Bernard Kim: I’ll take that one. Last year, we implemented a number of monetization initiatives which we know how to do really well and we have a great team behind it. That drove short-term revenue growth at Tinder. But to really achieve long-term growth at Tinder, we need to reimagine the product to better satisfy women and Gen Z. This is a much more significant undertaking for sustained long-term growth and less certain than implementing monetization, optimizations and initiatives. We are confident that we have the right team in place, and we are focused on this and a series of planned initiatives that we will deliver to improve the product experience we feel really strong about. This will drive user growth, payer growth and revenue growth over time. So to be clear, what we are talking about is not really a series of conversion tweaks but a longer-term strategic undertaking. Thanks for that question, Chris.
Operator: The next question comes from Dan Salmon with New Street Research. Please go ahead.
Dan Salmon: Okay, great. Thanks for taking the questions. Good morning everybody. I’d like to talk AI a little bit. And just first to ask about any of the early learnings you’ve seen from the tests of the AI photo selector on Tinder. And I think the wording in the letter was about launching it more widely in the summer. Just curious if you had a little bit more details on the timeline, if that is first half of the year or later on in the summer months? And then maybe just more broadly here, your view around AI development around the company BK mentioned. So Hyperconnect has been helping a lot of businesses. And I know AI is a specialty there. I’m sure Will Wu’s got a lot of attention, a lot of his time focused on this. But just more broadly, how you are thinking about the road map for AI-based products across your suite of apps. Thanks.
Bernard Kim: Thanks for that question. I absolutely love talking about AI and photo selector, and we’ll work closely with our Hyperconnect team in conjunction with our Tinder team to create this great feature that we think is really scalable. And to really go back to that dater experience. When a dater makes a decision to download Tinder or one of our other apps, they’re really putting themselves out there. And the first step that we ask daters to do is create a profile. That immediately can be a barrier to entry. Some of our users can kind of put their hands up in the air and say, okay, I’ll do that later. But we now can help a person create a profile using AI and overcome that barrier. We are testing it right now, and we are launching this summer.
Now I’ve tried it myself. And I personally have over 10,000 photos on my phone, and I wouldn’t even know where to start if I were building my own dating profile. The photo selector magically chooses 10 photos for me, goes through all 10,000 photos in less than a minute, and then actually ended up showing parts of my personality that I wouldn’t have really thought to showcase. Based on the 10 photos that they picked, my profile would show that I went to a Taylor Swift concert, love to cook, and I love my dog. If I was doing this on my own, I’d probably just stick my corporate headshot, which is an okay photo, but it really doesn’t tell much about me. If we can help people create better profiles, we believe that this is going to get to better matches and have better conversations which lead to better outcomes.
This is just one example of the power of AI, and we plan to expand on this throughout the entire dating journey. Thanks for that question.
Operator: The next question comes from Justin Patterson with KeyBanc. Please go ahead.
Justin Patterson: Great. Thank you very much. Good morning. I just wanted to ask about Hinge. You had outlined the path to $1 billion in the letter. So I appreciate that. I wanted to actually dive in the margins around that. Just as we see Hinge scale moving toward that $1 billion revenue target, what do you think about margin potential there? You’re going to get closer to Tinder over time? And then just maybe perhaps an update on where Hinge’s margins are today. I know in the past, you’d signaled. But those were approaching the corporate average, so curious if that is still the case. Thank you.
Gary Swidler: Thanks, Justin. Why don’t I take that? So Hinge margins are expected to be in the high 20s percent range for the year. So short of the corporate number, and they are about stable with where they were last year. And I would point out really a couple of things going on that are affecting the Hinge margins. The first thing is we are making a significant investment in marketing really across all of the markets that Hinge is focused on. So there are 17 markets. We’re not making every single one. But there is a significant effort going on — on the marketing side to build brand awareness, especially in these newer European countries. And the revenue generation lags that. So it’s an investment, and the revenue will start to help generate operating leverage for the business over time.
We are generating more revenue from Europe this year than we did last year, and that will continue to grow. So that is one thing that’s going to lead to improved margins at Hinge over time. The second thing is we are making a big investment in people there. We continue to expand headcount, particularly in product development, to continue to build out a better and better product experience. And so that investment is happening upfront, but those investments should lead to revenue generation, which also should lead to operating leverage over time. And so I’m confident that as Hinge scales the investments that we’re making in marketing, the investments in people will pay-off, and the margins will start to approach company levels. I think we have a good line of sight to get there.
Where exactly Hinge margins land is really going to depend on how fast and how big that business scales to. So the more scale it achieves, the more I have confidence that margins will continue to improve. I think there’s a path to get company level. I think there is a path that they could be higher, but we’ll have to see how that plays out and at what rate that — that plays out. I would tell you that Hinge margins, Hinge is investing more in marketing dollars than Tinder does. And that’s because Tinder has such a high level of brand awareness in all the markets where it operates. It was a big viral sensation when it burst onto the scene. It hasn’t had to spend the marketing dollars that others who came after it, including Hinge have had to do.
So I think Hinge is always going to have margins that are below Tinder’s level. For that reason, we are spending a little bit more marketing at Tinder. And so the gap is closing a little bit as Hinge improves its margin. But I do believe that that’s the dynamic we had, that Tinder is the higher-margin business — that Tinder is a higher margin business, but that Hinge will be somewhere around company margins. And that all assumes no change in app store fees, which of course could be a big margin driver as well. So we will see how that all plays out. But those are the dynamics that I see as Hinge continues to grow and mature.
Justin Patterson : All right. Thank you.
Operator: The next question comes from Cory Carpenter with JPMorgan. Please go ahead.
Cory Carpenter: Thank you. Gary, could you expand on how you are planning to maintain your 36% or better margin target this year despite the softer revenue outlook? And more broadly, are there any incremental areas you’ve identified to reduce costs? Thank you.
Gary Swidler: Sure. Happy to take that. So first of all, I’d say, early in the year we provided an outlook of 6% to 9% total company year-over-year revenue growth. And we were prepared to deliver 36% margins even at the low end of that. So what’s happened in terms of the performance thus far this year, we still have a plan to get to 36% margins even if we are toward the lower end of our previously stated total company revenue range. Now obviously, we need to prepare for contingencies, and I’m not expecting this to happen. But if there were for the deterioration to maintain that margin level, we have to take some additional actions. And so to your question, the first place we would look are things that don’t impact revenue significantly.
So corporate overhead, as an example we would look to try to adjust areas that won’t impact revenue generation. I don’t think there is massive opportunity in those kinds of areas because we’ve been judicious and we’ve been fiscally responsible for a while. But that’s a place that we could definitely look. After that, you start to get into areas that have more effect on revenue. So marketing would be one. Obviously, we have a very large marketing budget, over $500 million for the year. We try to be very judicious with marketing across the businesses. We monitor for a return on that investment of course. But the good news is — we don’t lock in to a lot of marketing commitments. And to the extent we have to make adjustments there, we can — and we can be very nimble.
But again there could be knock-on effects on revenue generation if we adjust marketing. I think we are pretty well optimized on the marketing side. But that would be another place to look. It is a big expense line for us. And then as we talked about a lot on our last earnings call and people are aware, we’ve got a number of innovation bets that are going on right now that are critical to driving future growth. Those tend to be very margin dilutive in the early years because we’re making investments in those businesses and they’re pre-revenue. So in the event that we needed to find other places to look at, we would look at all those bets even more carefully. We are consistently reevaluating them. But that would be perhaps a luxury that we would not have as much of.
Again, there would be knock-on effects on revenue in the future years, on growth in the future years if we curtail some of those, but we’d have to look at that. So those are the trade-offs that you have to make. And obviously, they get tougher and tougher if things were to deteriorate. So we’re — the job one is really to generate improved trends, improved revenue growth and avoid the need to take any further cost actions.
Cory Carpenter: Thank you.
Operator: The next question comes from Ygal Arounian with Citi. Please go ahead.
Ygal Arounian: Hi thank you, good morning everyone. I want to follow up on the product side and particularly around women and Gen Z. For women, you call better product recommendations, better outcomes there. And you are calling out here and talking on the call a lot about being bolder on the product side. So can you just help us understand what that means on the bolder side? Like what are the product expectations around the women and Gen Z and how we should think about that? And then on the safety side, with losing MAUs, as you did that and kind of cleaned up some of that, I understand the impacts on the MAU loss. How should we think about not the comps year-over-year, but how you expect that to drive improvement over time and how we should see that? Thanks.
Bernard Kim: Great question. Gen Z and women, and women’s experience in particular is our top priority. They are literally the most critical demographic for all dating apps. We know that women need to feel empowered and respected when they’re on our apps. We have a series of initiatives to improve outcomes for women to make sure they are getting great matches. Now on the trust and safety side, we have a very aggressive approach to removing bad actors, especially when we get reports from users. But recently, as we mentioned in the letter and in my opening remarks we changed Tinder’s community guidelines to remove people from Tinder who weren’t there to-date. Whether they’re trying to grow their social media following or were not very active, they had negative impacts on user perception of the Tinder product.
So we made this change. And as Gary said, we think we lost about 2 million MAU, but it was the right call for Tinder because it’s more important that we are delivering great matches and authentic users and also getting them out to meet in real life. These trade-offs are important, and the team has continued to evaluate and make hard decisions if it yields a healthier ecosystem. I’m going to give you an example. Tinder is going to start requiring face photos. We believe that will be great for the ecosystem because it will increase the authenticity of people’s profiles. But we also think that it’s very likely to impact MAU, as we weed out some people who are really not there to-date or it actually creates extra time to get comfortable with this change.
