Match Group 4Q23 Update
Match Group (Nasdaq: MTCH) recently reported their 4Q23 earnings result, containing incremental commentary and data to help us frame the investment opportunity. For background, we have written a long form report about MTCH and last year we appeared on the Business Breakdowns podcast to discuss the business.
Tinder – a melting ice cube?
Let’s address the elephant in the room: Tinder’s declining number of payers. In 4Q23, Tinder recorded roughly 10 million payers, which was an 8% year-over-year decline (notably a result that fell short of management’s expectations for Q4 Tinder payers). This isn’t great, but Tinder Direct Revenue still managed to grow 11% year-over-year. The company has aggressively raised prices, and this aggregate growth in Tinder revenues is a function of Tinder revenue per payer (RPP) increasing by 21% year-over-year.
If we told you about a business growing revenue per payer by 21% but with the number of payers declining 8%, what would your guess be as to what the payer count would do if revenue per payer growth tapered down to say 3% per annum? Presumably you would expect a smaller decline, or perhaps even growth in the number of payers. We can witness this almost inverse relationship between these two business drivers in the graph below.
Source: Company filings
Think of it this way: Tinder has retained 92% of its prior year payer base, but this slightly smaller payer base is comfortable paying north of 20% more on average for Tinder. In effect, the prior Tinder payer base was overstated to the extent that Tinder was underpricing its product. Despite the payer declines, these actions are a net positive for Tinder to the extent that it is currently achieving double-digit revenue growth.
The hefty price increases, notably after a period of a lack of price optimization (MTCH CFO Gary Swidler has in the past framed these price hikes as playing catchup on pricing relative to competitors such as Bumble) have likely led to the more price-sensitive Tinder payers choosing to cancel their subscriptions and cease paying for the service. Naturally, one would expect that as these price increases are lapped, that the negative pressure on payers should abate. However, the story is not as clear as that. It is worth looking at some of the historical commentary around the Tinder payer inflection to contextualize investor consternation towards these persistent payer declines.