Match Group (MTCH) Q4 2023 Earnings Call Transcript

Match Group (MTCH 1.72%)
Q4 2023 Earnings Call
Jan 31, 2024, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to the Match Group fourth quarter 2023 earnings conference call. All participants will be in a listen-only mode. [Operator instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Tanny Shelburne, senior vice president of investor relations. Please go ahead.

Tanny Shelburne — Senior Vice President, Investor Relations

Thank you, operator, and good morning, everyone. Today’s call will be led by CEO, Bernard Kim; and president and CFO, Gary Swidler. They’ll make a few brief remarks, and then we’ll open it up for questions. Before we start, I need to remind everyone that during this call, we may discuss our outlook and future performance.

These forward-looking statements may be preceded by words such as we expect, we believe, we anticipate, or similar statements. These statements are subject to risks and uncertainties, and our actual results could differ materially from the views expressed today. Some of these risks have been set forth in our earnings release and our periodic reports with the SEC. With that, I’d like to turn the call over to B.K.

Bernard Kim — Chief Executive Officer

Thanks, Tanny. Good morning, everyone, and thank you for joining today’s call. As I reflect on 2023, I am deeply proud of the accomplishments and progress that we made as a team. Just one year ago, we introduced an entirely new operating structure with several new leaders put in place across Tinder, Hinge, MG Asia, and E&E, and it’s been working.

Together, we deepened our focus on execution and innovation, helping lay the foundation for sustained longer-term growth. At the same time, we recaptured financial momentum, ending the year with strong revenue growth and our third consecutive quarter of record AOI. Before we dive into more detail regarding our ambitious plans and goals for this coming year, I wanted to take a moment to recognize Faye Iosotaluno as Tinder’s new CEO, which we announced earlier this month. Faye has been an impactful leader at Match Group for several years and, most recently, as COO of Tinder.

Her intimate understanding of the online dating category, as well as her deep expertise in strategy and business development, among many other skills, are just a few of the reasons why I believe Faye is best suited to lead Tinder in its next chapter of growth. Faye is also supported by Tinder’s strong management team, which we set in place last year, giving me the utmost confidence in their ability to execute together. The plans for Tinder reflect our shared vision, and I look forward to working with her and the team along this journey. Now, taking a step back, at Match Group, we come to work highly motivated every day to foster genuine human connections, but the tools and technologies that people use to connect, match, and date today must evolve to meet modern expectations of today’s daters.

And as Tinder once did a decade ago, it’s imperative that we boldly innovate to create engaging, joyful, and exciting experiences for users on our apps. There are certain things that are table stakes for us. We need to continue to foster online communities where women and all underrepresented groups of people can show up as their true authentic selves, feel safe, and be respected. But this new generation of singles is digital-first and expect platforms like ours to allow daters to showcase their unique personalities in an engaging setting and be shown highly curated matches.

In 2024, our road maps are shaped with this in mind. First, we are working to improve existing dating apps, beginning with our two largest brands: Tinder and Hinge. Leveraging AI, Tinder will focus on creating a more inclusive experience, beginning with improving the Gen Z and women’s experiences while solving for key user pain points across the dating journey. At Tinder, Faye and her team are relentlessly focused on modernizing the existing experience.

For example, take Tinder’s effortless swipe feature. In 2024, Tinder plans to build on the swipe right and swipe left mechanism by adding in more discovery gestures to better align with today’s behaviors and expectations. Not only will users be able to like as they always have, but now, they will be able to swipe up to engage deeper in profiles and swipe down for a revamped new explore experience. Tinder is also working on several features that give it — that give women real and relevant experiences every time they come into the app.

This will include increased trust and safety, more focus on the right primary photos, and improved curation of recommendations. By continuously improving the product, building on what works while modernizing key features will produce an experience that aligns with what the next generations of daters are expecting. 2023 was a year of execution and increased product velocity for Tinder, which set a strong foundation. In 2024, Tinder is adopting a fast-fail mentality, a strategy that prioritizes rapid experimentation and testing.

This approach is all about agility. If a new idea or feature doesn’t yield the anticipated results, the team is prepared to quickly pivot, absorbing valuable insights, and move forward. We recognize that not every innovation will be a groundbreaking success. However, it’s this very willingness to embrace risk and learn from failures that fuels our growth.

And when we do strike gold, it not only elevates our business, but it sets a new standard for our users, which we will continually enhance. We look forward to sharing more over time, but I am confident that these changes will meaningfully transform Tinder in 2024 and beyond as it builds on its roots and shapes a product experience that redefines dating yet again. Similarly, Hinge is leveraging AI to further improve its powerful experience by reimagining meaningful connection. Hinge envisions a focused and intentioned experience that places guidance at the heart of a dater’s journey.

Hinge will aim to truly understand you and what you’re looking for in order to introduce you to the right person sooner. This redesigned experience will utilize the vast treasure trove of insights on profiles, rich interactions, and great dates that Hinge has collected over several years. Hinge will help users discover matches based on shared interests and highlight compatibility, in addition to many other features, with the ultimate goal of improving dating outcomes for its users. This work will begin in 2024, and I can’t wait to share more as things progress.

In 2023, we established a central innovation team that has been making significant impact. In 2024 and beyond, the team will focus on launching disruptive new brands that will grow the category and bring in those who may not have previously tried a traditional dating app. Additionally, we’re building internal technology capabilities in coordination with our central innovation teams to help improve our overall effectiveness as a company. While AI brings with it cost efficiencies and a potent optimization tool, we view it as far more than just that.

AI has played an important strategic role at Match Group for years, from trust and safety efforts to our matching algorithms, and I believe it will play an even larger role moving forward. AI enables us to bring groundbreaking improvements across a dater’s journey. We expect it to touch every aspect of our apps by improving profile quality, discoverability, and matching. And even more importantly, creating an even safer environment for our users to connect in.

The bets that we are making are bold, and large-scale changes like this do take time. However, we expect to make tangible progress through 2024 as we roll out AI-driven capabilities and feature enhancements within our existing apps and as new AI-powered stand-alone apps begin testing in the marketplace. I am confident that early indications of momentum at Tinder, particularly from Gen Z and women, will be evident in the second half of the year as a result of consistent brand narrative, modernizing product, and an ecosystem that celebrates human connection and inclusivity. Ultimately, we recognize that our ability to deliver revenue growth and free cash flow is what gives us the freedom to pursue these ambitious road maps.

As we push the boundaries of innovation, we will maintain financial discipline. We will grow revenues, maintain or enhance our margins, and generate significant free cash flow, which will allow us to return capital to shareholders. 2024 is about both delivering on our short-term commitments and positioning our company for enduring long-term growth. We’ve always been at the forefront, adapting to technology shifts, and we’ll continue to lead this wave of change.

At the heart of our endeavors is an unwavering dedication to delivering products and services that delight our customers. And with that, I will turn it over to Gary.

Gary Swidler — President and Chief Financial Officer

Thanks, B.K., and hello, everyone. Thank you for joining us this morning. Our business demonstrated strong financial performance again this quarter. Tinder once again delivered double-digit year-over-year direct revenue growth, as did the company as a whole.

We achieved record quarterly AOI for the third consecutive quarter and record OI for the second consecutive quarter, further validating the steps we’ve taken to strengthen the business. Match Group’s total revenue for Q4 was $866 million, up 10% year over year, an acceleration from 9% year over year in Q3. For the full year, Match Group delivered total revenue of $3.4 billion, up 6% year over year, with AOI of $1.3 billion, representing margin of 37%. Excluding the $40 million we received as part of the Google settlement, full year AOI margins would have been up 80 basis points compared to 2022, meaning our goal of flat or better year-over-year AOI margin.

Q4 Tinder direct revenue was up 11% year over year at $493 million. Tinder RPP was up 21% year over year at $16.49 due to the effects of the U.S. price optimizations and weekly packages we rolled out earlier in 2023. We did see continued pressure on users at Tinder both in the U.S.

and globally during the November and December holiday months, resulting in a mid-single-digit year-over-year decline in new user registrations and reactivations in Q4. Q4 Tinder payers declined 8% year over year to 10 million, slightly below our expectations. For the year, Tinder delivered direct revenue of $1.9 billion, up 7% year over year, with AOI margins in excess of 50%. Our Hinge brand continues to perform very well.

Hinge direct revenue growth accelerated to 50% year over year, a further 6-point acceleration over Q3. Hinge Q4 payers were up 33% year over year to 1.4 million, while RPP of over $28 was up 13% year over year in Q4. For the full year, Hinge delivered direct revenue of $396 million, just shy of our $400 million target, primarily due to slower top-of-funnel growth in Q4 than we were anticipating. Historically, Hinge has not seen a seasonal slowdown during Q4 like many brands see.

This Q4, for the first time, Hinge did see that seasonal slowdown. That said, Hinge has had a very strong start to 2024 in terms of top-of-funnel in every market and among virtually every age and gender cohort. So, there’s been a clear bounce back. Match Group Q4 AOI was $362 million, up 27% year over year, including $40 million that was returned to us as part of the Google litigation settlement for margins of 42%.

Excluding the $40 million, AOI would have been up 13% year over year and margins would have been 37%. Operating income was $260 million in Q4 for a margin of 30%, 25% after adjusting out the impact of the Google settlement. Q4 2022 included an impairment of intangibles of approximately $100 million, and OI margin would have improved 3.5 points if not for the impairment in 2022. Overall expenses, including SBC expense, were down 11% year over year in Q4, down 5% excluding the Google settlement.

Excluding the settlement, cost of revenue, including SBC expense, grew 5% year over year in Q4 and represented 29% of total revenue, down 1 point year over year. Excluding the settlement, app store fees increased 17 million year over year, 20 basis points as a percent of total revenue in the fourth quarter. Selling and marketing costs, including SBC expense, increased $32 million, or 25% year over year in Q4, primarily due to increased spend at Tinder. Selling and marketing spend was up 2 points as a percentage of total revenue at 18%.

G&A costs, including SBC expense, declined 2% year over year in Q4 and 2 points as a percent of revenue to 12% as legal and professional fees declined by $11 million year over year. Product development costs, including SBC expense, grew 21% year over year in Q4, primarily as a result of higher compensation expense due to increased headcount at Hinge and Tinder and were up 1 point as a percent of total revenue at 11%. For Q1 ’24, we expect total revenue from Match Group of $850 million to $860 million, up 8% to 9% year over year. We expect FX to be a 2-point year-over-year headwind in Q1.

At Tinder, we expect direct revenue to be $480 million to $485 million, up 9% to 10% year over year in Q1. Again, we expect FX to be a 2-point year-over-year headwind. We expect RPP and payer year-over-year trends to be broadly in line with what we saw in Q4, with Q1 demonstrating less than half the sequential decline in number of payers than we saw in Q4. Across our other brands, we expect direct revenue of $355 million to $360 million, up 7% to 8% year over year.

Within our other brands, we expect Hinge to deliver approximately $120 million of direct revenue in Q1, year-over-year growth of approximately 45%. We believe that macroeconomic conditions and consumers’ willingness to spend has remained relatively stable since our last earnings call. We have not seen any additional impact on our subscription or ALC revenue. We expect Match Group AOI of $270 million to $275 million in Q1, representing year-over-year growth of 6% and margin of 32% at the midpoint of the ranges.

We expect overall Q1 marketing spend to increase by approximately $30 million year over year, collectively at Tinder and at Hinge, compared to the levels these brands were spending at in early ’23 as we seek to reinvigorate user growth at Tinder and continue the stellar user growth at Hinge in both core and European expansion markets during our peak season in the first quarter. That said, we continue to monitor closely for marketing efficacy and can pull back if we don’t see the desired results. We entered 2024 with solid revenue momentum and believe we’re positioned to deliver total revenue of between $3.565 billion and $3.665 billion, representing year-over-year growth of 6% to 9%. At Tinder, we expect direct revenue of $2.025 billion to $2.075 billion or growth of 6% to 8% year over year.

We believe this revenue target for Tinder provides the new leadership with sufficient room to focus on ecosystem improvements, product improvements, and user growth initiatives to drive sustainable long-term growth. Our outlook assumes modest improvement in Tinder user trends over the course of 2024, but not yet a return to year-over-year user growth. We expect payer growth to improve through the year, achieving positive sequential payer net adds in Q3 and positive year-over-year payer growth by Q4. Across our other brands, we expect direct revenue to be $1.480 billion to $1.530 billion or 6% to 10% year-over-year growth.

Within our other brands, at Hinge, we expect direct revenue of $535 million to $545 million, which represents growth of 35% to 38% year over year, with a continued focus on driving share gains in Hinge’s core and European markets. We’ve assumed FX to be a 1.5-point headwind to full year ’24 total revenue growth. We expect 2024 indirect revenue of approximately $60 million, up approximately 8% year over year. For 2024, our current anticipation is for AOI margins to be at least 36%.

Our margin will largely depend on the various brands’ levels of revenue growth and how we calibrate certain investments that are critical to achieve our organic growth plans. There are several key investment areas that are impacting margins that we’d like to call out. The first is at Tinder in both product innovation and marketing. As we reinvent the Tinder experience, we’re putting substantial incremental resources into product to improve the experience and cater better to women and Gen Z; and in marketing, to build a better brand narrative and higher awareness of the new and improved experience.

For 2024, we estimate $30 million to $40 million in incremental Tinder expense from increased product innovation and marketing spend in ’24 compared to ’23. The second is AI-related investments in key brands and the development of new AI-centric products as we believe AI can help improve our users’ experience and bring resisters into the category, as well as potentially expand our TAM. We have a long list of product features being rolled out at Tinder and Hinge, as well as plans to test new and different products that leverage AI throughout 2024. Our current expectation is for incremental 2024 AI-related spend of $20 million to $30 million across Match Group.

And finally, investment in Hinge. We’re confident that Hinge can be a $1 billion top-line business, and it has an ambitious plan over the next few years to build off its well-regarded product and the traction it has achieved in all markets entered. While we anticipate significant operating leverage in this business long term, during this hypergrowth phase, we’re managing the business to roughly flat AOI margins in 2024 to ensure we’re continuing to invest in the product innovation, expansion markets, and brand to help us realize Hinge’s full potential. In dollar terms, that means that $40 million to $50 million incrementally is going into Hinge’s product and marketing in 2024 compared to 2023.

All three of these investment areas are elective and can be calibrated as this year proceeds. Because of the cost reduction actions and natural operating leverage of our business, we’re able to target margins of at least 36% while reinvesting roughly $100 million into the three key investment areas, which we expect to not only help us deliver growth this year but position us for long-term success, specifically to, one, achieve sustained user payer and revenue growth at Tinder; two, to capitalize on Hinge’s full potential; and three, to ensure that we’re the ones who introduced the next great innovation in the business of connecting people. Importantly, we expect to begin to see tangible results from this investment this year, not necessarily full payback on a dollar basis, but as B.K. outlined, we expect to see better product experience at Tinder, including improved satisfaction among women and Gen Z; and Hinge making progress on delivering its revenue goals and expanding market share.

We also expect to see AI-driven features in our core brands, as well as in new experiences. We’re positioned to make these investments and move our business strategically forward while holding our already attractive margins approximately flat year over year. As some of you may know, Apple recently announced changes to their app store fee policies in response to the upcoming implementation of the Digital Markets Act in the European Union on March 6th. We continue to analyze these changes, and our preliminary estimate is an approximately $20 million annualized benefit.

However, Apple’s new policies are merely a proposal and could change materially over time. We expect any savings that we achieve from Apple’s changes will help us meet or exceed our margin objective for the year. Given the March implementation date, we don’t anticipate significant Q1 impact. Our $20 million annualized estimate does not include the benefit from use of alternative app stores or payment processors, nor have we included any benefits from policy changes in geographies outside the EU, which would be substantial for us.

We have said before that the DMA was likely to lead to changes to app store policies in the EU and likely globally. We have seen the first brick fall in this regard, and we expect more to come. This is in addition to the recent decision by the U.S. Supreme Court in the Epic versus Apple case and Epic’s win versus Google in its antitrust case.

We have not included any further benefits from app store changes in our outlook at this time as we want to watch how all this continues to evolve, though we would point out that the $650 million we paid to app stores in 2023 provides ample room for reduction. We’re pleased by the financial results we achieved in the back half of ’23 in terms of both revenue growth and profitability. We have plans in place to deliver solid ’24 financial performance while enabling marketing and product initiatives to lead to improved user growth and position the business for sustained long-term growth. We continue to believe that Match Group provides a rare combination of revenue growth, stellar profitability, and substantial free cash flow generation.

We have plans in place to supplement our shareholders’ return with significant return of capital via share repurchases or potentially other means. We believe few, if any, companies in our space offer this combination of attributes to shareholders. With that, I’ll ask the operator to open the line for questions.

Questions & Answers:

Operator

We will now begin the question-and-answer session. [Operator instructions] The first question today comes from Shweta Khajuria from Evercore ISI. Please go ahead.

Shweta Khajuria — Evercore ISI — Analyst

OK. Thank you for taking my question. B.K., anything you can comment on Elliott’s stake in the company and your conversations with them thus far? And then my follow-up is for Gary. Gary, could you please provide more color on your level of confidence in the Tinder net adds turning positive in the third quarter and the positive year-over-year payer growth in the fourth quarter? Thanks a lot.

Bernard Kim — Chief Executive Officer

Great. Thanks, Shweta, for the first question. We’ve had collaborative dialogue with Elliott over the past few weeks ever since we learned about their stake in the company. We are looking forward to continuing to engage with all of our shareholders, including Elliott.

Gary Swidler — President and Chief Financial Officer

And then, Shweta, on your questions around Tinder net adds, you know, I think, as we’ve said in the letter and in our remarks, you know, we have high confidence that we’re going to see sequential improvement in Tinder by Q3 on the net adds side and that we will get some modest payer growth year over year by Q4. And that’s a combination of a few things, most notably, you know, the product and marketing initiatives we have that are — that have been put in place through the course of ’23 and into ’24, which we think will drive the level of growth we need to achieve those goals of sequential net adds in Q3 and then payer growth year over year in Q4. And, you know, it’s a series of things. It’s not just one specific thing that we’re relying on or expecting to drive that.

It’s a series of improvements and initiatives that Tinder has in the plans. And so, we think that will culminate in achieving the goals around payer and net adds by the middle of this year.

Operator

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

Lauren Schenk — Morgan Stanley — Analyst

Great. Thanks. Just looking back on 2023, what do you believe caused Tinder user growth to be negative despite the incremental marketing spend and how will the marketing message evolve in 2024 if at all? And then just one on the 1Q EBITDA guide. It was about 25 million below the Street.

Is that just the incremental marketing push you’ve been speaking about or there are other drivers there that we should take into account and how should we think about the cadence of Tinder marketing spend through ’24? Thanks.

Gary Swidler — President and Chief Financial Officer

Yeah. So, I think it’s important to understand kind of what went on in ’23 so that you can understand kind of the trajectory of the business. You know, we put in place a new brand narrative of Tinder, something that we hadn’t focused on for a long time. We finally did that in 2023.

And when you try to put in place a brand narrative and start to tell that story, it takes time to build. And so, it doesn’t translate into user growth, you know, immediately. And in fact, what we saw in ’23 was pretty good progress on the user growth side in the first half of the year as a result, in part, of the marketing initiatives. I think we hadn’t been in the market very effectively on the marketing side in a while.

And so, we did see some really good user growth improvement from, let’s call it, February of last year until the middle of the year. And then in the second half of the year, the trends kind of reverted to where they had been, you know, down kind of mid-single digits on the user side year over year. And, you know, while we saw that stepback, we did continue to see movement in some key metrics that we focus on for the brand campaign: brand consideration and improvement in consideration, particularly among younger women. And so, we were satisfied that the brand campaign was doing what we expected it to do.

Over the course of 2023, you know, the campaign has been very resonant with the target demographic and it’s been very well awarded by some of the ad publications. And so, we’re continuing to invest in that marketing campaign, we’re continuing to do it in the key global markets, and we’re trying to have an always-on philosophy so there’s not gaps in the marketing. And that’s what we’ve budgeted for this year. I would just point out, though, that marketing can only do so much.

Tinder, like many of our brands, is a product-driven company. And so, while marketing can help on the user growth side, you know, the user growth really needs to be driven by product and product innovation, and marketing needs to be aligned with product to drive people back to the app or to reconsider the app or consider it for the first time once product has really innovated and improved. So, that is part of the plan for 2024. We are spending pretty heavily in Q1 on the marketing side, as you pointed out, because we do want to drive users back to the app after the refresh.

And so, you know, that is part of the plan for the first quarter. I do think that, you know, people maybe didn’t quite understand the magnitude of what we are planning to spend in the first quarter on Tinder marketing. I do think that accounts for maybe the gap in expectations versus what sell-side analysts had for the quarter. And so, you know, that — and that, plus a little bit of user softness that we saw in Q4, which leads to revenue softness and, therefore, AOI softness, are probably the two factors.

We are planning to continue to spend heavily in the first quarter. I would say, after that, the marketing cadence is probably pretty evenly spread throughout the rest of the year. But, you know, as we say, we’re nimble on the marketing side. And to the extent we don’t see the expected, you know, user growth trends or effectiveness of the marketing campaign, we can adjust and pull back.

And so, we’re pushing hard in the first quarter at Tinder and, frankly, at Hinge as well, and then we’ll sort of recalibrate and see. But right now, I’d say it’s spread pretty evenly the rest of the way.

Lauren Schenk — Morgan Stanley — Analyst

Great. Thank you.

Operator

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

Chris Kuntarich — UBS — Analyst

Great. Thanks for taking the question. Can you just talk a little bit more about what those early learnings have been around the Tinder product refresh and how that is really tying into the marketing spend for Tinder that you’re talking about this year? Thanks.

Bernard Kim — Chief Executive Officer

I’ll take that one. Great question, Chris. The refresh in December was our first step in the product modernization that we’re undergoing as a team. It’s been less than two months since the refresh went live, and we’re already seeing encouraging signs.

For example, over 80% of our daily users are currently using dark mode. And as for prompts and quizzes, we’re excited about the early adoption rates. Quizzes are already seeing a 15% adoption rate, and prompts are not that far behind. This is a strong indicator of user engagement, especially considering how recently these features were introduced.

I’d like to add that it’s important for us to remember that these features are optional, so not all users will adopt them, but their presence offers more ways for users to engage. Our approach last fall, testing numerous features independently before combining them into a broader refresh, has created tremendous learning across Tinder. These tests have taught us quickly to identify what works and what doesn’t work, informing our fail-fast strategy for 2024. And as Gary mentioned, we are leaning in on our marketing strategy.

However, it’s crucial to leverage marketing to spotlight new product features. Therefore, we might adjust our spend levels to align with the rollout of these new features throughout the year.

Operator

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

Justin Patterson — KeyBanc Capital Markets — Analyst

Great. Thank you very much and good morning. Could you elaborate a little bit more about the Hinge slowdown that occurred during December and what drove the reacceleration? I know you talked about that we haven’t really seen seasonality in Hinge before. So, I’m curious how that seasonality compares to what you’ve seen toward some of your more mature apps in there.

Thank you.

Gary Swidler — President and Chief Financial Officer

Sure. Let me take that, Justin. So, you know, we do see seasonality in most of our apps, especially the larger ones, in the period in kind of November and December. That’s typical.

We see it at Tinder, we see it at other brands because users in many parts of the world tend to focus on the holiday season and they, you know, pull back from their dating activities in that period. And then what we tend to see is, you know, right after Christmas through Valentine’s Day, we actually see a very strong period. That’s our peak season, from right after Christmas to Valentine’s Day, when people start looking for love. And so, that’s kind of the cadence that we typically see in the business.

We haven’t seen that historically at Hinge. But I think now that the business has achieved some reasonable level of scale in some of the core markets like the U.S., we are starting to see that seasonality like we do at Tinder and other brands. And so, I’m expecting that we’ll see that going forward, but 2023 was the first time that we’ve seen that. You know, the good news is that that is in the rearview mirror for us at this point.

Hinge got off to a very strong start in January, kind of picked off — picked up where it had left off before the holiday period. We’ve seen really good strength in all the geographies where it operates, across all gender and age cohorts, and so we’re very pleased with what’s happened thus far in January. And, you know, that’s very encouraging because when a brand gets off to a strong start in the peak season, it tends to bode well for its performance for the rest of the year. And so, we’re happy to see that, and we’re looking forward to Hinge performing well in 2024.

Operator

The next question comes from Zach Morrissey with Wolfe Research. Please go ahead.

Zach Morrissey — Wolfe Research — Analyst

Great. Thank you. So, I appreciate the color on Tinder’s kind of product road map for this year that you provided in the letter. And I wanted to kind of focus more on this a la carte opportunity that you stated.

So, can you share any kind of preliminary details on the kind of new a la carte offering products that you have planned for the second half of this year and how that may differ versus kind of what is currently offered in the app? And do you see this more as a payer penetration or monetization driver for this year? Thanks.

Bernard Kim — Chief Executive Officer

Hey, Zach. Thanks for the question. We’re going to hold back on diving into the specifics of our upcoming ALC offerings for competitive reasons. But what I can share historically are two main ALC features, Super Likes and Boosts, and then helping users gain more visibility and stand out.

But we actually have not launched any new ALC features for a long time. We’re now exploring additional ALC features that can bring even more value to our users. Our team will vigorously test new offerings to see what resonates most with our daters. And in this effort, we’ve mobilized our portfolio of brands to partner and collaborate with Tinder on these tests.

This approach is similar to how the swipe apps actually tested weekly subs to tune the right offering before we introduce them on Tinder and Hinge. This team effort will be instrumental in trialing some of these potential new features before we roll them out on Tinder. Expect to see a new ALC offering from us in the second half of this year.

Operator

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

Benjamin Black — Deutsche Bank — Analyst

Good morning and thank you for taking my question. I guess with the new leadership in place, what, I guess if any, difference should we expect in Tinder’s strategy? You know, how should we think about things like product output velocity and marketing strategy, for instance? I think you guys also mentioned sort of a renewed focus on ecosystem improvements. And, B.K., now that, you know, you have a permanent successor in place at Tinder, how do you envision your role sort of evolving? Thank you.

Bernard Kim — Chief Executive Officer

Thanks, Ben, for the question. Now, over the last 18 months, Faye has been a real partner to me. She’s so passionate about Tinder and knows the business and product inside out. We’ve stabilized and returned Tinder to revenue growth.

And I believe that Faye is only going to accelerate that momentum. The team is fully aligned and clear on their goals. Faye has been instrumental in shaping our road map. And now, as CEO, she’s pushing forward with modernizing the product, boosting development speed, and bringing vital leadership.

And her focus will be particularly in enhancing women’s experience and the overall ecosystem health at Tinder. She will share more of her plan later this year, but the core focus is clear: making Tinder more engaging for younger users and ensure superior experiences for women. Now, as for my role, I have a ton of rewarding work to do across the portfolio. There’s a wealth of exciting innovation sprints across Match Group that I’m deeply involved in.

Now, at the same time, I’m committed to maintaining a close and effective partnership with Faye and the Tinder leadership team. We will ensure that we continue to drive Tinder growth together as a team.

Operator

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

Mark Kelley — Stifel Financial Corp. — Analyst

Great. Thanks very much. I just have one, probably for B.K. You know, a lot of AI commentary in the note and in your prepared remarks.

I guess my question is, is the goal to have like a unified AI infrastructure on the back end that will be utilized across the portfolio or do you think there are, you know, unique needs across each individual brand where it makes sense to maybe modify those AI capabilities? And I guess second to that, I know you gave us guidance for the full year in terms of margins, but any cost implications that we should be aware of? Thank you.

Bernard Kim — Chief Executive Officer

Thanks, Mark. I was actually hoping that someone would ask me about AI, and I wanted to share some of my thoughts around AI. I mean, I believe that AI is existential to the future of Match Group and our business. AI will help us create improved user experiences and will truly make our products better.

And that puts us in a different category from other companies that are just looking at optimizing through AI and slight improvements. This technology is revolutionary for dating, and we’re bringing it to life across our entire portfolio. I envision AI to be felt through the entire experience, influencing everything from profile creation to matching and to connecting for dates. Literally everything.

Our data as a team and deep understanding of dating and singles is a rich resource for informing our AI dating models internally. Our two biggest brands, Tinder and Hinge, have their own AI strategies, tailored to its unique needs and listening to daters and what they want. Now, we do have this central innovation team working across the entire portfolio on moonshot ideas and incubating new products, and our talented team at Hyperconnect is playing a crucial role in supporting all of these initiatives across the company. I’m really excited about this revolution going across the entire team.

Gary mentioned in his comments that we are investing $20 million to $30 million in AI innovation, and I absolutely believe it’s the right thing for us to do to drive enduring strength, better experiences, and future growth for our business.

Operator

The next question comes from Ygal Arounian with Citigroup. Please go ahead.

Ygal Arounian — Citi — Analyst

Hey. Good morning, guys. Just one follow-up on the AI thought. And obviously lots to talk around it here, just trying to understand how much of AI contribution is kind of embedded into the expectations for 2024 when you see it having a more meaningful impact.

And maybe at least for this year, do you see it as more of a driver for payers or for RPP or does it — can it contribute to both? Thanks.

Gary Swidler — President and Chief Financial Officer

Why don’t I jump in and take that one? So, as B.K. said, we’ve got a lot of exciting AI initiatives planned for Tinder, for Hinge, and for new products as well that we’re going to roll out over the course of 2024. So, we do have very high expectations for delivery of all these products and features that we think they will enhance the user experience. And so, I think it’s logical to think that they would benefit RPP because it will be a better experience.

People should see more value in the product and be willing to pay more. But I would tell you that, at this point, given that it’s still very early in the evolution of these various products and features, we haven’t included any notable revenue in our 2024 outlook from the AI efforts. As B.K. mentioned, we’ve put in all of the costs, which we’ve estimated at $20 million to $30 million so we can go hire people, do the work to build out these different products and features, and roll them out over the course of the year.

But we are waiting on the revenue side. Now, you might view that as a conservative assumption, and it very well could be. But I think, at this point in time, it’s the right thing to do, and we’ll obviously continue to update, you know, what we’re seeing from the AI initiatives as the year progresses.

Operator

The next question comes from Cory Carpenter with J.P. Morgan. Please go ahead.

Cory Carpenter — JPMorgan Chase and Company — Analyst

Thanks. Anything you would call out or highlight on the Tinder product road map that you think could be particularly impactful in driving that Tinder payer turnaround in the second half? And, Gary, just to clarify, the 20 million app store benefit, is that included in the guide or is that something that would be upside? Thank you.

Bernard Kim — Chief Executive Officer

I’ll take the first part of that question, Cory. We feel really good about the progress that we’ve made at Tinder over the past few months, and the results have aligned really well with our expectations. We’ve demonstrated Tinder’s capability to deliver. They’ve achieved double-digit revenue growth for the last two quarters consecutively, and I’m really excited about the continued strong execution velocity and the product and marketing road maps for 2024.

Now, we acknowledge that Q4 was a large sequential payer decline, but we are optimistic about the future as we see these declines moderating. Looking ahead, we’re confident that, in Q3, Tinder payers will turn positive on a sequential basis. This confidence stems from marketing, coupled with several product initiatives that are underway. Our key strategies include enhancing the visibility and value of our paid packages and dynamically showing the right offer to the right user at the right time.

Now, additionally, our monetization team is working on more market-specific conversion strategies and experimenting with unbundling certain premium features that currently sit behind a paywall.

Gary Swidler — President and Chief Financial Officer

And then on the DMA question, Cory, you know, we’ve got this margin floor in our financial outlook. And so, you know, the 15 million, that would probably accrue in 2024 because we’re saying it’s $20 million annualized. So, if you say it’s three quarters, let’s call it $15 million. That obviously helps us achieve our margin target or even gives us an ability to exceed the margin target as the year goes on.

And so, you know, it’s helpful in that regard to kind of push us maybe at the top end or higher than kind of what people might be expecting. And so, it’s definitely a positive from our perspective. You know, obviously, we’ve got a lot of investment going on, and so we’ll have to think about whether any of that, you know, should be reinvested. But ultimately, I do think, you know, it’s a $15 million positive for the year.

Operator

The next question comes from Youssef Squali with Truist Securities. Please go ahead.

Youssef Squali — Truist Securities — Analyst

Thank you. Hi, guys. So, the company has been talking about steps to reduce duplicative functions and migrate the evergreen and the merchant brands onto one technology platform to consolidate the brands onto a single tech stack. Where are you in that process? What kind of cost savings or margin impacts are you baking in in 2024? And ultimately, how much do you anticipate to be deriving from that over time? Thanks a lot.

Gary Swidler — President and Chief Financial Officer

Sure. We haven’t spent a lot of time addressing that, so appreciate the question. You know, what’s been happening — and this is related to our E&E business, both the emerging businesses and the evergreen businesses, where we’re trying to be more efficient. What we’ve started to do is centralize teams and reduce redundancies in various aspects of the E&E business.

So, if you look at the marketing function, you look at the customer care function, other aspects of their operations, we’re reducing duplication, and that’s leading to some savings this year and on an ongoing basis. So, that’s kind of the first piece of what’s going on there. But the second and more important piece is that, you know, we’ve got a number of brands within that mini portfolio inside the company. We’re consolidating the technology platforms onto a single technology platform.

We did a couple of the smaller brands last year. We’re going to do a couple more brands this year. And then we’re going to do some of the, you know, bigger brands next year. So, it’s a multiyear process.

And the reason for that is, you know, it has customer implications. And so, you have to be cautious. It’s a complex and risky undertaking, and we want to do it right and not have any unexpected consequences. And so, we’re working kind of very deliberately and very carefully to make all of that happen.

When those consolidations take place, we do see significant cost savings from them. And so, that’s where we really start to get the financial benefit. So, as I mentioned, we got a little bit as a result of what we did last year. We’ll get a little bit more as we’ll do it this year.

And then, you know, the real benefits will accrue fully by 2026 where we’ll see all the benefits of having one single platform and we’ll have reduced all of the various redundancies. I would estimate that there’s probably a 10-point margin improvement in the E&E business once all of those cost savings are fully included. So, that’s a substantial amount of money on a business that — you know, somewhere between $600 million and $700 million of revenue. And so, you know, that enables us to reinvest the savings into growth businesses around the company, whether that’s into Tinder, whether that’s into Hinge, or wherever we want to put it.

That’s the plan once those savings are achieved. So, this is a pretty significant undertaking for the company. It gives us the ability to reinvest the dollars that are coming out as a result of the platform consolidations. And we’re working very hard and carefully to make all of that happen.

Operator

The next question comes from Ross Sandler with Barclays. Please go ahead.

Ross Sandler — Barclays — Analyst

Great. Thanks. Gary, can we go back to the app store fees topic and the DMA? So, it sounds like based on public statements, anyway, that Spotify and Fortnite have very little interest in paying Apple anything for apps that are sideloaded where there’s direct billing in that app, at least in Europe. So, would you guys fall into that camp, and is that 20 million that you called out just from the fee changes that have been announced, assuming that you actually have to pay them for these changes? And then I guess the second question is, you know, if Google kind of matches a similar fee structure and then this kind of becomes the global standard, you know, what would that total number look like, you know, in some future state versus the 20 you called out.

Thanks a lot.

Gary Swidler — President and Chief Financial Officer

Yeah. So, you know, it’s one of the reasons why in answering Cory’s question, you know, is it included or not, there’s still a lot of uncertainty around this. You know, I think if you just do the straight calculation as we understand the policy changes that Apple put in place, you get to that 20 million number for a full year. But I think there are still a lot of questions.

And as you point out, Spotify has raised questions and concerns. Microsoft has raised them. Others have raised them. And so, you know, you have to decide whether to opt in to this or not.

We have not yet done so. And so, we’re still considering what this all means, which is why, you know, just kind of putting it into the guidance or not is not exactly the way this all works. And so, we’re still looking at it, making sure we understand it. And frankly, if you understand the dynamics of all of this, this is what Apple has proposed, complies with the Digital Markets Act in Europe.

The European Commission actually has to accept that this proposal complies. And that in and of itself is far from assured. And so, I think that will continue to play itself out over the next weeks or months, you know, as we get to that March 6th deadline. So, we’ll see how this all plays out.

You know, from our perspective, you know, the good news is that we expected the DMA to lead to changes on the app store side, and we’ve started to see that. And it’s hard for us to fathom that it will end there because even if the changes that Apple has proposed are what goes into place in the EU, you know, if you’re a consumer in the U.S. or you’re a consumer in the U.K., right next door to the EU, you know, you start to wonder, well, why, you know, our customers in the EU getting benefits and we’re not getting the same benefits. And so, if you’re the government in those jurisdictions, you’d say, well, our citizens deserve the same benefits as what we’re seeing in the European Union.

And so, that’s why, you know, in my remarks, I said we think it’s the first brick. I think there’s more to come. And just so you have, you know, an order of magnitude in your mind, we probably get five or six times the savings if the Apple changes as currently proposed were to be implemented in the rest of the world because while we have a relatively small percentage of our revenue in the European Union that comes from the — from iOS, we’ve got a lot in the U.K., we’ve got a lot in North America. And so, there’s really significant benefits in those jurisdictions if these policy changes are made.

So, that’s where, you know, the significant benefits to us really would be, either further changes to the policies or expansions of the geographies. And I think, you know, both of those things are very, very possible. You know, the impact of further changes on Google is not nearly as dramatic as the Apple side. I think that’s where we could see really meaningful steps forward.

And, you know, we’re excited to see kind of where this goes because we’ve been waiting for this for a long time, and this is the first tangible, you know, movement that we’ve seen from the regulators. And as I mentioned in my remarks, that’s on top of some of the other things that have happened, you know, from a court perspective, which, you know, look like they’re going to open up the ability to use other app stores, which, again, is very significant for us, or other processors for payments as well, which, again, is very significant for us. So, there’s a lot of moving pieces to this. What we can quantify today is the 20 million based on the change that have been made, but I think you have to think a little bit more broadly about what’s more likely to happen here over the next little while.

Operator

The next question comes from Brad Erickson with RBC. Please go ahead.

Brad Erickson — RBC Capital Markets — Analyst

Yeah. Thanks for squeezing me on. One of the questions we’ve been getting from investors a lot lately is just, you know, given the impact you’ve seen on these pricing optimizations on Tinder, just curious if you’d ever consider any sort of like alternative paths there on pricing in 2024, maybe rolling things back, etc. as a way to get payers back on earlier.

And then maybe just to clarify as well, you talked about the RPP growth for Tinder, I think, looking out to the second half of the year, and it sounds like maybe AI could be having something to do with that, but then, yeah, you were pretty clear that like AI is not really in the forecast. Maybe if you could just reconcile that a bit. Thanks.

Gary Swidler — President and Chief Financial Officer

Yeah. Look, I think that, you know, we look at all of these different levers all the time. But as we’ve talked about many times, we’re focused on increasing revenue, not specifically increasing revenue per payer or payers just for the sake of moving either those KPIs. And so, we remain focused with our North Star on revenue.

But as we prioritize things, you know, we have the ability to focus a little bit more on payers and potentially make some more impact there because there’s always choices to be made on the product road map. So, we’re mindful of the fact that everyone is, you know, very focused on what’s going to happen with payers. We have enough in the road map to achieve the payer pivot in the third quarter, as we described earlier, and to get to payer growth in the fourth quarter. So, naturally, you would expect that, over the course of the year, as the benefits of all the pricing optimizations and weekly subscribers start to subside, we’ll get to a better balance by the fourth quarter in terms of payer growth and RPP growth to equate to the revenue growth that we’re expecting in the fourth quarter.

So, we will start to see this kind of normalize and become more balanced over the course of the year as things wash through. We’re not going to go to sort of abnormal efforts to drive payers because I don’t think that’s healthy for the business. But, you know, we are obviously cognizant of the various concerns around this, and I do think you will naturally see it become much more balanced, you know, as the year goes on. All right.

I want to thank everybody for joining us this morning. I think we’re right at time. We appreciate it, as always, and we look forward to seeing everyone again next quarter. Thank you so much.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Tanny Shelburne — Senior Vice President, Investor Relations

Bernard Kim — Chief Executive Officer

Gary Swidler — President and Chief Financial Officer

Shweta Khajuria — Evercore ISI — Analyst

Lauren Schenk — Morgan Stanley — Analyst

Chris Kuntarich — UBS — Analyst

Justin Patterson — KeyBanc Capital Markets — Analyst

Zach Morrissey — Wolfe Research — Analyst

Benjamin Black — Deutsche Bank — Analyst

Mark Kelley — Stifel Financial Corp. — Analyst

Ygal Arounian — Citi — Analyst

Cory Carpenter — JPMorgan Chase and Company — Analyst

Youssef Squali — Truist Securities — Analyst

Ross Sandler — Barclays — Analyst

Brad Erickson — RBC Capital Markets — Analyst

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