Update on Match and Tinder

When I first wrote about Tinder’s parent company, Match, I believed there were two risks. I know I made a mistake with the first risk, and I believe there are lessons to be learned from both risks I identified.

First, Tinder operates a freemium network user business model. Users can join for free and pay for certain premium features. The service only works if there are sufficient users, so in the early days of Tinder, it wasn’t a freemium model, instead only a free app. Once Tinder gained sufficient users for the network effect to be valuable, Tinder began “turning on” some of the premium upgrades. This freemium user network business model faces the following risk:

In freemium network effect apps/websites, there are two intertwined problems: users and monetization. The way you succeed in gaining a critical mass of users is to ignore monetization. However, when you start to focus on monetization, you risk losing the users to competitors who are still focused on the users, while ignoring the monetization (i.e. these newer websites/apps are offering all of your premium (or paid) services for free).

This was a near-term risk that made me suspect Tinder could quickly lose users to its biggest upstart competitor, Bumble, or others in the near future (Hinge was another upstart competitor—more on Hinge later).

My mistake was not following the situation to see how Bumble shifted course and began charging for its premium features before mass user defection at Tinder occurred. The competitive landscape, therefore, shifted such that users were presented with two slightly different dating apps, but both wanted to charge you for their premium features. This put Tinder on a more level playing field with Bumble and allowed Tinder to continue to evolve their premium features without serious risk of mass user defections, which I believed would have been the case if Bumble had remained entirely free.

Match has continued to grow its user count. Since I first wrote about Match in April of 2017, Match has grown its Paid Member Count (PMC) from 5.7m to 8.1m today. The average revenue per user during the same period, however, has barely increased at all, from $0.53 vs $0.54. The mere fact that Tinder has been able to introduce monetization efforts without mass defections shows that I was wrong about the first risk, most likely for the reason cited above—that the competitive landscape shifted dramatically.

The lesson here is fairly simple. Competitive environments are not static, companies themselves are not static operators. Facts and situations change and so should the analysis. When you analyze a company, it helps to form a clearly developed thesis for why you would or would not invest in a company. This thesis can, therefore, be checked against all new information that comes to you as you follow the specific company.

There are numerous examples of situational change where the original thesis was wrong, but you could have easily noticed it as the change developed.

  • Apple was once seen (and still is by some) as a hardware commodity company where ASP would eventually decline and the lowest priced device would gain market share or significantly hurt Apple’s profit margins as Apple was either squeezed from the bottom or moved its own ASP downward. However, this did not or has not happened in the 11 years since the iPhone debuted. ASPs have, in fact, increased steadily over that period. Samsung and Google introduced products at the high end of the price range to match the iPhone and lower-priced products just didn’t provide the value to the consumers to significantly impact the sales at the high end of the price spectrum. Anywhere along the way for the past 11 years, you could have seen this phenomenon. If your initial thesis was slowly declining ASPs, you could have re-evaluated your thinking based on additional information.


  • Facebook’s shift to mobile advertising is another great example. There was serious doubt whether the popular newsfeed would be able to accommodate advertising on the mobile phone. This was a headline from Barron’s in 2012 shortly after the IPO in 2012: “Success in mobile is no sure thing. The small screens on these devices don’t give Facebook much room to configure ads without alienating users.”  This fear led to a significant decline in the stock price. Facebook was tremendously successful in making this shift, but it was something that didn’t happen overnight. If you articulated your thesis around the concerning shift to mobile use, you could have monitored how well Facebook was performing with this shift.


  • National Beverage, the maker of the famous La Croix brand, is another great example. When I first learned of the company, La Croix appeared to be a fad.  Additionally, La Croix was just one of a number of brands within National Beverage.  As a parent company, National Beverage did not appear as profitable as most other beverage companies. As I followed this company, it became clear that as La Croix became a larger part of the overall sales, the operating margins drastically improved, climbing from high single-digits to over 20% now in under 3 years.

My situation with Match is slightly nuanced. I wasn’t following Match closely enough due to the second risk I perceived. I believed the high turnover of Match’s user base leaves it with a small moat against new competitors in the dating app space. I believed this risk was tied to the business itself, i.e. a dating service and would be hard to overcome.  Tinder and Bumble both still face the threat related to the high degree of turnover among their user base that makes their business models more difficult than other scale network businesses that have extended life customers, like Facebook, Google, and Apple. Tinder hasn’t solved this problem and that question will most likely remain with their business model for the duration.

So far, Tinder has done a phenomenal job at defending that moat. However, one part of this risk has already played out. Tinder’s biggest competitor is Bumble, but its second biggest competitor is a relatively new app called Hinge. In early 2018, Tinder acquired 51% of Hinge with the rights to acquire the rest within one year. The risk here is that to defend their business model, Tinder and Match must constantly buy out their competitors or risk obsolesce since their customer base is constantly turning over.

The second lesson to be learned from Tinder also has a related Apple connection.

Originally, I believe Buffett put Apple in the “tech” bucket, which is just a sub-category of his “Too Hard Pile”. Apple was designated as technology because the devices Apple sold were pieces of technology that could change rapidly. Blackberry killed Nokia and Apple killed Blackberry, so it is only logical to assume that someone would eventually kill Apple. I believe Buffett’s mentality shifted when he began to see Apple as a consumer brand. This brand was built over years of making great products that people could trust to “just work.” This insight changed his thesis of Apple from a technology company to a consumer brand and most likely lead to Buffett making Apple his biggest position for Berkshire Hathaway.

This second risk is tied to the very nature of the company, i.e. Apple is a technology company and typically keeps you from following a company closely. But, once you build up a great database of knowledge regarding individual companies, it is helpful to revisit your analysis of these companies. That is what I am doing here with Match.

Although I think Tinder is doing a phenomenal job at execution, I do not think they have solved their existential problem. Match’s service will have to continually attract new users where the barriers to entry for new competitors are fairly low. For now, I am keeping in the Too Hard pile, but it is certainly at the top because of their execution.

Matt Brice can be reached at matt@thesovagroup.com.

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