Over the last year, Match Group (MTCH 0.63%) -- the world's largest online dating company -- has been experimenting with different pricing plans across its various markets. The company, which operates a wide portfolio of dating apps, including Tinder, Hinge, and Match.com, has been trying to find new ways to generate revenue from its user base. Some of those changes have included shorter-duration subscriptions and new a la carte features. And now, we see its latest innovation -- a $500 monthly subscription for its flagship app called Tinder Select.
While that might sound like an absurd amount to pay for most people, the company seems to believe there's an opportunity for an ultra-high-end tier.
What comes with the Tinder Select?
Before diving into any potential impacts this new plan could have on Match Group's overall business, it's probably best to look at what the plan actually offers users.
For starters, Tinder Select isn't going to be accessible to everyone. In order to participate in the program, users will have to apply, and the company says it will be granting access to less than 1% of its users. If a member is accepted into the program, they will be given the option to display a badge on their profile identifying them as a "Select" member.
Once approved, members will get a variety of benefits that aren't available to standard users. Some of those benefits include the ability to message someone without matching first, greater profile visibility, and the option to swipe in "Select Mode," which allows users to see only the profiles of other Select members.
Tinder's management team believes there's a real opportunity here as CEO Bernard Kim noted during the second-quarter earnings call: "We've been actually testing multiple components of this experience with our members today, and we're seeing actual real benefits."
Why a $500 tier?
Prior to Kim taking the reins a little over a year ago, Match Group's subscription tiers were all fairly basic, offering similar benefits to different types of users regardless of their propensity to spend. Kim has been focused on changing that with the hopes of extracting more value from the platform's most avid users.
Kim, who was previously the CEO of mobile gaming company Zynga (now owned by Take-Two Interactive), is no stranger to this type of monetization strategy. "This is an area that I have a lot of experience in, where a small segment of users drive a high amount of monetization," he said in August.
Additionally, Match Group is rolling this new tier out just a year after it acquired a members-only dating app called The League for $30 million. While it's significantly smaller in terms of overall users, The League generates roughly 7 times more revenue per payer than Tinder. Thanks to the value Match Group has identified in serving such a niche market, the company seems to be ready to apply it to a much wider audience.
What does this mean for Match Group shareholders?
While it's difficult to estimate the kind of adoption this tier could have, it's worth running the numbers just to get a general sense of the opportunity.
Match Group has stated that it hopes to have 1% of Tinder's users opt into the tier, and according to third-party estimates -- Match Group doesn't regularly report its user numbers -- Tinder currently has about 75 million monthly active users. Assuming the company hits its goal, that would mean 750,000 people paying $500 a month for this service, resulting in $4.5 billion in annualized revenue. That's more than what Match Group's entire portfolio generated over the last 12 months.
Data by YCharts.
Although that scenario seems overly optimistic, it's probably safe to say the opportunity here is large. If Tinder can really execute and provide a sufficiently differentiated experience for this high-spending customer cohort, it seems there's plenty of value to be had.
As of this writing, Match Group trades at a price-to-earnings ratio of 24, a multiyear low. With a management team eager to try new things and the number of people seeking love online only continuing to grow globally, that strikes me as an attractive price to pay for the stock, whether Tinder Select succeeds or not.
