Chit Chat Stocks - Why Grindr Stock Has Gone Up 300% In 3 Years With Buyback Capital (Ticker: GRND)

Episode Date: April 23, 2025

On this episode of Chit Chat Stocks, we talk with Buyback Capital about Grinder (TICKER: GRND), the leading LGBTQ dating app. We discuss: (12:45) Understanding Grindr's Unique Value Proposition (24:19) Monetization Strategies and Revenue Growth (31:56) Future Prospects and Advertising Opportunities (32:25) Navigating Risks in Dating App Development (35:34) User Growth and Revenue Insights (37:04) Understanding Grindr's Unique Market Position (46:30) Financial Health and Capital Returns (53:44) Identifying Risks and Management Challenges SUBSCRIBE TO BUYBACK CAPITAL: https://buybackcapital.substack.com/ ***************************************************** JOIN OUR NEWSLETTER AND FREE CHAT COMMUNITY: https://chitchatstocks.substack.com/  ********************************************************************* Chit Chat Stocks is presented by Interactive Brokers. Get professional pricing, global access, and premier technology with the best brokerage for investors today:  https://www.interactivebrokers.com/  Interactive Brokers is a member of SIPC.  ********************************************************************* FinChat.io is the complete stock research platform for fundamental investors. With its beautiful design and institutional-quality data, FinChat is incredibly powerful and easy to use. Use our LINK and get 15% off any premium plan: ⁠finchat.io/chitchat  ********************************************************************* Bluechippers Club is a tight-knit community of stock focused investors. Members share ideas, participate in weekly calls, and compete in portfolio competitions. To join, go to ⁠Blue Chippers and apply! Link: ⁠https://bluechippersclub.com/ ********************************************************************* Disclosure: Chit Chat Stocks hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Welcome into another edition of the Chitchat Stocks podcast. My name is Brett Schaefer and joined as always by Ryan Henderson. And we have a third guest today, returning interviewee on the Chit Chat Stocks podcast. It is Larry from Buyback Capital. It is a sub stack that covers quality GARP companies, a lot of interesting companies on there, including Instacart, FICO, Fair Isaac Corporation, which he has talked about on this podcast before. But today, we are covering Grindr, the dating app for LGBTQ people that is popular, I think, globally, but mainly in North America. We can get into that during this interview. Now, Ryan and I, we have learned the hard way the difficulties of the dating app business and losing a little money, maybe

owning some match group stock but if you look at grinder it is up i think 4x in the last year or two maybe maybe a little bit more maybe a little bit less than that what makes grinder different than the match groups the bumbles of the world well uh let me first just say thanks for having me back on again it's great uh always good to talk to you guys i know we usually have quite a lot of layover. So thanks. Yeah, it's a really good point. I've sort of mentioned this a few times on Twitter and on the Substack as well, but the Grindr itself is sort of categorically different from the heterosexual dating apps that most of us would, you know, like the heterosexual dating apps that we'd be familiar with and you know it's um that there are you know decidedly

different dynamics that that sort of come to play so the history of heterosexual dating is like quite um you call it tumultuous or constant platform changes um if you go back and you can see the the surveys of how people you know have traditionally met each other um in heterosexual dating going back to the 1930s and the popular forum for people meeting each other constantly changes um and that those changes have been becoming more and more pronounced um since the advent of the internet so there was a time when um you know the you know the most charismatic place to meet a partner was a church and uh your people stopped going to church you know like you know there's been a move away from a church attendance in in large cities um and then there were things

like a dancer's school, work was a very charismatic place to meet your significant other in a heterosexual sense in the 1980s. But there's also been things like dating services in the 90s. You know, you'd, like, record a VHS tape of yourself and that would be distributed to, you know, a bunch of potential suitors who would, you know, watch you talking about yourself on a tape. And then, you know, the internet came along and, you know, there was plenty of fish which was kind or um you know the original match group properties which

was sort of uh you know tinder 1.0 um which sort of hit the same kind of um theme as the vhs tapes it's very much about presenting yourself and then you know guys in our guys and gals in our generation will be very familiar with the rise of um tinder and and bumble and and hinge that was kind of a millennial moment that you know was sort of like hit the zeitgeist when most of us were in university or just leaving um and that you know sort of really hit on the you know kind of hijacking the dopamine response but the point for all of this is that these modalities change and so you know even today um you know like the you know probably like the new emergent way people are meeting each other is going for a jog together in big groups i mean

if you had told me five years ago that um you know a good place to meet um a partner would be going for a run um i would not have believed you uh but you know here we are and so you know these things are you know in the heterosexual sense you know the the difficult part of that network to aggregate is the um is the females are the women and um wherever the women go you know men will not be far behind it's not dissimilar from how a nightclub works um and the ladies they're driven by um you know things like you know they're very attracted to status um to you know how successful a man might be and you know the the corollary of that is that there's at any given time there's you know relatively few men who are very successful in lots of domains and you know those guys get to

really well but that changes over time where women want to meet men um you know evolves with society and so you haven't really had like a single you know place where you know like constantly changing constantly evolving so it's kind of like the broad narrative of the heterosexual dating apps and so you know tinder wasn't the last app it was simply the first bumble came along not long after and then hinge and then there's coffee and bagel and you know there's a gajillion others um that that try to appeal to um you know the the female preferences or desires at any given point time which change um in the lgbtq plus community and to be perfectly frank grinder is mostly a male homosexual property for the most part that's the dominant use case um you know it really you

know since the advent of mass communications there's really you know only been a couple of ways that um you know gay men will meet each other it was obviously a period of time when There were classifieds in the newspaper. You'd literally take out an ad to potentially meet another male partner. And then, you know, really since the advent of the internet, you know, 2.0 and their app economy, it's been Grindr. It sort of began by connecting people on a geolocation basis, load up the app, there's a map, it's showing you where other people are and you can find them very, very quickly. in Ben Thompson's sort of meta-understanding and meta-platforms understanding.

They're very good at connecting people who are, for the most part, interested in short-term intimate relationships. And so Grindr is incredibly good at giving the gay male community exactly what they want, which is a fairly quick short-term intimate interaction with another male. So their sort of value proposition as a business and certainly the longevity of the business revolves far more around how effective their network is. This is not a faux network.

This is a real network effect in that some of these minority communities and the gay homosexual variety would be the largest of the communities they serve are fairly disparate And there aren't that many public forums where even in the West it's acceptable for them to be outright in their, you know, dating goals. You know, like there are obviously gay nightclubs and there are other venues where it's perfectly appropriate. But they, you know, like it's kind of the example of a guy approaching a woman at a supermarket or something like that looking to make a connection. That kind of thing cannot exist in the public in their particular example. So you have this very strong network effect that for the most part is giving this community what they want. At least half of gay men who are surveyed by Tinder, they are looking for some kind of long-term relationship, but that's concurrent with about 90% of them interested in a romantic relationship, an immediate romantic relationship.

So for the most part, it serves, you know, and if you've ever used the app, which I've been on there, and it will give you connections to other like-minded people extraordinarily quickly. And so, you know, one of my friends described it as instant gratification on demand. And you can kind of imagine the, you know, male attraction mechanism turned in on itself. So, you know, as men, we're very attracted to visual stimuli. And that's a quick thing, like it doesn't take a lot of warming up, kind of know if you're attracted to someone or not. And so that kind of disruptive mechanism that happens on the heterosexual side doesn't happen on the gay homosexual side, sorry, male homosexual side. And so you have this very recursive mechanism that keeps bringing people back to the app. And this sort of exhibits itself in these incredibly unusual characteristics for the app.

So, you know, they claim that the average user spends almost an hour a day on this app, which is levels of engagement which are close to unprecedented. I mean, this is kind of like engagement levels, you know, when Facebook and Instagram first started taking off. And the network grows every year at sort of a high single-digit rate, and they dominate. they dominate they're absolutely able to dominate probably tier two and below um metros or towns because only one network can get enough people together and so that's especially true for pardon me it's especially true for communities like a transsexual um bisexual um the non-gay gay communities which usually there are very very few of these people who um who live in any of these communities so it's kind of like they're just at enough scale to aggregate um these networks

and then it becomes very hard for someone else um you know to offer the same kind of network penetration um at a certain point so that's kind of like the the broad narrative of you know why these differ from the other dating apps in in a considerable degree makes sense and i think you We explained some of the customer experiences pretty diplomatically, but it's a powerful value proposition in terms of if you think about the economics for Grindr, they are serving what certainly a cohort of customers want. something that brett and i talked about um and it's it comes up constantly with match group so brett and i both on match group for some time and mostly for the most part with match groups properties the power users are the males they're the ones paying for the uh subscriptions or the la carte purchases or whatever it is i believe they make i don't think they ever perfectly split

it out but they make up a good chunk of tinder and hinges and and the other platforms revenues with on this side you've got power users on both sides so i'm curious i guess maybe what does the pricing look like and how how do they actually monetize the app yeah yeah it's a really good question um it just to roll back the clock a little bit um for the longest time And Grindr really did not offer a wide offering of subscription services. And this is kind of for the reason that you just alluded to. They kind of didn't need to because the opportunities for monetizing an app where, like you mentioned, Almost every user is a power user in the traditional way that we would categorize that for other online properties.

And the reasons for that is just the reward circuits that get generated in the brain. But for the longest time, they really only monetized the app via advertising. Now, just a little bit of backstory here. Obviously, they were started in sort of 2007, 2008 and launched in Washington, D.C., by a couple of founders who have since gone on and tried to replicate the app. But, you know, basically they had this sort of breakthrough moment with the map technology and they're able to garner a critical network in a lot of North American metros. And as you guys will know, these dating apps are, you know, adjacent to travel or very close to travel. So when people travel, they open up the app. You know, people are traveling in different cities.

They open up the app, kind of opens up new cities as people spread out. But for the longest, so that founding group sold it to kind of a PE-backed buyout. And then it ended up in Chinese private equity. and then it was kind of run for cash for most of that point. They were not interested in developing or monetizing the app in a significant way. And the reason for that is there was no reason to. Like, the app just worked great irrespective of what the UI was

or how awful the ad load was. You know, like, people were put up with an incredible ad load because, you know, kind of hijacking the brain's dopamine function at the end of the day. And so people will stay on. and spend, you know, an enormous amount of that time with an ad load, which was, one, offering you terrible ads, like it's offering you stuff that you couldn't possibly want,

and then, you know, you can just keep upping the load and people kind of just, you know, I'll just wait for this ad to get out of the way and then, you know, I'll get back to doing what I came here for. And so, you know, when the company was forced out of, you know, quote-unquote Chinese control by a Trump one-era executive order, and then it was sold to a group of, I think, fair to say Chinese-American investors out of Singapore

who later went on and SPAC'd it and, you know, did all the usual SPAC things like give themselves a huge amount of warrants and, you know, load the thing up with debt, pay themselves out a big dividend, et cetera. um but on the back of the the de-spacking you know professional management was brought in they were given options um and they were given all the usual incentives to monetize this business in a way that would reflect positively in the share price and so you know really the story since it's come out of um you know quote unquote chinese p ownership has been that they've developed

subscription features um and where they are at that journey is basically where tinder or bumble was 10 years ago like they're just beginning to roll out features like passport so you know there's a there's a feature in tinder where you can change your location to a location where you're not in so you know if you're during washington dc and you're traveling to los angeles you can change your location and you can start, you know, matching with people in a location that you're not physically in. And that way you can kind of, you know, get the ball rolling. They've just released that.

That's a feature they call Roam. And so the product development piece is just miles and miles behind. And the subscription pathway that they've had began with just a very simple get rid of the ads. So instead of, you know, spending like a quarter of your time on the app looking at ads you can pay i think they began at about 17 dollars uh sorry 17 us dollars a month um and just get rid of the ad load which is great i mean like that's kind of like the youtube premium um offering right it just becomes a much cleaner user experience for fairly nominal amount of money

um and then they began rolling out you know you know what would be described on hinge or tinder as platinum um gold you know they had uh bifurcated offerings which would begin with an ad free level and then there's a mid-level which would get you some mid-range features potentially roam um you know potentially access to you know event tickets and that kind of thing and then they have an ultra premium which is you know throw the whole kitchen sink and get you know get all the super lights you want and you know all that kind of stuff and the stuff that they're paywalling um and so along those kind of lines that the pricing umbrella there it's very difficult to equate this to what the um heterosexual dating apps are doing because like you mentioned the

features are gated for one part of the network who um sort of desperately clamoring for um access to the other side of the network um and so the you know thinking about um the subscription options and how they're charging for them in that context is it's probably the only reasonable comp that you can get access to but at the same time it's probably not you know 100 appropriate um just because of you know some of those dynamics we talked about are different so i think the last time i saw there was you know the the entry level paid subscription model was about 21 us dollars a month so taken price on that um quite a bit and then the de facto price increases have come with the uh with the more significant membership options so the middle and ultra premium which

is called infinite and i think the last time i looked at infinite it was 40 us a month if you look at like the top subscription for tinder in north america it's um it's getting close to 60 us dollars a month and they'll pay wall features with the with the top subscription as well so you might you know pay for extra super likes or you know something like that so you can end up paying a bit more um it's very difficult to know where pricing goes from here um my only way my sort of only prism you know to understand is like they're sort of you know they are kind of attractively priced compared to the heterosexual peers with the limitations that we talked about and they've experienced sort of like no slowdown in the pickup of the paid product so probably the

better prism to think about the subscription services and to be clear these make up the majority of how grinder now generates revenue as well um but the way to think about it has always been that they're coming off a very low uh base of uh you know penetrated users who um could pay for the app so they're just rolling these things out so kind of steady state paid user penetration is quite low by um the company like ir has mentioned that they probably think um you know steady state penetration levels are a third um of what they you know can be at maturation i'm not entirely sure you know how they they come to that probably just extrapolating out the the growth trends but the you know the high level inputs are that the app user base

grows and this is monthly active users grows at a high single digit rate in most years um so sort of an eight or nine percent level and then paid user growth is about double that so they're kind of converting and i assume a lot of people who are new users are probably going straight you know are much more open to becoming paid users because they haven't been sort of, they don't have like, and people will be using this app for decades, by the way, like people who were using it in 2008 are still using it now, irrespective of whether they're married or not.

And so those users who are using it back in the day, you know, they're probably more attuned to the advertising model rather than paying for it. But some portion of those are picking it up. A large portion of the new users are picking it up. and that and that's kind of kind of where it goes i think probably in their case um they will have a lot more success offering standalone features um so you can sort of use the the offering you could maybe get the introductory subscription price and then you might pay for roam or you might pay for

seven or eight of the other particular items that might be important to you at any given point in time and again i think that's because their grinders management's going to be a lot more incentivized to offer people specific products they want not just gatekeeping part of um you know one side of the network which is probably not where the value add is this is like we're going to have these paid developments which kind of gets you what you what you want um quicker and yeah that's sort of been like the main criticism for them over the years is that they're just a hookup app um and so as they sort of branch out and they're running these surveys about you know exactly what people want they'll be able to you know probably the gatekeeping you know um

element of grinder will be finding a long-term romantic partner you know like that's what people are clamoring for because it's very hard to find it's very easy to find the short-term intimate interaction speak to speak to um you know my gay friends and finding a long-term a partner is is the difficult part okay let me get some stats there low number of friends that finch at uh average direct revenue per paying user however they describe that went from 11 dollars in 2019 to 22.50 cents in 2024 i'm seeing you know north america revenue 208 million dollars europe revenue 83 million dollars even rest of the world uh 53 million dollars uh growth i mean let me see what we got here 28 revenue growth for direct revenue since 2019 clearly

you talked about there they've flexed their power pricing power muscle they probably have a little bit more in the tanking and probably keep pushing that uh consistently over the next five to ten years. But what comes next? I look at the stock today. I think it's trading at what, something like 30 times earnings, 30, 35 times earnings versus a match group or Bumble, maybe closer to 10. What do you think people are seeing? What is management saying about what comes next? What are these add-on monetization opportunities? And do you think it makes sense versus the multiple? can they keep you know this 28 30 revenue growth going um yeah fantastic question um the probably the overriding narrative here would just be that these guys are so early

um in many of their uh growth vectors so talking about the subscription offerings these are really like and especially the super premium option that's a story that has played out for maybe two years so we're kind of you know very early in probably them just copy and pasting the successful products from the other dating apps and seeing how they go and you know to be fair they've been those have been quite successful and um you know people are generally going to be willing to pay for a better customer experience especially where the network has been aggregated underneath so definitely to your point they've taken some price um i don't think this is necessarily a huge pricing power story i don't think their price will be going down um and i

think if anything uh any additional pricing that they really take will be on the back of some of these uh product developments that they make instead of just pushing price um on the uh on a subscription, which I think would probably be a negative thing for them in lieu of extra product development. If you can't show users that you're offering more value for the money they're spending, that's a fairly well-trodden path to do poorly. So on the direct revenue side, probably be some pricing, but the long and consistent story is the growth in monthly active users and the kind of extra special growth in paid users.

So there'll be at least a period of time, I would guess five years, where there will be just a lot of organic uptake in volumes for people paying for the product. And that's simply because the penetration rate is so low. Additionally, probably the most exciting opportunity is advertising. So the advertising revenue, you can see in the last quarter, it went through the roof basically. And that's really the kind of really exciting story here because that advertising revenue takes place outside of the Apple store. As you guys will know with the traditional dating apps,

Apple comes in and takes a nice 30% cut of your business. And so, you know, a typical high margin app subscription is like, you know 70 gross margin business you can't really you know move from that um the travel apps and you know these high and these dating apps and yet even facebook wasn't immune from getting whacked um over not cooperating with apple so that's um that's very difficult to move the advertising platform just like with facebook happens outside of the app and so that is like probably an 80 or 90 gross margin business to put in context even a couple of years ago if you had gone onto grinder and use the free version and just cop to the ad load um basically it was you

know like kind of like a google adsense product that had no information tracking no targeting most intents and purposes there was not a marketplace like they didn't offer an advertising platform so if you were you know you had a product that was very popular but the gay community you'd have to go to you know you know the google ad platform and try and like kind of bid around and it just it was awful terrible experience for the customer terrible experience for the advertiser terrible experience for grinder as well because you're kind of pissing your users off when you know they're trying to find a date or um someone to you know meet over the weekend and they've been given ads for like a chinese shooter game you know the download um on your phone it's bad

for everyone it's not good for anyone um and so in the last couple of years they've brought in ad execs from the other major platforms to build out their own ad platform um and so you know they just again with the sort of the same theme with the subscription side they're just going to copy and paste what you know the facebook technology the snapchat technology and they're going to build and they are building a platform which will mean that you can come directly to grinder and you have this treasure they have a treasure trove of information right on individual people they know where they are they know where they like to go out and you know where they're going out to to meet dates these are all super high intent and high paid experiences um and you know

this is a very engaged user base and so the ability to offer them a whole variety of products you know from i'm sure you can imagine you know all kinds of stuff um that will that will um you know that can be targeted towards this audience and being able to do that is hugely beneficial to basically everyone in that equation because you know as you guys will know that you know the benefit of digital advertising is obviously you can identify your customer easier but you can also track the return on your ad spend um and so so long as you are making more money than you're spending that uh pricing you know the price you can pay for that advertising you know can be infinite if the return on it is super high and that's basically what's happening now a lot of

these you know ad buyers and digital agencies are becoming more and more aware of this and the ability to kind of segment when your ad is seen on the app very important because a lot of these products don't want to be associated with uh with um with you know certain activities or certain parts in the discovery process that would have their product associated you know with with things that you know probably not appropriate for it um and so in the last quarter i forget the number i think it was like a 50 40 increase or something and the incremental margins on that you know are absolutely through the roof so i'm very bullish on basically them just rolling out a good modern ad platform copying and pasting what meta has done and that driving significant

growth for the foreseeable future at very high incremental margins as far as kind of what they plan in the future it's very hard to differentiate between what's propaganda and what is legitimate so my understanding would be that the core male homosexual use case very strong powerful network effect delivering users what they want in a very timely fashion they have a lot of ambitions that they have alluded to in terms of events, travel and other social experiences, which kind of break outside of this core geolocation functionality and finding people who are interested in a short term relationship. And there's sort of a bit of a risk there in that if they get distracted outside of

their main use case, they could degrade that core value proposition, which is incredibly strong and that would allow you know for people to other competitors who could focus on that to you know sort of capture marginal users so it's kind of this risk that they could get um distracted and you know um kind of on that same vein focusing more on um you know sort of some of these more even more marginal communities uh trans community bi community um you know whatever it may even the lesbian use case um again would sort of detract from that core core use case which is very different from how other minority communities um interact with each other and so as long as they don't mess with the golden goose i'm kind of happy with that but they have a lot of ambitions that

they have said not that they're making these developments now but they've said that they want to do in the future and i think that's a bit galaxy brained and could be a distraction for the company and cost them lots of business development dollars and software development dollars that don't necessarily need to be spent. That's kind of like their five plus year growth plan. So we're going to have to see how that plays out. I'd be very happy with them just sticking with the immediate road plan of just rolling out some of these, you know, very straightforward features that the other dating apps have done. And so, you know, part of their The five-plus-year growth plan includes projections for some of these additional use cases.

And my only point on that is we're going to have to see how effective they are at doing that. All right, folks. Before we move on, we want to talk about Blue Chippers Club. Blue Chippers Club was started by two friends of ours with the goal of building a tight-knit community of stock-focused investors. Inside this community, everyone gets to share and break down their portfolios, pitch stocks, receive feedback, and even participate in weekly calls. I truly love this idea, and it's why we're promoting it here on the show. I join the calls pretty much every week, and it's phenomenal for generating new ideas and receiving feedback from other like-minded investors. If you're interested in joining, head on over to bluechippersclub.com and hit apply.

That's bluechippersclub.com. The link will be in the description. To put some numbers behind some of the stuff Larry just said, revenue overall, I'll start with users. They have about – I believe it's 14.7 million monthly active users as the latest report, and that tends to grow high single-digit percentages each year. From what I can see, basically it seems to be between kind of 7% and 10%. Revenue has grown at north of 30% over the last couple of quarters. So that kind of gives you a sense of how much more they're monetizing. They're growing through monetization beyond just the user growth. Now, I think the monetization case makes sense.

obviously this could in theory you know it doesn't have a whole lot of costs other than the the fixed cost to set up the app so in theory the the profit should be there as well the one concern that i would have if i were looking at this for the first time and part of this i keep going back to this use case uh or this example of match group because brett and i well when we were looking at match group we thought huge network effect how can it be kind of be trampled you know they've they everyone goes there for the same reasons it feels very powerful it's kind of geography based too so it's like you know you kind of have to reach a certain amount of users for it to be worthwhile the but competition just kind of came

madam over and over and i i thought that they wouldn't succumb to it but they did it seems like over the last uh call it two or three years why has that not happened for grinder and do you think they can continue to i guess grow their user base uh without seeing any massive competition yeah it's um it's it's striking that these guys have really had no serious competition uh since they started like that's massively that's like that's like a tell in poker it's like why you know why is that the case um and it's a great like it's it's a really interesting point right because just to you just as you mentioned this is a like this is a target demographic and here I'm going to talk about homosexual men that are probably

the highest-earning segment of society. Like, as a group, gay men earn more than heterosexual men, which is very interesting, and they also have the most amount of disposable income because, for the most part, they don't have large families. Two very high-well-paying people usually make up a gay household. And, yeah, like, that would be like a – you'd think that would be like a perfect market to you know penetrate and i think you know on on balance you know

grinder is much closer to facebook than it is to match group um and a little bit for the reasons like it's it's a pure it's a pure network um and you know part of the reason for that is they had a breakthrough moment with you know the geo location tech when they came out um they hit the national zeitgeist a lot of people started using the app um and there's very little reason to migrate away from the app so like i mentioned before this is serving up in the vast vast vast majority of cases people are looking for a short-term romantic relationship and both sides essentially have the same motivation one of the differences with match hinge bumble whatever you want to call it on the heterosexual dating side there are split numbers of um motivations on both

sides right there will be there will genuinely be people they're looking for a long-term committed relationship there will be players who are there looking to you know run up a notch count there will be women who are interested in something tonight there are women who are not interested in something tonight they're more interested in a long-term relationship and in fact there'll even be people on there who are interested in just making social connections or friends and so you have this myriad of motivations on both sides and it makes the network a little bit unstable you know you see these areas where you know users decline certainly paid users decline and you know the ability to you know it's very hard to roll back pricing you know once you've said it

And so, you know, most of these apps on the heterosexual side have taken price over the years. And, you know, when, you know, you have these periods where you have a lot of even just free user declines sort of doubly true on the way down because people really aren't seeing the value. There's also sort of a cohort thing at play here. So when you're an 18-year-old guy versus a 35-year-old guy, your motivations for meeting a female partner are probably going to be a little bit different depending on the stage of life that you're in. It's probably a period of time when you are looking for a committed relationship.

There are other times when you're not looking for a committed relationship. And so those motivations are unstable on that side as well. the striking thing with the gay community is that they don't necessarily have these same inter-relationship pressures um you know they're kind of in a you know normative heterosexual relationship there are obviously people who are in committed long-term relationships with each other um but you know from a lot of conversations that i've had and people that i've met it's not uncommon for people who are married in a long-term relationship

who are gay, who might have a casual relationship with a third party at any given point in time. Probably, you know, a significant portion of them, you know, like to have a, you know, share an extramarital relationship with someone else. So you kind of have these, the cohorts never die. So their active user base is like 18 to 65. And those guys who are 18 in 2008 when this came out,

probably irrespective of whether or not they have found a committed relationship are likely still using the app in one form or another. And that same motivation that they had at 18 is the exact same motivation that they have now. And so you have a very constant long-term use case that underlies all of this. And there aren't things like status or looks, whatever you want to say, that come to play in the same thing. So it's much more of a stable network effect. Like if you think about Facebook, it's about connecting, you know, connecting you with your friends, you know, for your friends and family. And wanting to be connected with friends and family is something you'll want to do throughout your life. There's

never going to be a period in your life where you say, okay, I'm done with my friends and family now. Goodbye. And, you know, sort of the same thing on the credit card networks. You're always going to need to go to the store and, you know, buy something with your credit card. And, you The motivation for using a credit card does not change from the time that you get your first one at, whatever, 16, 17, to when you're 90. It's the same use case. So Grindr sort of exhibits those qualities a lot more than it does the traditional apps. The point of competition is a very interesting one. There have been numerous attempts for people to come in and offer a differentiated product to this market.

the guys who founded this and who sold it you know they were kind of a little bit disgusted at what they had created um and so the founders of grinder were gay obviously they knew exactly you know the kind of product that would um appeal to to their community um but you know they were also a little bit off put at how um you know focus the app became around short-term romantic interactions obviously as they got a little bit older you know more mature you know obviously people become a little bit more conservative um in these things and the founders tried to start their own app to compete with grinder that was more focused towards um you know genuine what they call genuine connections and kind of failed didn't go anywhere you know it didn't really

didn't didn't give this community what irrespective of what they say you know irrespective of what people say there's an underlying motivation um for using you know these apps and really didn't deliver um you know in more recent years as sort of archer um fluffies you know i think probably archer at this point i think i saw the last number was they'd gotten to about around 750 000 um users and that's a pretty good dint i mean that's um you know 1 16th 1 17th um of where of where grinder is and i don't necessarily think that you know this has to be like a you know one app to rule them all type situation and simply because of market segregation to categorize this market correctly grinder is really in the market for short-term male

homosexual intimacy that is the relevant market that's very difficult for someone else to come and compete with them on that just because of the network penetration at this point again users aren't that interested in how the app looks, what the ad load is, what they have to pay. They just want the most amount of people in the one place. Like, it's not a technology issue. This is an aggregation issue. And so off the sides of this, I think it's perfectly reasonable to think that, you know, an archer that might be a little bit more focused towards genuine connection, that might be an additional use case. You know, nothing to say that people can't use two of these apps and you know if if if they you know if they come to a point in their life where

they want to find a more committed relationship they might find something else it's just that double that over double the time they're also interested in having short-term and this is short-term romantic interactions and this is based on surveys of the community um and so yeah it's been very difficult for someone else to kind of get at them here um and so you know like you know But to put it back, you know, the main criticism on forums and people that I've spoken to and people that I've spoken to on the app, they, you know, they can be off-put by the overtly sexual nature of the app when they are looking

for something different. And some of those other apps, including Tinder and Hinge, by the way, Tinder and Hinge play an important role in the minority communities looking for connection, especially true with Hinge. And it's especially true for the non-gay communities just because those other communities are really not as interested in the short-term sexual interactions as gay men are. So it's something to keep an eye out for, but my proposition would be that Grindr's core use case is very hard to compete with at this point. Okay. So we've talked about stable user base. I guess we haven't talked the details of the

unit economics of dating apps, but I think people can guess that it's asset light. There's great cashflow conversion. I'm saying this because there's going to be cash coming into the balance sheet every quarter, every year, hopefully higher amounts over the next three, for five years. And what's going to be ever more important is management's decisions on capital returns and balance sheet improvement. They have a lot of debt on the balance sheet. They have been working that down. What is their plan with the debt returning capital to shareholders? I think I saw a, this might've been a shockingly large number of $500 million buyback announcement for a company that does through i think 300 million dollars in revenue uh but hey maybe they can hit

that within a couple of years but what what is their plan and do you like it dislike it does it make you like the stock more so this was kind of the casting um uh factor that uh you know made me really interested in the stock as an investment as opposed to just a business case and full disclosure i do own own the stock so um look basically you spot on from when the company de-spacked it had a ton of debt it's very under monetized and you know part of de-spacking was that you know the existing shareholder base but certainly the promoters were issued a large amount of warrants struck it like nothing um and so that the valuation of that warrant liability has sort of affected net income.

You have to kind of calculate the value of those warrant liabilities and then the difference in the valuation gets deducted or added onto net income. So the net income number has been all over the place in the last couple of years for that purpose. As of the last quarter, sorry, as of the last six months, they've basically taken out the entirety of the warrant liability. the largest shareholder who owned the warrants decided to convert so he took up stock when they

were retiring the warrants and uh they've been aggressively you know they've been trying to aggressively refinance the debt um you can imagine that you know taking out debt against a pre de-spacked um gay dating app would you know be userist might be the right word uh for the rate So, you know, their ability to refinance it, but also just really grow their business a lot and bring that debt ratio down has been really, really important. Importantly, about six months ago, they had an update from their new CFO. You'll have to forgive me. I forget her name. um but um basically the company came out and said you know once we reach our debt uh you know our

debt ratio goals this company will be returning most of its excess cash as um as dividends and share repurchases and that's like music to my ears um so debt coming down cleaning up the balance sheet returning capital and business results inflecting off of you know all the good stuff we've already talked about so that's right up my alley um yep so as a just to your point uh brett um yep in the last announcement uh they also the board authorized a 500 million dollar share of purchase which at the time was about 16 of the stock um a little bit less now i think as the price has rallied a little bit um and yeah i completely agree with that i i would be of the point of view that there's a tremendous amount of margin inflection and top line revenue growth

to come in the next couple of years driven by a lot of organic business and pricing and the high margin nature of the advertising. And they're going to be literally swimming in cash in a couple of years. So this will look a lot more like a bond than sort of has as it's come out of the despat chaos. And that's back to the original point. That's really why it got to a crazily cheap price just because you know the debt ran into the you know the 2022 sell-off and it's very difficult to find out like you know who had issued the debt and all these kind of things so all that stuff's getting cleaned up and you know they're probably going to become like a bit of a buyback machine um if not have a marginal dividend i hope they don't do any dividends and

they just um run run the share of purchase um and yet it's going to look you know very similar to You know, some of the other stocks I've talked about on here, like a FICO or, you know, like a Moody's or something like that, that would be where I see, you know, obviously some of those concerns I raised about the company's further business development efforts in the wider minority communities and things like travel and events and that kind of thing, you know, that might engender another investment cycle which could step up OPEX and, you know, probably capitalise software costs. So that's kind of the reason why I'm not as bullish on that, just because their existing use case is really good. So I think it's a very straightforward capital return program from here. The CFOs sort of made that clear in last year's Invest Today, and the most recent announcements have all been far and above what I expected. All right, folks. If you are a regular listener to Chit Chat Stocks, then you know that we use FinChat.io daily. FinChat is the complete financial data platform for stock-focused investors. They have robust financial data on more than 100,000 stocks globally, including company-specific segment and KPI data. For example, you want to see Amazon's revenue from advertising? FinChat's got it.

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link will be in the show notes. Yeah, it certainly has not been without its red flags over the last couple of years. I mean, it came public via SPAC. SPAC has kind of become a bad word. There's the warrant liability. There was the debt. There was sort of the Chinese private equity background and sort of all the management turnover or the management changes that were associated with the different ownership groups. However, as you've kind of laid out today, They have a very consistent user base, which has a high propensity to spend and should have very good cash flow dynamics. Why wouldn't this work? What do you see as the biggest risks?

Yeah, I think probably covered a little bit of them so far. Definitely the ones that you guys flagged with competition is probably front and center. Somebody else making significant inroads into the user community on a kind of parity-like basis might actually take away some of the pricing power of the company, which, you know, would have, you know, kind of put the whole thesis into reverse. If someone like Archer or Fluffies or whatever was able to aggregate a significant amount of the user base for a different motivation and then kind of like pivot towards, you know, what it usually becomes, yeah, that would be bad. And that would be kind of, you know, you might want to throw Grindr then into the categorization of a match or not a Bumble. I don't see them being that bad, but maybe, you know, Tinder or Hinge or something like that. That would be number one. I think, you know, corollary to that would be a management-owned goal.

um we've seen this you know a million times in corporate history but a company has a very good core business that generates a lot of money and doesn't require a lot of management um genius and management you know decides that they're they are geniuses and they're going to branch out into all these other areas and they're going to do m&a and on and on it goes um that would be a significant risk, primarily because it might distract them from what is already their very core amazing business. I think that's much less of a case with the current setup because, you know, the CEO, George Aronson, he is homosexual and he understands the app very well. There's been, there's a lot of criticisms people have of him. He's had a very tumultuous

entrepreneurial career, but, you know, I judge people on sort of how they've done and what their track record is so far and i would say the job he's done um leading grinder has been exemplary i think it's been been good not without its controversies by the way he you know issued like a mandatory return to office policy and a third of the workforce quit on that point nothing changed like i think that's that's another very good green flag when you like fire a third when a third of your workforce you know checks out and nothing changes um in terms of user growth and revenue growth and that kind of thing that's a very unusual um you know setup so um you know i think i think under current management they're moving away is uh unlikely

but again they have also you know talked about some of these more galaxy brain business development opportunities and there might be a point at which you know they start drinking their own kool-aid um and that happens m&a would be like a probably a you know whether or not that's a good thing or not not entirely sure if they were to go out and acquire archer or something like that might add to the network effect they have they might be able to cross user bases that kind of thing not sure that that would be a great time for the company um that might be like a google type you know we're going to kill the competition before they kill us type thing which would just mean that you know long-term expense base need to adjust for these guys you know rolling up

additional apps i don't think that's necessary uh i don't think they need to do that on the current trajectory in their current market position um and so yeah corollary of those two points is you know wasted money um money that you know that gets spent frivolously as opposed to being returned to shareholders i think on its current trajectory on a if you look at three five years make some assumptions you know that's you know never bulletproof to do that but if you have some sort of assumptions based on where you think the advertising business and the subscriptions can kind of like you know stay at the growth rate that they are you can get to some very interesting pre-tax numbers and uh and free cash flow numbers um and so you know my

preference would be for these guys to retire as much stock as they can as as quickly as possible And this is probably a business under those circumstances that can take a bit of leverage, can take a bit of gearing. So that would be my next thing. There are always extreme risk factors, you know, which can affect these things. I flagged a couple of these before. I think they're very unlikely, but clearly this app from time,

like all social networks, things like child pornography and exploited, you know, people trafficking, that kind of thing can happen on the apps. Quite often extremist political groups will use these apps to identify members of minority communities and physically attack them. So there's a phenomenon called gay bashing that does happen from time to time.

I'm not sure that's, you know, Grindr takes a lot of, takes user safety very seriously um and so you know those things do pop up from time to time and you know probably as the world becomes a little bit more politically polarized which i think is just that's just how the world is at the moment uh typically in an environment like that you know minority rights kind of go into reverse and aren't as um you know supported by the wider community as they usually would be and you know as you mentioned brett like the main use cases in North America. And at the moment, kind of these gender issues are being devolved to the states. And so the states that are like kind of, you know, turning back the clock on

some of the family law stuff, some of the abortion issues, and some of the other social issues. And so some of those things might, you know, be a good thing to keep an eye on as time goes on. And there is extreme political polarization, you know, you might see that. And so those risks are definitely more pronounced in the emerging markets so i would say parts of parts of asia africa probably even parts of latin america um where the where a lot of the international growth is going to take place in the future these places have been um you know very hostile to minority communities in the past and grinder is banned in several african countries and in several middle eastern countries whose cultures don't don't really accept um these kind of like minority

lifestyles so those are all the kind of things you want to keep in mind i think the really extreme banning stuff is not necessarily a threat in the main western markets but it is something to keep in mind all right that was a fantastic overview of what i would say is a high quality business i I will also add, it wouldn't be, you know, you got to stay on brand, hoping for the buybacks and increased buyback program with the name of the Substack Buyback Capital, which as we close things out here, tell people where they can find more of your work, what you do over at Buyback Capital. And for anyone that's interested, we'll have a link in the show notes to the website and

Substack. Oh, great. Thanks very much. Yeah, look, I'm on Twitter. almost every hour of the day at Larry Jamison. That's sort of more, a little bit more my constant stream of thought on any particular issue that comes into my mind. There's a link on there to my Substack, which is a buyback capital on Substack

where I cover, you know, like a range of high-quality Garpy businesses that are usually in some kind of bizarre situation. So like the de-spacking from Grindr was really like the opportunity opportunity to buy shares in a really good business at a very, you know, what might be a very attractive price, simply because it was so obscured by, you know, odd securities, a lot of debt and very unfamiliar business models. So if you're interested in some of those idiosyncratic business developments, pop on over, there's lots of free content. And, you know, there's some paid content for deep dives in particular companies. Yep, I'm looking right now, I see FICO,

American Express, actually the Buffett purchase, which is a great case study. I like reading that one. Instacart, CoStar, a lot of other good stuff. Go check it out. All right. Thank you everyone for listening to this episode. Hope you learned a lot. Let me hit the disclosure before we get out of here. We are not financial advisors. Anything we say on this show is not formal advice or recommendation. Ryan and I are any podcast guests may hold securities discussed in this podcast, may have held them in the past and may buy, sell or hold them in the future. Thank you everyone once again, and we'll see you next time.