(Bloomberg) -- Match Group Inc. shares jumped the most in nearly two years after it announced plans to cut 6% of its staff and delivered better-than-expected earnings, signaling to Wall Street investors that the worst may be behind it.
The company announced the layoffs on Tuesday as part of its move to shut down livestreaming services across some of its dating apps. The cuts will result in annual cost savings of about $13 million, it said.
Match also posted second-quarter results that were better than what analysts feared. The number of people paying for its largest dating app, Tinder — a metric that activist investors in the company have cited in their push for a turnaround — was 9.6 million. That was slightly ahead of the average analyst estimate, but it was still the seventh straight quarter that paying Tinder users declined. The company said in a letter to shareholders that these downward trends are stabilizing and will improve in the third quarter.
Hinge, which Match also owns, was a bright spot, with revenue up 48% from a year earlier and paying users up 24%. Its outsized growth contributed to a better-than-expected 4% jump in overall revenue, with sales of $864 million. The company said in the letter that it plans to establish Hinge as the second-largest dating app globally in the coming years, pitting it against rival Bumble Inc.
The results are providing “investors relief as trends don’t appear to be getting worse,” Citi analysts wrote in a note Tuesday evening. Match shares were up as much as 13% after markets opened in New York Wednesday, the biggest intraday gain since November 2022.
Match has faced increased pressure from activist investors to reverse subscriber losses, which have persisted for nearly two years. The company and Bumble have been contending with a generational shift in dating behavior among younger users as well as inflationary pressures on consumer spending.
Earlier this month, Bloomberg News reported that Starboard Value has built a position of more than 6.6% in Match, becoming the third activist investor this year to take a stake in the company after Elliott Investment Management LP and Anson Funds Management LP. Starboard looks to push for a sale of Match if it fails to execute a comeback plan, which includes resuming growth at Tinder, improving margins and returning more capital to shareholders.
Match Chief Executive Officer Bernard Kim told analysts on an earnings call on Wednesday that concerns raised by Starboard are “already key areas of focus” for the company. He also said the firm plans to detail its long-term strategy in its first-ever investor day in December.
For the third quarter, the company said it expects revenue of $895 million to $905 million, missing the average analyst estimate of $913.8 million. It further cut its full-year outlook of year-over-year total revenue growth to approximately 5% from its previous forecast near the lower end of a 6%-to-9% range. The company cited the wind-down of its livestreaming services, which it said will result in a loss of about $60 million in annual total revenue. Match also blamed the revised outlook on worsening foreign currency headwinds.
The activists and some analysts are united in their belief that the dating app industry still holds untapped potential, and that Match is well positioned to capture those gains with its large portfolio of apps. They have attributed the payer declines to a lack of product innovation at Tinder, which has had frequent executive changes.
The company said it expects payer decline trends to further improve in the third quarter as it releases more product updates. It said a number of Tinder features are being tested or soon to be piloted, including more ways to use the app with friends. In addition, Tinder will require face photos to help verify the authenticity of profiles and will offer “highly curated recommendations” with the help of AI.
The app recently debuted an AI-powered photo selector feature, which it had been teasing since late last year, to make it easier for new Tinder users to set up their dating profiles.
“We believe Tinder has begun to lay the foundation for a broader transformation to better meet the evolving needs of today’s daters,” Kim said in the letter.
“While Tinder year-over-year payer growth remains challenged, the improved trends reported by management and that we observe in our data do suggest that user experience and brand perception improvements are contributing to sequential payer growth following more than a year of declines,” said Chandler Willison, a research analyst from the analytics firm M Science.
“Given the recent heavy investor attention and activist involvement, these strong results should moderate calls for more drastic business changes,” he added.
(Adds share move and additional analyst comments.)
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