Q3 2022 Match Group Inc Earnings Call

[music].

Good day and welcome to the match group third quarter 2022 earnings Conference call.

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I would now like to turn the conference over to Penny Shelburne SVP of Investor Relations. Please go ahead.

Thank you operator, and good morning, everyone. Today's call will be led by CEO , Bernard Kim and CFO and C O L. Gerry split bar.

I'll make a few brief remarks, and then we'll open it up for questions before we start I need to remind everyone that during this call. We may discuss our outlook and future performance. These forward looking statements may be preceded by words, such as we expect we believe we anticipate or similar statements. These state.

<unk> 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 ICC.

With that I'd like to turn the call over to BK.

Thanks, Tony Good morning, everyone and thank you for joining today's call I'm delighted to be on our second earnings call at the company. The time has flown by and I attribute that to the team coming together, making decisive calls and taking real action to accelerate momentum.

As our third quarter results demonstrate we have a lot to be proud of when you exclude FX impact we saw double digit growth.

There is still a lot of work to do and while the macroeconomic environment has proven more challenging we have a great team and an excellent portfolio of brands.

That makes me optimistic that we can create significant long term shareholder value.

After just a few months the team at Tinder is gelling, well together and there has been a palpable change in the culture. We have made some big changes to improve organizational efficiencies and operations to get the teams shipping product and accelerating growth some.

Some examples of this are bringing the revenue and product teams together. So they are collaborating and supporting one another as one team in our shared mission. The marketing team is also working with and challenging the product teams to ensure that we're building features that users can get excited about.

Whenever reorganizations occur there's always a risk of attrition, but with this new team in place we haven't seen any that's promising we aren't dealing with massive disruption.

Instead, we are getting more products into testing working together to eventually return tinder to previous growth levels.

That won't happen overnight, but we are moving in the right direction.

I am excited about how our 'twenty 'twenty three roadmap is beginning to take shape, which centers in four key areas, providing our women users more tailored experiences targeting gen Z through various product initiatives evaluating virtual goods and coins to unlock to untap.

<unk> power users and finally, creating more targeted monetization opportunities, including an expanded focus on users who have not previously paid.

Additionally, we have let the market tell the brand narrative about tinder for too long, we recognize that a powerful tinder narrative is a critical component to accelerating growth again.

Going forward, we are working to activate levers across global marketing brand campaigns to bring to life. The endless Tinder success stories over the past 10 years. The marketing team is working hand in hand with product to redefine the narrative for the next generation of singles.

While it will take some time to see measurable changes overall I fully believe in the team's ability to experiment learn build and ultimately deliver the best dating experiences for our users Tinder has transformed the dating category over the last 10 years and I am committed to making the next 10, even more exciting.

Our search for a full time CEO of Tinder is ongoing we've met a broad set of talented and diverse leaders with a deep bench of consumer digital experience.

I'm, leading the charge on the search, but it's worth pointing out that we've already done a lot of the hard work that our new CEO typically has to do like establishing the leadership team, making the organization more nimble and increasing collaboration it is critically important to me that this new leader can seamlessly move into the role and work.

With the current team with minimal disruption with a focus on growth and profitability.

This is a role that I want to be very deliberate about so in the meantime, I will remain interim CEO . The business plans are moving forward and I'm expecting execution and performance will continue to improve over the next coming months hinge.

<unk> continued to be a bright spot this quarter. They are delivering on their localization strategy to grow users and market share globally with a successful launch in Germany, and reaching new markets throughout Europe .

In October hinge hit record downloads in both the U S and globally in the U S where hinge has quickly become the third most popular dating app by downloads. The brand continues to innovate on the product experience. After the successful launch of audio prompts last year. The team was quick to rollout video prompts.

And prompt poles, giving data is more ways to express themselves and hopefully land that date.

Later this month hinge will start testing a new premium subscription tier we have decided to hold back the full launch of the new tier till Q1, the peak season for dating I'm really excited about how it's coming together and I'm confident that it will resonate with the user base and provide an opportunity.

To drive our P P meaningfully higher.

As a company we have achieved a lot in a short amount of time, we have worked diligently to right. The ship at tender push forward with our growth plans at hinge and have continued to navigate the current challenging operating environment at the same time, there is a significant amount of work to be done and innovations.

To be built that will further accelerate our growth. We are currently in the middle of our planning process for 2023 across the portfolio and I look forward to sharing more during our next earnings call.

One thing I did want to call out as Ive spent more time with the business as we had different brands in different stages of growth given the current macro environment, we must focus our investment in brands that are growing and pull back in areas that are not driving growth there.

This has become a strategic imperative for us in 2023, I'll be able to share more on this strategy. After we complete our strategic plans for next year.

Our world has never been more connected and I'm. So proud that we are continuing to deliver on our company's mission of connecting millions of people around the world in meaningful ways as I've told everyone before I'm passionate about people culture and product and look forward to.

Proving the overall user experience across the portfolio with our talented group of technologists around the world.

And with that I'll turn it over to Gary.

Thanks, PK and Hello again, everyone.

In a tough environment, we had a solid Q3 with total revenue of $810 million up 1% year over year.

The FX headwinds were severe once again as our revenue would have been $883 million up 10% year over year on an FX neutral basis.

The FX impact was $8 million worse than we expected when we provided our Q3 outlook on our August earnings call.

Our direct revenue also grew 1% year over year. It grew 5% year over year in the Americas with growth at Tinder, hinge BLK and cheaper but declines at the established brands.

Direct revenue declined 1% year over year in Europe , but it was up 15% on an FX neutral basis, driven by Tinder and hinge.

Direct revenue declined 5% in APAC and other but it was up 16% on an FX neutral basis driven by Tinder.

Total payers were $16 5 million, an increase of 2% from the prior year quarter.

Payers were down 1% year over year in each of the Americas in Europe , and up 12% in APAC and other.

Tinder payer additions came in stronger than we had expected while our established brands, including matched me take okcupid and plenty of fish, so year over year payer declines of over 15% in aggregate.

RPT was flat year over year at $16 <unk> in Q3.

<unk> was up 6% in the Americas, a one point sequential improvement, reflecting higher average rates for subscriptions and increased average Ala carte purchases per payer at tinder and hinge.

<unk> was flat year over year in Europe , where contributions from Tinder and hyper connect were offset by the strength of the U S dollar compared to the euro and the British pound.

<unk> was down 14% in APAC and other due to the strength of the dollar relative to the yen and the Turkish lira on.

On an FX neutral basis, RP view was up 9% companywide again in Q3 up 16% in Europe , and 4% in APAC and other.

Tinder performed slightly above our expectations in the quarter delivering direct revenue of $460 million up 6% year over year, 16% on an FX neutral basis.

Tinder had payers growth of 7% year over year, adding 700000 payers to $11 1 million and a 1% RPT decline year over year in the quarter, which again shows the impact of FX.

Tinder RPT was up 8% on an FX neutral basis.

Recall that tinder made several beneficial paywall and other optimizations in Q3, 'twenty, one which drove record sequential payer additions and strong revenue in that quarter, we're now facing that challenging comp.

All other brands direct revenue was down 5% year over year in Q3, driven by an 8% payer decline and 3% ARPA growth hinge.

Hinge BLK and she spoke continued to drive the growth we continued to pull back on marketing spend for some of our established brands and plenty of fish in particular continued to be impacted by macroeconomic conditions.

In Asia, Hyperconnected Saar App revenue was down 7% year over year. However, on an FX neutral basis, it was up more than 10% due to the strength of the U S dollar against the Turkish lira and the Japanese yen.

Kona continues to face challenges with revenue down low double digits year over year.

There's continued to be affected by market softness in Japan, with only a slight year over year increase in revenue, but down more than 15% as reported.

Indirect revenue was $14 million in the quarter.

Flat to Q2, but down 11% year over year.

Operating income was $211 million in Q3 with margins of 26%.

Adjusted operating income was flat year over year $284 million, representing a margin of 35%.

Overall expenses, including SBC expense grew 3% year over year in Q3.

Cost of revenue grew 6% year over year, primarily due to higher app store fees, including the $8 million placed into the escrow for the Google litigation.

Cost of revenue represented 31% of total revenue up two points year over year.

Selling and marketing spend decreased $24 million or 16% year over year, the second consecutive quarter, where we've seen a year over year reduction as we continued to reduce marketing spend at our more established brands and to show ROI discipline overall.

Selling and marketing spend was down three points year over year as a percentage of total revenue to 16%.

G&A expense rose $11 million or 10% year over year.

G&A comprised 14% of revenue up one point from the prior year quarter.

The increase in G&A expense reflects lower legal fees, but higher compensation and head count expense as well as an increase in travel expenses of $4 million as we continued to return to a more normal cadence of business travel.

Product development costs grew 31% year over year and were 11% of revenue as we increased head count, particularly at Tinder and hinge.

Our gross leverage was three five times trailing adjusted operating income and our net leverage was three one times at the end of Q3.

We ended the quarter with $398 million of cash cash equivalents and short term investments on hand.

We deployed $267 million in the first month of Q3 to buyback $4 3 million of our shares at a <unk> of approximately $63 per share on a trade date basis.

While the stock continues to decline significantly after we deployed our buyback we believe our stock repurchase represents a sound long term investments. We currently have five 3 million shares remaining under our buyback authorization.

For Q4, we expect total revenue for match group of $780 to $790 million, we anticipate nearly $70 million of year over year FX headwinds in Q4, meaning a total revenue growth would be nearly nine points higher on an FX neutral basis.

This FX headwind is $14 million more than we anticipated at the time of our last earnings call.

We expect tenders Q4 direct revenue to be relatively flat year over year up high single digits on an FX neutral basis with mid single digit payers growth as ALC softness due to weak macroeconomic conditions impacts payers.

We plan to adjust some of our merchandising tactics to help offset this.

Historically, we've primarily offered large high cost bundles of ALC features for example, $30 bundles of Super likes which had been quite successful in the current environment. We're adjusting our merchandising to emphasize smaller lower priced bundles to our users who see value in these ALC features but are now more price.

Sensitive.

All other brands direct revenue is expected to be down mid single digits, but up low single digits on an FX neutral basis, we expect hinge BLK and <unk> will continue to drive the growth, helping offset declines at the established brands as well as at pairs and hyperconnected due to FX.

We expect indirect revenue to be down about 20% year over year given pressures, we're seeing building in the AD sales market.

We expect adjusted operating income of $270 million to $275 million in Q4, representing margins of about 35% at the midpoint of the ranges.

In Q4, we plan to increase marketing spend at hinge both in the U S, where we see terrific momentum as well as in its international expansion markets as per its plan.

We also expect to spend up slightly at Tinder and to launch a new brand marketing campaign at our match brand.

Given lower spend at our other brands, we expect meaningfully lower year over year aggregate selling and marketing spend again in Q4.

While visibility into 2023 is challenging.

We're focused on delivering 5% to 10% year over year revenue growth in 2023.

We believe tinder is positioned to deliver a similar range of growth.

This equates to total revenue up high single digits to low double digits on an FX neutral basis, as we expect FX to be about a three point drag in 2023.

We anticipate that the emerging brands such as Hans G. Spoon, BLK will deliver sufficient growth to offset the declines at the established brands.

We expect him to deliver at least $100 million of incremental revenue in 2023.

We expect the company as a whole to have accelerating year over year revenue growth as we move through 2023, driven by improved product execution, leading to improved revenue momentum at tinder.

The 5% to 10% top line range reflects three key variables.

One quality of project execution, and the timing slash success initiatives at Tinder, if tinder executes well growth will be on the higher end of the range.

Two the strength of the contribution from international expansion and the new premium tier at hinge.

And three macroeconomic impacts, particularly on lower income consumers and especially on Ala carte purchases primarily at Tinder.

On the OE side, we're still calibrating spend levels and the investments that we want to make in 2023, we expect incremental sales and marketing spend at hinge to support its global user growth, including in its expansion across Europe .

Despite the investment we expect hinge to maintain a oi margins of 30% plus.

We expect to spend incremental marketing at tinder to support its product enhancements and drive user growth.

Even with that we're confident tinder can continue to achieve margins in the 50% range.

We also intend to invest in the league, which we acquired earlier this year and believe has solid growth potential we plan to invest in incubating a couple of new apps, which we're confident can better serve certain demographic groups than the existing offerings.

To enable us to make the investments in our growth businesses, we plan to reduce operating expenses in other areas of the company to ensure that we can deliver at least flat year over year margins in 2023.

This assumes no change to current App store policies.

We believe our business continues to achieve profitability and cash flow generation that has few parallels and consumer tech.

We've always been conscious of delivering profitability and cash flow, but in the current operating environment. Our focus on these items as being sharpened significantly.

Our job for the coming year is to invest wisely in select growth opportunities and to manage costs judiciously elsewhere and our team is up to the task with that I'll ask the operator to open the line for questions.

Thank you we will.

We'll now begin the question and answer session.

To ask a question you May Press Star then one on your Touchtone phone.

If youre you don't speakerphone, please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Our first question comes from Deepak must Steven <unk> with Wolfe Research. Please go ahead.

Great. Thanks for taking the question. So just wanted to ask a little bit more about weakness in Ellicott is this impact more acute to certain markets.

Given the macro headwinds have been relatively.

Different in various regions or is it just more broad based can you also provide a little bit of additional context on some of the brands thats experiencing it. Thanks so much.

Thanks for the question Deepak I wanted to start off by saying ALC purchases from our power users still remain very strong and we're seeing strong subscription and they remain very sticky.

The main impact that we're seeing is from impulse and occasional buyers as they tend to be more price sensitive and they are impacted more by macroeconomic factors.

Gary pointed out we've historically marketed our ALC products in large bundles and that led to significant purchases of these large bundles.

Therefore, we're moving quickly and we're adjusting our ALC merchandising to emphasize smaller bundles to more price sensitive customers. The customers that are most affected are younger users with less discretionary income, but we don't see a difference across geographies.

This is a reminder that conditions are ever changing the macroeconomic environment is uncertain and we have to be nimble and be able to react to our consumers throughout the year.

I am impressed by the speed at which the Tinder can diagnose and react to these type of effects.

The Tinder team is actively working on mitigating this as much as possible, but I expect this is going to take some time and iteration.

Our next question comes from James <unk> with Jefferies. Please go ahead.

Thanks, guys I just have a couple of questions on Kinder what drove the upside to revenue growth versus your expectations in Q3, and then for Q4. It sounds like you have a lot of pretty strong momentum behind tender youre going to increase marketing spend launching a slate of new products. I'm curious then why you're expecting more of a deceleration in.

Q4, thank you.

Sure why don't I go ahead and take that I think when you look at our Q3.

We provided a pretty conservative outlook for the quarter in part because of all the disruption that was going on at Tinder, we weren't sure exactly how things were going to react to all the changes that we made and so we wanted to be a little bit conservative in the Q3 outlook and I think that led to the improvement versus expectations.

In Q4, though we're seeing a pretty significant.

Deterioration in trends even over the last few weeks, we think the macro environment has gotten much more challenging and we're nervous about it for Q4 and going forward.

So as a result of that.

Our outlook for Q4 is perhaps lower than you would have thought because we think the caution is warranted given the change in trends and the weakness in the overall macro environment, which is BK. Just said is really affecting tinder on the Ala Carte side.

As users, especially younger users have less discretionary income are being a little bit more cautious in their purchasing and we think that effect is going to linger for a period of time, we are taking actions to offset that and I think some of those will help offset the <unk>.

Effects of it but it is going to take some time for that to work its way through as well. The other thing I would point out is that we have less product momentum going into Q4 than we typically have and certainly than we did last year. When we had a very successful Q3 product adjustments that led to solid momentum in Q4 and remember product.

Work in the previous quarter of the previous two quarters gives us momentum into the next quarter. So we don't have the momentum we'd like to see or that we typically have leading into Q4, but it is building as the tinder team makes more progress.

Implants, new things and so we think that that momentum will build and that gives us optimism that as the tinder team continues to execute the way they need to execute well start to see some improved momentum into 2023.

Our next.

Question comes from.

Go ahead. Please your next question comes from Mark Kelley with Stifel. Please go ahead.

Great. Thanks, very much good morning, everyone I wanted to ask two the.

First one is the letter mentioned an expanded advertising component of tender.

An area of focus again, and I guess, what's the right way for us to think about advertising as a percent of the business over time.

And then second.

The letter it sounded like Youre, a bit more optimistic on virtual goods and currencies.

Maybe relative to when you join Dk am I reading, a little bit too much into that and if not I guess what has changed thanks.

Thanks, Marc for the question, let me take your second question first about virtual goods, so to clarify I always thought that virtual goods and currencies made sense in the tinder ecosystem and as a big opportunity, but we wanted to do this right and to do this we have to build the virtual goods and then create.

The demand after that you can create the coin economy to purchase those guides I ask the team to rethink that roadmap and delay the launch into next year.

<unk> been working on it I'm excited because of Tinder CPO has great experience in building. These type of economies I'm really excited to see this rollout in 2023.

And then to your question about advertising over the last five years advertising has been a modest focus at tinder, but the reality is over 85% of our users don't pay us anything.

In my previous history, I've seen real success in monetizing users that don't pay.

So I've asked the team to embrace advertising monetization culturally.

I think theres, a real opportunity to implement proven ideas from games that I've utilized in the past for example rewarded video.

I think over time, I would like to see us get through our $100 million in advertising revenue, which is about double the revenue that we have today.

So much for the questions.

Thank you.

Our next question comes from.

Sure.

Hey, Jeremy.

Evercore ISI. Please go ahead.

Okay. Thanks, a lot for taking my question I have I have one on hinges premium tier. So could you. Please talk about the launch you mentioned Q1 of next year, but is that globally for.

The entire rollout and how should we think about what your goal for Hanmi bear you may be targeting with that tier. Thank you.

Thanks Ryder for the Great question, we will start testing hinges new subscription later this quarter and we'll begin rolling it out globally after the new year.

We believe that this can drive good conversion and strong <unk>.

Our outlook for 2023 has assumed a relatively modest take for the new tier we think it's more comparable to hinder platinum than tinder goal, but we'll know a lot more after we begin testing later this month.

Given the delay of the full rollout of this offering and FX headwinds, especially in the U K, we do expect hinge to fall about $15 million short of the revenue goal this year.

But we like subscription monetization opportunities with hinge with the hinge user base.

As with any big changes to tears will continue to optimize the offerings throughout 2023, so really excited about that.

Thanks P J.

Yeah.

Our next question comes from Cory Carpenter with Jpmorgan. Please go ahead.

Hey, Thanks for the question.

I'm, just giving a lot of moving parts with Japan, and Hyperconnected, hoping you could talk about your expectations and your assumptions for the APAC region next year. Thank you.

Yeah.

Let me take that Cory thanks for the question.

Youre right.

Outlook as it relates to APAC businesses next year is a bit challenging just given all the moving parts as you say.

And so in Japan, what we've assumed is really no materially change in the trends that we're seeing in the Japanese market next year I'm hopeful we can do a little bit better than that and start to see some recovery, but we're not really seeing that yet and so we've assumed that the conditions largely stay the same next year, which basically means we think that our Paris.

Business can achieve some modest improvement in revenue next year.

But probably going on on a.

FX adjusted on a us dollar basis, it's probably going to be down year over year, so modestly up in local currency, but down on a dollars basis.

And I think that business can probably achieve something in the neighborhood of 25% margin. So a reasonably profitable business, but the growth trajectory has really changed and I'm hopeful that will change for the better leading into the future.

<unk> connect has a couple of moving parts as well as our business is very encouraging as we showed in the letter and we've talked about we feel good about that and I think we will continue to see some reasonable level of growth from the <unk> business Hyperconnected, sorry, how CUNA at Hyperconnected more challenged and.

And we're assuming a little bit of improvement in that business next year compared to this year, but not dramatically so and so when you put that all together I think that hyper connect overall will show some modest level of revenue growth next year in local currency, but again when you FX affect it I think we will be down on a U S dollar basis. So that's.

What we're planning for so there are some headwinds from a dollar perspective, both on the Japanese business at pairs and on the hyper connect businesses I think as Saar.

And her CUNA together can probably do about 10%.

Adjusted operating income margin, we're going to be disciplined on marketing spend and head count there to try to drive improving margins and we've got to keep driving margins up in that business and that is something that our new team there are.

Working with our existing <unk> is very focused on.

Our next question comes from Justin Patterson with Keybanc. Please go ahead.

Great. Thank you try and multi parter on.

On Tinder marketing VK, because you talked about how you see the tighter integration between marketing and product teams influencing the growth of Tinder ahead, it sounds pretty similar to your bold beat strategy over at Zynga and then for Gary I. Appreciate the details you gave on Tinder March and still being best in class at around 50%.

<unk> could.

Could you talk a little bit more about just the puts and takes on whether this is kind of a temporary or permanent shift in marketing spend.

And what kind of assumptions are to maintain those best in class margins. Thank you.

Thank you Justin Great question I'll try to answer this question on my own.

We love the questions around marketing so traditionally tinder has not spend much on marketing they've always spent about less than 10% of revenue and we don't see that changing.

Thankfully Tinder is not reliant on marketing to grow the business. However, this is a 10 year old brand and especially with younger users who are new to the category, we haven't taken the opportunity to establish our narrative.

I believe that tender, which as a category leader has been too quiet in the market for too long.

In 2023, we're going to increase marketing spend to establish stronger brand narrative, but to answer your question, it's still going to be below 10% of revenue.

With our new CMO, we see great opportunities to get brand message out there in a creative manner and market. Some of our newer product features that we have planned for next year. These two together should help accelerate user growth at tinder, and even once again and even with incremental marketing spend.

We expect tinder margins in 2023 to be in the 50% range as they always have been.

Thanks for the question.

Our next question comes from Youssef Squali with.

Please go ahead.

Great. Thank you very much and guys. Thanks for sharing the initial outlook for 2023, we understand how challenging visibility is at this point that Phil I. Appreciate it. So maybe just a follow up to the to the last question about marketing since because you like the marketing questions. So if I understand it correctly and this is a question about 2023.

Seems like Tinder hinge and match, we will see increase in marketing spend while all the other brands would be down I guess. The question is is this a temporary strategy to weather the macro environment in 2023 or do you see this more as a permanent pivot permanent shift in your strategy.

Going forward and maybe just a quick one you guys talked about how hence should contribute at least an additional $100 million in 2023, what do you expect.

<unk> business to contribute in 2022, just said, but based off to work off of thank you.

So let me take the hinge question first I think PK mentioned that hinge is probably about $15 million behind the goal for the year, mostly because of FX. It's got a big UK business in particular, and it's feeling the impact of FX, especially in the pound and so we had targeted $300 million.

Probably should fall about $50 million short of that so let's call. It 285 or so for the year and then we said we think we can deliver at least $100 million of incremental.

Revenue next year. So that you can you can add that together, obviously, the 100 million depends really on the success of the international expansion, but more importantly on the success in take rate.

Around the new pricing tier the new premium tier and so that's really the thing that we don't know we've made some reasonable estimates on what we think is going to happen with that tier, but we'll know a lot more in a few weeks or certainly by the end of the year as we are planning to start testing the middle of this month.

And so by the end of this year, we will have a much better sense and so when we get back together again in February we'll be able to give you some updates on that tier as well as on the overall outlook for hinge revenue growth next year.

And that was one piece of your question.

I did also I just want to comment on the 2023 outlook just since you raised it which is by necessity. We wanted to provide an outlook for next year as we often do on this call, but this year that is particularly challenging because there are so many moving pieces both in our business.

And from a macro perspective, and so we don't really know what the macro environment is going to be through next year, what's going to happen from rates in recession and all the things that you know well. So we've tried to make our best guess at that but but clearly we'll have to see how things play out in the coming months to get a better sense of what 2023 looks like.

Sitting here today, making our best guess on what economic conditions are going to be for next year, we're confident in that 5% to 10% growth for the overall company as well as at Tinder on the on the revenue side.

So I just wanted to kind of mentioned some of that so everyone understands how we've approached providing an outlook for next year at this point given all of.

The various cross winds.

And then on the last question about the marketing spend.

You are right to assume that we're going to see marketing spend increases next year at tinder for the reasons that BK explained about wanting to make sure. We establish the brand narrative better than we have in the past.

As well as at hinge, which we've talked about extensively and that's really two things one to keep supporting it's really strong and impressive user growth in the English speaking markets U S U K in particular as.

As well as continue to build around the world, where there is a lot of momentum things are going well more than according to plan and we feel great about our international expansion opportunity at hinge and we want to keep investing in that so those are the places where we are clearly investing meaningful dollars on the marketing side.

I did want to correct. You said you thought there would be a increase in marketing spend at our match brand next year I don't think thats going to be the case, there is going to be an increase in our marketing spend at the match brand in Q4 of this year, but that's because we have a discrete new brand campaign that we're launching so there will be a year over year increase in Q4 of this year at match, but we're not planning.

For that next year in fact, we expect marketing spend at all of these stablish brands, including match to be down in 2023 over 2022.

And we're using that to offset the investments, we're making at the Hanesbrands and at the Tinder brand.

I would also say that our approach to marketing spend and how we're thinking about our strategy around that is not about weathering. The current macroeconomic environment and it's also not a permanent strategy. It's really a plan for targeted spend increases to achieve our strategic goals our strategic goals are at hinge to.

Grow the business internationally and that's why we're investing our strategic goals at Tinder is to establish the brand narrative and take back some of the brand narrative.

And make some more noise in the market and we're planning to do that with increased marketing spend next year.

Then we will sort of go from there, we're nimble and marketing spend and we will continue to spend where we think it makes sense and pull back where we think it doesn't make sense.

A couple of other areas I would point to where we think we will spend up next year, one would be the league, which we recently acquired and we think there is significant.

Opportunity for growth of the league and we plan to invest into that business on the marketing side. We're excited about the opportunities. There and then second is some new apps that we're thinking about incubating. We think there are some markets where the demographics are underserved and we can build some apps that really satisfy those demographics better.

The current offerings to the extent, we do that user growth will be a priority driving user growth and marketing will be a component of that strategy in 2023. Once we incubate new apps. So we expect to spend up to the extent, we incubate some new apps, which is in our plan for 2023, and then I would just add that philosophically.

<unk>.

Maintaining strict ROI discipline on our marketing spend as we always do but especially in a tougher environment.

And we believe that all of our brands, our marketing spend is meeting or exceeding our ROI thresholds. So that is a lens, we're going to continue to apply very very carefully.

Especially in a challenging environment, we're hopeful that if the economy does soften we will see some relief in terms of what has been an expensive and competitive marketing environment.

But we have not seen that yet.

I think it's logical to think its coming given all the headwinds in the economy, but if we do see that we would look to capitalize on that as well.

So hopefully that answers the different parts of your questions and thank you for your questions Yeah excellent very thorough thanks Gary.

Our next question comes from John Blackledge with Cowen. Please go ahead.

Great. Thanks could you provide some more color on hinges international expansion efforts kind of what Youre seeing and then can you talk about.

The upcoming market launches in the fourth quarter and then 2023. Thank you.

Thanks, John for the Great question, we have a lot of exciting things that are happening at hand right now.

We've confirmed two things the product has appeal beyond the English speaking markets and our marketing and localization tactics are working well.

Hinge has found a great fit for singles that are in English markets and now in English speaking markets and now it is clear that the product resonates in other international markets also.

The team is really innovative and laser focus on getting people on great dates. So it shouldnt be a huge surprise that it is growing so well the launch in Germany, and Sweden has been really great to watch and were rolling out localized versions in France, Italy, and Spain in this quarter as well.

We will start marketing in those countries in 2023, and we expect hinge to keep growing across Europe next year.

We still have a lot more countries to go and we will continue to rollout new markets and should drive growth for hindrance for hinge over the next few years.

Thank you.

Your next question comes from Lauren Schenk with Morgan Stanley . Please go ahead.

Great. Thanks, BJ you mentioned in the letter you're saying.

Some promise them early tender results, just hoping you could maybe elaborate and share a few examples there and then there is there a timeline that we should be thinking about in terms of announcing the new the new tender CEO and then Gary I just had one quick follow up if I can on your comments about seeing some deterioration over the last few weeks does that fourth quarter guide assume that that level of softness.

<unk> for the rest of the quarter and is that softness broad based.

And just on the on our card spending and payers. Thanks.

So thanks for the questions I'll handle the first part and Gary you can jump in on the back end on the second question.

The team is working really well together and we're shipping products out faster, we gave them a goal to launch weekly subscription boost optimizations and relationship intent in Q3 and they accomplished all of that now we're in the process process of crystallizing our product plans for 2020.

Three I'm happy with how Thats going and we'll have more specifics to share in our next earnings call.

But I do expect to name a CEO at Tinder, we have a really strong leadership team in place and I want to make sure that the new CEO is going to work really well with each of them.

We're looking for someone with deep consumer product expertise, who can hit the ground running and further galvanize the team around our long term vision, it's important for us to find someone that will be at tinder for a long time. So we want to spend the right amount of time doing the diligence and finding the right leader.

In the meantime, I'm happy to say as interim CEO .

Gary do you want to handle the second part.

Obviously, we're partway through the quarter in Q4, and so visibility into Q4 is a lot easier than visibility into 2023, and we have seen deterioration in the last few weeks, it's primarily it's not broad based it's primarily an ala carte tinder.

It is existing in some other pockets like are plenty of fish business as well and look it's hard to tell exactly how much macro weakness, we're seeing across the portfolio, but the thing that we're particularly focused on is the weakness on the LC side at Tinder I think we've made some reasonable assumptions based on what we're seeing for Q4 that give me confidence in our <unk>.

Means that we provided for Q4, obviously I don't know how much things are going to deteriorate or not in 2023, and so that's what makes guiding for 2023 more challenging.

But right now the trends that we see.

You indicate some consumer weakness and we have factored that in at least into our Q4 outlook and we've tried to make some best guesses around it for 2023 as a whole as well.

Very helpful. Thank you.

Yeah.

Our next question comes from Alexandra <unk> with Goldman Sachs. Please go ahead.

Thank you very much I wanted to follow up on on Q4, and 23 margins. So given the guidance for slower top line growth at Tinder and your comments around increased marketing investments versus some targeted cost reduction efforts, how should we think about the cadence of adjusted operating income margin from here and over the next few quarters given the timing.

Of these initiatives. Thank you.

Thanks Alexandra so.

Youre right and I said it before we're investing marketing dollars in the businesses, where we see growth opportunities Tinder hinge the league et cetera, and we're offsetting those with reductions in the more established brands. The net result of that is that we expect marketing spend next year to be roughly consistent as a percentage of revenue with what we.

You've seen in 2022, and so overall our goal for next year is to have flat margins for the year, hopefully do better than that but that's our target.

You may see small fluctuations quarter to quarter, depending on the cadence of marketing spend if we spend on a bigger campaign in Q1 that might have some effect on margin versus if we don't have that in Q2. So you might see margins be plus or minus a little bit year over year in each quarter, depending on the marketing spend cadence and whats going on.

From a campaign perspective.

Outside of marketing spend we're going to offset any incremental margin headwinds that exist with improvements elsewhere to hit that goal of at least flat margins.

And then you are right.

Tinder is a very high margin asset for us and we talked about that already and so improvement in margins and ultimately hitting our long term margin goal really is dependent on or at least it's a key factor that tinder really.

Accelerated growth and really contribute meaningful growth to us. So that is number one job for the company is to really accelerate into growth and get it back to where it's been historically or at least closer to that which will help us get closer to our overall long term margin target.

The only other thing I'd point out around margins and we mentioned this in the letter is that our outlook for margins doesn't assume any relief from the app stores at all.

Which we think is the prudent thing to assume at the moment that being said the digital markets Act went into effect yesterday in the U K and we are expecting changes to App store policies. As a result of that and there is actions in other jurisdictions as well markets like India. For example, and so we believe that it's likely that we're going to see relief.

App stores in 2023, if not in 2024 at the latest and so I do think there is upside to our margins as that plays through but right now our outlook doesn't contemplate any of that.

Very helpful. Thank you.

Our next question comes from Benjamin Black with Deutsche Bank. Please go ahead.

Great just a follow up on expenses.

I think in the letter you spoke about accelerating sort of broader cost control.

Next year.

When should we expect to see those sort of initiatives impact the P&L and could you sort of unpack exactly what those cost controls shouldn't look like thank you.

Sure, let me take that one.

Well.

When you look at our P&L.

A lot of our costs come out of <unk>, which obviously, we're nowhere near in control over as well as things like web hosting AWS things like that which are difficult for us to effect. So when you look at what we can control and we do want to control what we can control in the current environment marketing and head count as well as some other operator.

Expense items are things that we really can control we can control costs on those fronts I just talked in response to Alexandra. His question about the marketing spend where we're increasing and at certain of our businesses and we're offsetting that with reductions elsewhere to be neutral from a margin perspective. So that's one piece of it.

In terms of the head count, we've actually dramatically slowed our hiring since the middle of this year and we expect a very few if any additional hires in 2022 really only critical hires in growth businesses are the only additional head count that we would add in 2022.

I think in 2023, the same philosophy will apply meaning that for growing businesses and really critical hires will make them, but other than that we're going to be really judicious. So specifically I'm expecting hiring in hinge which is.

A bright spot for us a fast growing business, but I'm not expecting meaningful head count increases elsewhere across the company.

To the extent that head count does lead to incremental margin impact on the negative side, we would need to offset that with reductions in other parts of the business and so when you think about where those could be.

One is just general corporate overhead things that are nice to have that we can do without or costs that have crept into the business over the last few years that we think we can reduce and pair back on without impacting the performance of the business and there are some of those and we've identified those and we're eminently taking action on some of those.

Youll see the impact of that flow through the P&L if not in the fourth quarter, then certainly as we make the turn into 2023.

Also in our real estate portfolio, obviously post COVID-19.

Things are not the same from a real estate perspective, as they were pre COVID-19 and to the extent it makes sense to adjust our real estate footprint. We're looking at doing so so corporate overhead corporate costs generally as well as real estate are places that we're targeting.

For reductions and we can hopefully use some of that to reinvest in the businesses and new growth initiatives in marketing at Tinder, and hinge and so forth and so thats part of our plan and look I would just say we think these are the responsible thing to do there is a lot of macro headwinds out there that are very difficult to project and so we would.

Rather be proactive on this front and if the.

Environment next year is not as bad as we are anticipating then the business will improve from a profitability standpoint. So that's the approach that we're taking and we're also mindful that the trajectory of certain of our businesses is growth challenged and we also have to factor in that we need to be more discipline on costs as a result of the growth challenges.

And some of our businesses. So I just wanted to kind of conclude by saying.

We have guiding principles around this we're making targeted investments in businesses that we think can grow tinder hinged the league cheese, Bob BLK. Some of these new apps that we might incubate that is philosophically, what we're trying to do and we're making expense reductions in businesses, where we have less confidence in the growth.

Primarily the established brands. So it's not a one size fits all approach it's not a complete a broad based approach. It is targeted investment in some parts of the businesses and reducing costs in corporate and other brands that aren't growing on the flip side and that's how we're approaching the cost reductions that we're thinking about it.

Then the last thing I wanted to add before we just wrap the call up is that any investments we're going to make in new businesses next year going forward are going to face a very high bar, especially given the environment. We're in we need to apply a very disciplined lens to making any investment and so we're reviewing everything very carefully and we're going through our process.

Now to do all of that and so we will have a lot more to communicate both on the cost and margin side on the investment side as well as what we see as the environment from a macro perspective and revenue growth when we get together again in February on our next call and I look forward to seeing you. All then.

Any last comments from you.

Thanks, everyone for joining the call today, we feel like we've made a lot of great progress in a short amount of time, we look forward to sharing more with you during our next earnings call. Thanks, So much.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.