Good day, and welcome to the Match Group Call to discuss the acquisition of Hyperconnect. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the call over to Gary Swidler, Chief Financial Officer and Chief Operating of Match Group.
Please go ahead, sir.
Thank you, operator. Joining me today on the call is Shar Dube, our CEO. Before we start the call, 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, let me turn the call over to Shar.
Hi, everyone, and thank you for joining us on such short notice. This evening, East Coast time, which is Wednesday morning, South Korea time, we are delighted to be announcing the acquisition by Match Group of Hyperconnect. We are super excited about this acquisition. We've been watching them for a while. Having first met the CEO, Sam Ahn and his team a few years ago in Seoul, and I've been so impressed with what they've built.
They are a great team and great people who view the world much as we do. So I'm thrilled that we finally got this agreement signed. Hyperconnect is a technology leader in video communication and mobile optimized AI, having developed scalable and low cost mobile live video technology with low latency back in 20 per team, which was a huge accomplishment at the time. Since then, they've taken their core technology and Have rapidly experimented with new products. They have an incredibly strong engineering team and a lab dedicated to new technology and products.
Importantly, they have already achieved 2 commercial successes with their Azar and Hakuna apps. They have achieved real user and revenue momentum, and we think we can help supercharge both globally with our experience and capabilities. The strategic rationale for acquiring Hyperconnect is multifold, great team, Scaled products, innovative technology, especially in video, expansion for us in social discovery, which is an increasing area of opportunity for us and expansion for us in Asia, which is a big focus for us. Hyperconnect's business is over 75% in Asia, so it really fits the bill for us on that front. We couldn't be happier to bring Hyperconnect into the Match Group.
With that, I'm going to turn it over to Gary to review the deal terms and then I'll
Thanks, Shar. Match Group is buying 100 percent of Hyperconnect for $1,725,000,000
The $1,725,000,000
is payable in half cash, half stock, with the share price determined prior to closing. We also retain the option to pay up to all cash if we so choose. The transaction requires regulatory approval in a number of countries and therefore, we expect to close sometime in Q2. We currently have just under $800,000,000 of cash on hand and a $750,000,000 revolving credit facility. So we expect to pay the 50% cash portion from cash on hand and by tapping into the revolver if necessary.
Importantly, in the 50% cash, 50% stock scenario, We believe that we will still be able to achieve net leverage of slightly less than 3 times by the end of 2021, which has been our stated target. Before I hand it back to Shar, on Slide 4, I just wanted to point out a couple of items regarding Hyperconnect's financial performance. In 2020, the company had revenue of just over $200,000,000 So it's a fairly substantial company already. Most of that came from their Azaar product, which has been monetizing for a number of years, but their Hakuna app is also showing strong monetization trends. The company is growing rapidly overall with top line up over 50% year over year in 2020.
We expect 40% to 50% growth again in 2021. On a revenue basis, the $1,725,000,000 purchase price is roughly 8 times trailing revenues, but under 6 times forward revenues. The company is also slightly profitable. Our goal will be to ensure the proper level of investment in the business and to gradually improve its profitability. With that, I will turn it back to Shar.
Thanks, Gary. And for those following the slide deck that we shared earlier, if you flip to Slide 4, Let's first talk about the a little bit more detail about the 2 global apps that Hyperconnect already has brought to market. So when they launched the Azar app in 2014, it was a novel social discovery app. It employed very advanced technology to enable users to video chat with people in real time around the world powered by real time language translations. Azar monetizes well.
It's ranked among the top 10 highest grossing non game apps in the Google Play Store, which is the main distribution given The heavy presence in Asia. 90% of the company's revenue is derived from a la carte purchases, things like filters and badges and so on. Building on the live video technology they have developed, in late 2019, Hyperconnect launched Tekunah, which is a multiparty live streaming app for social connectivity. Secunda is rapidly scaling users and revenue in a number of markets, including Korea and Japan. Hakuna monetizes via virtual gifting, and it's still very early in its trajectory with lots of room to expand geographically.
And in our Earnings call last week, I had mentioned that there was a growing trend of online social discovery experience, particularly among young and especially in Asia and emerging markets. In addition to being a fast developing space, It actually falls within our mission of using technology to enable meaningful connections. We've also learned from our Ablo and POF Live products and that's what gives us confidence in the potential of Hyperconnect and its strategic fit within our portfolio. Based on the trends we've seen in the past few years, this category has a potential addressable market more than twice that of dating. We had already started to invest here and we think Hyperconnect will meaningfully Connect team and the capabilities they have.
They're just under 400 employees, primarily in Seoul, South Korea, roughly half of them are engineers, which is great. In its home market of South Korea, the The company is regarded as an innovative start up and a desirable place to work, so it's able to attract very strong young engineering talent as a result. You can also see some of the experienced leadership team on this page, and I'm really looking forward to working with them, especially their Co Founder and CEO, Sam Ahn, who I've gotten to know well over these past few years. He's a tremendous product tech talent and a leader will be a great asset in addition to Match Group's leadership bench. The deal includes retention arrangements with the leadership team and employees.
I mentioned earlier in my opening But I do want to reemphasize how groundbreaking the Hyperconnect team has been in video technology. We now take video for granted, but back in 2013 when Hyperconnect was one of the first to develop a mobile version of WebRTC And commercialize and scale it through the ASR product, delivering low cost, high quality video chats with low latency, even on low end devices. That was cutting edge and a big accomplishment. That is this company's DNA. On top of that long history with video, they have deep AI capabilities that power their recommendation engines and all the way to real time video content moderation.
They are also among the few companies in the world that have developed On device deep learning engine that's going to become increasingly important as a technology for more Efforts in privacy, moderation and safety, this is going to be an area of collaboration for us from applying our standards to leveraging their advanced technology and tools on our audio technology which could have broad applicability on our product portfolio. Flipping to Slide 6. In addition to all the technology capabilities, Hyperconnect's user footprint is really exciting to us. You can see that 70% of their users are Gen Z and Millennials and also 75% to 80 Percent of their users and revenue comes from Asia, which is very complementary to our existing footprint. As you know, we've talked about a 25% target for Match Group's revenue from Asia, and this Acquisition will move us much closer to hitting that goal.
Importantly, we're starting to see real traction In markets in Europe and Japan where we have a track record. So we think we really can help leverage our expertise and Teams on the ground to turbocharge growth in these markets post acquisition. And then of course, the Americas where they don't How much of a presence today could be real opportunities in the future under our umbrella. I will close on Slide 7 and just reemphasize a couple of points. We're buying a great team with a like minded philosophy and view of the global opportunity and market evolution.
They have a tremendous track record of innovation and commercial success with capabilities in video and AI that we can leverage across the combined portfolio. Their experience in virtual currency, a la Card and gifting as well as their broad footprint in base in India, which are areas we've been looking to And then makes this transaction a great strategic fit. We can also help increase the momentum of their business as we have done with prior acquisitions of Payers and Hinge by leveraging our expertise and experience, especially in markets that are newer to Hyperconnect. I very much look forward to working with the Hyperconnect team and reaping the benefits of this combination for many years to come. With that, we'll ask the operator to open the line and see if there are any questions for us today.
We will now begin the question and answer session. And the first question will come from Mario Lu with Barclays. Please go ahead.
Great. Thanks for taking their questions. So the first one is on the TAM of social connectivity and how you're going to implement that into your current apps. So you mentioned that the TAM is more than twice updating. But I guess the question is more on the strategy Implementing the live streaming and social connectivity within your core dating apps.
I believe you've done that already with Plenty of Fish. So Can you comment on whether you saw increased engagement from and if that drove further engagement within the dating app itself or Was it somewhat cannibalistic between the two functions?
Yes. Gary, I can take this question. Thanks, Mario. Yes, so the social discovery space is actually A pretty fast growing and large space in Asia in particular and it's growing in other parts of the world. And as I mentioned, we've been sort of testing the waters with our Ogloo product as well as, PAW!
Live. And the reason we got more and more interested in This area and Hyperconnect in particular is because of a mutual synergy that we see. So PAW Highly accretive to the POP experience. And we also think within the Social discovery applications, there is a use case of dating that happens as well. And so that's how we think our world sort of make all the sense to be together because both are technology in the pursuit of meaningful connections.
Hope that's helpful.
Great. That's helpful. And then just one on monetization. So Hyperconnect is 90% a la carte. I believe Tinder is currently around 30%.
So in the longer term, do you guys believe one monetization strategy between the two will eventually win out? Or is it Purely regional difference that will likely remain the same in those areas. Thanks.
Sure. I have always thought applications such as ours, we have the ability to monetize both through subscriptions and through a la carte purchases. The way I generally describe our monetization strategy is You sort of have subscription models that lend itself or pay for access. And you have a la carte consumable type revenue models that work well for paying for advantages. And so both of them coexist on our platforms.
However, there are absolutely regional differences where in Asia it is much more friendly for the because the consumer mindset is more used to sort of pay as you go models instead of The recurring renewing subscription, we think there is a greater propensity for a consumable alacarte High price model to work better in Asia, but I do think there is a lot of learnings we can take from each other and eventually some mix hybrid of both of these model will exist on all of our platforms.
Got it. Thank you and congrats on the agreement.
Thank you. The next question
will come from Justin Patterson with KeyBanc. Please go ahead.
Great. Thank you very much. 2 if I can. First, could you talk about just
A little more of
a history of the transaction, was this a competitive bid? So that's Question number 1. And question number 2, it sounds like there's a lot of opportunities to really refine the product with this. So I'd love to hear about some Key learnings you think you can get from Hyperconnect that you can apply back to the
rest of the business? Thanks so much.
So, let me take the first part, Anshar, if you want to take the second part. The company really had a lot of Opportunities on its own and it's had a great path. So you can imagine that every strategic option Was on the table. Ultimately, we wanted to pursue a control transaction with them And we convinced them to join the fold, but they certainly had options to raise money and keep going independently. An IPO was possible for them.
So they certainly had lots of options and we're delighted that it ended up working out this way. I think they're excited to be Part of our organization and we're very excited to have them. So that's kind of how this ended up turning out this way. And we think we can do a lot together.
Yes. In terms of sort of learnings of what we could do with each other, As I mentioned, there are a number of different areas that I think We learn are able to deploy both their technologies as well as their learning. So as I mentioned, video, real time video in particular, has been growing in its footprint on our products. They have one of the best that obviously becomes helpful and useful to us. They have learnings around Moderation and AI, they have learned they have technology around some more emerging technology that could Become so much more useful as we work to develop richer experiences on our dating apps themselves.
And then of course, it's the monetization is another area where there is a lot of cross learning that can happen, which is why we are so excited about having them in our portfolio.
Got it. Thank you very much.
The next question will come from Brian Fitzgerald with Wells Fargo. Please go ahead.
Thanks, guys. Congrats. We want to know if you could give us a sense of the scale of the user base at Azar and Acuna? And then how that user growth Versus ARPU is contributing to that top line 50% growth in 2020. And then I got one more.
Thanks.
Yes. So, Hakuna's user base is small, but relatively small, but growing quite quickly. So that's really driving a lot of the success there and kind of monetization is ramping up relatively quickly at Hakuna as well. The Azar MAU base is actually quite substantial into the double digits. And so that's definitely a piece of it.
We think we can further accelerate the growth of MAU there as it expands into More geographies and becomes more of a household name in Europe and in the Americas. And again, I think there's room on the ARPU side as well to continue to Increase ARPU and drive growth. So it's going to be both prongs of things as we develop both apps. But you should understand that Hikuna is much, much, much earlier stage. Azar has been around for a few years now, although still growing very nicely.
Thanks. And then the follow-up is just we noticed On Hyperconnect's website, they talk a little bit about an enterprise product and an opportunity. Is that something you plan to continue to invest in and pursue Or not?
Yes. They in fact their enterprise product We could be the 1st test beds for it because today we use third party vendors to power all of our one to 1 and one to many video instances on all of our platforms. And so that's obviously the very first step for us to be able to do at some point after closing and then we will have to see where this all goes.
Got it. Thanks guys. Congrats. Thank you.
Thank you.
The next question will come from Lauren Schenck with Morgan Stanley. Please go ahead.
Great. Thanks so much. I guess from a timeline perspective, how quickly do you think you can leverage some of Hyperconnect's technology and product features to other match portfolio apps. And then I guess beyond Pablo and PAF, which apps Do you see sort of the greatest opportunity to leverage some of this video technology too? And then, one follow-up if I can, just any incremental color on the level of Possibility of the business today and ultimately where you think that can go over time?
Sure. I'll let Gary address part of it. But in terms of timeline of how quickly, so if you think about it, In 2020, pretty much all of our platforms deployed video in some shape or form. And we just think that's the beginning and there are going to be both one to one use cases that will make sense on some platforms. The more higher intent platforms will probably have richer one to one experiences.
In the other platforms, We do think both a combination of 1 to 1 and 1 to many video applications will make sense. And so Obviously, I can't sit in here be able to say exactly when the timeline, but that is something we will as soon as We closed the deal. We will be working to figure out what the right testing of experimentation with their STK, etcetera, would be. But It is an exciting thing for us to be able to have that technology of that quality within in house versus having it as a 3rd party component.
As far as the profitability, Lauren, I think last year they achieved About 10% or so margins. And they're investing heavily as they're in kind of hyper growth mode. We think that's completely appropriate. And so we're not going to manage this business for margins, in particular, in the short term. We want to make the right investments on the marketing side and on the product side.
I think if you look kind of intermediate term, our goal is to drive margins here Kind of into the upper 20s to 30%. I think that's achievable for this business. And then as we learn a little bit more about the marketing spend that's required and some of the other dynamics around live streaming and live video. We'll see where we take it from there. And that doesn't include sort of any of the benefits of The combination directly or things that we might bring to our other apps that Hyperconnect brings to the table.
So that's purely kind of on a standalone basis under our auspices. So we feel good about the overall profile, but it's going to be a process to invest in this business and get it where we want to go. There's a lot of opportunity here that we're excited about investing in.
Great. Very helpful. Thank you.
The next question will come from Cory Carpenter with JPMorgan. Please go ahead.
Great. Thanks for the questions. Maybe first, just how impactful do you think Hyperconnect could be in helping match Gain traction on the dating side in Asia, maybe especially in countries like South Korea that have been tougher to break into. And then for second question, Maybe if you could just talk a bit some about the competitive landscape you see within social discovery in Asia, probably a market that a lot of us are less familiar with today, but just where Hyperconnect fits in competitively in the market? Thanks.
Sure. I can so the first question was around, maybe I'll talk about competition first And then, how it fits within the dating and social discovery relative Size, I guess, is what you wanted to find out. In terms of competitive market, The one to one live video social discovery apps, Azar was a pioneer in that space. And the one to many multi party live, group live app That is Hakuna, which is a slightly different use case than the normal live streaming Apps out there is definitely in a super fast growing category, but we do think both in terms of the product experience as well as technology, They have some real differentiated assets that we can leverage in order to fuel growth and compete in those markets. In terms of Sort of how the space between dating versus social discovery.
As I mentioned before, We do think there are opportunities to have social experiences on our dating platforms. And similarly, dating is a use case on social discovery platforms as well. And South Korea that you particularly mentioned, which is a particularly strong market for Hyper Connect, their revenue is already, I don't know, 10x that of our Match Group's revenue in that market. So that gives you a sense of the various levers that we have to play to bring to bear in these markets Our ultimate goal is still sort of connecting people for meaningful connections and a subset of those meaningful connections are relationships and other contexts that we enable from dating apps that Could happen on the social discovery platforms as well.
I just want to pick up also on one thing, Corey. When you look at Japan for us as an example, We had an okay business there and then we made an acquisition and we've really turbocharged what we had there. And You're right. We've had a tougher time in Korea. But now having a very well respected high quality team there, I think really sets us up much, much better than we've been and we're hoping to take that success more pan Asian.
So It's a big benefit to us to get a high quality team like this right in the region in Asia.
Great. Thank you, both.
Thank you.
The next question will come from Brent Thill with Jefferies. Please go ahead.
Thanks, Shar. Just as it relates to the geographic diversity of where you think longer term Hyperconnect could live And be successful outside Asia. Can you talk to that? And for Gary, this is your largest acquisition ever In terms of dollar value, maybe just to underscore, is this a new sign and kind of a new boundary for you in terms of Where you're willing to go in the future? Or can you just talk to how you manage your largest transaction?
Sure. Gary, you want to take that question first?
Sure. I mean, it is a large dollar value and we obviously take every dollar incredibly Seriously, and we've been thoughtful about this. But as a percentage of the overall company market cap, it's probably in the, I don't know, 4% range or so. But you're right, dollar wise, it is the largest deal we've done. We've been thinking about this very hard for a while.
We've got a detailed integration plan and how we're going to approach this. We have a track record of acquiring companies and doing a good job with them, most recently Pairs and Hinge. So even though they were Smaller than this company may be, we feel really good about our ability to put the right touch on this, not too heavy, but not and bring our capabilities to bear. And I'm very confident we're going to be able to do this in the Hyperconnect case. So we're excited to kind of get going as soon as we get to closing on Transaction?
In terms of sort of geographically where they can go, so they obviously their Main footprint is around Asia, 75% to 80% of their user base and revenue comes from Asia. There are a Couple of areas that we think we can immediately help leverage our Skills and presence on the ground, one is they've started seeing some traction in Europe, which we think we can turbocharge With our presence in Europe that we have, we also think there is a real Large opportunity for us to go grab in Japan, where again we have real talent and Skills on the ground to be able to help turbocharge that as well. And then once we've sort of played out those Parts then Americas remains a white space for us as well.
Thanks.
The next question will come from Eric Sheridan with UBS. Please go ahead.
Thanks for taking the question and maybe 2 if I can. First, following up on Brent, but maybe reversing it back into Asia. You talk about Significant footprint in key Asian markets. Is there a way to click down? I hope I didn't miss it on the 77% of users and the 80% of revenue in Asia and how geographically Diverse that Asian footprint is today and what it might mean for broadening out the footprint if it isn't already over the medium to long term.
And then, Gary, maybe I can come back to something on Slide 3. You talked that Match has the option to pay up to 100% in cash at close. Can you talk a little bit through the process of what might make it a fifty-fifty cash stock deal or 100% cash Deal at close and what the thought process is there. Thank you.
Yes. On the geography again, Azar, which has been around for A little bit longer, has a pretty wide distribution by way of markets in Asia, East Asia and broadly in Asia. Hakuna is relatively new, launched late 2019. And so they are in far fewer markets today. But again, they are seeing some really nice traction in markets Japan and South Korea, certain markets in Southeast Asia, etcetera.
So, a fairly broad and diverse presence in Asia overall. Gary?
Yes. In terms of the structure, There was a lot of interest in the company, as I mentioned earlier, and it was important to the sellers to have Certainty around what they were receiving. And so as a result of that, we've got a price that has been set. And so, We plan to deliver stock and that's kind of that is our expectation, but we've kind of reserved the right to deliver more cash if we so choose. We're operating in a very volatile environment.
You just never know what could happen. And so, just to have another option, we have the option to pay more cash. But Our expectation going into this is to deliver half cash, half stock.
Thank you.
Okay. I think we have time for one more question, operator.
Yes. The next question will come from John Blackledge of Cowen. Please go ahead.
Great. Thanks. Two quick ones. If the deal closes in the second quarter, we'll see the bulk of the impact in the second half. So just given their Fast top line growth.
Is there any seasonality in the business as we think about adjusting our models after the deal closes? And then secondly, just any color on the revenue mix between Azar and Hakuna and any color on differences in year over year revenue growth? Thank you.
Yes. So why don't I try to take those. I think using a second half to kind of include basically half the revenue You're expecting for the year, I think it's a reasonable thing to do from a modeling perspective sitting here today. Maybe we're going to get one extra month or so In the first half, but it's hard to say sitting here right now. So I think that's reasonable.
There's not a significant amount Seasonality, so if you make an assumption around the full year revenue and put half in, I think that's a reasonable way to do it. Right now, the preponderance of the revenue comes from Azar, an increasing portion from Hakuna. But Hakuna is growing much, much more rapidly. And so, it is kind of catching up relatively quickly. But Right now, you can see, I think, in some of the databases in terms of the revenue that's coming from Azar and the hakuna portion being much Smaller, but really growing very, very solidly.
So we'll give you more color on some of these things as we get a little closer to closing. I know people are eager to figure out kind of how to model this and how to think about it. We wanted to give people a bit of a sense of its historical performance today and what we see into the future. But as we get a little closer to closing, we will give a better sense a bit better sense of how to think about this in terms of our financials and our guidance, so that you can make the appropriate adjustments. So more to come on that front as the year progresses.
Thank you. Hopefully, that was helpful for everybody. We appreciate everyone joining on short notice, as Shar said, and we look forward to talking about this more in our coming calls, and we're thrilled to be able to announce the transaction today. So thank you again for joining us.
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