Match Group Inc (MTCH) 2021 Q4 法說會逐字稿

Good morning, and welcome to the Match Group Fourth Quarter 2021 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Bill Archer, Head of Investor Relations and Corporate Development. Please go ahead.

Thank you, operator, and good morning, everyone. Today's call will be led by CEO, Shar Dubey; and CFO and COO, Gary Swidler. They will 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 Shar.

Thank you, Bill. Good morning, and thank you, all, for joining the call today.

You know, this past year has been remarkable for Match Group in many ways, even though the broader world has been a bit disorienting at times. And as much as we'd hope to be done with COVID in 2021, the recent Omicron surge is a reminder that we aren't quite at the end yet, although I sure hope we're close.

So our business grew 25% in revenue despite the waves of Delta and more recently, Omicron. And this latest Omicron surge has impacted peak season behaviors and dating sentiment in parts of the world. And because these surges have had varying effects on our business, I thought I would start by sort of level-setting where our business is in the context of the pandemic.

So if you recall, back in 2020, in the early days of the pandemic, our business took a hit during the global lockdowns, and it then stabilized by late spring. And at that time, both user activity and propensity to pay slowly recovered. And as we've dealt with different waves of COVID since, usually, the mobility restrictions are generally impacted dating activity. And now fast forward 2 years, while much of the Western markets, including the U.S., are seeing less and less impact to activity and propensity to pay with these ongoing surges, several markets, particularly in Asia, are still disproportionately impacted.

Japan, for instance, has now dealt with 3 periods of state of emergency last year, all of which have had a meaningful impact to mobility and general dating sentiment. And there seems to be a glimmer of hope after that last one was lifted. But again, Omicron has them back in a quasi state of emergency at least until February 20.

And all of this has led to a level of anxiety and fatigue, particularly in these winter months, and we're seeing the effects of this in Japan and parts of Asia.

Now beyond these geographic differences, as we've said before a few times, while active online daters and propensity to metrics have largely recovered in Western markets, there is still a hesitancy among new users who have never tried dating apps before to break into the category. Now these are usually largely driven by word of mouth, and that, of course, depends on normal levels of socializing, which hasn't yet happened. And if you've resisted online dating until now, the pandemic hardly seems the right time to start. So this past year, we have seen periodic uptakes in new entrants when COVID is not dominating the news cycle. But by and large, that has not fully recovered in a sustained way.

So unlike categories like, say, online groceries, for instance, where pandemic pulled forward new users, for us, non-users breaking into the category, even at a normal cadence, is still to come. And we feel optimistic that if Omicron truly is what causes the shift from a pandemic to endemic, and if things do indeed return to more normal in spring and summer, we are well-positioned to be able to capitalize on it.

We've made significant progress in building out our portfolio of products that appeal to different demographics and intent. We've innovated on many pain points, everything from trust and safety to more authentic discovery and getting to know each other experiences. We've been disciplined and measured in our marketing efforts given the macro climate, but we're ready with several creative and optimistic campaigns to reenergize dating sentiment as soon as we are in a new post-pandemic normal.

Romance and love maybe just the thing that shakes us out of this collective malaise.

Now Tinder, beyond a 22% revenue growth, in 2021, Tinder released its biggest update since the invention of the Swipe feature, and this was the launch of Tinder Explore. Explore provides Tinder with additional flexibility to expand use cases to more dimensions of discovery and social live experiences. Explore enhances responsiveness, offers surface and opportunity for regionally tailored experiences; has exciting media, video dating hybrids such as Swipe Night, wedding dates, concert Festival Mode; and it's clearly had a productive start with almost 70% of users adopting this experience.

The 2022 roadmap has many more enhancements planned, along with new monetization opportunities later in the year.

Hinge has had an impressive year where they more than doubled revenue. They're also seeing a strong start to 2022 in markets they've been around at, like the U.K. and Australia. And the Voice Prompts feature they launched late last year has really resonated with users, not to mention the social virality this have seen. Turns out people's life goals, dating styles and their best dad jokes are both entertaining and insightful. Our 2022 plan for Hinge, to expand internationally beyond English-speaking markets, remains intact.

We're also making progress at Hyperconnect and stabilizing the core business, and we plan to return them to growth later this year. They have recently launched Azar lounge, their live streaming feature, and Hakuna City, their interactive and immersive new discovery experience. And they continue to experiment with metaverse elements, both in dating and social discovery context.

We've also successfully integrated Hyperconnect's live video and audio tech on a couple of our platforms. And the teams are making progress, enabling our other brands to leverage their technology more broadly to build new immersive discovery and live experiences.

While much remains to be done at Hyperconnect, we're actually very confident it is on the right track, and it is pushing us forward in a number of areas that are critical to our long-term growth.

As I reflect on last year, what jumps out to me has been ability to find opportunities in the face of uncertainty. And despite this latest Omicron surge and all the uncertainty it may create over the next couple of months, I am hopeful about 2022, how we're going to use technology and innovate product experiences, tell our story with ever more creative marketing, and most importantly, profoundly change many more lives around the world.

And with that, I will hand it over to Gary to provide some color on the quarter and the full year.

Thanks, Shar. We had a strong Q4 with total revenue of $806 million, up 24% year-over-year. In the quarter, the U.S. dollar strengthened meaningfully against a number of global currencies, including the euro and the yen, which led to $12 million of year-over-year FX headwinds, excluding Hyperconnect. On an FX-neutral basis, total revenue would have been $818 million, up 26% year-over-year. We did not anticipate about $9 million of FX headwind when we provided our outlook in early November.

Our Direct Revenue grew 24% year-over-year. It grew 21% in the Americas, an acceleration from last quarter, 16% in Europe, and 46% in APAC and Other. We did feel some COVID impacts on our business, particularly from the emergence of the Omicron variant, which severely reduced mobility in a number of markets starting in December. COVID continues to be a meaningful overhang on our Japanese business and in certain other markets.

Total Payers were 16.2 million, an increase of 15% from the prior year quarter. Growth was strong in all geographies, up 10% year-over-year in both the Americas and Europe, and 36% in APAC and Other, which was aided by the acquisition of Hyperconnect.

RPP was up 8% year-over-year to $16.16 in Q4. RPP was up a solid 10% in the Americas, 6% in Europe, and 7% in APAC and Other.

Tinder performed strongly in the quarter, delivering Direct Revenue of $444 million, up 23% year-over-year, an acceleration over Q3's rate. Tinder had Payers growth of 18% year-over-year, adding 1.6 million Payers to 10.6 million, and RPP growth of 4% year-over-year in the quarter.

Tinder Platinum subscribers comprised approximately 13% of total Tinder subscribers, exceeding 1 million in aggregate.

Tinder active user growth continues to be strong, with the brand achieving a record number of active users on its platform globally in 2021. Engagement on the platform also continues to be robust with several KPIs such as daily Swipes and messages at or near all-time highs in Q4.

All Other Brands grew Direct Revenue 26% year-over-year in Q4, driven by 16% RPP growth and 9% Payers growth. Hinge was the standout among this group, growing Direct Revenue approximately 90% year-over-year, driven by RPP growth of 60% to nearly $24 and reaching about 850,000 Payers. BLK, Chispa and Upward in aggregate grew Direct Revenue over 70% year-over-year in Q4.

Hyperconnect contributed about $50 million of Total Revenue in the quarter. The business saw improved performance in December compared to preceding months. It was also significantly impacted in the quarter by FX, especially against the Turkish lira as Turkey is a large market for Hyperconnect.

Indirect Revenue reached $18 million, the highest ever in the quarter, up 12% year-over-year. This was off a very strong Q4 2020.

Q4 operating income grew 9% year-over-year to $232 million for margins of 29%, and Adjusted Operating Income, which we formally called Adjusted EBITDA, grew 18% year-over-year to $290 million for margins of 36%. Adjusted Operating Income margins would have been 2.5 points higher, excluding Hyperconnect.

Overall expenses, including SBC expense, grew 31% year-over-year in Q4, with slightly less than half of the total increase resulting from the acquisition of Hyperconnect. Excluding the impact of Hyperconnect, cost of revenue grew 21% year-over-year, primarily due to higher IAP fees and represented 28% of total revenue.

Sales and marketing spend, excluding Hyperconnect, decreased $12 million as we pulled back marketing spend across our portfolio to maintain our ROI discipline in a crowded holiday marketing environment. That did have some impact on payers, especially in our marketing-heavy brands like Match. Sales and marketing spend was down 5 points year-over-year as a percentage of total revenue to 16%.

G&A expense, excluding Hyperconnect, rose 38% year-over-year, primarily due to an increase in legal fees. G&A comprised 14% of revenue, up 2 points or $28 million year-over-year. G&A was less than we had anticipated as the former Tinder employee litigation came to a conclusion on December 1.

Product development costs, excluding Hyperconnect, grew 31% year-over-year and were 8% of revenue as we increased headcount at several brands, primarily Tinder.

Our gross leverage declined to 3.7x trailing Adjusted Operating Income, and our net leverage was 2.9x at the end of Q4, achieving the target of below 3x that we set at the time of our separation.

We ended the quarter with $827 million of cash, cash equivalents and short-term investments on hand. We have agreed to pay $441 million to settle the former Tinder employee litigation and all related claims and arbitrations. We expect to pay this amount from cash on hand in Q1 2022.

For full year 2022, we expect the company to deliver 15% to 20% year-over-year growth, driven by another strong year for both Tinder, where we expect high-teens year-over-year growth, and Hinge. Our outlook includes approximately $85 million of negative year-over-year FX impacts on total revenue. That's approximately $60 million worse than what we expected at the time of our last earnings call in early November, which is about 2 points of growth.

In addition to the FX impact, our revenue growth outlook is more conservative than what we shared in early November due to continued COVID impact, especially in Asia and particularly the rise of the Omicron variant, which is impacting us in the early goings of 2022. Keep in mind that we have a global business. And while we may be getting ready to move past Omicron in the U.S. and Europe, Asia still has to get through that period. So we expect our performance will continue to be somewhat impacted likely until sometime in Q2.

In aggregate, our '22 revenue outlook has been reduced by about 3 points of growth since November due to the FX and COVID impacts. Our revenue outlook for 2022 also assumes momentum builds in the second half of the year. There remains much uncertainty about what happens next with the pandemic, but we have increased confidence that while the first part of 2022 may be tougher than we initially anticipated, the second half could be stronger. We're hopeful that once we get past the effects of Omicron, we could even have that 'summer of love' that we had expected back in 2021 after the vaccines were introduced.

We expect overall company margins to be roughly flat, inclusive of Hyperconnect, which we expect to be better than breakeven in 2022. For the full year, we expect 50 to 100 basis points of margin improvement, excluding Hyperconnect, as we incur lower year-over-year legal expenses and lower fees on Google subscriptions, which we plan to partially reinvest in safety and CSR initiatives, as well as higher employee costs given the ongoing war for talent.

Note that despite Google's recent fee cut, which covered only subscription revenue, we actually expect to pay a greater percentage of our revenue to the App Stores in 2022 than in 2021 as more of our users come in via app. For instance, on our fast-growing Hinge app, most payers use iOS, and we pay a full 30% on that revenue.

Our margin outlook reflects current App Store policies. Our outlook includes over $650 million of App Store fees in 2022, primarily to Apple. Our outlook does not include implementation of Google's previously announced requirement of mandatory use of its payment system starting in April 2022. Were that to happen, we'd incur approximately $50 million of additional costs for the remainder of the year.

Even though we're unable to forecast further change in App Store policies at this time, we remain optimistic that more changes to the App Store ecosystem are likely, and we will continue to update you.

For full year 2022, we expect SBC expense of $175 million to $185 million, reflecting additional hiring and the continued competitive market for talent. CapEx of approximately $70 million, about $10 million lower than in 2021, and Adjusted Operating Income to Free Cash Flow conversion of approximately 80%, excluding the $441 million legal settlement. We do not expect to be a material U.S. federal cash taxpayer in 2022.

We have an initiative underway in countries where Tinder still offers age-based discounts to eliminate these discounts. These changes, which have begun in earnest in Q1, will impact Tinder Payers beginning in Q1, but we expect these changes to be revenue neutral.

For Q1, we expect total revenue for Match Group of $790 million to $800 million, which will represent 18% to 20% year-over-year growth. We expect this to be driven by year-over-year Payers growth in the low to mid-teens and year-over-year RPP growth in the mid-single digits, as is typical for us. However, the effects from Omicron could shift these metrics somewhat. We anticipate about $25 million of year-over-year FX headwinds in Q1, meaning that growth would be more than 4 points higher on an FX-neutral basis.

We expect Tinder's year-over-year Direct Revenue growth to be in the high-teens in Q1, and that Hinge will remain on its growth trajectory and deliver Direct Revenue growth over 70% year-over-year in Q1. We anticipate that Hyperconnect will deliver revenue in Q1 at similar levels to Q4 '21.

We expect Adjusted Operating Income of $260 million to $265 million in Q1, representing margins in the low-30s percent range, typical for a first quarter for us despite about 2.5 points of pressure from adding Hyperconnect.

Our company has all the ingredients to continue to deliver on our mission of helping people make meaningful connections through our technology. Tinder has an exciting product roadmap and a growing global user base to continue to convert. Hinge's product continues to gain traction and the business has meaningful opportunities ahead, including in many international markets. There is so much we can do with Hyperconnect, not only deploy their video and audio tech capabilities across our apps, but have them help us build exciting new metaverse dating apps and immersive user experiences, which we can potentially make use of across our portfolio.

Our financial performance is strong with room to grow already best-in-class margins and potential App Store reform benefits. We strongly believe that the next phase of our business is going to be very exciting.

With that, I'll ask the operator to open the line for questions.

(Operator Instructions) And our first question will come from John Blackledge of Cowen.

Gary, could you expand a bit on the margin expectations for 2022, maybe go through the puts and takes of the margin guide? And then secondly, which markets outside of Japan are being kind of impacted by Omicron?

Sure. I'm happy to do that. First of all, as I said, our outlook for margins for this year, inclusive of Hyperconnect, is that they'd be relatively flat, which we actually think is a strong performance, especially in this environment. And Hyperconnect contributes over 1 point of margin headwind for the year.

If you look through the puts and takes, we probably have a bit over 2 points, I would say, of margin improvement from legal expense savings and Google's reduction from 30% to 15% on subscriptions. But we're currently forecasting that we could reinvest more than half of that savings into hiring new people and in retaining our existing talent, especially in the very competitive market that we're operating in for talent right now.

We also plan to reinvest some of the -- for some of the savings, a smaller portion into important initiatives for us, including around CSR and user safety, where we're putting incremental resources.

And on top of that, as I said in my remarks, we're also spending a larger and larger portion of our revenue on App Store fees given that more of our payers are coming in through the App Stores. That probably creates about 1 point or so of margin headwind for us, but we're offsetting that by being -- by operating leverage on the sales and marketing side. So I'd say those probably wash out and are relatively neutral.

And then the last put and take that I would point you to is what I mentioned about Google's previously announced requirement to use their in-app payment system, which they're supposed to put into effect at the end of March. Frankly, it's really difficult for me to fathom Google making that policy change, given all the legal and regulatory pressures that they're facing. And recall that they delayed this policy once before. They've made exceptions for it in certain markets. So we'll see how that plays out, but that's my thinking around that at this point in time.

So hopefully, that's helpful on the margin side. I'm sorry, what was the second question, around Japan and other markets?

Yes. What's...

Yes. Look, I would say -- I mean, look, it's a little bit everywhere, right? We're not back to normal, as Shar said. We're not seeing the strength in new users yet. And so that is affecting the business everywhere. It's most pronounced in Japan, where we had a pretty significant shortfall in 2021 versus what we were expecting Japan to contribute. We have the #1 and #2 apps in Pairs and Tinder. So it's a meaningful number when you aggregate the effect on our 2021 in Japan versus what we were thinking. And that's going to carry through into 2022 because, as Shar said, that market has nowhere near gone back to normal.

Aside from Japan, there's a couple of other markets in Asia. Korea is also very strictly enforcing restrictions around the pandemic. And so that's another market which has clearly not gone back to normal. And there's other ones in Asia as well that are smaller for us. Even India hasn't fully bounced back. As an example, it's better than it was at the depths, but it's improved meaningfully, but it's still down significantly from pre-pandemic. So there's a number of markets, especially across Asia, where there are some lingering effect, but Japan is really the most meaningful one for us.

The next question comes from Justin Patterson of KeyBanc.

Great. On Tinder Explore, those metrics you shared look really encouraging. How should we think about the product initiatives like Explore affecting the arc of Tinder growth over the next few years?

Hi Justin. So Tinder Explore, what it did, it allowed us to create, successfully, a new surface area and experience without hurting the very efficient Swipe machine. And the goal now is to have new and personalized experiences that are fun, interactive, useful in helping spark connections. And we've already got 70% of our users adopting the experience, and we're seeing high levels of engagement and likes, messages and conversations. So looking ahead, our plan is to continuously launch and feature a variety of novel and engaging experiences here.

We talked about the music mode launch in the letter. Soon to come, for example, is going to be an experience that's a fun riff on the classic blind date experience. Explore also allows us to have geographically tailored programming. So in Brazil, we're about to launch Carnival mode on Valentine's Day. It's going to be an Explore experience that allows members to opt in to match with others that are celebrating Carnival in their major cities like Rio, Sao Paulo, Salvador, et cetera. And people can share their favorite parties, where they're traveling to. Carnival is the most important cultural moment in Brazil, and it's a moment that connects people. And it's a great example of how Explore enables a fluid virtual to in real life experience.

So additionally, as you can imagine, this new surface area with these Explore tiles also provides us opportunities for integrations with third parties to drive new experiences in the app and offline. And it gives people a reason to keep coming back and check out these new experiences.

And then as this -- the adoption and engagement on the surface area increases, it does provide new opportunities to us to merchandise revenue features, both existing and new revenue features. So that's why we're so excited about this whole new surface area that we've created.

The next question comes from Deepak Mathivanan of Wolfe Research.

Just one maybe for Gary. Can you give us some color on monthly cadence on net Payers adds in Americas and Europe during 4Q? And was most of the declines in the month of December due to Omicron? And also maybe perhaps what you're seeing in January so far. Kind of if you want to add some color by brand, that will be great, too.

Sure. Happy to do that, and good to hear your voice.

First of all, I would just point out that as a general matter, it's not unusual for us to see limited sequential growth in Payers Q4 over Q3. So overall, the trend is not atypical for us. And then I would point out to a number of factors to think about as you look at the Q4 Payers numbers and results.

The first, which you rightly point out, is Omicron, right? We saw a spike in that early part of December, especially in some of the Western markets, and it did affect our Payers numbers starting in December. So there was a change in trend after Omicron burst onto the scene. And so that's a big part of what happened in the end of Q4.

We've called out many times the lingering COVID impacts we see in some markets that haven't returned back to normal, Asia, particularly Japan. That's another factor around Payers and the performance in Q4.

And then I also mentioned that we had reduced marketing spend because we just couldn't hit our ROI hurdles, especially in some of our marketing heavy brands. Match, as an example, and others of the Established Brands were impacted in Q4 as we pulled back on marketing spend to protect our return expectations. So those things, I think, together are the key trends that we saw.

Looking at Q1, we're not expecting a massive shift in some of those things. We still have Omicron lingering. We feel like we're getting closer to the end. But it continues to be an issue in a number of markets. And as we said in the earlier remarks, it hasn't even really worked its way through the Asia markets, Korea, Japan. They've got the hatches battened down to prepare for it, and that's going to affect people's behavior in those markets. So while we're moving through it in the West, you still got to go through it in some of the Asian markets. And so that's going to be an effect here in early 2022. And then hopefully, we'll get through this and we'll have an inflection point in the pandemic and in the impact on people's social lives and dating.

The only other thing which I just want to add is that -- and we say this all the time -- we don't manage our results for specific Payers growth or RPP growth or whatever. We're managing it for revenue growth. And so we are making trade-offs all the time in terms of price optimizations and so forth. And so that does move the Payers numbers around. I called out one in my remarks around discounting at Tinder, that we're adjusting policies there. So you're going to continue to see us make those decisions. That could have effects on Payers numbers, but ultimately, we think are the right thing to do for the business and certainly to grow revenue the way we want to grow revenue.

The next question comes from Lauren Schenk of Morgan Stanley.

I was intrigued by your comments that Hinge is on its way to become the second largest global dating app within a few years' time. Could you talk about where you see Hinge RPP heading over the long term? And then how should we think about the '22 revenue growth for Hinge that's embedded in the full year guide?

I can take that, Gary.

Okay.

Lauren, Hinge is one of the best designed product for what I call intentioned dating. And that sort of reflects how rich the profile is, the way you consume them, the way you communicate on the platform. And the team has kept innovating and pulling ahead of competition every year. The way they implemented audio, basic audio, for instance, but they did it in the form of Voice Prompts, and how that became such a resonant in socially viral feature is an example of how they approach product development. And this particular product, I think, has a pretty big resonance among a large segment of audience. It is differentiated in the market. And that's what gives us confidence about the international rollout.

On monetization specifically, Hinge has made real progress on RPP, as you know, this past year. And we certainly don't think it's near its ceiling. But our expectation this year in 2022 is for Hinge to do over $300 million in revenue. And it's going to be driven by both strong Payers growth as well as continued growth in RPP.

The next question comes from Brent Thill of Jefferies.

Gary, on the second half recovery, I'm curious if you could just shell a little more of your plan on what the recovery looks like. And when you talk about Japan, can you also just frame up, for last year, what Japan did in growth and what your expectations are? And I believe that's your second largest market. So what -- maybe drill in a little bit in terms of how you're expecting that region to bounce back.

Sure. Happy to do that. So look, I would say that our outlook for right now is assuming that we gradually come out of the Omicron impacts by geography, first, in the West, Europe and the U.S., and then ultimately, in Asia. And I think that's going to take some time into the second quarter. A little hard to tell if maybe Asia handles things differently once they've seen what people have done over here. But right now, that's our assumption.

And as we come out of the Omicron impact, what we're assuming is that activity, behavior goes back to pre-Omicron levels, but not back to pre-pandemic levels. So the fog of Omicron lifts, and we go back to where we thought we were in October of last year as opposed to where we were in 2019, as an example.

Now that could be a wrong assumption because I don't know how people are going to behave depending on how confident they feel, how much of an end we reached evolve this, let's say, sometime in the spring. And so that is a swing factor in our outlook, but we're not assuming a huge 'summer of love' right now in our outlook. That would clearly provide upside or at least the ability to reach the higher ends of the outlook, if that happened.

I think it's entirely possible. I know a lot of people feel like as soon as we get to those warm summer months, there's going to be a real big wave, but we're not forecasting that at the moment until we see some evidence that really this is over, and that is how people are going to behave, but we'll have to wait and see.

Right now, we're more sober on our forecast because we've been head-faked a few times, and this has been going on for a long time, and no one's had a great ability to predict what the pandemic brings and what the effects are.

So that's how we're forecasting, but we remain very optimistic that people are going to want to go out and date and socialize in big numbers once they feel the risk is down and they're ready to do that. And we clearly have not gotten to that yet. We're hoping it happens in the summer months, spring and summer months, but remains to be seen.

I would also just say on our forecast that we don't have a significant amount included for key new initiatives that Tinder -- the Tinder virtual goods as an example. We don't have a lot included for Hinge International because those are really more '23 items in our minds than 2022. But to the extent we're able to accelerate some of those or we see bigger impact early on than we are currently anticipating, that could also be a swing factor on our second half, on our overall 2022. So those are some of the puts and takes there.

We're trying to quantify how much Japan has cost us. As I said, we've got the #1 and #2 apps. Our Pairs app has felt a significant amount of impact. Tinder has felt some. I don't have a great estimate, but it wouldn't surprise me if it's $35 million - $40 million of impact on our 2021 that we would have seen that revenue had Japan been operating more normally. So it is a big market for us. It's a big contributor, and the impact is pretty meaningful. And I don't think we're going to get that recovery really in the first half of this year. We'll see if we get it in the second half.

The next question comes from Ygal Arounian of Wedbush Securities.

Gary, why don't you talk about -- on the app fees, and you talked about some of the jurisdictions and some of what they're taking up to create fairness. Can we expand on that a little bit and what your expectations are as we move through the year?

And then maybe a little bit more on Apple and Google. It sounds like you're not building in any expectation for changes in Apple's fees. Is that right? And what's the process there to get to that 15% or whatever kind of agreement we might end up at? And then with Google, if they do change the structure and the workarounds for the fees, would there be any change to how you think about reinvesting those savings that you're currently seeing?

I am not sure we caught all of that question because there was a little bit of feedback on the line. But let me take a shot at it.

First of all, if we get the Google savings, we've talked about this generally on App Store, so I wouldn't say it's just specific to Google. But obviously, we're going to look at how to deploy any changes they make. We have the ability to return some of that to customers in the form of discounting to them. We also will have higher return on our marketing spend because we'll be paying less to the Stores. And so we'll be able to spend more into marketing, which should enhance our growth. So there's a number of things that we can do with any savings that we achieve from the App Stores over time.

And like we said, we remain optimistic that some of that's coming, but this is a slow process on the regulatory front. And so right now, we have not made any further assumptions around that in our numbers for 2022.

I can add more. I think you had questions about sort of what are the key legislations around the world. So there has been a lot of momentum on this issue. Mandatory IAP is now deemed illegal in South Korea and more recently, in Netherlands under both Dutch and more importantly, EU law. It has been surprising to see Apple's response of noncompliance in these countries despite the EUR 5 million per week fine they are now subject to in Netherlands.

More consequentially, here in the U.S., just the end of last week, 35 state attorney generals and the DOJ filed an amicus brief supporting Epic's position and opined that, that decision was wrongly decided.

Also this week, the Open App Markets Act, that addresses App Store policies, including IAP, which seems to have bipartisan support in the Senate, is expected to move out of committee, hopefully, this week. So there's little that both sides agree to these days. The fact that this has such bipartisan support shows how unfair and inequitable some of these policies are deemed to be.

So as Gary said, the timing of all of this regulation and legislative changes are hard to predict. It is the single -- the App Store fees are the single biggest expense line for us at the moment. They exceeded $550 million last year. They're going to increase meaningfully this year. And we remain optimistic that change is coming. And obviously, there's a lot of good we can do with that in addition to margin expansion, reinvestment, et cetera.

Yes. The only other thing I would add on Google and its potential policy change, is that, as Shar said, you've got all these countries and jurisdictions saying, mandatory IAB is not acceptable. It's illegal in Korea, et cetera. It seems very surprising to me that in the face of all that, Google would make a global change and make IAB mandatory on March 31. That just defies logic to me. But they'll have to make the decision they make, and then we'll have to see what makes sense in reaction to that.

So we'll see how that plays out over the next couple of months. But that's how I sort of handicap just given where the trends are blowing, which are very, very clear, as Shar said. The U.S. Senate subcommittee has taken up a bill around -- or is taking up a bill around this as well. It just seems very hard for me to believe that they would require people to use their payment system in that environment. But we'll see how it plays out.

The next question comes from Alexandra Steiger of Goldman Sachs.

I have two on Hyperconnect. So first of all, it's great to see that several brands have begun leveraging Hyperconnect's technology. Can you maybe walk us through the impact you've seen both from an engagement perspective, but also from a cost savings perspective? And then to what degree can you also leverage Hyperconnect's monetization strategies and learnings across your portfolio of apps, for example -- or especially at Tinder? And then maybe lastly, where do we sit in terms of like integrating Hyperconnect, the team, the company? And how should we think about any additional investments necessary from here?

Sure. Let me take a shot at that, and Shar certainly can add.

First of all, we continue to make great, great progress working with Hyperconnect. We have a lot of confidence in the team and their innovation. Our teams are collaborating really well globally. We're learning from them. They're learning from us. So it's really going well from that standpoint. And we think they are very quick on product. They're innovative. They move fast. So that's all great from our perspective.

In terms of investment, we continue to look at that. We are investing and adding people to help them build some of the things that we want to plug in across our apps. And all of that is baked into our numbers for the year. And as I said, Hyperconnect is going to be better than breakeven even with all of that investment included. So we'll continue to hopefully see margins improve from there as we get the operating leverage on the investment and on their capabilities.

In terms of what's happened so far, just to give you some concrete examples, we rolled audio and video rooms and one-to-one video chat using their technology on to 2 of our apps, Match and Meetic, thus far. If you use the European business, Meetic, as the example, what we call the live cafe with audio and video, has been really well received by their user base. Usage of the features continues to grow. People are returning to engage with the product. The feedback is very positive. And so we're very excited about how that's all going. And in fact, we're planning a major live event at Meetic on the technology for Valentine's Day. So that's another good example of an event that's coming up that uses the technology and to be current.

So that's an example of engagement and how that's going, and Meetic and Hyperconnect are continuing to build out capabilities and features and working hand in glove. And so it's great not only for the user base, but also going well from a collaborative standpoint.

At Match, if you want to use that as an example, we did replace a third-party vendor's technology on the video side with Hyperconnect. And so not only did that lead to some cost savings for us, but also, it means we have much more responsiveness to changes we want to make and things we want to try. We think the product overall is much better using Hyperconnect. And so having that in-house has led to not only cost savings, which you asked about, but also benefits in terms of the overall quality that we're excited about.

So when you look at both what's happened at Match and Meetic with Hyperconnect technology, thus far, we're extremely encouraged. And what that's doing is it's leading us to have more confidence to roll that out on more of our apps. And so we're planning to bring that out into our Pairs app and a part of it into our Plenty of Fish app over the coming time. And so we'll continue to roll it out across the portfolio.

And as you alluded to, we are thinking about what we might do at Tinder. And so more to come on that topic. But obviously, there's great potential there if we can find some things to leverage from Hyperconnect into the Tinder platform, and we are looking at that. We think Explore provides a great place to try some of those features and technologies.

So much, much more to come, but I think from a collaborative standpoint, from a using-their-technology standpoint across our apps, things are tracking according to plan, if not maybe ahead of it, and it's really going as well as we could have expected. Hopefully that answers your question.

The next question comes from Shweta Khajuria of Evercore ISI.

Could you please comment or provide more detail on Tinder coins? So you talked in your letter about 12 markets that is available. And you also, earlier on this call, said you don't expect a meaningful impact this year. But perhaps if you could talk about or frame what contribution you can expect maybe 2023 and beyond, what do you think the future could look like, that would be great.

And then just a quick follow-up on your comment on age-based pricing for Tinder. So how should we think about Payers growth and the impact on that, even understood it's revenue neutral?

Maybe I'll start with the Tinder Coins, and then Gary can jump in. Shweta, the Tinder Coins is currently testing in 12 markets. And the use cases are both for incentivizing certain core actions and also increasing access to existing revenue products. And we are seeing some increased engagement and retention from these incentives. And there's a bunch of testing going on, on various sort of monetization experiences.

The plan is to accelerate the rollout in Q2 and be globally out by Q3. However, the biggest value of coins to us is its ability to power new economies such as the virtual goods. And that is a whole new construct that we are hoping to be able to test in the back half of the year, and hence, we're not counting on any sort of meaningful contribution to 2022 revenue, it's more a 2023 and beyond revenue contribution.

In terms of the age-based pricing and changing that discount, first of all, that is done in certain large markets for us like the U.S., that has been eliminated. So the big one now that's happening in Q1 is in the U.K. And so there will be a pronounced impact on Payers in Q1 from that change in the U.K. that you're going to see. And we are going to move that through a couple of other European markets as well. And then there's a couple in Asia where we have to make those changes. And I think New Zealand is another one. So there's a handful. Some are smaller, some are larger.

But there is going to be a noticeable pronounced impact on Payers at Tinder outside of the U.S. coming in Q1, and it will probably continue into Q2. But like I said, we'll manage that in a way that we think it will be largely revenue neutral, but it will have some notable effect on Payers in the beginning part of the year, for sure.

The next question comes from Mario Lu of Barclays.

I was hoping if you could elaborate on what dating in the metaverse looks like and within the smartphone, in particular? So just wondering, is it features like Hinge's Voice Prompt, or more live video chats.

And similarly, what inning would you consider technological advances that have been made within the phone with regards to dating?

Yes. I can take a shot at that. So, you're right. Right now, we're focused on the metaverse as it relates to the experience on the smartphone and not any other hardware-enabled experiences. So that's to clarify.

Now the technology that is relevant to our world is the one that allows us to create experiences online where people can meet each other, discover each other more serendipitously and real time through shared experiences in a way that is more akin to how they would do in real life versus the profile-sorting experience that exists today. And so that sort of what metaverse allows us to do and why we think that's relevant in our world.

Imagine sort of a virtual club in the app where your digital self can walk around, check out live, different rooms. They meet others listening to the same music. You can strike up a conversation with someone. You can tap and check out their full profile. You can like them, message them later. And so that's sort of how we envision the metaverse experience leading to the dating context and the dating experience in our app.

Now in terms of the types of underlying technology that's needed to enable these experiences, this is what the Hyperconnect team has been innovating on, right? Beyond just the real-time live, low-latency video, audio technology that they have, there are additional technology elements, everything from what's -- the pieces of the virtual human technology, the virtual world technology, also live audio and video connection based on location -- connections that are based on locations on a map, for instance, and so on. So that hopefully gives you some clarity on how we're thinking about the metaverse world.

Our last question will come from Cory Carpenter of JP Morgan.

I just want to circle back to Hyperconnect. Could you talk a bit more about what drove the stability in December across the Azar and Hakuna apps? And just how you're thinking about the sustainability of that through 2022?

Yes. I mean, I think on their performance, like we said, it did get better in December, certainly an improvement versus October and November despite the fact that we saw some real FX headwinds there. So some of that was rolling out a few things that started to show some traction, live streaming on Azar being one.

And as I've said, we're focusing more on some of the Asian markets where we're seeing better performance. Despite COVID, I think the Asian markets, Korea, Japan, have been better for Hyperconnect than some of the Middle Eastern markets. So we're adjusting focus. We're helping them on a few fronts, and that seems to be starting to pay off, both on the marketing side as well as on the product side. And we've had teams focused on this now for a little while. And so we're seeing improvement. And they've innovated with some new product features that seem to be working. So that's giving us some optimism going into 2022, more work to do.

Right now, where -- our outlook is still is for a relatively flat performance in Q1 and Q2 on the Hyperconnect side. And we think as these initiatives and more to come start to bear fruit, we'll start to see a reacceleration of growth into Q3 and Q4 in the back half of the year. And that, of course, doesn't include all the great stuff they're doing for us across the portfolio, which is meaningful as well.

So we feel great about how Hyperconnect's going. And we know there's more work to do, and we're very focused on it at this point.

I think that that's it, given that we're getting close to the bottom of the hour. So really appreciate everybody joining for this call. I hope everyone stays well and safe out there. And we look forward to talking to you in the warm spring months in May, where we'll be looking forward to a great summer. Thanks very much.

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