Pay, Swipe, Date

Online dating is a $2+ billion industry with over 3,900 dating sites in the United States. And while it is not a new industry (Match.com was first launched in 1995), online dating is experiencing a renaissance, led by a wildly popular start-up — Tinder.

Two Megatrends are converging to fuel the growth in online dating: ubiquitous Mobile Computing and Demographics. In 1970, only 28% of American adults were single. Today almost half (47%) are single. When IAC acquired Match.com in 1999, one in eight marriages originated online. Today, it has surged to one in three, according to a Nielsen study.

Tinder, which itself is majority owned by IAC, might get spun off sooner rather than later. Tinder is extremely simple — you swipe through random pictures of users in your neighborhood. If you “like” someone — you swipe right. If not — you swipe left. And if any of those you swiped right also swipes right on your picture, you get a match and can communicate with that person through the app. The idea behind Tinder is to provide a fun, simple, and engaging way for users to connect, and maybe take it further…

Few could have forecasted the tremendous popularity Tinder has seen in less than three years. Late last year, Tinder was estimated to have 25 million active users, and was quickly approaching the 50 million mark, according to various reports. In December, IAC announced the app had been downloaded over 40 million times with over a billion swipes per day.

Source: Tinder

Tinder’s engagement statistics are also staggering. As of last October, the average user was logging into the app 11 times per day — with women spending as much as 8.5 minutes per session and men 7.2 minutes. Men appear to be less picky about their matches. They are three times more likely to swipe right than women — 46% of men compared to only 14% of women do so, on average.

Earlier this year, Tinder launched its premium subscription service called Tinder Plus, and introduced new features such as the ability to undo swipes, change locations and have unlimited likes (which is no longer the case in the freemium version). Somewhat controversially, Tinder Plus costs only $10 per month for users under 30, but $20 per month for those over 30.

Source: GSV estimates based on various company comments and reports

The move was heavily criticized following the announcement of Tinder Plus, but seems to be paying off. According to the latest App Annie data, Tinder has been moving up the revenue rankings on iOS and Android. In the Lifestyle category on iOS in the U.S., Tinder moved from #14 to #1 in March!

Last year, IAC stated that Tinder could generate $75 million in revenue in 2015. If they hit that target, and assuming an average $15 per month per paying user, that would imply 420K paying users in 2015, or less than a 1% conversion rate assuming Tinder ends the year with ~70M MAUs.

There has been a lot of speculation about Tinder’s valuation, with “guesstimates” ranging between $500 million to a few billion. As a comparison, we can look at similar, hyper-growth, freemium apps like Snapchat, Whatsapp, and Pinterest. (Disclosure: GSV owns shares in Facebook)

Fast-growing, Freemium Apps

Pinterest — $11B valuation, 100M MAUs, $110 Value per User

Snapchat — $15B valuation, 200M MAUs, $75 Value per User

Whatsapp* — $19B valuation, 450M MAUs, $42 Value per User

Instagram* — $1B valuation, 33M MAUs, $30 Value per User

*At Time of Acquisition
Source: Company Announcements and GSV Estimates

If one assumes that Tinder users are as valuable as Snapchat users, the company could command a valuation of $1.7 billion or higher. If Instagram is the better comp, that would imply a $1.2 billion valuation. Interestingly, in that range, Tinder makes up between 20% to 28% of IAC’s current $6 billion market value. Not surprisingly, IAC’s stock is up 49% over the last two years, while its earnings have been flat! (Disclosure: GSV owns shares in Facebook)

There are some broader revenue opportunities for Tinder longer term. Aside from the obvious paid membership stream, Tinder could become a marketplace and a collector of referral fees, over time. One of the new features of the paid membership is multi-location browsing.

So while a user is, say, in Los Angeles, she could be looking up others in any city around the World. Or as a friend recently told me, “I just got Tinder Plus. Well worth it — I am in Moscow, Kiev, Split, Belgrade and three Polish cities at the same time… Epic.”

Projecting a few years out, and assuming Tinder has become a powerful marketplace with an open API, it should have other apps such as Priceline, Expedia, Uber, Lyft, OpenTable, etc. naturally plugged in. (Disclosure: GSV owns shares in Lyft)

What we do know is that all successful Freemium models share several key characteristics: 1) They are “viral” with high user growth; 2) The target demographic is Millennials; 3) User engagement is very strong; and 4) The user experience is very good. In Tinder’s case, all of those characteristics seem to apply and that’s why it is such a compelling company to track.

As published in this week’s A 2 Apple http://bit.ly/1bqALQK

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