest of the world.
And while we have grown users every year that we've been a public company. There is still so much more to go do.
There's really no reason why people who are single shouldn't be using dating products.
People have broken into this category steadily but slowly.
Once they try it though they not only use multiple apps at a time that number is around three and a half are on an average in the U S. Today. They also keep coming back when their life circumstances change and they need us again.
So I remain incredibly bullish on the category as a whole and the opportunities still ahead.
Now back to our current business.
Even with all the macro uncertainty it is our job to execute and by and large we are on schedule with what we planned to deliver in 2022.
Tinder beyond solid 18% revenue growth in Q1, the team continues to make progress on its product roadmap, whether that is adding new experiences until explore are innovating on new monetization features.
Our trailing 22, playing for hinge to expand internationally beyond English speaking markets remains intact.
We'll be launching in Germany, and dark markets before the end of the second quarter and a few more markets before the end of the year.
And Hyperconnected continues to build momentum both with its current products and with the integrations, it's technology is bringing into our portfolio.
Finally, we are encouraged to see more and more green shoots around the globe as Covid fears continue to ease.
Seeing improvements in markets like Japan coming out of their most recent quasi state of emergency restrictions has us cautiously optimistic about several trends we are seeing.
Yeah.
And before I hand, it over to Gary to provide more color on the quarter I wanted to address the other news.
After 16 years of an incredible journey of building. This category in this business I feel privileged to be able to step down from day to day operational role and half the time and flexibility to focus on the next chapter of my life, which I'm, hoping will be the gift that chapter and allows me to do.
Things have wanted to do for a while but didn't have the time and headspace to.
As I said earlier the opportunity before the company is immense.
Asked majority of single people around the world have yet to try dating apps. While match has steadily grown users payer penetration and revenue prepares only a small mid teens percent of annually 100 million active users are payers today.
And they pay less than the cost of a cup of coffee a week.
There is ample runway for our brands to continue to drive growth across all of these three metrics.
And there remains a huge barrier to entry into the category. Both in the terms both in terms of the amount of trust and safety investment needed, but also the unique characteristics of the network effects of our successful gating pool, where balance of gender age other demographic.
[noise] geography, and intend all matter in order to produce successful outcomes for users and there is no one better positioned to continue to capture this important opportunity than us.
Which brings me to Bernard and why I think he is the right next leader of the company.
Bernard has a proven track record as a business product and people leader.
With 20 years of experience in mobile entertainment and gaming.
Not only was he instrumental in Zynga is turnaround and expansion he drove player engagement and monetization strategies into one of the best live services and mobile today and helps thing goes grossing goes market cap by Forex.
He has operated a business that's very similar to ours multi brand multi platform global markets.
Current lifecycle brands and has driven our growth successfully both organically as well as some very successful acquisitions.
He has dealt with similar challenges as ours from regulations to App store to talent recruitment. He has a phenomenal reputation deeply cares about products people and culture.
For the last six years he has been working on the mission of connecting people through games.
Now he gets to build on our mission of connecting single people through more fun digital experiences in their quest for dates lab relationships and marriages.
I feel very good about the future of this company.
With Bernard's energy fresh thinking and mobile consumer experience combined with over 70 years of dating category and business experience. Among the match group leaders and brand Ceos, we have ever so excited about the next phase of this company and the category at large.
Also I'm not going anywhere I will stay on the board continue as an adviser to the company.
Especially to be able to focus on areas of the business I actually love product strategy solving customer problems.
Finally, I want to thank all my colleagues at match group.
Gary and the rest of the management team the board and you all for your support through this 16 year journey.
I came to this country alone 30 years ago.
In search of opportunities on a richer set of experiences.
This journey has far exceeded all my expectations. Thank you.
That I will hand over to Gary.
Yeah.
Sure.
I am disappointed this will be our last earnings call together, but look forward to having BK joined the company in time for our next call in early August .
Turning to the business, we had a strong Q1 with total revenue of $799 million up 20% year over year, following a 20% plus year over year quarter in Q4 as well.
In Q1, the U S. Dollar continued to strengthen against the number of global currencies, including the euro and the yen, which led to $26 million of year over year FX headwinds excluding hyperconnected.
On an FX neutral basis, Q1, total revenue would have been $825 million up 24% year over year.
Our direct revenue grew 20% year over year. It grew 16% in the Americas, 14% in Europe , and 38% in APAC and other we whether the effects of the omicron spike in the Americas and Europe fairly well.
We did continue to feel the effects of rising Covid cases in Asia, especially Japan, although we've seen a major improvement in that market recently following the lifting of restrictions.
European performance was impacted by the Russian invasion of Ukraine, which reduced revenue in Russia, Ukraine and several other nearby countries.
There was modest impact on our performance from the war in Q1.
Estimate of roughly $10 million negative impact per quarter on our revenue as a result of the envision moving forward.
Total payers were $16 3 million, an increase of 13% from the prior year quarter.
Payers were up 7% year over year in the Americas, 11% in Europe , and 34% and APAC and other which was aided by the acquisition of hyper connect.
Tinder payer additions were strong while some of our more established brands in the Americas detracted from our overall payer growth.
Our <unk> was up 6% year over year to $16 in Q1.
Our <unk> was up a solid 8% in the Americas, 2% in Europe , and 3% in APAC and other.
The effects of FX are visible in the Europe , and APAC RPT numbers.
On an FX neutral basis, RP would have been up 9% and 10%, respectively in Europe and APAC and other.
Tinder performed strongly in the quarter delivering direct revenue of $441 million up 18% year over year.
Tinder had payers growth of 17% year over year, adding $1 5 million payers to $10 7 million and RVP growth of 1% year over year in the quarter, which again shows the impact of FX.
All other brands grew direct revenue, 22% year over year in Q1, driven by 14% RVP growth and 7% payers growth here.
Hinge BLK and <unk> contributed to drive the growth.
Hyper connect contributed as well.
Some of our established brands in the Americas saw a pressure on payers in the quarter a portion of which was attributable to a challenge to find marketing opportunities that met our ROI thresholds.
There were a couple of other specific trends as well.
At plenty of fish, which tends to serve a lower income demographic users had benefited from COVID-19 related government stimulus in Q1 2021, but we saw some relative payer softness in the early goings of 2022.
The match brand saw some payer impacts as it tested a softer paywall model in Q1.
This is a short term headwind that should be long term beneficial as we refine the new model.
Hyperkinetic contributed just over $50 million of total revenue in the quarter generally as we expected that.
The business demonstrated continued improved performance consistent with the trends we saw at the tail end of last year. Despite some impact of the Ukraine War on its Turkish business.
Hyperconnected revenue also continues to be significantly impacted by FX, especially against the Turkish lira and the yen.
Indirect revenue reached $15 million in the quarter up 19% year over year as the advertising market remains strong.
Our brands have become more appealing to advertisers in the current advertising landscape.
Q1, operating income grew 10% year over year to $208 million for margins of 26% and adjusted operating income grew 19% year over year to $273 million for margins of 34%.
Overall expenses, including SBC expense grew 24% year over year in Q1 with about 60% of the total increase resulting from the acquisition of hyper connect.
Excluding the impact of Hyperconnected cost of revenue grew 17% year over year, primarily due to higher app store fees and represented 28% of total revenue.
Sales and marketing spend excluding hyperconnected decreased $8 million year over year as we continued to show spending discipline and a relatively frothy marketing environment and we spend cautiously in markets that did not show sufficient post COVID-19 recovery momentum.
Sales and marketing spend was down three points year over year as a percentage of total revenue to 18%.
G&A expense, excluding hyper connect rose 7% year over year.
G&A comprised 13% of revenue consistent with the prior year and was up $6 million year over year as we continue to spend on critical initiatives like user safety.
Product development costs, excluding Hyperconnected grew 28% year over year and were 10% of revenue up one point as we increased head count at Tinder and hinge.
Our gross leverage declined to three six times trailing adjusted operating income and our net leverage was two seven times at the end of Q1.
We ended the quarter with $921 million of cash cash equivalents and short term investments on hand, we still expect to pay $441 million to settle the former Tinder employee litigation and all related claims and arbitrations from cash on hand.
Our board has also also authorized a $12 5 million share buyback plan.
For Q2, we expect total revenue for match group of $800 million to $810 million, which would represent 13% to 14% year over year growth.
We expect this to be driven by double digit year over year payers growth and year over year RPT growth in the single digits. Despite the continued FX headwinds.
We anticipate approximately $35 million of year over year FX headwinds in Q2, meaning that total revenue growth would be more than five points higher on an FX neutral basis.
This is more than an additional point of year over year FX impact than we had expected at our last earnings call.
Additionally, the negative impacts of the war in Ukraine, or shaving another point of revenue growth.
Excluding the effects of FX and of the war our year over year growth outlook would be 19% to 20%.
We eliminated age based pricing discounts at Tinder late in Q1, which will impact tinder payer growth in Q2, but revenue should be relatively unaffected.
Additionally, tinder payers will be negatively impacted by the loss of payers in Russia and Ukraine.
We anticipate about 200000 fewer payors in Q2 as a result of the age based pricing change and the war.
We expect Q2 RVP growth will be impacted by the continued FX pressures.
We expect hinge will remain on its growth trajectory and deliver strong revenue growth again in Q2.
Hinges on pace to expand into Germany. Its first non English speaking geography in Q2.
We believe that performance at Hyperconnected, improving but expect our Q2 revenue will be impacted by the Ramadan holiday, which typically impacts Q2 results in many of Hyperconnected markets in the middle East.
FX headwinds also continued impact hyperconnected, especially in Turkey and Japan.
We expect adjusted operating income of 285 million to $290 million in Q2, representing margins of about 36% at the midpoint of the ranges.
Recall that hyper connect reduces our margins by over two points.
Our Q2 outlook assumes that we implement googles change in policy to require use of their payment system as of June <unk>.
We estimate a negative impact of $6 million in Q2 that we need to see actual results of implementation of the policy change to be sure of the precise impacts.
We are currently evaluating our legal and other options to avoid the significant disruptive effect. There are policy change will have on our consumers.
Taking into account the challenging operating environment.
Including the FX impacts on the war in Ukraine, We now expect to be closer to the bottom end of our previously stated 15% to 20% year over year revenue growth range for the full year 2022.
We expect a four point year over year, FX impact and a one point impact of the war in Ukraine, meaning that growth would be five points higher absent those two factors.
But things have been changing very quickly.
At the moment for the full year, we are estimating approximately $40 million more in year over year FX effects than we had at the time of our last earnings call three months ago, given the recent record setting lows of the euro and yen against the U S dollar.
It is clear there is a lot of uncertainty the macro negatives, but also potential positives, particularly around post COVID-19 reopening around the globe. This makes forward visibility challenging.
Variability has clearly increased and the trends could change meaningfully again over the next three months, we'll update again in August once we see what kind of summer of love weekend.
Our business serves a fundamental need for human connection the demand for our products is unwavering and presents apple ample opportunity for future growth, while the macro environment poses some temporary challenges our longer term prospects remain bright.
Our growth will continue to be driven by our innovative and broad portfolio of products, which is best in class at providing technologies to enable these important social connections.
Moreover, we shared knowledge across our portfolio, which is enhances our successes and limits mistakes, we're disciplined on costs and very nimble able to adjust marketing budgets on short notice as such we have margin and cash flow that many if not all our peers.
Would envy.
We've shown an ability to grow consistently and to show strong profitability and cash flow. We're ready for whatever comes next and expect to continue to deliver strong growth and profitability for our shareholders.
With that I'll ask the operator to open the line for questions.
We will now begin the question and answer session.
Ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to us.
Some blockbuster.
The first question comes from Dan Salmon with BMO capital markets. Please go ahead.
Great Good morning, everyone.
You spoke obviously about some of your personal reasons for making the change in annuities, you aren't going anywhere either but.
But could you tell us a little bit more maybe about how long you've been considering this decision and why do you think this was the right time to make it.
And then second you mentioned several highlights with our track record over the past four years.
Maybe one or two things that really made him stand out from other candidates in the eyes of the board that you'd highlight.
Any insights into some of the specific things you think it'll be focused on when he takes the right. Thank you.
Sure.
As you know I've worn many hats at this company and.
When Mandy stepped down.
<unk> asked me to take the CEO role it was a unique time for the company, we had just announced the.
Separation from IAC and.
Wanting to become an independent company.
At the time it made sense for me to step up to provide the continuity and help guide the company through that process.
I had told the board then that I couldnt commit to being a long term CEO because of where I was in my life and the things that I wanted to do.
I want to be able to have a chapter in my life, where.
There are things that I care about that I want to make a difference outside of my professional life.
Even my CEO employment agreement reflected the fact that I could stepped down after 18 months.
So yeah of course, I took over and then Covid hit.
Which none of us were ready for I am glad I was there to help us navigate through it all.
And once we were out of the take of the Covid crisis.
While the board had hoped I would change my mind and stay longer they were prepared to work through the succession. So they ran a robust process. They met a diverse set of candidates and of course after 16 years I wasn't going to leave until I believe we found the right successor.
And Bernard is that person he very quickly separated from the pack.
And he impressed everyone on the board.
Super excited to have him as our next leader.
He has there.
Many things the CEO needs, obviously business acumen track record of growth.
Product and technology sense.
Also very importantly, our people are true people leader and.
And he has the track record he has the mobile product and consumer experience. He has very much a growth and value creation mindset and he has a really strong people lead or as became evidenced as the as we talk to people who had worked with and worked for he also had a very strong instinct to spot.
Being early technology, and consumer trends and he's already.
Experimented with and dug in and studied a lot of the new shifting technologies that are going to be meaningful to our portfolio.
Plus he has operated a very similar business to US right. It's a multi brand multi platform global markets, including a big Asia presence.
Brands that are at different stages of growth.
And he has dealt them very similar challenges to us. So this is going to be very familiar plus he can bring a lot of his knowledge around unique characteristics of engagement and monetization on the gaming set of products, which would be very valuable for our next vector of growth.
And as I said, yeah, im not going far I am staying on the board I will be able to spend time on parts of the business I love.
And given my role as an adviser we felt it made sense to have Bernard start as soon as he was able to.
So for transition Bernard officially starts on May 31st.
And I'm here to help in in the company in any which way I can so I don't think there is anything to worry about on this front.
Okay.
The next question comes from Alexandra <unk> with Goldman Sachs. Please go ahead.
Good morning, and thank you for providing an update on the recent extra fee developments in the letter in that context could you maybe discuss the impact on match EBITDA, if Google actually move forward with the requirement of mandatory use of Google play billings by June it looks like you're already included a 6 million headwind in Q2 and I think.
Last quarter, you talked about an incremental $50 million impact for the full year and then longer term how do you see the <unk> debate evolving given the puts and takes that you've laid out in the letter and also in light of Google's recent announcements to launch a user choice building later this year. Thank you so much.
Okay. Thanks for the question why don't I try to take a stab at it and provide a little context of what's going on with Google as well as some of the financial impacts. So it's important to understand that we've had user choice on our on many of our platforms and brands for a long time, we maintain direct relationships with our.
<unk> that way and in fact, our customers choose to use our payment systems, sometimes at a three to one ratio over the Google play billing system.
And Google, forcing a change now really serves their interests of capturing the relationships with the customer.
And I think they see a very short window now as they see the wave of regulatory change happening for them to grab that relationship with the customer before the regulatory changes disable them from doing so.
We absolutely do not want to see this change in policy, but unfortunately, we're takers of the policies that Google puts on its store. We don't at all think the change is justified we've been talking to Google for months to encourage them to allow us to continue to provide user choice.
Yes.
And yet despite all the rulings and regulatory actions seeking to outlaw mandatory use of their payment system Theres still decided to go ahead and require us to eliminate user choice, which we've had for many many years.
In fact, they've chosen to allow an exception to their policy to only one company Spotify because its serve their purposes with European regulators and enabled them to take a share with Spotify subscription fees, which they had not previously been able to do.
But in our case they have been steadfast in removing our ability to provide user choice.
Last week epic games facing a similar situation decided to file a lawsuit against Google.
We view that as a last resort and not something we take lightly and doing.
But at the same time the clock is ticking towards the June 1st deadline, and we need to do our best to protect our consumers choice as well as our business.
Under no circumstances, do we want to see ourselves removed from the play store or unable to distribute through the play store.
In terms of the impact as we've disclosed we expect their policy change to lead to an incremental approximately $6 million a month cost to us so.
So for the seven months starting June one the total would be about $42 million in aggregate. This year on top of the approximately $100 million, we already expect to pay Google.
The $42 million for the seven months compares to the $50 million for nine months. We had estimated previously if the policy change that started in April so it's pretty much as we expected.
Now, we do think that the winds of change are blowing very very rapidly.
And we think sometime late this year or next year.
Some of the regulations around the world are going to force googles hand, and require them to change their policy.
Most notably the DMA in Europe , which affects the entire European Union and is going to outlaw mandatory IAP.
So Google is making this policy change now requiring us to eliminate user choice. Ultimately we think this is going to be very short lived and as the regulations change across the globe to prohibit mandatory IAP, we'll be able to return back to an environment, where we have alternatives to their payment system.
The next question comes from Mario Lu with Barclays.
Please go ahead.
Great. Thanks for taking the question.
Congrats on your next chapter Cheyenne Welcome Benoit.
Questions on the full.
Full year revenue guidance, you guys lowered it to the bottom of that 15% to 20% range.
So I was just wondering if you can help us unpack this a little bit.
So excluding the negative drag from FX and the war are there other tough comps to consider in the second half that should offset the macro tailwind that you guys mentioned such as Japan recovery Okay.
Okay.
Yes, I mean, I think you absolutely stated correctly right now we're projecting to be close to the bottom end of our previous 15% to 20% revenue growth range and that really reflects the additional FX and Russia headwinds that we didn't see back in February when we last provided our outlook and thats going to affect Q.
Two in Q3 and four as well.
In terms of your specific question around the second half comps. If you look back on 2021, we had a very strong Q3 and tinder in particular performed very well in Q3.
So it's going to be a tougher comp for us growth wise in Q3 of this year.
Q4 on the other hand presents us an easier comp.
And so we expect stronger year over year Q4 revenue growth in 2022.
I think though as you sit here today there are several puts and takes that will ultimately determine how the second half looks that are that are a little tougher to predict for example, our forecast our outlook today.
Assumes that we get back to pre omicron levels of activity and I think right now we think that that's where we are we're back to pre omicron levels.
But what we don't really know yet is are we going to get back closer to pre pandemic level of activity is back to 2019 kind of levels and clearly we're starting to see some positive signs in that direction, including a market like Japan, a very important market for us where we've really seen significant improvement in user growth.
Since they lifted the restrictions and so we're expecting that kind of improvement to gradually take hold around the globe and the question is exactly what levels are we going to get back to so thats going to affect our performance in the second half of the year and right now still a little bit hard to predict exactly where that recovery is going to get to you.
How quickly.
In terms of also our product outlook Tinder has a very healthy product roadmap for the rest of the year with a lot of exciting initiatives planned in the back half and I think that will help offset some of the macro challenges as well.
But if you followed us for a while you know we typically make relatively modest assumptions around the success levels of those initiatives and we wait to see how they take hold before we predict further success and so to the extent some of the initiatives at Tinder in particular or even elsewhere in the company performed better.
Then what we've assumed in our outlook that would provide additional upside to.
The growth rates in the back half of the year.
The next question comes from Justin Patterson with Keybanc. Please go ahead.
Great. Thank you very much and congratulations shar on a great run.
I was hoping to stick with just that tinder product innovation side.
What are you called out testing around some features for female users with a planned launch in the second half could you talk about just what you're doing there and how you think that could potentially impact your users and monetization over time. Thank you.
Thank you Justin.
Yes, I can take this.
So you know we've said this before that most of our Tinder revenue features are more appealing to men in terms of the value they provide and we've been studying.
And as part of our.
And conversion of women on Tinder in particular, even relative to many of our other platforms is much lower so we've been.
Attesting in designing a set of potential paid features that will help.
Women improve the quality of their experience and matches, they get and give them more control over the experience.
So these are things that we think they will find.
Women in particular will find valuable and we're hoping to be able to roll. These features out as part of a package.
That's targeted to women later this year. So that's about as much I can go into it but thats the thinking there of trying to get women conversion to more parity levels relative to other platforms and relative to Matt on the platform.
That's it right.
Thank you. The next question comes from Bob <unk>.
<unk> with J P. Morgan.
Please go ahead.
Hey, it's Cory Carpenter from J P. Morgan.
And surprise appearance.
One question, we've been getting a lot.
The online dating category and match in particular may be impacted during an economic slowdown or even a recession, hoping you could talk a bit about what you've seen gang prior recessions in periods of economic weakness around user engagement and monetization in general how you would expect the category to be billions per segment.
<unk>.
Yeah sure.
You know we've looked back at our data back in 2008, and also sort of the early days of Covid as.
Proxies for what happens.
Generally there is no change and no deterioration in engagement at all in fact, we've seen.
Increased engagement during times of anxiety in trouble a bet right.
And if you look at propensity to pay in 2008, we didn't really see much of anything the business actually performed really well.
Our general view is this is a very small expenditure for people and perhaps one of the.
A lot of things that people cut.
When things are off.
Also looking back at the early days of Covid in 2020.
While we did see a sudden decline in all the news was going around.
On the <unk>.
Engagement first picked back up very quickly within a few weeks and propensity to pay also started tracking back up within a few weeks long before other broader economic indicators were recovering and so we're watching for signs even now.
Not really havent seen anything yet and not seeing anything we'll keep a close eye our expectation, though is our business is generally resilient during economic downturns because it does serve as this very fundamental human need.
The next question comes from Glenn.
<unk> with Jefferies.
Please go ahead.
Good morning, Gary just on the on the margin for the year can you describe.
The different approach anything changing on the bottom line margin and how we should think about that for the full year.
Sure actually.
We've been performing very well from a cost perspective, we are definitely on track to deliver the 50 to 100 basis points of margin improvement ex Hyperconnected that we had included in our outlook for 2022 back in February with some of the marketing spend discipline and some other spend discipline, we actually might even do a little bit better.
That.
And I think if you look at it kind of ex hyperkinetic ex Google margins are probably in the 38% kind of plus territory. So we feel great about how we're doing on that front.
Unfortunately, as I mentioned in the answer to the earlier question the Google policy change if it goes into effect.
<unk> is a reasonably significant headwind to us $42 million is kind of our estimate for the year for the seven months of impact.
And Thats, what about a point and a half of margin. So it's basically eating up and maybe even a little more all the good work we're doing on spend discipline.
And basically.
Eating away at that so.
As I look at it net net for the year, including everything that we see right now, including hyper connect of course, including the effect of the Google change if it comes to pass and everything else that's in the mix.
My estimate would be that the company for the year, probably achieves margins somewhere right in that mid 30% range of course, including that two plus percent effect of Hyperconnected it'll.
It will depend a little bit on what levels of marketing spend we choose to put out there given the pace of the COVID-19 recovery, So thats, probably the swing factor and of course generally.
Advertising market because right now the market remains fairly.
So expensive and so that's leading to some of our disciplined but depending on kind of overall macroeconomic conditions that market may adjust as the year goes on so we'll have to see how that all plays out but marketing spend will be a significant factor in our margins, but I think we feel good about how we've been disciplined so far and remained very much on track with what we have.
Expect to deliver.
Yeah.
The next question comes from Lauren Chung with Morgan Stanley . Please go ahead.
Great Thanks and.
Thanks for that Mou commentary in the letter maybe bigger picture Theres, obviously been a lot of nervousness in the market around the state of the online dating industry in terms of user growth and maturity are there any other data points you can offer.
Does that give you confidence that we're still sort of in middle innings of the monetization opportunity here and what initiatives are product launches over the next six to nine months excite you. The most to continue to capitalize on that opportunity.
And then lastly is there anything outside of the macro headwinds understanding there are quite a few that give you pause or concern about the fundamentals of the business.
Okay, and it's a long question.
First about MAA you.
As I said.
Our total addressable market ex China as measured by connected singles. The ages 18 to 65 is now over $700 million and.
The vast majority in the western markets only half of of this market has ever tried a dating product and obviously that number is much lower than the rest of the world. So that's sort of one.
<unk>, usually the cadence of non users breaking into the category is steady and slow.
Driven by new products and features new marketing campaigns.
Yes.
New channels and of course word of mouth marketing from other successful users. So.
Oh, what became clear during COVID-19 is the importance and efficacy of dating apps for single people as it became really one of the few choices left to meet people. So now for now it is a matter of us convincing the non users around the world.
To break and adopt a dating app and one and we know that once they break into the category.
They use multiple of them and they keep coming back as their life circumstance. This change.
One of the examples are trying to tap into some of those category resistor. For example is our recent.
New bat store, which taps into that unique value proposition for the single parent segment, who find it very hard to navigate mass market products and all of the things they have to go through versus <unk>.
Self selecting into a pool there everybody is sort of dealing with the same issues.
While on the topic of <unk>.
I do want to explain something.
About the relevance of MAA you are not in our business.
Cause.
We are an episodic churn business.
And unlike in an AD supported business.
For us all Milo does not have the same value and our ecosystem.
Both for user outcomes as well as monetization it is more correlated to the balance of liquidity by gender age intent.
Okay, Shin et cetera, and so.
Yes.
And this is why and one of the big things is.
As people.
They try it once they have success or they take a break and they come back when the circumstances change. So even a 25 year old brand like match continues to have a very healthy set of reactivation through the years right. So that's a mechanic that.
Sort of phenomenon, that's unique to our category I think and to your question about monetization.
On an average the portfolio payer penetration is around mid teens, but our hard paywall businesses are as high as 40%.
And there's also a very large variance by geography, even for soft paywall businesses in some markets.
They are well north of 25 close to 30%.
And so.
As a fair degree of runway for us to keep innovating.
On the payer penetration front.
As for average revenue per payer here's the thing that we have to keep in mind. The total lifetime value of the amount that is payer pays us is way cheaper than the cost of a single date.
And you know for people, who find success on that this is a priceless incredibly valuable shore base and so I do think there is tremendous amount of.
Innovation opportunity for us to try different things.
Here and increase that RVP, one of the things I'm excited about is.
We've referred to the virtual goods trading platform on Tinder and this idea of collectibles, I think and Bernard has particular.
Experienced that some of those mechanics, I think that will be a pretty interesting.
Active for us to watch out for.
So.
As I look back at the history.
We've been able to improve all three of these metrics Tam penetration payer penetration.
Our revenue per payer.
Pretty much every year and you know we still have a pretty long runway ahead, and large market opportunity of users to convince to use our products.
The next question comes from Youssef Squali with tourists. Please go ahead.
Great. Thank you very much.
Just a question on hand, it looks like hinge continues to show pretty meaningful growth.
Some exceptional organic traction.
You mentioned in the last call that you expect to do about 300 million Bucks in your revenues is this still something.
That you expect or has the recent traction or does the recent traction maybe imply a higher number also can you provide any color on what kind of revenue contribution you expect from the expansion, Germany slated this quarter. Thanks Gary.
Yeah, I can take that.
So and just growth trajectory is on track as we expected.
In terms of our 2022 outlook that it only includes the very modest revenue contribution from international expansion.
<unk>, Germany. This is more of a.
2023 item.
And our plan has always been to go region by region in Europe in 2022, and then do a steady rollout of about one region a quarter.
And the timing drive is really sort of translation and localization of the product.
Meanwhile.
We've seen a recent surge for instance in organic traction in India without without any localization. So we wanted to respond to these types of positive signals and we are accelerating our launch in India. As we've always thought this is a.
Pretty interesting and attractive market for our high intent app.
And so.
Much of the international contribution at least from a revenue perspective is likely to happen.
In 2023.
The next question comes from Benjamin Black with Deutsche Bank.
Please go ahead.
Great. Thank you for the question.
How should we be thinking about capital allocation going forward in the context of the new.
<unk> share buyback authorization, given where shares are trading now you're anticipating sort of pushing a little bit heavier and more aggressive on the buyback and.
Does the buyback changed how youre thinking about incremental M&A going forward. Thank you so much.
Let me take that one so just a little context again at the time of our separation.
We set some clear leverage targets and we eliminated the buyback that we had back then to ensure that we hit those targets by the end of 2021, we set a net leverage target of three times and so now that we've hit that and actually are below that level of net leverage it clearly makes sense for us to <unk>.
Again, I have a buyback authorization.
At that time, we also stated our capital allocation priorities, which really haven't changed there to invest number one in our business organically.
Two to do opportunistic M&A to fill any gaps in our portfolio or to add technologies that we think would enhance the overall portfolio and we've done those kinds of acquisitions successfully on a number of occasions.
If we can't find those kinds of strategically compelling M&A opportunities then we want to return capital back to shareholders.
So the buyback provides us with a mechanism to have the ability to return capital back to shareholders if that makes sense.
And so we think it's a good tool for us to have an appropriate tool for us to have to use to offset dilution from employee equity awards and to take advantage of opportunities to buy our stock back cheaply.
A market dislocation as you point out such as what we're experiencing right now and so I think it's fair to assume that.
As we kind of see what's happening with the stock and with the buyback authorization in place.
We will find opportunities to go in and.
And buyback some shares and so we will disclose what we do as we proceed along on that basis, but I think you are thinking about this.
And the same way we are.
Yes.
The last question today comes from Igo ILUVIEN with Wedbush Securities. Please go ahead.
Hey, good morning, everyone.
Gary you hit on marketing.
Number of times.
You mentioned.
Some.
Challenging Roy R. R.
Inability to kind of reach a ROI targets that you pulled back on some spending and you've got the macro factors that are impacting how you spend can you just give us a little bit more of an overview on your philosophy on marketing right now.
It can be.
I know for example, you also.
In a letter.
You know stepping up in Japan, Japan Reopens, just how should we think about how all that might ebb and flow as we go through the year.
Sure, Yes, I mean, I think youre thinking about it correctly.
We're basically spending where we think it makes sense to spend given the kind of post COVID-19 recovery dynamics and also making sure that we spend where we can hit our ROI hurdles and maintaining that discipline tightly as we always do so if you look at Japan is a good example.
We are holding back marketing spend in Japan, because the market was not receptive with all the restrictions it didn't make sense to turn the spigot on significantly in Japan, but now by contrast that we're seeing some real recovery there we've been spending more and running some new creative campaigns on both our pairs brand and the Tinder brand.
As we mentioned and highlighted in the letter the other thing that's going on is that.
The market.
In terms of marketing spend is pretty frothy at the moment, if you look at the U S.
We think the market is expensive.
Slowed down significantly at the beginning of Covid and that was a real opportunity for us to spend aggressively and we did but the market has really become much more expensive.
Since that initial COVID-19 led downturn and so it's become harder for us to hit our ROI thresholds, particularly at our marketing heavy spend businesses like match and <unk>.
Where we really maintain that ROI discipline. So if we're not seeing opportunities there to hit our hurdles on marketing spend.
Not putting the spend out there and I think between <unk>, which had some impact and then the environment being strong just more generally it's just become very challenging to hit the hurdles.
The thing to watch out for I think though is what happens with the overall economic picture if people start to get more nervous about where the economy is headed and we start to see other.
Marketers advertising budgets get cut back or get delayed, which we often see and I think we're starting to even see a few signals of that that could present us with opportunities to again hit our hurdles and spend more aggressively and so as I mentioned in the answer to brand that will be a swing factor as we go through the year from a margin perspective, So I think we're starting to.
A few signs of nervousness in the market, which could be a benefit to us because as <unk> said, our business tends to be economically resilient.
Somewhat recession proof and so if we start to see more opportunities to spend in the market more opportunity to hit our hurdles, we will absolutely be nimble and take advantage of that just like we were at the beginning of the Covid period.
But that's our.
Last question with that I want to thank everyone again, it has been a privilege and an honor. Thank you all.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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