Match Group Inc (MTCH) 2022 Q1 法說會逐字稿

Good morning, and welcome to the Match Group First Quarter 2022 Earnings Conference Call. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Bill Archer, Head of Investor Relations and Corporate Development.

Thank you, operator, and good morning, everyone. This 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 for joining the call today. On our last call in Feb, I made a comment that 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 coming out of this first quarter, the world is in a very different place than the beginning of the year.

Our business is not immune to the macroeconomic headwinds such as the war in Ukraine, the strengthening U.S. dollar against foreign currencies at levels we haven't seen in a while and lingering variants of COVID-19. And despite it all, our business grew 20% in revenue in the first quarter of 2022, with strong growth across the portfolio.

It is this strength in our core business that reminds me what makes our position in the online dating category so unique and resilient. Online dating is not an overnight fad. It is a category and a business model that has built and grown steadily over time. This is not serving a fickle user need.

I often say this, if you look at Maslow's hierarchy of human needs, right above food, shelter and security is love and relationship. The need for relationships and dating is not going to go away.

The market opportunity for -- ahead for dating is massive. Over 700 million connected singles around the world are eligible to use our products. And only half of the eligible TAM in the Western markets of U.S. and Western Europe have ever tried a dating app. And that number is much lower across the rest of the world.

And while we have grown users every year that we have been a public company, there is still so much more to go do. There's really no reason why people who are single shouldn't be using dating products. But people have broken into this category steadily but slowly.

Once they try it, though, they not only use multiple apps at a time, that number is around 3.5 on an average in the U.S. today, they also keep coming back when their life circumstances change and they need us again. So I remain incredibly bullish on the category as a whole and the opportunities still ahead.

Now back to our current business. Even with all the macro uncertainty, it is our job to execute. And by and large, we are on schedule with what we planned to deliver in 2022.

Tinder, beyond solid 18% revenue growth in Q1. The team continues to make progress on its product road map, whether that is adding new experiences into Explore or innovating on new monetization features.

Our 2022 plan for Hinge to expand internationally beyond English-speaking markets remains intact. They will be launching in Germany and DACH markets before the end of the second quarter and a few more markets before the end of the year. And Hyperconnect continues to build momentum, both with its current products and with the integrations its technology is bringing into our portfolio.

Finally, we are encouraged to see more and more green shoots around the globe as COVID fears continue to ease. Seeing improvements in markets like Japan coming out of their most recent quasi state of emergency restrictions has us cautiously optimistic about several trends we are seeing.

And before I hand it over to Gary to provide more color on the quarter, I want to address the other news. After 16 years of an incredible journey of building this category and this business, I feel privileged to be able to step down from day-to-day operational role and have the time and flexibility to focus on the next chapter of my life, which I'm hoping will be the give back chapter, and allows me to do things I've wanted to do for a while but didn't have the time and headspace to.

As I said earlier, the opportunity before the company is immense. The vast majority of single people around the world have yet to try dating apps. While Match has steadily grown users, Payer penetration and Revenue Per Payer, only a small mid-teens percent of our nearly 100 million active users are Payers today. And they pay less than the cost of a cup of coffee a week. There is ample runway for our brands to continue to drive growth across all of these 3 metrics.

And there remains a huge barrier to entry into the category, both in the terms -- both in terms of the amount of trust and safety investment needed, but also the unique characteristics of the network effects of a successful dating pool, where balance of gender, age, other demographics, geography and intent all matter in order to produce successful outcomes for users.

And there is no one better positioned to continue to capture this important opportunity than us. Which brings me to Bernard and why I think he is the right next leader of the company. Bernard has a proven track record as a business, product and people leader, with 20 years of experience in mobile entertainment and gaming. Not only was he instrumental in Zynga's turnaround and expansion, he drove player engagement and monetization strategies into one of the best live services in mobile today and helped Zynga's -- grow Zynga's market cap by 4x.

He has operated a business that's very similar to ours: multi-brand, multi-platform, global markets, different life cycle brands and has driven growth successfully, both organically as well as some very successful acquisitions. He has dealt with similar challenges as ours, from regulations to App Store to talent recruitment. He has a phenomenal reputation, deeply cares about products, people and culture.

For the last 6 years, he's been working on the mission of connecting people through games. Now he gets to build on our mission of connecting single people through more fun digital experiences in their quest for dates, love, relationships and marriages.

I feel very good about the future of this company. With Bernard's energy, fresh thinking and mobile consumer experience, combined with over 70 years of dating category and business experience among the Match Group leaders and brand CEOs we have, I'm ever so excited about the next phase of this company and the category at large.

Also, I'm not going anywhere. I will stay on the Board, continue as an advisor to the company, especially to be able to focus on areas of the business I actually love: product, strategy, solving customer problems.

Finally, I want to thank all my colleagues at Match Group, Gary and the rest of the management team, the Board, and you all for your support through this 16-year journey. I came to this country alone 30 years ago in search of opportunities and a richer set of experiences. This journey has far exceeded all my expectations. Thank you.

With that, I will hand over to Gary.

Thanks, Shar. I'm disappointed this will be our last earnings call together, but look forward to having BK join the company, in time for our next call in early August.

Turning to the business. We had a strong Q1, with total revenue of $799 million up 20% year-over-year, following a 20%-plus year-over-year quarter in Q4 as well. In Q1, the U.S. dollar continued to strengthen against a number of global currencies, including the euro and the yen, which led to $26 million of year-over-year FX headwinds, excluding Hyperconnect. On an FX-neutral basis, Q1 total revenue would have been $825 million, up 24% year-over-year.

Our Direct Revenue grew 20% year-over-year. It grew 16% in the Americas, 14% in Europe and 38% in APAC and Other. We weathered the effects of the Omicron spike in the Americas and Europe fairly well. We did continue to feel the effects of rising COVID cases in Asia, especially Japan, although we've seen major improvement in that market recently following the lifting of restrictions.

European performance was impacted by the Russian invasion of Ukraine, which reduced revenue in Russia, Ukraine and several other nearby countries. There was a modest impact on our performance from the war in Q1. We estimate a roughly $10 million negative impact per quarter on our revenue as a result of the invasion moving forward.

Total Payers were 16.3 million, an increase of 13% from the prior year quarter. Payers were up 7% year-over-year in the Americas, 11% in Europe and 34% in APAC and Other, which was aided by the acquisition of Hyperconnect. Tinder Payer additions were strong, while some of our more Established Brands in the Americas detracted from our overall Payer growth.

RPP was up 6% year-over-year to $16 in Q1. RPP was up a solid 8% in the Americas, 2% in Europe and 3% in APAC and Other. The effects of FX are visible in the Europe and APAC RPP numbers. On an FX-neutral basis, RPP would have been up 9% and 10%, respectively, in Europe and APAC and Other.

Tinder performed strongly in the quarter, delivering Direct Revenue of $441 million, up 18% year-over-year. Tinder had Payers growth of 17% year-over-year, adding 1.5 million Payers to 10.7 million, an RPP growth of 1% year-over-year in the quarter, which again shows the impact of FX.

All Other Brands grew Direct Revenue 22% year-over-year in Q1, driven by 14% RPP growth and 7% Payers growth. Hinge, BLK and Chispa contributed to drive the growth, and Hyperconnect contributed as well. Some of our Established Brands in the Americas saw pressure on Payers in the quarter, a portion of which was attributable to a challenge to find marketing opportunities that met our ROI thresholds.

There were a couple of other specific trends as well. At Plenty of Fish, which tends to serve a lower-income demographic, users had benefited from COVID-related government stimulus in Q1 2021, but we saw some relative Payer softness in the early goings of 2022.

The Match brand saw some Payer impacts as it tested a softer paywall model in Q1. This is a short-term headwind that should be long-term beneficial as we refine the new model.

Hyperconnect contributed just over $50 million of total revenue in the quarter, generally as we expected. The business demonstrated continued improved performance, consistent with the trends we saw at the tail end of last year despite some impact of the Ukraine war on its Turkish business. Hyperconnect's revenue also continued to be significantly impacted by FX, especially against the Turkish lira and the yen.

Indirect Revenue reached $15 million in the quarter, up 19% year-over-year as the advertising market remains strong. Our brands have become more appealing to advertisers in the current advertising landscape. Q1 operating income grew 10% year-over-year to $208 million for margins of 26%, and Adjusted Operating Income grew 19% year-over-year to $273 million for margins of 34%.

Overall expenses, including SBC expense, grew 24% year-over-year in Q1, with about 60% of the total increase resulting from the acquisition of Hyperconnect. Excluding the impact of Hyperconnect, cost of revenue grew 17% year-over-year, primarily due to higher App Store fees, and represented 28% of total revenue.

Sales and marketing spend, excluding Hyperconnect, decreased $8 million year-over-year as we continue to show spending discipline in a relatively frothy marketing environment. And we spent cautiously in markets that did not show sufficient post-COVID recovery momentum. Sales and marketing spend was down 3 points year-over-year as a percentage of total revenue to 18%.

G&A expense, excluding Hyperconnect, rose 7% year-over-year. G&A comprised 13% of revenue, consistent with the prior year, and was up $6 million year-over-year as we continue to spend on critical initiatives like user safety. Product development costs, excluding Hyperconnect, grew 28% year-over-year and were 10% of revenue, up 1 point as we increased headcount at Tinder and Hinge.

Our gross leverage declined to 3.6x trailing Adjusted Operating Income, and our net leverage was 2.7x at the end of Q1. We ended the quarter with $921 million of cash, cash equivalents and short-term investments on hand. We still expect to pay $441 million to settle the former Tinder employee litigation and all related claims and arbitrations from cash on hand. Our Board has also authorized a $12.5 million share buyback plan.

For Q2, we expect Total Revenue for Match Group of $800 million to $810 million, which would represent 13% to 14% year-over-year growth. We expect this to be driven by double-digit year-over-year Payers growth and year-over-year RPP growth in the single digits, despite the continued FX headwinds.

We anticipate approximately $35 million of year-over-year FX headwinds in Q2, meaning that Total Revenue growth would be more than 5 points higher on an FX-neutral basis. This is more than an additional point of year-over-year FX impact than we had expected at our last earnings call. Additionally, the negative impacts of the war in Ukraine are shaving another point of revenue growth. Excluding the effects of FX and of the war, our year-over-year growth outlook would be 19% to 20%.

We eliminated age-based pricing discounts at Tinder late in Q1, which will impact Tinder Payer growth in Q2, but revenue should be relatively unaffected. Additionally, Tinder Payers will be negatively impacted by the loss of Payers in Russia and Ukraine. We anticipate about 200,000 fewer Payers in Q2 as a result of the age-based pricing change and the war. We expect Q2 RPP growth will be impacted by the continued FX pressures.

We expect Hinge will remain on its growth trajectory and deliver strong revenue growth again in Q2. Hinge is on pace to expand into Germany, its first non-English-speaking geography in Q2.

We believe that performance at Hyperconnect is improving, but expect that Q2 revenue will be impacted by the Ramadan holiday, which typically impacts Q2 results in many of Hyperconnect's markets in the Middle East. FX headwinds also continue to impact Hyperconnect, especially in Turkey and Japan.

We expect Adjusted Operating Income of $285 million to $290 million in Q2, representing margins of about 36% at the midpoint of the ranges. Recall that Hyperconnect reduces our margins by over 2 points.

Our Q2 outlook assumes that we implement Google's change in policy to require use of their payment system as of June 1. We estimate a negative impact of $6 million in Q2, though we need to see actual results of implementation of the policy change to be sure of the precise impacts. We are currently evaluating our legal and other options to avoid the significant disruptive effect their policy change will have on our consumers.

Taking into account the challenging operating environment, including the FX impacts and the war in Ukraine, we now expect to be closer to the bottom end of our previously stated 15% to 20% year-over-year revenue growth range for the full year 2022. We expect a 4-point year-over-year FX impact and a 1 point impact of the war in Ukraine, meaning that growth would be 5 points higher absent those 2 factors.

But things have been changing very quickly. At the moment, for the full year, we are estimating approximately $40 million more in year-over-year FX effects than we had at the time of our last earnings call 3 months ago, given the recent record-setting lows of the euro and yen against the U.S. dollar.

It is clear there is a lot of uncertainty, the macro negatives, but also potential positives, particularly around post-COVID reopening around the globe. This makes forward visibility challenging. Variability has clearly increased, and the trends could change meaningfully again over the next 3 months. We'll update again in August once we see what kind of summer of love we get.

Our business serves a fundamental need for human connection. The demand for our products is unwavering and presents ample opportunity for future growth. While the macro environment poses some temporary challenges, our longer-term prospects remain bright.

Our growth will continue to be driven by our innovative and broad portfolio of products, which is best in class at providing technologies to enable these important social connections. Moreover, we share knowledge across our portfolio, which enhances our successes and limits mistakes.

We're disciplined on costs and very nimble, able to adjust marketing budgets on short notice. As such, we have margins and cash flow that many, if not all, of our peers would envy. We've shown an ability to grow consistently and to show strong profitability and cash flow. We're ready for whatever comes next and expect to continue to deliver strong growth and profitability for our shareholders.

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

(Operator Instructions) The first question comes from Dan Salmon with BMO Capital Markets.

Shar, you spoke, obviously, about some of your personal reasons for making the change and know that you aren't going anywhere either. But could you tell us a little bit more maybe about how long you've been considering this decision and why you think this was the right time to make it?

And then second, you mentioned several highlights of Bernard's track record over the past 20 years. But are there may be 1 or 2 things that really made him stand out from other candidates in the eyes of the Board that you'd highlight? And any insights into some of the specific things you think he'll be focused on when he takes the reins?

Sure. As you know, I've worn many hats at this company. And when Mandy stepped down, the Board asked me to take the CEO role. It was a unique time for the company. We had just announced the separation from IAC and wanted to become an independent company.

At the time, it made sense for me to step up, provide the continuity and help guide the company through that process. But I had told the Board then that I couldn't commit to being a long-term CEO because of where I was in my life and the things that I wanted to do.

I want to be able to have a chapter in my life where there are things that I care about that I want to make a difference outside of my professional life. Even my CEO employment agreement reflected the fact that I could step down after 18 months.

So of course, I took over, and then COVID hit, which none of us were ready for. I am glad I was there to help us navigate through it all. And once we were out of the thick of the COVID crisis, while the Board had hoped I would change my mind and stay longer, they were prepared to work through the succession.

So they ran a robust process. They met a diverse set of candidates. And of course, after 16 years, I wasn't going to leave until I believed we found the right successor. And Bernard is that person.

He very quickly separated from the pack, and he impressed everyone on the Board. I'm super excited to have him as our next leader. He has -- there are many things that the CEO needs, obviously, business acumen, track record of growth, product and technology sense, but also, very importantly, a people -- a true people leader.

And he has the track record. He has the mobile product and consumer experience. He has very much a growth and value creation mindset. And he is a really strong people leader as became evidenced as we talked to people he had worked with and worked for.

He also has a very strong instinct for spotting early technology and consumer trends. And he's already experimented with and dug in and studied a lot of the new shifting technologies that are going to be meaningful to our portfolio.

Plus, he's operated a very similar business to us, right? It's a multi-brand, multi-platform global markets, including a big Asia presence, brands that are at different stages of growth. And he's dealt with very similar challenges to us. So this is going to be very familiar, plus he can bring a lot of his knowledge around unique characteristics of engagement and monetization on the gaming set of products, which would be very valuable for our next vector of growth.

And as I said, I'm not going far. I am staying on the Board. I will be able to spend time on parts of the business I love. And given my role as an advisor, we felt it made sense to have Bernard start as soon as he was able to. And so for transition, Bernard officially starts on May 31, and I'm here to help him and the company in any which way I can. So I don't think there is anything to worry about on this front.

The next question comes from Alexandra Steiger with Goldman Sachs.

Thank you for providing an update on the recent App Store fee developments in the letter. In that context, could you maybe discuss the impact on Match EBITDA outlook if Google actually moves forward with the requirement of mandatory use of Google Play billings by June?

It looks like you already included a $6 million headwind in Q2. And I think last quarter, you talked about an incremental $50 million impact for the full year. And then longer term, how do you see the App Store fee debate evolving, given the puts and takes that you've laid out in the letter and also in light of Google's recent announcement to launch a user choice billing later this year?

Okay. Thanks for the question. Why don't I try to take a stab at it and provide a little context of what's going on with Google as well as some of the financial impacts?

So it's important to understand that we've had user choice on our -- on many of our platforms and brands for a long time. We maintain direct relationships with our customers that way. And in fact, our customers choose to use our payment systems, sometimes at a 3:1 ratio over the Google Play billing system.

And Google forcing a change now really serves their interest of capturing the relationships with the customer. And I think they see a very short window now as they see the wave of regulatory change happening for them to grab that relationship with the customer before the regulatory changes disable them from doing so.

Now we absolutely do not want to see this change in policy. But unfortunately, we're takers of the policies that Google puts on its store. We don't at all think the change is justified. We've been talking to Google for months to encourage them to allow us to continue to provide user choice. And yet, despite all the rulings and regulatory actions seeking to outlaw mandatory use of their payment system, they're still deciding to go ahead and require us to eliminate user choice, which we've had for many, many years.

In fact, they've chosen to allow an exception to their policy to only one company, Spotify, because it served their purposes with European regulators and enabled them to take a share of Spotify subscription fees, which they had not previously been able to do. But in our case, they've been steadfast in removing our ability to provide user choice.

Last week, Epic Games, facing a similar situation, decided to file a lawsuit against Google. We view that as a last resort and not something we take lightly in doing. But at the same time, the clock is ticking towards the June 1 deadline, and we need to do our best to protect our consumers' choice as well as our business. Under no circumstances do we want to see ourselves removed from the Play Store or unable to distribute through the Play Store.

In terms of the impact, as we've disclosed, we expect their policy change to lead to an incremental approximately $6 million a month cost to us. So for the 7 months starting June 1, the total would be about $42 million in aggregate this year on top of the approximately $100 million we already expect to pay Google. That $42 million for the 7 months compares to the $50 million for 9 months we had estimated previously if the policy change had started in April. So it's pretty much as we expected.

Now we do think that the winds of change are blowing very, very rapidly. And we think sometime late this year or next year, some of the regulations around the world are going to force Google's hand and require them to change their policy. Most notably, the DMA in Europe, which affects the entire European Union and is going to outlaw mandatory IAP.

So while Google is making this policy change now and requiring us to eliminate user choice, ultimately, we think this is going to be very short-lived. And as the regulations change across the globe to prohibit mandatory IAP, we'll be able to return back to an environment where we have alternatives to their payment system.

The next question comes from Mario Lu with Barclays.

Congrats on your next chapter, Shar, and welcome, Bernard. So the question is on the full year revenue guidance. You guys lowered it to the bottom of the 15% to 20% range. So I was just wondering if you can help us unpack this a little bit. So excluding the negative drag from FX and the war, are there other tough comps to consider in the second half that should offset the macro tailwinds that you guys mentioned such as Japan recovery?

Yes. I mean, I think you absolutely state it correctly. Right now, we're projecting to be close to the bottom end of our previous 15% to 20% revenue growth range. And that really reflects the additional FX and Russia headwinds that we didn't see back in February when we last provided our outlook. And that's going to affect Q2 and Q3 and Q4 as well.

In terms of your specific question around the second half comps, if you look back on 2021, we had a very strong Q3. And Tinder, in particular, performed very well in Q3. So it's going to be a tougher comp for us growth-wise in Q3 of this year.

Q4, on the other hand, presents us an easier comp. And so we expect stronger year-over-year Q4 revenue growth in 2022. I think, though, as you sit here today, there are several puts and takes that will ultimately determine how the second half looks that are a little tougher to predict.

For example, our forecast or outlook today assumes that we get back to pre-Omicron levels of activity. And I think right now, we think that, that's where we are. We're back to pre-Omicron levels. But what we don't really know yet is are we going to get back closer to pre-pandemic level of activities, back to 2019 kind of levels?

And clearly, we're starting to see some positive signs in that direction, including a market like Japan, a very important market for us, where we've really seen significant improvement in user growth since they lifted their restrictions. And so we're expecting that kind of improvement to gradually take hold around the globe.

And the question is exactly what levels are we going to get back to? So that's going to affect our performance in the second half of the year. And right now, still a little bit hard to predict exactly where that recovery is going to get to and how quickly.

In terms of also our product outlook, Tinder has a very healthy product road map for the rest of the year, with a lot of exciting initiatives planned in the back half. And I think that will help offset some of the macro challenges as well.

But if you followed us for a while, you know we typically make relatively modest assumptions around the success levels of those initiatives. And we wait to see how they take hold before we predict for their success.

And so to the extent some of the initiatives at Tinder, in particular, or even elsewhere in the company performed better than what we've assumed in our outlook, that would provide additional upside to the growth rates in the back half of the year.

The next question comes from Justin Patterson with KeyBanc.

Great. And congratulations, Shar, on a great run. I was hoping to stick with just that Tinder product innovation side. I know it's in the letter, you've called out testing around some features for female users, with a planned launch in the second half. Could you talk about just what you're doing there and how you think that could potentially impact users and monetization over time?

Thank you, Justin. Yes, I can take this. So we've said this before that most of our Tinder revenue features are more appealing to men in terms of the value they provide, and we've been studying this.

And as part of our -- and conversion of women on Tinder, in particular, even relative to many of our other platforms is much lower. So we've been testing and designing a set of potential paid features that will help women improve the quality of their experience and matches they get and give them more control over the experience.

So these are things that we think they will find -- women, in particular, will find valuable. And we're hoping to be able to roll these features out as part of a package that's targeted to women later this year. So that's about as much I can go into it, but that's the thinking there of trying to get women conversion to more parity levels to -- relative to other platforms and relative to men on the platform. That's it, right?

Yes.

The next question comes from Doug Anmuth with JPMorgan.

It's Cory Carpenter from JPMorgan. Doug is not making a surprise appearance. One question we've been getting a lot is how the online dating category, and Match in particular, may be impacted during the economic slowdown or even recession. Hoping you could talk a bit about what you've seen during prior recessions or periods of economic weakness around user engagement and monetization. And just how -- in general, how you would expect the category to be from a resilience perspective?

Yes, sure. We've looked back at our data back in 2008 and also sort of the early days of COVID as proxies for what happens. Generally, there is no change in -- no deterioration in engagement at all. In fact, we've seen increased engagement during times of anxiety and trouble a little bit, right?

And if you look at propensity to pay, in 2008, we didn't really see much of anything. The business actually performed really well. And our general view is this is a very small expenditure for people and perhaps one of the latter things that people cut when things are off.

Also, looking back at the early days of COVID in 2020, while we did see a sudden decline when all the news was going around, the engagement first picked back up very quickly within a few weeks. And propensity to pay also started tracking back up within a few weeks, long before other broader economic indicators were recovering.

And so we're watching for signs even now. We're not really -- haven't seen anything yet and not seeing anything. We'll keep a close eye. Our expectation, though, is our business is generally resilient during economic downturns because it does service this very fundamental human need.

The next question comes from Brent Thill with Jefferies.

Gary, just on the margin for the year. Can you describe the different approach, anything changing on the bottom line margin and how we should think about that for the full year?

Sure. Actually, we've been performing very well from a cost perspective. We're definitely on track to deliver the 50 to 100 basis points of margin improvement, ex Hyperconnect, that we had included in our outlook for 2022 back in February. With some of the marketing spend discipline and some other spend discipline, we actually might even do a little bit better than that.

And I think if you look at it kind of ex Hyperconnect, ex Google, margins are probably in the 38% kind of plus territory. So we feel great about how we're doing on that front. Unfortunately, as I mentioned in the answer to the earlier question, the Google policy change, if it goes into effect at June 1, is a reasonably significant headwind to us. $42 million is kind of our estimate for the year for the 7 months of impact. And that's, what, about 1.5 points of margin.

So it's basically eating up, and maybe even a little more, all the good work we're doing on spend discipline and basically eating away at that. So as I look at it, net-net for the year, including everything that we see right now, including Hyperconnect, of course, including the effect of the Google change, if it comes to pass, and everything else that's in the mix, my estimate would be that the company for the year probably achieves margins somewhere right in that mid-30s percent range, of course, including that 2-plus percent effect of Hyperconnect.

It will depend a little bit on what levels of marketing spend we choose to put out there, given the pace of the COVID recovery. So that's probably the swing factor. And of course, generally, the advertising market, because right now, the market remains fairly expensive. And so that's leading to some of our discipline. But depending on kind of overall macroeconomic conditions, that market may adjust as the year goes on.

So we'll have to see how that all plays out, but marketing spend will be a significant factor in our margins. But I think we feel good about how we've been disciplined so far and remain very much on track with what we expect to deliver.

The next question comes from Lauren Schenk with Morgan Stanley.

Great. And thanks for the MAU commentary in the letter. Maybe bigger picture, there's obviously been a lot of nervousness in the market around the state of the online dating industry in terms of user growth and maturity.

Are there any other data points you can offer to investors that give you confidence that we're still sort of in middle innings of the monetization opportunity here? And what initiatives or product launches over the next 6 to 9 months excite you the most to continue to capitalize on that opportunity? And then lastly, is there anything outside of the macro headwinds, I understand there are quite a few, that give you pause or concern about the fundamentals of the business?

Okay. That was a long question. First, about MAU. As I said, the -- our total addressable market ex China, as measured by connected singles ages 18 to 65, is now over 700 million. And the vast -- in the Western markets, only half of this market has ever tried a dating product. And obviously, that number is much lower in the rest of the world.

So that's sort of one opportunity. And usually, the cadence of non-users breaking into the category is steady and slow, driven by new products and features, new marketing campaigns, new channels and, of course, word-of-mouth marketing from other successful users.

So what became clear during COVID is the importance and efficacy of dating apps for single people, as it became really one of the few choices left for -- to meet people. So now -- for now, it is a matter of us convincing the non-users around the world to break and adopt a dating app. And we know that once they break into the category, they use multiple of them, and they keep coming back as their life circumstances change.

One of the examples of trying to tap into some of this category resistor, for example, is our recent new bet, Stir, which taps into that unique value proposition for the single parent segment who find it very hard to navigate mass market products and all of the things they have to go through versus self-selecting into a pool where everybody is sort of dealing with the same issues.

While on the topic of MAU, I do want to explain something about the relevance of MAU or not in our business. Because we are an episodic churn business and, unlike in an ad-supported business, for us, all MAU does not have the same value in our ecosystem. Both for user outcomes as well as monetization, it is more correlated to the balance of liquidity by gender, age, intent, location, et cetera.

And so the -- this is why -- and one of the big things is, as people -- they try it once, they have success or they take a break, and they come back when the circumstances change, so even a 25-year-old brand like Match continues to have a very healthy set of reactivations through the years, right? So that's a sort of phenomenon that's unique to our category, I think.

And to your question about monetization. So on an average, the portfolio Payer penetration is around mid-teens. But our hard paywall businesses are as high as 40%. And there's also a very large variance by geography. Even for soft paywall businesses in some markets, they are well north of 25%, close to 30%.

And so there's a fair degree of runway for us to keep innovating on the Payer penetration front. As for average Revenue Per Payer, here's the thing that we have to keep in mind. The total lifetime value amount that a Payer pays us is way cheaper than a cost of a single date. And for people who find success on it, this is a priceless, incredibly valuable service.

And so I do think there is a tremendous amount of innovation opportunity for us to try different things here and increase that RPP. One of the things I'm excited about is we've referred to the virtual goods trading platform on Tinder and this idea of collectibles. So I think -- and Bernard has particular experience with some of those mechanics. I think that will be a pretty interesting vector for us to watch out for.

So as I look back at the history, we've been able to improve all 3 of these metrics: TAM penetration, Payer penetration, Revenue Per Payer pretty much every year. And we still have a pretty long runway ahead and a large market opportunity of users to convince to use our products.

The next question comes from Youssef Squali with Truist.

Just a question on Hinge. It looks like Hinge continues to show pretty meaningful growth with some exceptional organic traction. You mentioned in the last call that you expected it to do about $300 million in revenues. Is this still something that you expect? Or has the recent traction or does the recent traction maybe imply a higher number? Also, can you provide any color on what kind of revenue contribution you expect from the expansion in Germany slated this quarter?

Yes, I can take that. So Hinge's growth trajectory is on track as we expected. In terms of our 2022 outlook, it only includes a very modest revenue contribution from international expansion, including Germany. This is more of a 2023 item.

And our plan has always been to go region by region in Europe in 2022 and then do a steady rollout of about one region a quarter. And the timing driver is really sort of translation and localization of the product.

Meanwhile, we've seen a recent surge, for instance, in organic traction in India without any localization. So we want to respond to these types of positive signals, and we are accelerating our launch in India. As we've always thought, this is a pretty interesting and attractive market for a high-intent app. And so much of the international contribution, at least, from a revenue perspective, is likely to happen in 2023.

The next question comes from Benjamin Black with Deutsche Bank.

Great. How should we be thinking about capital allocation going forward in the context of the new share buyback authorization? And just given where sort you are trading now, are you anticipating sort of pushing a little bit heavier and more aggressively on the buyback? And does the buyback change how you're thinking about incremental M&A going forward?

Let me take that one. So just a little context again. At the time of our separation, we set some clear leverage targets, and we eliminated the buyback that we had back then to ensure that we hit those targets by the end of 2021. We set a net leverage target of 3x. And so now that we've hit that and actually are below that level of net leverage, it clearly makes sense for us to once again have a buyback authorization.

At that time, we also stated our capital allocation priorities, which really haven't changed. They are to invest, number one, in our business organically. And number two, to do opportunistic M&A to fill any gaps in our portfolio or to add technologies that we think would enhance the overall portfolio. And we've done those kinds of acquisitions successfully on a number of occasions.

If we can't find those kinds of strategically compelling M&A opportunities, then we want to return capital back to shareholders. And so the buyback provides us with the mechanism to have the ability to return capital back to shareholders if that makes sense. And so we think it's a good tool for us to have, an appropriate tool for us to have to use to offset dilution from employee equity awards and to take advantage of opportunities to buy our stock back cheaply in periods of market dislocation, as you point out, which is what we're experiencing right now.

And so I think it's fair to assume that as we kind of see what's happening with the stock and with the buyback authorization in place, we'll find opportunities to go in and buy back some shares. And so we'll disclose what we do as we proceed along on that basis. But I think you are thinking about this the same way we are.

The last question today comes from Ygal Arounian with Wedbush Securities.

Gary, you hit on marketing a number of times. And you mentioned some challenging ROI or inability to kind of reach ROI targets. So you pulled back on some spending, and you've got the macro factors that are impacting how you spend.

Can you just give us a little bit more of an overview on your philosophy on marketing right now? What sort of puts and takes can be -- I know, for example, you also highlighted in the letter stepping up in Japan as Japan reopens. Just how should we think about how all that might ebb and flow as we go through the year?

Sure. Yes. I mean, I think you're thinking about it correctly. We're basically spending where we think it makes sense to spend, given the kind of post-COVID recovery dynamics, and also making sure that we spend where we can hit our ROI hurdles and maintaining that discipline tightly as we always do.

So if you look at Japan as a good example, we are holding back marketing spend in Japan because the market was not receptive. With all the restrictions, it didn't make sense to turn the spigot on significantly in Japan.

But now, by contrast, that we're seeing some real recovery there, we've been spending more and running some new creative campaigns on both our Pairs brand and the Tinder brand, as we mentioned and highlight in the letter.

The other thing that's going on is that the market, in terms of marketing spend, is pretty frothy at the moment. If you look at the U.S., we think the market is expensive. It slowed down significantly at the beginning of COVID, and that was a real opportunity for us to spend aggressively. And we did, but the market has really become much more expensive since that initial COVID-led downturn.

And so it's become harder for us to hit our ROI thresholds, particularly at our marketing-heavy spend businesses like Match and Meetic, where we really maintain that ROI discipline. So if we're not seeing opportunities there to hit our hurdles on marketing spend, we're not putting the spend out there.

And I think between IDFA, which had some impact and then the environment being strong just more generally, it's just become very challenging to hit the hurdles. The thing to watch out for, I think, though, is what happens with the overall economic picture.

If people start to get more nervous about where the economy is headed, and we start to see other marketers' advertising budgets get cut back or get delayed, which we often see, and I think we're starting to even see a few signals of that, that could present us with opportunities to again hit our hurdles and spend more aggressively. And so as I mentioned in the answer to Brent, that will be a swing factor as we go through the year from a margin perspective.

So I think we're starting to see a few signs of nervousness in the market, which could be a benefit to us because, as Shar said, our business tends to be economically resilient, somewhat recession-proof. And so if we start to see more opportunities to spend in the market, more opportunity to hit our hurdles, we will absolutely be nimble and take advantage of that, just like we were at the beginning of the COVID period.

That's our last question. With that, I want to thank everyone again. It has been a privilege and an honor. Thank you all.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.