Match Group, Inc. (MTCH) Q1 2016 Earnings Report, Transcript and Summary

Please standby. Your program is about to begin. [Operator Instructions] Good day and welcome to the Match Group report's Q1 2016 Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Chief Financial Officer, Gary Swidler. Please go ahead, sir.

Thank you, operator. Good morning, and welcome to our conference call for the first quarter of 2016. This is Gary Swidler, and Greg Blatt is here as well. I'm going to turn the call over to Greg in a second. Just before we get started, just a couple of housekeeping announcements. And the first thing is, we're doing things a little bit differently this time, and there's an investor presentation that was posted on our Web site. We're going to review those slides on the call today. So I want to make sure everyone's been able to access that. And then we'll open it up for Q&A. Before we do all that, I'd like to remind you that during this call we may discuss our outlook and future performance. These forward-looking statements typically may be proceeded 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'm going to turn the call over to Greg Blatt, our Chairman and CEO.

Good morning everybody, welcome. After our last quarter's call we got yelled at by a lot of people for not being as clear in our presentation as we could be. And while I absolutely hate to encourage people to yell at us, we've tried to be as responsive as we could. Hopefully you'll find the new slide format more user-friendly and a little clearer, but we certainly welcome your feedback either on or after the call. Overall, we're very pleased with the quarter. I think I'd be remiss in saying that we were also pleased last quarter too. I think that we got ahead of plan at the IPO. We are executing, I think, pretty much on the mark against it. We've had a few positive surprises, not really any negative surprises, but in general, are sort of on our plan and we feel really confident about our ability to stay on it over the rest of the year and into next year and beyond, where the things are happening like we thought they would. I mean, that's always obviously a good sign. I'm going to run through the slides, I'm not going to spend time on slides, they're self-evident, but I will do sort of a deeper dive on those that could require some voiceover. I think slide three and four are really just the numbers that we've reported in the release. Although slide four shows it pro forma for PlentyOfFish acquisition, which is really the way we look at the business internally. It reflects PlentyOfFish as though we'd owned it in all periods. I think that's the best indicator of the business momentum. Obviously, it makes the numbers a little less spectacular than on slide three, but still very, very solid, and I think the best reflection of how we're doing. Turning to slide five for a second, this shows the PMC numbers, both pro forma, and not again solid growth. I won't kick through all of individual notes at the top, assume you've read them. But if you back up the Tinder numbers that we report on the next page, you sort of see, sort of on a global basis that PMC ex-Tinder is again pro forma for PlentyOfFish. We're up mid single-digits just to about where we thought we'd be. I think we'll end the year a little bit better off than where we are now, and that's driven by number of certain trends that we'll talk about throughout. Obviously we're doing a little bit better internationally, a little bit worse than that domestically. But in general, sort of again, right where we thought we'd be going forward. Slide six, Tinder, this slide is pretty self-evident, but I'm still going to remark on it, just because I think the results are very encouraging. Tinder is really killing it. The numbers are great. We successfully brought in a new management team. We were able to fuse some really experienced people in key positions with, I think, the really important people who got us here to begin with. So I think it's a really good fusion of the old and the new. We're spending a lot of time improving the core product experience, experimenting with new product experiences, and yet continuing to rollout modernization initiatives, each of which has basically exceeded our expectations at the time of rolling it out. I think we've done a really good job on that front, introducing paid features that, not only enhance the experience for the paid user, but actually enhance the experience for the non-paying user as well. And that really is the bull's-eye on modernization. We're starting to build the ad business, as we talked about. We brought in Pete Foster, a long-time ad industry veteran a month or so ago to build it. We think it's going to go a little slower than we'd initially laid out. Again, at the IPO, we said that the pace of this was certainly going to be the most uncertain part of the next year. And we brought somebody in to sort of reset the pace a little bit in terms of new ad formats, new technologies, user-experience. I think it's measured. I think it's smart. Again, we've -- I never want to say we don't have urgency. We always act with urgency, but modernization is going great at Tinder. And I think that we're certainly not going to roll out the ad product in a way that disrupts the very good trends we've got going there. So we'll certainly know more next quarter, and the quarter after. But right now, as you'll see in the outlook page, we're sort of tamping that piece down a little bit in the back half of the year. But really, all good at Tinder, couldn't be happier with how that's progressing. Turning to slide seven, I want to focus in the North American business for the next couple of slides. Obviously it's been an area of focus among investors. And I want to walk through, again, some of the underlying trends here. We've said throughout that the biggest impact on this business has been the rapid transition from desktop to mobile. I think the graph on the bottom-left-hand-side which shows that transition over the last four Q1s I think is pretty telling. We went from 37% mobile regs to 77% mobile regs over this time period. And you'll see that the mobile conversion gap is pretty significant, with -- in aggregate mobile conversion happening at about 63% the rate of desktop. If you assume for a second that everything else in the business was unchanged during this period, that alone would lead to a drop in new subscribers coming in the door of nearly 20% per period. So the fact that the business is actually up, so quite meaningfully over this period I think is quite a testament if you just isolate that factor. I really can't overstate the impact that this has had. I think the good news here is when you look at the mix shift, it's clearly stabilizing. You had 53%, 27%, 8%, we're now at 77%. I can't tell you where it's going to end exactly. But certainly the sheer and absolute numbers mix shift is going to slow dramatically, which reduces this headwind. And also, we've started to put real focus on mobile conversion. Again, I want to be clear when we talk about conversion, that it's a somewhat fuzzy number. Conversion encompasses first-time sub conversion, new cohorts, old cohorts, re-sub conversion, marketing can influence it; all sorts of things influence it, so I want to caveat these numbers significantly. But when we slice through it, and we try and isolate our conversion for pure product improvement, and isolating everything else, Q1 in '16 over Q1 in '15 across the board, we've been able to increase mobile conversion high mid-single digits, so over 5%, and really just starting to put real effort, momentum against that across the board. So we feel really good about this. I think, as we said on the IPO, and we say it again, that we really do see these trends, both the improvement in product conversion and slowdown in mobile mix leading to renewed growth in 2017 on these metrics. So we're, two quarters later, continue to see those trends holding true, and feel really good about it. Switching to slide eight, thought it was helpful to look at what's happened at Meetic, and what that means for this business. We don't always break Meetic out in granularity, but thought we'd do it here. And this shows a couple of things. One, Meetic clearly went through a downward period, has righted that, and is now, again, going up into the right. Everything is sort of humming. I think the first implication of this is I really do think it debunks a theory out there, which is that these older businesses, either everything other than Tinder or our businesses with hard paywalls or whatever you want to look at are subject to some sort of inexorable downward pressure. I've been saying all along, I do not believe that's true. I think this chart clearly demonstrates it. And the European market is as competitive, if not more competitive than the U.S. market. Tinder is big, you've got [indiscernible] you've got a million different things over there. So I know that most of the listeners on this call are not Europe-focused, but I guarantee you that this it is a very analogous situation to our current business here. I also think it's important to show that there was no magic here. They just had really good execution. They improved their product conversion. They improved their marketing operations and efficiencies. And those things are the things that have always driven this business, and they continue to drive it. I think the next thing it shows, and I talked about this a little bit last quarter, was this lag effect in these subscription businesses, which is the underlying metrics start improving several quarters before the PMC numbers follow behind, there's this real lag effect. I think if you look at this you see that here, which is the net adds comp, which is really just the change in aggregate subscriber numbers over a given period, hit rock bottom in Q3 '14, and then started their trek upward. But you see that the average PMC number, that sort of levels it out for a few quarters before it starts to rise again. And I think that is the underlying dynamics in these subscription businesses. We then take that, and we transpose it on to our North American situation. We think it's very analogous. We think Q3 '15, so effectively one year behind, was basically the low point for us on the net adds comparison, and this is excluding Tinder and excluding PlentyOfFish for these purposes. And we really saw what we think will be the biggest sort of net decrease in net adds year-over-year. We've now had two quarters that have exceeded that nicely. We expect that trend to continue for as far out as we plot it. We expect those PMC numbers, the average year-over-year PMC numbers to level out basically at the levels they are right now for the next couple of quarters, and then turn upwards again, getting positive again in the first part of 2017, which is again consistent with what we've been prognosticating, and consistent with sort of exactly what happened at Meetic. So, again, happy to get into more of this in Q&A, I think the key point here really is execution. No magic. Meetic is at continuity-of-leadership. They've executed really well. And contrast that with North America, where in our Match U.S. business, we had three different leaders over a nine-month period. On OkCupid, three different leaders over a 14-month period, that's a lot of turmoil. Leadership matters, continuity matters. All of that against the backdrop of what was a very organization-consuming technology project that started at the end of '14, and persisted through '15 with intensity, continues now, but with diminished and diminishing scope as we drive towards the end of it that should occur this year. So again, I think a lot of things happening now, stable management, experienced management, Mandy Ginsberg and Shar Dubey coming back from Princeton Review, really turning the knobs on execution. We're a new leader at OkCupid today, who we just brought in. So we feel really good about this situation, and with one quarter under the belt of Mandy and Shar, again, seeing really positive signs. Flipping to slide nine, we still hear lots of talk about cannibalization. And I've been saying for a long time that we just don't think cannibalization is part of the story. We think, really, the story is the mobile mix shift and execution. And I wanted to take one more crack at explaining our confidence in this. As everybody knows, Tinder is a predominantly under-age-35 business. We also know that Tinder really exploded on the scene at the beginning of '13, with rapid growth in '13 and '14. And in '15 we sort of began modernization in Q1. With that backdrop, if you look at our businesses in North America, sliced by age, you look at the top graphs first. These are not the graphs you would expect to see if Tinder had a big cannibalizing impact. What you would've expect to see was a flattening of the line under-35 prior to modernization, and then a big pop in 2015, when modernization began. And that's not what you see. You see pretty steady growth, pre-Tinder modernization, and then a pop on top of it, which implicates real additive growth on the PMC side under-35 once we introduce Tinder Plus. On the 35 side, again you'd expect to see a real discrepancy across the board through -- between the over-35 and the under-35 age groups if Tinder was really the driving force in performance impact in these businesses, and you don't -- what you really see is pretty comparable performance pre-Tinder Plus and then not as good performance after Tinder Plus, which make sense given that Tinder is predominantly under-35, and so that's where you get the pop. So again, I think Tinder cannibalization is a nice concept, but I think the numbers don't really support it. Going down to the bottom of the page, again, this is looking more granularly at both the new user sign-ups and the subscribers. On a mix basis, on these brands under-35, and again you're just not seeing what you'd expect to see Tinder was the big driver here. You see with the exception of OkCupid, which we will talk about, on the new sign-up front, under-35 mix is actually up modestly, during this period. And you look at the subscriber front, it's pretty much flat with some downward pressure at Match, which really again is explained by the mobile phenomenon, which is mobile mix is always heavier under-35 and given the lower conversion on mobile, you've got a conversion issue at Match under-35 versus over-35, but certainly not Tinder-related. When you look at OkCupid, the numbers are down, but you got to remember, OkCupid is going through a period of rapid growth here, and making a sort of concerted push into the over-35 group, meaning it was predominantly a under-35 business, and I think to talk about sort of negative mix shift when you grew subscribers by 250% under-35 during this period, I think is sort of nonsense call. I mean, you had huge absolute growth numbers, you had huge growth in regs and in [indiscernible] in the under-35 category at the very time that Tinder was exploding on the scene. So I think Tinder really is a huge category expansion story, it has been from beginning, and again I'm happy to continue to sort of answer questions on this concept for as long as people have them, but I reiterate for sort of the -- how many -- the 100 times, just nothing we see in the numbers support the theories that Tinder is a driver of any softness in our business of any note. Again, every product exerts some gravitational force on every other product, but we think the category expansion element of Tinder far outweighed any sort of cannibalistic impact. And turning to slide 10, we talked a lot about ARPU trend decline, and I think what we saw on Q4 was exactly what we predicted, and again in Q1, but nonetheless people have raised some concerns about it. So we just wanted to break this metric down a little bit more also. In the upper left-hand corner, you see sort of just the hard reported trends in our ARPU. But on the upper right, you sort of see the change in ARPU over the last year among sort of hard paywall brands and the soft paywall brands. And you can see remarkable consistency, meaning, the ARPU downward pressure is not pricing pressure in any respect whatsoever. It is purely the fact that our soft paywall businesses are growing faster than our hard paywall businesses, and that brings down the aggregate, right? But there is no pricing erosion or pricing instability in these products at all. Hard paywall is slightly up, and soft paywall is sort of bouncing around a little bit, but that's driven mostly by mix shift and by -- I think these are global numbers, is that right, Gary? Yes. So you've got Tinder's rapid growth in rest of world, which is lower price. There is a lot of noise in these numbers, but in general, you can see just absolute stability here. And then, I want to break it down one further, which is ordinarily when you think about sort of unit economic, you know, revenue per unit sold decline, right, you try and justify that on an increased volume basis, right? That's the way it typically works. And I think the increased volume argument certainly holds here, meaning, there is no question these soft paywall businesses at lower ARPU are driving meaningful incremental volume, but that's really only part of the story, I think we care about profit, and I think when you break this down and you look at what ARPU in the soft paywall businesses is only 55% of the ARPU of the heart of the hard paywall businesses, the acquisition cost per subscriber is only 26%. And when you net those together, the total lifetime profit per paying member on the soft paywall businesses is 89% as much as the total lifetime profit of a hard paywall subscriber. So, while it is mostly an incremental volume gain, I think in those instances, of which I'm sure there are a few, where it is a trade between a hard paywall subscriber and a soft paywall subscriber, the net effect of that is downward pressure on revenue growth, but real margin expansion. And basically no -- slightly negative profit impact, but very slight. And when you take into account the huge unit volume growth on here, this is not a bad story for us. This is a very positive story. And I think that you really need to look underneath the hood a little bit to understand why we're not concerned about the ARPPU trend at all. It's huge volume, and basically neutral, true economics. Princeton Review, not really going to spend time on, happy to in Q&A. If you want, I think again, just to point that this is a business that we're in transformation mode. And what we're really focused on here is our re-migrating this business online, our regenerating real cross sell. And to the extent we are, we think we're creating a really valuable business for the future, and so far so good, but obviously early. Slide 12 is our outlook slide. I think it's pretty self-explanatory. I'm not going to read through it. We're happy to obviously take questions on the call or in follow-ups to polish this off. But in general, we had a really successful first quarter. It enhanced even further our confidence and our ability to execute and deliver on the rest of the year. There are a few things that are a little better than expected. A few things that, wouldn't really say worse than expected, but maybe a little slower than expected, and overall, we think we're holding on a very confident, very solid, really high growth trajectory for the rest of the year. So, with that, happy to turn it over to Q&A.

Thank you. [Operator Instructions] We'll take our first question from Ross Sandler with Deutsche Bank. Please go ahead. Your line is open.

Great, thanks guys. I had two on Tinder, and then one on the core Match brands. So with Tinder, can you guys talk about the conversion from free to paid by country, like is it fairly consistent, or is the U.S. driving a lot of the PMC growth that you're seeing at Tinder? Or I'll just ask a different way, is it broad-based and global, is it lumpy by geo, like how sustainable do you see this current 3x to 4x trajectory of Tinder PMCs? And then how does the retention of those PMCs compare to other dating products? Are these -- I know it's fairly new, but are they sticking around for several months or quarters? And then the -- thank you, by the way, for the new disclosures, they look great, I guess on the core Match side, if you strip out Tinder and PlentyOfFish, it looks like PMCs reversed from declining sequentially each of the two quarters in back-half '15, to now positive. So I guess, as you look out over the next year or two, do you see growth from core Match brands, ex-Tinder, ex-PlentyOfFish? Thanks.

All right, conversion, it certainly varies region-to-region. I would say U.S. and Western Europe are very comparable. When you get to the rest of the world, it's meaningfully less, but the rest of the world is also meaningfully bigger. So we've actually -- it is quite economically relevant to us on the sub side, rest of world. I guess to answer it, certainly less than half of our paying users are in North America, and I actually don't know the quite breakdown between Western Europe and the rest of the world, but the remainder, pretty balanced between Western Europe and the rest of the world. So while conversion is higher in North America and Europe, our MAUs are very, very significant beyond North America and Western Europe. So it is very much a global business. In terms of retention and renewal, Tinder continues to perform better than our other dating products on those two categories. We have added longer package mix over time, and not all those have renewed out yet. And so it's still early, and we're still figuring it out, but everything we know has the Tinder subscribers performing better than our other businesses. In terms of core Match, I think that -- in terms of sequential it's sort of tough to look at it that way, because Q1 is always a good seasonal quarter. So it's not surprising that you see sequential growth in Q4 to Q1. I also think that last year, we had, because we spiked Q1 marketing so dramatically against the norm, you had an even bigger sequential runoff last year in those businesses. So I think it's sort of distortive. I think what I would say is, going back to that Meetic chart, that I used, we think that the year-over-year numbers in those businesses have basically flattened out, and will start to improve. Meaning, the year-over-year comps are basically where they will be for the next couple of quarters, and then start to improve, which we think, real growth coming in the first part of next year. So, again, that's mostly -- we see the signs now. As we've said, we're seeing conversion improvements in these businesses. We're seeing net ads improvement, but just the lag effect between those things, and the runoff of the lower starting PMC numbers. But that means that re-subscriptions and everything else, basically you pay the price for Q2 through Q4 of last year, we pay that price for the first three quarters of '16, and then that sort of rebounds itself out in the back part of this year, and into '17. So, again, we feel really good about the progress, but there is some lag effect just in its manifestation in the aggregate PMC numbers.

Great, thank you.

Thank you. Next we'll move to Doug Anmuth with JPMorgan. Please go ahead. Your line is open.

Thanks, it's Doug. A couple of questions, first, guys, can you talk a little bit more just on the management additions at Tinder, and some of the changes that are taking place there. In particular, the slower rollout just on the advertising, which seems to make sense, just given how well you're monetizing the rest of the business. And then also just where the higher headcount is coming through. And then also if you could talk some of the monetization changes or additions, let's say, that you're considering there over the next couple of quarters, and how we should think about these, as whether they're incremental or more needle-moving kind of things? Thanks.

All right, Doug. On the management, when we -- we started -- when Sean Rad sort of reassumed the role of CEO back in, I guess, August of last year, we made a concerted push to flush out that management team. And I think that we were pursuing a number of different hires in parallel, and they all sort of came together at the same time. We've brought in a new Head of Engineering, a very experienced person, Zillow, Yahoo, various startups. Maria Zhang, she is great. She started a couple of weeks ago. We brought in a new Head of International, Garrick Coelho [ph], who'd been at years for Google and YouTube. And we brought in Pete Foster to run our advertising business really on full Match Group level, but really, Tinder is the business there with the most upside growth potential there. So it's -- while it's a Match Group-level job, heavy focus on Tinder. And then we brought in Ferrell McDonald to run Marketing. So those are all big hires. At the same time, Ryan Ogle, who had run Technology forever, and Jonathan Badeen, who'd run Product stay on in very senior positions; Ryan, now running Product, and Jonathan, now running Strategy, along with Sean. So I think you've got a great fusion of -- again, I've always said that the key to a successful startup becoming a successful company is maintaining all the talent and passion that got you there, while bringing in lots of experience and breadth from other places. And I think so far so good. I think -- you just think about the International piece, you say like, again, most of this business is outside of North America. And until we hired Garrick, we didn't have any dedicated international operations at all. So that is certainly an area of focus. And he's building out some infrastructure, and some folks to put muscle behind what has been, I won't say effortless momentum, meaning people in the L.A. office have been working on it. But it's certainly very different than having a dedicated focus. I think we have a pretty small marketing arm. And while I think that where Tinder is nowhere near a place where it's going to become some sort of a traditional paid marketing business. Certainly there is energy that can be brought to smart guerilla, on-the-ground brand marketing that I think we really haven't done enough of. And so I think there are lot of -- And on the technology side, while everything is great, I think as we hit this scale, we really are hitting incredible scale. I think brining in somebody who has operated at scale, run big engineering departments I think is just really key to the continued success of the business. On the advertising side, I think we looked at a couple of things. One, is what you pointed out, which is we've got great modernization going on the direct side, which gives us the luxury of not being rash. We don't want to do this in a way that upsets the user experience at all. So I think that it's not that big a deal. You had one leader who sort of laid out this ramp, and then somebody else comes in. And it's not some big philosophical difference, they just sort of order things a little bit differently. And you end up with a slightly different rollout. And I've said from beginning, we're not -- we don't really manage any of our businesses quarter-to-quarter, but certainly Tinder is a business that we're managing for long-term value growth. And a new leader comes in and says -- lays down a case for doing something a little bit differently, and that has an impact, we're not going to worry too much about that impact. I think in headcount, yes, we did note in the outlook that we've got higher headcount expense at Tinder expected. That's not a refined number. You've got a new team that's come in there, sort of flushing out their ambitions and goals, and we're working through that. Again, I can tell you that this is a business with lots of momentum. We like to hire into momentum, as opposed to hiring to create momentum. And that's what we're doing here. The momentum is there, we're flushing out key roles in really international and product flash technology, or where the headcount is coming. We've got big, big, big product ambitions in this area. Modernization is a part of it, but it's really the tail here. We've said for a long time that we see opportunities to take Tinder and really transcend the category that we're in. And we plan on putting resources against that, and we feel good about it. Again, we're not talking tens of millions of incremental dollars here, but we're talking about tens of incremental heads, which add up in sort of any given quarter. Did I answer all the questions there?

Yes, you did. That was helpful on Tinder, thank you.

Great, Doug. Thanks.

Thank you. Next we'll move to John Blackledge with Cowen Group. Please go ahead. Your line is open.

Great, thanks for the questions. So Tinder, off to a strong start for the year, a million ending subs in the quarter. Can you just flush out the product pipeline for 2Q and the rest of the year? Maybe give some examples of upcoming products that you expect could drive you there, further sub penetration and or engagement? And then also maybe just discuss Tinder MAUs. Are they growing? And how is engagement? And then just off of Match.com, how is the mobile upgrade progressing? Thank you.

On Tinder, the answer on your product pipeline question is, no, like it's a very competitive phase. We've got lots of competitive ideas. And so I can't layout what the product roadmap is for you. I can tell you that it's pretty robust. We've got a lot of plans. I think on the modernization side, we've certainly have, and we've got a dedicated team that works on modernization. They have their own cadence. We've now gotten to the point; I used to say fairly often, like we're reallocating resources between experience and modernization. That really you won't hear from us very much anymore, in that we've got a dedicated team that is working on Tinder Plus. And they will continue to roll things out. I think there's a mix there of new features, and just optimizing the old features. I mean we basically rolled out Tinder Plus, we then optimized a number of the features, we have an optimized pricing. So a lot of the stuffy, I would say is invisible, but should continue to put upward pressure on the -- or upward momentum on the conversion. And then we also have some new cognizable and identifiable features in Tinder Plus that I think you'll start to see, which again, are sort of built into our outlook for the year; although, again, as I said earlier, every modernization initiative that we've rolled out at Tinder yet has exceeded our expectation. So, including our a la carte product that I hinted out here is really -- we rolled out our first paid a la carte feature, and you never know, and then we rolled it out, and it has been incredibly responsive. So I think there's lots of opportunity there. So I think you will see a cadence on that front. On the non-modernization, and I'll leave advertising out for a second as well, because that has its own roadmap, you're going to see a mix of what I call, again, optimization algorithms, and all that stuff which you can notice, but don't change the world, but are just important to sustaining the growth of the business. And then, again, I think we've got some real ideas here that you'll start to see that each one is a swing that has the potential to start moving the definition of the business or expanding the definition of the business from where it is, which is where I think a lot of our resources and energy are going to be over the back half of the year. In terms of Tinder MAU, it continues to grow well. Again, as I've said, it's slower growth in North America than in the rest of the world, which is natural just given the rollout. Volume of new signups continues to be very strong, and we're showing improvement in reactivations and retention, and those things collectively drive the MAU growth, but it continues to be solid. On Match, again, we brought Mandy and Shar back in. I think that's been real focusing for the organization. They are putting most of their time at Match U.S. -- sure that's not really true. Match U.S. is certainly a prime focus for them as they rev up. We're seeing some real positive signs. Again, not to harp too much on execution, but it matters. Some of the things we're doing is we're just finding little things that got broken in the machine. It caused sort of leakages [indiscernible] from this cohort and that cohort. Some of it is just patching up some holes in the machine, others are improving product. Again, I talked about the -- last quarter, we just switched over our Android app, and we've seen meaningful improvements there, focusing on mobile web, and some other things right now, overall, quarter-over-quarter across the businesses. Ex-Tinder, we saw a nice increase in mobile conversions. So, again, we're feeling very positive about the execution at Match U.S. I think that's it.

That's great. Thank you.

You're welcome. Next question please. Operator?

Yes, thank you. Our next question will come from Jason Helfstein with Oppenheimer. Please go ahead. Your line is open.

Thanks. Two quick ones, can you give us a sense, Greg, of the number of registered users in the platform today on a basis of the MAU, and how that will compare, let's say, to one or two years ago? And then how you think about the pace of conversions from registered to paid over the next few years? Because clearly, historically, you had a very high percent of paid, and obviously with the shift to the premium services you have more registered than you have paid, and kind of tracking that. So if there's any help you can give us on that, I think people would appreciate that. And then secondly, can you go in a little more detail about what drove the marketing efficiency. If there's anything specifically you want to call out that you guys think you're doing better? Thanks.

Okay, first, we're not breaking out the MAU numbers, but I can certainly tell you that our global MAU numbers are dramatically higher today than they were one or two years ago. And that MAU growth continues well. I mean, it's different -- Tinder is a bigger driver of it than Match U.S., for instance, but in aggregate, growing nicely. I think on the conversion side, in some ways you can think about it a little bit like ARPPU, which is the ARPPU trend is coming down. On a global basis, conversion is coming down just because of the mix shift, but within each business conversion is going up. I don't have a systematic way to describe those trends right now. We can certainly think about doing that for the next all. I think that we sort of look at it a little bit differently, which is we do believe that we've got real opportunities to increase conversion within each of our businesses, and to grow users within each of our businesses. And that's sort of the way we're organized, and the way we manage it. I think that just by definition, because of the mix shift, you're going to see users going up, and aggregate conversion going down, along with ARPPU going down, but also marketing expense going down. And that's sort of the ties back into that unit economic slide that I talked about before. So I don't have a great signpost to give you for sort of consolidated modeling over the next four to eight quarters, but we can think about a good way to articulate that for you for next time.

And then on the marketing efficiency?

Jason, there you're focused on the marketing cost being down as a percentage of revenue in the quarter, is that what your question…

Yes. I mean, just like -- I mean there are things that you got to put in place that you're doing better I think now than maybe a year ago, and is there anything you want to highlight that you thought was more visible…

Yes, I think that again a lot of that is mix, right, which is on a consolidated basis, marketing comes down as a percentage of revenue, because -- again, it goes back to that unit economic slide that I talked about, which is the marketing cost per subscriber at Tinder -- and that's inclusive of the app fees that we pay by the way, those numbers. So when you have more of your subs coming from Tinder, you're paying only 26% of much marketing per sub, as you do at Match. So without any marketing efficiency in the way I think about it, which is just getting better at marketing, you see a confident improvement in the relationship between those two metrics just because of mix shift. So that's the biggest diver of that by far. Second, we did improve our marketing. Meetic in particular had a solid year of improving their marketing execution, especially on the online side. And I think that overall we're starting to see signs of improvement in our ability to sort of market efficiently in the emerging mobile marketing channels, which I think continues to be really important for the growth in the hard paywall businesses. But predominantly that efficiency you're seeing is a mix shift from the hard paywall to the soft paywall businesses.

Thank you.

Thank you. Next we will move to Eric Sheridan of UBS. Please go ahead. Your line is open.

Thank you very much for taking the question. And I appreciate all the additional disclosure. I wanted to go back to slide seven in the presentation. And I'm just getting a little bit of some of the trends that we're seeing on that slide. Do you think you have sort of a natural feeling that you'll hit in terms of mobile versus desktop on the branded registrations by platform? I wanted to also understand a little bit how you think mobile conversion as a percentage of desktop also continues to traject [ph] through '16, but also beyond '16? And then last would be as you look at mobile conversion versus desktop, how does that inform how you spend a dollar of marketing and how you think about the relative ROI between channels when you look out of the business over the next couple of years? Thanks, guys.

All right. On the graph on the bottom-left, which is brand regs by platform, first I want to be clear that brand regs effectively excludes online marketing. You traditionally think of it was online marketing. So, brand regs are word-of-mouth and television basically. And this sort of reflects I think sort of the device habits of our user base, right, so this is where marketing isn't focused on any one channel. This should reflect the general, like, what percentage of our users tends to do most of their stuff on desktop versus mobile? Right now you're seeing about a 77-23 split. Anyone's guess, again I continue to think that desktop is not going away, at least not you know, rapidly. There will always be a use for desktop, and people use it. So whether that 77 gets to 83 or 84, it's not going 92 quickly, I think. So I think that trajectory has slowed down a fair amount. On the online reg, this number can jump around a little bit, because again we're trying to open up more and more mobile paid channels. And so that number we would actually like to see -- that's one where we want to push that harder and harder, because we will only spend where it's ROI positive. So that can jump around a little bit. In terms of the gap, the 63% gap, I think that the GAAP has been -- look, I guess people have different opinions about this. The gap I think has been a very useful sort of device for looking at the impact to our business over this period of rapid shift. I think if you assume that the rapid mix shift has sort of slowed dramatically, then really what we care about at this point is simply moving up aggregate conversion, and not so much closing the gap, meaning, now 77% -- the gap is relevant where the higher number was the 65% of the mix. Now that's the 23% of the mix, to us, it's not so much about closing the gap, it's much as driving up conversion everywhere. I mean, if we can drive up desktop conversion, that's great. It may hurt the gap, but we will do it. So I kind of think about in terms of like what is our ability to increase mobile conversion generally? As I said, we were able to do over the last year, I think, slightly better than mid single-digit sort of percentage improvement. I think we're increasingly organizing around that phenomenon, and driving that metrics. So I think that we've got certainly a reasonable low-end expectation of sort of what we ought to be able to do going forward, and I think again, if you think about it, if everything else is flat, I mean everything else holds constant, then you're increase in conversion should equal -- your percentage increase in conversion should increase -- should equal your percentage increase in first time subs coming through the door. So, those are real meaningful improvements to us. We think we can repeat them and hopefully improve them, and we think that's a big driver of sort of again this belief that this tropes is in the process of stabilizing right now, and starts to go right -- up into the right again, sort of the back-half of this year and first part of next year.

Thank you so much.

Thank you. Next we will move to Dan Salmon with BMO Capital Markets. Please go ahead. Your line is open.

Hey guys, good morning. Two questions, first for Greg, I think it was last week or the week before you launched the Tinder Social initiative test in -- with a small group of users in Australia, could you maybe just tell us a little bit more about what the milestones you are looking at for that test, and maybe expand a little bit more on the big picture opportunity there? And then just a second one for Gary in the outlook slide under the forecast updates, you mentioned some changes to the tech migration to Match Affinity, maybe just give us a little bit more color there, and any other important initiatives on the back-end that are going on? Thanks.

Sure. I think, look, it's a test, it is strategically meaningful and it's the first sort of product change that we've introduced, it sort of lays the foundation for a broader product experience than the traditional one-on-one dating experience. And so, in that respect it's important. At the same time, it's also very complicated. You launch a test like this, and the first thing you're looking at is making sure that you've done no harm. You introduce something like that into what is a very powerful and successful ecosystem, and you want to do it slowly, you want to do it carefully, you want to see whether the intended consequences on all the core behaviors. So that's really where we're right now. I think obviously the positive stuff is obvious, you want to increase engagement, you want to increase usage, you want to increase new sign-ups, and you want to continue improve and create new used cases for the product experience. But it's very early. You introduce something like this into the ecosystem and there is a potential for good and bad, and I think you know, we're one week in, and so, we have certainly nothing to report at the moment. It's complex. And we're excited about the overall direction, but very circumspect in terms of this specific sort of future iteration as to whether or not it is going to start completely move us in that direction or not, certainly we'll have a lot more to say about it on the next call.

And then Dan, in terms of the tech migration; as we kind of talk here of what happened in 2015 and plan for '16, the way we looked at it was you know, when you look at Match, the tech platform was a pretty big distraction to the lot of resources, a lot of people's time. And I think just given where we're and given the mobile shift, we decided that we should push off doing more of the tech migration around Match Affinity, and really focus on execution of that business as well, and try to drive sub growth at that business. And so that's the rationale for that. That's what we've done. And then the slide kind of lays out there will be some more costs in Q2 to finish that up, and then there really won't be much cost after that for the remaining tech migration.

Yes. I think just -- it's been a very big project, it's been very modular, meaning, we postponed one part of it, which is sort of a final piece, which was migrating the Match Affinity business on to the Match platform, but all the rest of it is going to have been completed, and we drive meaningful benefit from it, meaning we will completely rebuild the Match back-end, the Match front-end, create an API that allows the Match back-end to speak effortlessly to the Match desktop web, the Match mobile web, the iOS, the Android app, all of that creates dramatic efficiency. It allows us to deploy former resources on sort of product development as opposed to replicating the back-end part of product development that we had to replicate on each device over and over, so, big impact there. We brought it new management for these businesses, and again, what's the point of bringing new management if you don't listen to them? And their view was to re-prioritize a little bit for the balance of this year, and push that back off, and we'll either do it next year or we will sort of close the -- create the efficiency in a different way. I think other things that happen as part of that project, just to note, we took our European business from seven offices down to three offices. We did major tech -- not nearly as major, but we basically created the same sort of efficiencies in terms of API and reducing redundancy on the Meetic platform as well. So, lots and lots, we migrated Latin America on to the Match platform in the fall, so, lots and lots headwind done and there is still ongoing work to complete it. Yes, I was just giving a note, we also migrated the FriendScout business on to the Meetic platform. So this was a big, big project. All we're doing is really sort of indefinitely postponing one piece of it, which may or may not ultimately happen, but we'll have gotten by the time we're done, which should be by the end of this year. We'll have gotten the vast majority of the expected benefits out of the project. So I don't want to focus too much on the one part that we've pushed off.

Okay, great. Thanks very much for the details.

We probably have time for one or two more questions, operator.

Thank you. Next we will move to Heath Terry with Goldman Sachs. Please go ahead. Your line is open.

Great, thanks. I just wanted to -- since a lot of the other questions we'd have been answered, I just wanted to take a little bit more into the Meetic example, because I think it's really interesting on the turnaround you guys have seen there; can you give us a sense for what happened with pricing over this period, and whether or not how much if at all that was a lever? And then, the chart starts couple of years or three years ago, right up you guys did the Massive Media acquisition into Meetic, I'm just curious how much of an impact the attrition of Match's users had on that initial decline, and if were to look at this just purely you know, maybe excluding the acquisitions on a like-for-like basis, would it look any different?

Thank you. We'll focus on last point first. I'm not sure I heard -- it was right after the what acquisition?

Massive Media, when you guys bought Twoo.

This has nothing to do with Twoo. So Twoo is excluded from these numbers. This is purely core Meetic dating. It excludes the FriendScout acquisition. It includes -- it excludes the Meetic Affinity brand that we sort of had to runoff on. So this is purely like-for-like, think of it as the Match.com of Europe. Okay? So this is -- all that is excluded. I think in terms of rate, again, there's been some -- just see, rate -- we're pretty confident throughout this period, I'm looking at it now, this is all -- this is local currency, right, so there is no FX in this that I'm looking at. Yes, on a local currency basis, I will say the Q3 2014 rate was identical to the Q4 2015 rate. So there was a little bit of -- it went up a little bit during this period and then back on a little bit, again, driven mostly by the mix of discounting and package mix and all that sort of -- so pricing was definitely not a meaningful driver of this. The biggest driver of it was we improved conversion, we improved marketing efficiency, I mean, it was just -- there was always a million things going on, but these are businesses where -- look, Meetic, when we bought Meetic back in 2011, it was in a trough, and we built it out and then it sort of stumbled a little bit, and Match had a big stumble four or five years back on the execution front. The core lessons of marketing creative, marketing tactic, product -- theory product execution, all of that stuff is -- I know it's complicated in any business, but -- and I'm probably bias, but I think it's complicated here, especially at large scale. And I think that they just really stepped up their execution, and everything started hitting, and there is no magic bullet or smoking gun. They just did better. And again, we brought a new management there, I want to say the late part of 2013, and that leads to continuity, and just good execution. And they're on a really good run, and we feel really confident that again, you know, not to get prior management, the turnaround in the North American business, we think we hit our low-point in Q3 '15. So the turnaround started then, but we brought in new management and I think that Mandy and Shar, I think they're amazing in execution, and I think that we feel really good that this trajectory will replicate itself in the North American businesses.

Great, thank you.

You're welcome. We're going to take one last question, operator.

Thank you. We will take our final question from Peter Stabler from Wells Fargo. Please go ahead. Your line is open.

Thanks. Two quick ones from me, first of all, Greg, I'm wondering if you could comment a little bit on the advertising landscape for your other brands, the non-Tinder brands. Most of us on the call pay pretty close attention to that, and we've seen a kind of a divergence in performance. So I'm just wondering some comments there. Secondly, Greg, could you remind us your exposure to app store taxes and strategies to mitigate those? Thanks.

Taking suggestions on tactics to mitigate themselves, anyone has a good idea for how to avoid paying Apple. They're 30% open to them. I think that -- the numbers are obviously built into the number we've talked about, if you go to the app store, if you go to the unit economic slide we did, where we talked about sort of the soft paywall businesses being at 26% of the acquisition cost of the hard paywall. That's inclusive of the app store fees. So for instance, Tinder pays us 30% sort of payment on every subscriber has, but that is built into those numbers. I think again, if you sort of aggregate marketing costs and the app store fees, you got marketing costs coming down dramatically as a percentage of revenue, you've got app store fees increasing as a percentage of revenue, I think the net of all of those is margin improvement overall, but they're sort of going in two different directions. I think on the advertising side, if I understood your question, sort of ex-Tinder, you were saying there was a divergent; I think you mean that our ad revenue in those business is not growing as fast as the market generally.

I guess what I meant, Greg, is across the landscape we're seeing share being taken back, you know, large scale data-driven, great execution, and then we've seen other platforms kind of languishing. So just wondering if you can give us a little bit of color on the trends you're seeing in…

Sure. I think, again, we obviously just brought in -- we just brought in new management. We're scaling that operation meaningfully. I absolutely believe our execution will get much better, and that we will become more relevant. And so, I think when you talk about sort of better data, we're in the process, you know, we have all of this data right now. We don't have a central technology system that harnesses it, allows us to monetize it; it allows us to get the advantage of it, all of that is underway. I think of -- an also a big driver really, you go back to that sort of mobile mix slide, the reality is that not unlike a lot of other businesses, our desktop business has monetized on an advertising side much better than our mobile business. And so, over the last three years as you've seen this rapid shift from desktop to mobile, which we focus on the conversion side, it also had a negative impact on the ad revenue side, where businesses like Match, and Meetic, and OkCupid et cetera, they're in the priorities of what they do. And as they have sort of scrambled to keep up with this mobile shift, there is no question that the ad side has been a very bottom priority as, again, conversion and everything else. So I think it has not been a great period for us on the ad side, driven by, first, did not being a big focus, and be the mobile mix shift, I think mobile mix shift is mostly behind us. We now have real focus and real leadership, and I do expect it to improve meaningfully in the periods to come.

Thanks, Greg.

You're welcome.

Thanks everybody. We will talk to you next quarter.

Thank you. This does conclude today's conference. You may disconnect at anytime, and have a great day.