Why Is Match’s Tinder Launching Interactive Streaming Videos?

Match Group's (MTCH +0.00%) Tinder recently launched Swipe Night, a new feature that adds five-minute interactive videos with branching narrative choices. The videos, which are shot in first-person, resemble the "choose your own adventure" videos Netflix (NFLX +0.63%) recently experimented with.

Users will be given seven seconds to make each choice (via swipes) in an "apocalyptic adventure," and their choices will be highlighted in their dating profiles. Match will launch new episodes every Sunday night in October, and claims that it "can't think of a better way to break the ice than over emojis and the apocalypse." 

Swipe Night is an interesting addition to Tinder, but it's also an odd step into a crowded market that's already filled with platforms like Snap's (SNAP 0.19%) Snap Originals and Facebook's (FB +0.23%) IGTV. So is this a one-time gimmick, or is it part of a more cohesive plan for Tinder to lock in users?

Image source: Match Group.

Understanding Match's challenges

Match has consistently generated double-digit revenue growth over the past year. Its growth also accelerated in the second quarter and is expected to continue accelerating in the third quarter.

YOY = Year-over-year. Source: Match quarterly reports. *Company guidance.

Match's core growth engine is Tinder, which grew its average subscribers 41% annually and 11% sequentially to 5.2 million in the second quarter. Match's total subscriber base, which includes other big apps like OkCupid and Hinge, grew 18% annually and 5% sequentially to 9.1 million.

Match mainly attributes the growth of Tinder to the popularity of its Plus and Gold tiers. Match claims that Tinder's Gold members -- who pay $15 monthly for unlimited swipes and the ability to undo swipes, swipe overseas, and see who liked them right away, along with other perks -- now account for over 70% of its subscribers.

Those growth rates look healthy, but Tinder's engagement rates are also declining. SimilarWeb recently reported that Tinder's sessions per user -- the number of times an app is opened daily -- fell 10.8% year-over-year in the first eight months of 2019. Its open rate, the percentage of Tinder's installed base that opens the app daily, fell from 28% to 22.1% during the same period.

Those declines could leave Tinder vulnerable to hungry challengers like Facebook, which recently launched Facebook Dating, or Bumble, the female-oriented dating app created by one of Tinder's co-founders.

Is Match worried about losing Gen Z users?

It's unclear why Match's engagement rates are declining, but a possible culprit is competition from rival social media platforms like Snapchat.

Snapchat and Tinder serve different purposes, but a large percentage of users on both apps belong to Gen Z. In a survey of teen interests, 41% of U.S. teens rated Snapchat as their favorite social media app, according to Piper Jaffray, compared to just 35% who preferred Instagram and 6% who favored Facebook. Tinder claims that Gen Z accounts for over half its members.

Snapchat's daily active users grew 8% annually to 203 million last quarter, while its average revenue per user surged 37%. A major catalyst for that growth was Snap Original videos, which are three-to-five minute shows shot in a vertical format.

Image source: Getty Images.

Snap claims that the total time users spent watching its Original videos "more than tripled" annually during the quarter. That increase, which coincides with Tinder's slipping engagement rates, suggests that Tinder's younger users might be spending more time watching Snapchat's videos. That explains why Tinder launched Swipe Night.

But beyond Swipe Night's "choose your own adventure" gimmick, there's a big difference between the feature and Snap Originals. Snap Originals are mainly produced by big media companies and helmed by TV and film veterans, but Swipe Night -- directed by music video director Karena Evans -- features a cast of lesser-known talent. In other words, Swipe Night could look cheap and cheesy in comparison to Snap's polished Originals.

The key takeaways

Match launched temporary features to boost engagement rates before. It previously launched Spring Break Mode, which added streamlined search features for popular Spring Break destinations; and Festival Mode, a similar feature for popular music festivals. However, Swipe Night likely costs much more to produce than those temporary features.

Match investors should consider Swipe Night to be an experiment for now. Its success or failure probably won't matter that much financially, but it indicates that Tinder might be worried about losing users to Facebook Dating or Snapchat. Tinder probably won't lose its lead in the dating market anytime soon, but investors should still track studies of its engagement rates -- and how they coincide with the growth of other apps -- to spot signs of a potential slowdown.