Match Group's (NASDAQ:MTCH) Tinder was the highest-grossing mobile app last year, according to App Annie's annual "State of Mobile" report. Netflix (NASDAQ:NFLX) and Tencent (OTC:TCEHY) Video ranked second and third, respectively.

This marked the first time Tinder surpassed Netflix in annual spending. Tinder ranked fifth in 2015, fourth in 2016, and second in both 2017 and 2018. Let's look back at how Tinder rose to the top, and why it could retain that crown for the foreseeable future.

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How Tinder became the world's highest-grossing app

Tinder was created in 2012 within the start-up incubator Hatch Labs, which was a joint venture between IAC/InterActiveCorp (NASDAQ:IAC) and Xtreme Labs. Tinder became a major growth engine for IAC, which spun it off with other dating apps in Match's initial public offering in 2015.

Tinder's innovative system of swiping left and right on potential matches simplified the dating process and caught fire with younger users. Over a third of Tinder's users are now between the ages of 18 to 24, making Generation Z its largest demographic. Match subsequently monetized Tinder with two premium subscription tiers.

Tinder Plus, which was introduced in 2015, lets users undo swipes, swipe for overseas matches, use five "super likes" to get other users' attention, and deploy monthly "boosts" to increase the visibility of their profiles. In developed markets like the U.S., Tinder Plus costs $10 per month for users under the age of 30 and $20 per month for older users. Users in developing markets generally pay lower rates.

Tinder Gold, which was launched as an upgrade for Plus in 2017, added curated "top picks" and the ability to see who likes you to start chatting right away. Gold costs an extra $5 a month for Plus users, $15 per month on an annual basis, or $30 per month on a monthly basis. Last August, Match claimed that Gold subscribers accounted for over 70% of Tinder's entire subscriber base.

Tinder's total subscribers grew 39% annually to 5.7 million last quarter, as the app's average revenue per user (ARPU) rose 9%. By comparison, Match's total subscribers (across all its apps) grew 19% to 9.6 million, and its total ARPU rose just 4%. Tinder's audience remains small relative to those of other mobile apps, but it generates most of its revenue from stable high-margin subscriptions instead of lower-margin ad revenue.

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No, Tinder isn't making more money than Netflix

Investors should note that App Annie's results don't indicate that Tinder actually generates more revenue than Netflix. Analysts still expect Netflix, which ended last quarter with 158 million paid subscribers worldwide, to generate 10 times as much revenue as Match next year.

However, App Annie's numbers indicate that Tinder's mobile app generates more revenue than Netflix's mobile apps for iOS and Android. This isn't surprising, since the vast majority of Netflix's subscribers watch videos on TVs instead of mobile devices.

Moreover, Netflix is actively pushing customers to sign up for memberships on web browsers instead of its mobile app, which prevents Apple and Alphabet's Google from retaining their cuts of the monthly fees. Both factors likely throttled Netflix's growth in mobile revenue.

Yet Tinder is still the only dating app in App Annie's top 10 highest-grossing apps of 2019. Tinder's biggest rivals, including Bumble and Coffee Meets Bagel, didn't make the cut, which indicates that it still enjoys a strong first-mover's advantage and possesses a wide moat against potential challengers like Facebook Dating.

Will Tinder retain that lead in 2020?

Match spooked the bulls last November when it followed up a solid third-quarter earnings report with a slight guidance miss for the fourth quarter. Concerns about an FTC probe regarding ads on Match.com and extra expenses from IAC's full spin-off of Match exacerbated the sell-off. Yet Match's stock subsequently rebounded with the broader market, and analysts still expect its revenue and earnings to rise 17% and 8%, respectively, next year.

Meanwhile, Tinder continues to expand its ecosystem with interactive videos, and it's still growing in higher-growth markets like India and Japan. That expansion, along with a higher penetration rate for its Gold upgrades, could help Tinder retain its crown as the highest-grossing app of 2020.