MTCH - NASDAQ

Good day, and welcome to the Match Group Second Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Tanny 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 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 filed with the SEC. With that, I'd like to turn the call over to BK.

Thanks, Tanny. Good morning, everyone, and thank you for joining today's call. As I look back on the first half of this year, I'm even more motivated by the numbers we're going to discuss today and the efforts we've undertaken to lead to this record quarter. I'm a firm believer in the teams that we now have in place. I've spoken at length about the changes we've undergone. Through all the change management, I believe our teams have gelled well and have become stronger together. However, I also believe that gelling well is not enough. Leaders need to be intelligent, determined and have the right goals and people around them. We must challenge our teams to inspire and deliver. It's apparent that we have all those key ingredients to make an organization good, but we also have the most important ingredient to make our teams great, and that is grit. Grit has been evident in our team meetings, product roadmap execution, marketing, and budding AI efforts. Our teams are buzzing with excitement and I am too. Although our numbers are great, we are just at the beginning of our turnaround. There are still many single people who have yet to try our services and many more who need to come back to our apps. I am certain that if we keep executing and innovating, we will achieve our goals of helping our members get out there in real life, make new connections, and enjoy their dating experience. The energy in our L.A. office where many Tinder team members are located is completely different than it was a year ago. People are back in the office, collaborating, solving problems and forging ahead. The teams are executing on their product roadmaps and marketing initiatives, and the results of their hard work are clearly showing. We have product and marketing momentum and people are starting to think about Tinder differently. Our new "It Starts with a Swipe" marketing campaign is delivering; most importantly, by increasing overall new user sign ups and reactivations at Tinder and is having an impressive impact on our brand consideration and intent. The Tinder roadmap we showed you last year was not the sexiest as it delivered on core experiences and optimization, but it was the right one as our results now show. Our product and design teams are preparing an exciting refresh of the Tinder experience in the coming months. We want to make the app more relevant, fun, and relatable to a younger demographic. We're relentlessly focused on making sure Tinder stays true to what makes it special while also elevating the experience to be more modern and enjoyable for our members. These innovations will be amplified by great marketing. We are excited about the future of Tinder and we believe we're just getting started. Hinge continues to fire on all cylinders, leading to exceptional user and revenue growth. Hinge is now a top three most downloaded dating app in 14 countries. And while we're driving new users and growing as expected, we're also taking the learnings from our other brands and applying them at Hinge to maximize growth. Our businesses in Asia are solidly course correcting now. Azar's revenue momentum has been driven by their new AI-enabled matching algorithm, and Hakuna is in the midst of a pivot to deliver a better experience for content creators and audiences, which we believe will lead to increased engagement for users. In Japan, we're ready to roll out ads on TV for the first time ever. We believe this channel unlock will help improve user trends for the category. Our Evergreen & Emerging brands have unified so that the teams are sharing key learnings more effectively. The teams are now innovating on new features and also putting products on the same platform, which should lead to improved efficiency, innovation, speed to market and cost savings. One of our teams just launched Archer, a social-first dating app built for gay, bisexual and queer men, which is now live in New York City and is planned to roll out nationally by the end of this year. I'm really proud of Archer and the team that has brought it to life. The app is beautiful and speaks directly to the needs of the community and we're excited to see it flourish. Last point before I hand it over to Gary, every tech company needs to innovate to stay relevant. I've outlined a few areas of innovation already, but we'd be remiss to not talk about generative AI and the enthusiasm and concern it's created for industries at large. This technology is tremendous, but we're approaching it very thoughtfully as dating requires unique considerations. It's imperative that our features and tools enhance trust, authenticity, and respect, and ultimately lead to better matches and dates in real life. I believe this technology is also really fun and engaging, and when applied correctly, can drive curiosity and make the dating journey more enjoyable. By the end of the year, we expect to have launched a number of initiatives that will use generative AI to eliminate awkwardness, make dating more rewarding and surprise and delight users, all in a way that focuses on authenticity and maintaining the highest ethical and privacy standards. We remain committed to innovation and providing our users with the best possible dating experience. It's full speed ahead at Match Group, and we're energized, motivated, and feeling really good about our future. And with that, I'll turn it over to Gary.

Thanks, BK, and hello, everyone. Thank you for joining us this morning. Our financial performance in Q2 improved dramatically as a result of the strategy we implemented when BK became CEO in mid-2022. In particular, the focused product and marketing initiatives at Tinder have really started to deliver financial results. We firmly believe the momentum there plus continued strong performance at Hinge and thoughtful operating adjustments and financial discipline across the company position us well for the future in terms of growth, profitability, and free cash flow. Match Group's total revenue for Q2 was $830 million, up 4% year-over-year. This represented record quarterly total revenue for Match Group. FX was a notable headwind once again and $3 million more severe than we anticipated at the time of our last earnings call. Total revenue for Match Group would have been $844 million, up 6% year-over-year on an FX-neutral basis. Q2 direct revenue, which is revenue we earn directly from our users, was $816 million, up 5% year-over-year, 6% FX neutral. This was driven by a 10% year-over-year improvement in RPP to $17.41, while total payers were down 5% year-over-year to 15.6 million. On an FX-neutral basis, Q2 RPP was up 12% year-over-year company-wide. Tinder outperformed our expectations in the quarter as the revenue momentum we saw from price optimizations in the U.S. and weekly subscriptions over delivered. Q2 Tinder direct revenue was up 6% year-over-year at $475 million, up 7% FX neutral. Tinder RPP was up 10% year-over-year at $15.12 due to the U.S. price optimizations and weekly packages. Tinder saw solid year-over-year subscription revenue momentum throughout Q2 with June direct revenue growth reaching 8% year-over-year. Tinder payers declined 4% year-over-year, 184,000 sequentially, as the price optimizations in the U.S. led to conversion declines. After testing pricing changes in Canada, the U.K., the EU, Australia, and Japan in Q2, Tinder opted to leave pricing largely unchanged in those markets as prices there were largely already optimized, but did roll out weekly packages there. Tinder also saw improved new user and reactivation trends in the U.S. in the quarter following the launch of the new marketing campaign "It Starts with a Swipe", and we saw lifts in other geographies as well. The lift has been pronounced among females and younger users, Tinder's focused demos. Many of Tinder's upcoming initiatives are aimed at further strengthening top-of-funnel in key markets around the world. Our Hinge brand continues to perform very strongly. Hinge grew direct revenue 35% year-over-year, an 8 point acceleration over Q1. Hinge experienced strong user growth in both core English speaking markets and its European expansion markets, leading to 50% year-over-year download growth. Hinge payers were up nearly 25% year-over-year at nearly 1.2 million, while RPP of over $25 was up over 8% year-over-year in Q2. Our MG Asia business saw direct revenue decline 4% year-over-year in Q2, a vast improvement from double-digit year-over-year decline in Q1. Direct revenue was up 3% FX neutral. At Hyperconnect, Azar grew direct revenue 24% year-over-year as implementation of a new AI-driven matching algorithm led to meaningful increases in engagement and conversion. Azar also saw some stronger-than-expected seasonal trends in Q2. While Azar has been a real bright spot, Hakuna and Pairs saw year-over-year direct revenue declines in Q2. The Japanese market continues to experience subpar user growth. Although we're optimistic that being able to start to market on TV this fall could improve trends. At Evergreen & Emerging, direct revenue declined 5% year-over-year, which was also a notable improvement compared to Q1. The Emerging brands, including Chispa and BLK, continue to grow direct revenue strongly year-over-year. Indirect revenue was $13 million in Q2, down 7% year-over-year, but consistent with Q1's total, as prices per ad impression declined year-over-year. Operating income was $215 million in Q2 for a margin of 26%. Q2 adjusted operating income, or AOI, was $301 million, exceeding $300 million for the first time ever. It was up 5% year-over-year, representing a margin of 36%. Q2 AOI and margins were above our expectations, as Tinder outperformed and we continued to achieve cost savings across the company. Overall expenses, including SBC expense, were up 4% year-over-year in Q2, excluding depreciation and amortization/impairment of intangibles. We incurred approximately $6 million of severance and similar costs in the quarter. Cost of revenue, including SBC expense, grew 4% year-over-year and represented 30% of total revenue, flat year-over-year. App Store fees increased $18 million year-over-year, including the $8 million escrow payment to Google. The last required escrow payment of approximately $3 million was made in July. Selling and marketing costs, including SBC expense, increased $11 million or 9% year-over-year, primarily due to increased spend at Tinder and at Hinge as it continued to expand internationally, offset by lower spending at multiple other brands. Selling and marketing spend was flat as a percentage of total revenue at 16%. G&A costs, including SBC expense, declined 3% year-over-year and dropped 1 point as a percentage of total revenue to 13% as legal and professional fees declined. Product development costs, including SBC expense, grew 9% year-over-year, primarily as a result of higher compensation at Tinder and Hinge, and were flat as a percent of total revenue at 11%. Reduction in force and capitalizing more product development costs in Q2 than in the prior-year quarter, mostly at Tinder and our Emerging brands, helped lower these expenses in the quarter. Interest expense increased 12% year-over-year in Q2, primarily due to the floating rate structure of our term loan, but interest income also increased meaningfully given higher rates we're earning on our cash balances. We ended the quarter with $741 million of cash, cash equivalents, and short-term investments on hand. Our gross leverage was 3.4 times trailing AOI and net leverage was 2.8 times at the end of Q2, below our target of less than 3 times. We repurchased 1 million of our common shares in May and June at an average price of approximately $32 per share, totaling approximately $33 million, which utilized a small portion of the recently implemented $1 billion share buyback program. We began buying back shares in the open window after our last earnings call, but we weren't able to buy back as many shares as we had intended over the past three months due to the strong stock price run up, which occurred after the window had closed. We will revisit buybacks again after this call, mindful of our updated capital allocation policy. For Q3 '23, we expect total revenue for Match Group of $875 million to $885 million, up 8% to 9% year-over-year. We expect a significant acceleration of year-over-year RPP growth in Q3 compared to Q2, particularly at Tinder due to the U.S. price optimizations and weekly packages. We expect FX to be less than a 2 point year-over-year tailwind in Q3. At Tinder, we expect direct revenue to be up close to 10% year-over-year, with FX slightly more than a 2 point year-over-year tailwind. This level of growth would be a quarter ahead of our expected pace. The building momentum gives us confidence in achieving solidly double-digit year-over-year direct revenue growth at Tinder in Q4. We expect Tinder payers to decline mid-single digits year-over-year and to be down sequentially in Q3, but by less than in Q2. This is better than we had been anticipating, in part due to the decision not to implement pricing optimizations in several international markets. We estimate that Q3 sequential payer additions would be positive, absent the effects of U.S. price increases and weekly subscription packages globally. The year-over-year payer decline is also due to Tinder's new user trends still being below desired levels, as well as the fact that pricing changes are still rolling through the U.S. payer base. While user trends have improved notably over the past few months, we remain focused on returning to user growth through marketing and product initiatives in order to drive better payer and revenue growth. We believe strongly that we are on the right track in this regard. Note that pricing changes and weekly subscription packages creates short-term volatility in our payer numbers. Weekly packages lead to bumps when introduced as conversion increases, then declines when these shorter duration payers roll off. Over the coming quarters, we expect this to even out. We're confident that these shorter packages are long-term revenue accretive and bring other meaningful benefits such as increasing conversion, especially among younger users and females. We expect Hinge to deliver meaningfully accelerating year-over-year direct revenue growth again in Q3, driven by continued strong performance in English speaking markets, continued European expansion, and various monetization initiatives. We remain confident that Hinge's momentum will lead it to deliver approximately $400 million of direct revenue in 2023. We expect Match Group Asia direct revenue to be close to flat year-over-year in Q3. We expect modest improvement in year-over-year direct revenue growth rates for Hyperconnect and limited change for Pairs in Q3 compared to Q2. We expect our Evergreen & Emerging brands direct revenue to decline low-single digits year-over-year in Q3, with moderating declines at the Evergreen brands and continued strong growth at the Emerging brands. We expect Q3 indirect revenue to be up modestly year-over-year in Q3 as we begin to see some overall improvement in the ad sales market and we continue to broaden ad opportunities across our platform. We expect AOI of $320 million to $325 million in Q3, representing year-over-year growth of 13% to 14% and margin of 37% at the midpoint of the ranges. We expect overall marketing spend to increase year-over-year in Q3 by about 2 points as a percentage of total revenue compared to Q2. We'll be spending up at Tinder and Hinge as well as some of our newer growth apps, including Archer and The League. We expect IAP fees to continue to be a year-over-year headwind in Q3, though we have stopped placing funds into the Google escrow after July per the terms we agreed to. We expect to continue to be cautious on spending in all other categories within our control. We expect to incur approximately $2 million of severance and similar costs in Q3. For full year 2023, Match Group is on pace to achieve 6% to 7% top-line growth and deliver better AOI margins than we did in 2022, as Tinder's revenue continues to reaccelerate and we remain very cost disciplined overall. We're excited by the momentum we've seen in the business over the past few months. We're confident that the strategies we've implemented, changes we've made, and approach we've taken are setting us up for more consistent top-line growth at strong levels of profitability. While we are pleased with the progress, we recognize there is more to do, especially at Tinder, where delivering stronger user trends and sustained payer and revenue growth is squarely in our focus. We're confident the company is headed in the right direction and look forward to continuing to provide our stakeholders with updates on our performance in the coming quarters. With that, I'll ask the operator to open the line for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Cory Carpenter with JPMorgan. Please go ahead.

Hey, thanks for the question. I think for Gary, could you expand on what you saw on testing that led you not to raise Tinder prices in international markets? And then, just any way to help quantify how big of an impact that specifically you expect it to have on Tinder payers and RPP in the second half of the year? Thank you.

Cory, this is BK. I'll take the first part of that question and then Gary can take the second part of the question. When our new management team took over Tinder, we asked the teams to go and extensively test pricing globally. What we wanted to do was really kind of understand the member value that we are providing versus the price points that were live in the marketplace. This led to micro decisions around rollouts of pricing optimizations. So, we did test our pricing in the U.K., Canada, Australia, EU and Japan, and we did not see the revenue benefits that we saw in the United States. Part of this was due to that these markets were already priced competitively, like Gary mentioned in his comments. The reality is that the U.S. actually hadn't adjusted prices for quite some time, so there wasn't as much room for optimization versus where we were in the international markets. So, I think that generally our price points were already higher in the U.S. versus where we were internationally. An example I can give is, on Gold pricing, one-month subscription, in the U.S., after pricing optimizations, were actually at parity from where we were priced in the U.K. We tested this throughout the entire quarter before making this decision to stay put in international markets. Gary?

Yes. So, Cory, on the payers, there's a lot going on there and I'm going to try to unpack it for you a little bit, because you've got variability that's been introduced by price optimization, you've got variability that's been introduced by the weekly subscription packages, and they're rolling out at different times. First, we have the effects from the U.S. ones, and then from the international ones. So, there's a lot of movement in the numbers. Obviously, they are better as a result of deciding not to roll out the price changes in the international markets, and they're meaningfully better than they would have been had we done that. But what's also happened since the last time we chatted on an earnings call is that we've more slowly rolled out the pricing changes in the U.S. market. And so, right now, that's affecting the Q2 payers numbers. It's going to have some lingering effects in Q3 and likely into Q4 as we continue to slowly show those pricing changes to the U.S. payer base. So that's kind of one thing that's happening a little bit more slowly than we initially expected, but we obviously test and adjust and we think that's the right thing to do. And then of course, the change that you mentioned around the weekly -- around the payer -- the pricing changes not having been introduced internationally. So there's a lot of different pressures going on here. It will continue to roll through over the coming quarters. I do think that overall the third quarter sequential trends are going to be meaningfully better than what we saw in Q2, which was down 184,000. And overall, I think once we get through this year as we turn the corner into 2024, the noise that has resulted from all these changes, which are in our control, around introducing weekly subscription packages and price changes will have largely burned through and will be into a much more normal cadence of payer additions.

Our next question comes from Jason Helfstein with Oppenheimer. Please go ahead.

Jason, are you there? It doesn't sound like we have Jason. Operator, maybe we should move to the next one.

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

Great. Thank you very much. So, Gary, staying on the topic of pricing for Tinder, what percentage of the user base is now being impacted by the price increase? And how much more headroom do you see in RPP in Q3 and the rest of the year? Thanks.

So, I would estimate that roughly 50% of the U.S. payer base is now paying the higher prices. And just so you understand, our approach around this is that payers don't see or pay the higher prices until they churn off and are off Tinder for a period of time. And then when they come back again, which happens frequently, as you know, then they see the higher prices and become higher paid payer. So, we think that's fair to the consumer and is the approach we've taken, which is why it's taking time for this to roll through the U.S. payer base. From an RPP perspective, we saw the 10% year-over-year lift in RPP in Q2 at Tinder. And I think you should expect to see accelerating increases in RPP in Q3 and Q4, which is going to drive significant revenue acceleration as well at Tinder over the course of Q3 and then into Q4. We are adjusting prices pretty meaningfully. The weekly subscription packages are having a significant contribution in RPP as well. So that's a big driver of the overall revenue performance and performance at Tinder this quarter and for the next couple of quarters.

That's very helpful. Thanks, Gary.

Sure.

Our next question comes from Alexandra Steiger with Goldman Sachs. Please go ahead.

Great. Thank you for taking my questions. Could you please double-click on the new refreshed core experience at Tinder that is launching later this month? And how you expect these new features to drive either engagement and/or monetization on the platform? And then on a related note, what are some other new features at Tinder that you're excited about that could potentially have an impact in the near to medium term? Thank you.

Thanks, Alexandra, for the question. So, if you actually look at Tinder today, it's really similar to the product that was launched 10 years ago. I tried the app when I was in Los Angeles about 10 years ago, and I tried the app today and it felt pretty similar. So, what I've done is I've challenged the teams to make Tinder feel more vibrant and alive, going through like an overall and potential refresh of the product experience. What the teams were able to do creatively is to look at ways to bring more depth into member profiles and also keep that core experience intact. This is actually coming from extensive testing with our core users and direct feedback from Gen

Our next question comes from Mario Lu with Barclays. Please go ahead.

Great. Thanks for taking the question. So, a similar follow-up in terms of the Tinder second half features. You mentioned in the shareholder letter, it will be focused on Gen

Thanks, Mario, for the question. Our Tinder roadmap was designed and structured in a way that we could focus on delivery that could drive real wins for us in the first half of the year and build momentum for us throughout the entire year. We're successful in rolling out pricing optimizations and weekly subscriptions, and that has built that freedom and momentum to really think creatively about what we deliver for the second half of the year. So, I'm really actually excited about some of the great initiatives that we have in the second half of the year, like the product refresh that I mentioned earlier and also the launch of our premium experience. Tinder Coins is still on the roadmap, and we're currently testing and it's an iterative process to figure out what the best value proposition for our members. So, we're testing it right now, but we don't see it contributing to 2023 revenue. But when I generally think about the features on the roadmap, I have to make prioritization decisions. And with the advent of generative AI and the excitement and enthusiasm that we're seeing across all of our different teams, I've made the call to prioritize generative AI initiatives with Tinder over other initiatives like Coins. And I think that will deliver value to our members sooner. Thanks for the question.

Our next question comes from Dan Salmon with New Street. Please go ahead.

Great. Good morning, everyone. Thanks for taking the questions. I guess it's a two-parter, and BK highlighted a piece of it there. And so, I'd like to just ask about the Tinder Super -- premium tier a little bit more. So, you're rolling it out in the U.S. this fall. Just any color that you can give us on how impactful it will be? Is that going to be impactful, let's say, weekly subscription sounds like they've been so far? Or the number of power users or the so-called whales, is that too small to be material? And then just the second part, you're rolling it out in the U.S., any early thoughts on the potential for the product -- a product like that on a global basis? Thanks.

Thanks for the question, Dan. The general concept is that we are providing an experience for a small percentage of our Tinder members. And the value proposition is basically give these members a better way to get high-quality matches faster and sooner and make the experience overall even more fun. We've been actually testing multiple components of this experience with our members today, and we're seeing actually real benefits. So I'm personally really excited about these testing results. It's really early right now, so we don't know what the final pricing is yet. But at a high level, if you actually take a small fraction of our payers at higher price points, you actually get a number that's in the tens of millions of dollars on an annual basis. So I think that's actually pretty impactful. This is an area that I have a lot of experience in, where a small segment of users drive a high amount of monetization. So, this I see as a real opportunity for us.

Very helpful. Thanks, BK.

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

Hi, thanks for taking my questions. I have a follow-up on Tinder payer trends. But with international pricing now sort of off the table for the time being and the disruption from U.S. pricing seemingly coming to an end, when you pair that with improved conversion trends from weekly packages, I'd be curious to hear about your outlook for Tinder payer net additions for the fourth quarter. I mean, should we anticipate positive sequential growth there? And I know it's early, but how should we be thinking about the balance between RPP and payer growth as we look forward to 2024? Thank you.

So, I think the way to think about the rest of '23, first of all, Ben, is that the year is largely about increasing RPP. As I mentioned earlier, we saw a dramatic increase in Q2. We're expecting even greater increase in Q3, and then continued acceleration into Q4 because of the weekly packages and the price optimizations. On the payer side, as a result of all these things playing through the payer base, we're seeing year-over-year declines in the mid-single digits in terms of payers, and that's something that I expect to continue for the next couple of quarters. And there's a few different drivers of that. Obviously, the decisions we're making around weekly subscriptions and pricing is part of that. And the other part of it, of course, is what we're seeing on new user growth. And so, new user growth is getting stronger, but it's not to the point yet that we'd like to see it at, but we're driving that up further and further. And so, we continue doing that with marketing initiatives and with product initiatives. I think as that turns more positive, we'll be able to drive improved year-over-year payers growth as well. So, as we think about 2024, as I mentioned in an earlier answer, a lot of the volatility from the initiatives we're doing this year around revenue, around pricing and weekly subscription packages should have rolled off. And then, we expect to see a more balanced impact from payer increases next year as well as from revenue per payer increases. But I would caution that it really does depend on what we roll out from a product standpoint. So, for example, we're going to roll out -- we're intending to roll out the new premium tier late this year. That will be a driver of 2024 performance, and that is clearly a revenue per payer play, not specifically a payer play. So, we have to look at kind of what the product roadmap is to make some determinations. It's too early for us to kind of go through the whole product roadmap for 2024. We will provide more color on all of that in the upcoming quarters. But again, I would like to see, and we're targeting a more balanced contribution of payers and RPP to drive overall strong Tinder revenue growth next year. We're encouraged by the progress we've made on top-of-funnel, and that's clearly something we have our eyes squarely on. And we want to keep improving, which is what will help enable us to drive stronger year-over-year payer growth next year after this year being more of an RPP story. I hope that helps answer your questions.

It does. Thank you.

Okay. Great.

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

Great. Thanks. On Hinge, could you just provide some more color on the key drivers of the revenue acceleration in 2Q and kind of continuing into 3Q? And then, what have you seen -- I think it's early, but what have you seen with the new weekly sub-tier launch at Hinge? Thank you.

Thanks for the question, John. So, what we're -- we saw in Q2 for Hinge and what we're expecting to see in Q3 and Q4, as you said, is really direct revenue growth acceleration through the course of the rest of the year. And there's really three things going on in the business that are kind of layering on top of each other that are leading to that revenue acceleration, and we've already seen it in the most recent quarter. The first is continued very strong user growth in core English-speaking markets. The second is user growth as a result of the expansion into new markets, particularly in Continental Europe. And the third is a variety of monetization initiatives that we've rolled out, including the new subscription tiers that we've talked about before that we rolled out earlier this year. And those are continuing to drive revenue growth from an expanding user base in the core English-speaking markets as well as the Continental European markets. So, that's why you see this effect of compounding revenue growth as we proceed forward with the Hinge business, and the visibility into that is fairly good at this point. The other thing that you asked about was weekly subscription packages. So as you know, we haven't had those across the portfolio in prior years. We've been rolling them out across a number of the brands over the course of this year. We started with a couple of our smaller brands. We saw real success there. We rolled them out to Tinder. We've obviously seen real success there as well. And so, it makes sense for us to use that knowledge and those learnings and roll them on to Hinge as well. It wasn't something that we were specifically planning for this year, but we decided to do that as well. We've rolled them out successfully over the last three-or-so weeks at Hinge. And we're seeing basically similar impact from weekly subscription at Hinge as what we've seen at the other brands. So, it's always slightly different at each brand, but in general, we're seeing improving conversion, improving renewal rates. And so, what that's doing is giving us confidence that we're going to hit approximately 40% year-over-year revenue -- direct revenue growth for Hinge for 2023, which will get us to around $400 million of revenue. And we'll see growth rates in Q3 and Q4 that are continuing to accelerate from what we saw in Q2. So, all systems go with an extra jolt of improvement at Hinge from the weekly subscription packages.

Thank you.

Our next question comes from Shweta Khajuria with Evercore ISI. Please go ahead.

Thank you for taking my question. Just a high-level question for you, BK, on AI. So, you touched on it in your prepared remarks as well as in the letter. Could you provide a little bit more context or concrete examples of where you're already leveraging AI-enabled technology at Tinder and Hinge? And how you think that could impact top- and bottom-line for those two businesses in particular? Thank you.

Thanks, Shweta, for that question. This has been a really exciting moment for our company, Match Group. AI has really inspired our technologists and product people across the entire company to really think about ways that we can create new experiences, but also solve for key dating, what I call, kind of pain points. So, what I've kind of harnessed that like energy and the data that we have as an organization around delivering great products over the next couple of months that solve against some of these problems. So, I'll use Tinder as an example. Sometimes people are really excited to jump into the Tinder experience. They downloaded off the App Store. And then, in that exact moment where you have to upload five pictures, people get generally nervous or uncomfortable, like, "What is the right picture that I've taken over the last year to make my dating profile great?" So sometimes those people just literally turn out of the process and say, "Maybe dating apps are not for me." We could use AI, and we're actually creating a photo selection feature that we're testing that can take out the stress away, that can look at your photo album and say, "Okay, these are the five best photos for your Tinder profile," but also still like remaining authentic to that person and the profile that they want to create. I really think that AI can help our users build better profiles in a more efficient way that really do showcase their personalities and stand out in the marketplace. When it comes to the organization, we have a lot of different teams kind of like raising their hand and saying, hey, like, I want to work on some really exciting AI ideas. But internally, we've created these centers of excellence where AI engineers are coming together and collaborating on features that I think could benefit multiple brands across the portfolio. An example I would use is Hyperconnect is actually working on AI features for Tinder. And then in E&E, our teams are working on AI features that are -- that could be great for Plenty of Fish, Meetic, Match and OkCupid. So there's a lot of creative ideas and concepts that we're currently testing, and we plan to roll out these features in the coming months. We know that this is a really big opportunity that can have like a really meaningful impact on users, their experience and our business. But at the same time, we have to be really thoughtful about making sure that we're giving the right thought to authenticity and ethical and privacy concerns. So, we're doing all those different things as we roll out these features. Thanks for the question, Shweta.

Thanks, BK.

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

Great. Thank you very much. Good morning. Gary, you've alluded the Q4 growth rates a couple of times within Tinder and Hinge. I'm curious, could you provide an update on your 2023 revenue outlook, where you think you'll land on that 5% to 10% range? And then thinking about just the AOI margin side, you did improve the language on that to increase versus 2022. How should we think about that magnitude of increase and the puts and takes to get there? Thank you.

Sure. So, let me kind of unpack the revenue outlook. I stated in my remarks, right now, I think we're looking for 6% to 7% year-over-year total revenue growth for the Match Group, so above the bottom of that range and within the range that we provided the 5% to 10%. And that includes the 8% to 9% year-over-year revenue growth outlook that we provided for Q3. If you go further, we said Tinder is expected to deliver approximately 10% year-over-year direct revenue growth in Q3 and solidly double-digit, so assume better than the Q3 number in Q4 as we see continued acceleration in Tinder's growth. If Tinder is able to deliver solidly double-digit growth in Q4, it's logical to think that the overall company is going to deliver a similar kind of growth rate as well has been the general pattern, and that's how the math works out. And so, if you layer the Tinder growth and then you have Hinge, which is accelerating from the 35% that we have in Q2 and accelerating through the rest of the year. And then if you look at the other businesses, they're down mid-single digits is our expectation for Q3. So, I think we might see a little bit of improvement there. Certainly, there's a path for a little bit of improvement. And I think when you boil all that together, you've got the components that gets you to double-digit growth for the company in Q4 and then the 6% to 7% overall for the full year. So, I think those are all the pieces and tells you where we're going. And I would say that the clarity in all of this and our confidence continues to improve, which is obviously very good to see. And then, from an AOI margin perspective, the driver really is the level or the magnitude of Tinder growth. As it continues to grow, it's high-margin revenue, and that obviously is helping the overall company's AOI margin. So, sitting here today, we could see a path to at least 50 basis points of margin improvement on a year-over-year basis, 2023 over 2022. But obviously, that will be impacted by what Tinder and some of the other businesses do as the rest of the year progresses. And then, we also will have some decisions to make in terms of marketing spend levels at Tinder as we see the effects of all of its marketing and what it's doing from a user growth perspective, but obviously, it's helping. So, it's possible we're going to want to spend into that strength. And then, the newer apps like Archer and The League, if we see those take off like we're hoping in the back half of the year, it will make sense to spend marketing dollars into those businesses as well to help set us up for a strong Q1 next year, which is our most important quarter of the year, and to give us the right level of momentum into 2024. We've talked before, we didn't have the momentum we'd like to see coming into 2023, which made payer growth and revenue much more challenging in the early goings of 2023. So, we'd like to make sure we're set up well to drive accelerating revenue growth into 2024. I think the organic trends are obviously very good. But to the extent we can supplement it with marketing spend, we will do that to give us the momentum we want into 2024 as well. Hopefully, that helps you as you think through the trends on AOI and on revenue.

Thank you.

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

Hey, you've got Nathan Feather on for Lauren. So, continuing on the AOI trends and given the impressive 2Q operating income result, what are kind of the one or two key drivers which could lead to further AOI upside in the back half? Thanks.

So, as I mentioned on the last call, I mean, I think the biggest variable is what level of growth we're going to get across the company and specifically at Tinder. We've seen a pretty dramatic acceleration just over the last three months versus what we were expecting, because the initiatives -- the revenue initiatives are really working better than we thought. So, we have to see how that continues to proceed through the year. But obviously, we're feeling better and better about the revenue growth trajectory at Tinder and, frankly, across the company where we've seen dramatic improvements, it's pretty much everywhere. So that's, I think, the biggest variable. And then on the other side of it is the marketing spend, primarily. I think everything else is pretty known in terms of what we're going to do; our hiring is pretty muted, you know what the App Store fees are going to be. And so, the biggest variable is marketing spend. It's obviously entirely within our control. But to focus on additional growth for 2024 and beyond, we're going to calibrate the growth that's being derived from the businesses, the benefits we see from the marketing spend we're doing and try to figure out what level of marketing investment we want to make in the various businesses in the -- towards the very end of this year. Obviously, we'll provide lots more color on what we think is going to happen in Q4 on our next call. But we're very happy to see the outperformance. That's giving us some really nice choices to make, and we're thrilled to be in that position right now.

Our next question comes from James Heaney with Jefferies. Please go ahead.

Thanks for the questions. I would love to hear a little bit more about just what you're seeing in Japan. Are there any things that Malgosia and the APAC team are focused on to reaccelerate growth in that market specifically? I mean, it sounds like a payers brand campaign is in motion, but curious if there's anything else that the team has planned. Thanks.

Thanks, James. Great question. The Japanese market has remained challenging for us. What we can do is put the right team in place, and we're really excited about the new CEO that has joined us and is overseeing Pairs. I think he's going to do a really fantastic job. In tandem with that, it's really great that Malgosia is on the ground running the business. And she really has hit the ground running, meeting with all the different teams and then instituting product changes that I think will be impactful in the marketplace. So, we're exploring all the different options that we can do to jumpstart the business in Japan. But what we're really excited about in the short term is being able to advertise for the first time on TV in Japan. We actually believe that this channel unlock could be really meaningful. And you're right in saying that we are ready, the second that, that is available with the Pairs marketing campaign that we're really excited about to be on television for the first time. Thanks for the question.

Thank you.

Our next question comes from Brian Fitzgerald with Wells Fargo. Please go ahead.

Thanks. On Archer, we wanted to ask if you could provide any specifics on the rollout? And how you're approaching that from a marketing perspective? And any early indications around the strength of the product market fit? Thanks.

Thanks, Brian, for the question. We're really proud of the Archer team and the experience that we're providing for gay daters. When it comes to an indication on how it's performing, it's still really early. It's only been live in the New York market for about 10 days, but daters are happily creating profiles right now. Our plan continues to be that we plan to roll out nationwide by the end of this year. When it comes to marketing, I'm really inspired by the approach that the team has taken. They're doing events with social influencers. They just recently had a big event on Fire Island in New York City, and we're really excited about the creative marketing efforts that the teams are executing against. Thanks for the question.

Thanks, BK.

Our last question comes from Jason Helfstein with Oppenheimer. Please go ahead.

Hey, thanks for getting me back in. I should have played Mega Millions, I guess, I'll hit the earnings call lottery getting both at the same time. Just a quick question on weekly subs. So, if the mix of weekly subs increases, does that increase churn? And how do you think about managing your outlook if there's less visibility around churn? And then, how do you -- is it a weekly package more like à la carte? And historically, Europe was more à la carte already. Just -- maybe just broadly, how are you thinking about that? Thank you.

Sure. Let me take that one. First of all, it's important to point out that weekly subs are new to us, and we're still learning from the trends we're seeing there, especially around renewals. We don't have as much data as we'd like. Obviously, we have much more data around monthly subscriptions and longer-term packages. So, you're right, it's newer, it's harder to manage, it's harder to determine the outlook. We've gotten better at it just over the last few months, and we'll continue to get better at it as we get more data and time goes on. And it's also important to point out that we don't really manage our outlook or we don't provide an outlook based on payers and revenue per payer. We provide it based on revenue, where we have a lot better visibility because, frankly, the revenue impact from the weekly subs has been much, much more stable. It has been the impact on the payer count that has been more challenging to analyze. So, we're providing the best outlook we can on payers and RPP drivers within revenue because people keep asking us about it. But the reality is we don't look at it that way as much as we do on the revenue side. That's what we're targeting. So, it has introduced more variability. It has made things more complicated. I do think it will get better. And you're also right, there is more churn. These people come on for a short time, they go off. And so, we're seeing that dynamic. But the good news is the conversion rates are up, the renewal rates are strong, and it is helping especially with younger users who are really liking the weekly subscription packages. And so that's a real positive for the business. And also, I'd point out that all of this is a testing process. The business is a dynamic business. We're constantly readjusting. We've introduced this new type of subscription package now, and there has been real demand for it. And so, we need to keep testing. And so right now, we're giving our best outlook for Q3 in terms of payers being better than they were sequentially than in Q2. It's still early to say what the impact is going to be on Q4. There's a lot of variables around kind of all these things working themselves through the payer system. But what I can tell people with a lot of certainty is the revenue growth is accelerating, and that's the main thing that we care about and are focused on. The revenue per payer is accelerating. And some of this variability is going to be reduced as we get towards the end of this year. So that will make things a little bit more kind of clearer from a visibility standpoint. And we'll provide as much updates and information as we can. But I would discourage people from using payers as a proxy for top-of-funnel strength. What we're seeing and what indicates that there is top-of-funnel strength is improvement in the new registrations or new user sign-ups and reactivation. And we provided that chart in the letter, which clearly indicates that a 10% year-over-year improvement from a growth rate perspective in those top-of-funnel metrics. That's showing us that we're bringing in more people in, which is very critical, and we're going to continue to drive marketing and product initiatives to do that, which should continue to help us grow from a top-of-funnel perspective. Obviously, we can continue to convert those people and that will ultimately drive payers, and that's something we're going to -- we're expecting to see over the coming quarters, which will help drive payers and ultimately contribute to revenue. That is the metric that we're focused on to see the overall health of the business. The payers, we can impact that by pricing decisions we make and product decisions we make. If we rolled out $1 subscription, the payer numbers would go up, but it might not be revenue enhancing. So, we've got to consistently test and adjust to drive overall revenue for the business, not specifically a metric like payers or even RPP. And that's the way that we think about the business and think about how to drive long-term value for shareholders.

Thank you.

Hopefully, that's helpful, Jason. We are glad you're safe and were able to join the call. And we thank everyone for joining this morning, and we look forward to talking to you all again on the next earnings call. Thank you so much.