Finances

Gay dating app Grindr has partnered up with a Chinese gaming company for its first-ever outside investment. Beijing Kunlun Tech Co., the company that helped introduce Angry Birds to China, offered $93 million in cash for 60 percent of New Grindr LLC.

Beijing Kunlun Chairman Zhou Yahui came across the opportunity while scouting other potential investments in the U.S., said a company spokeswoman, Sophie Chen. Grindr is one of seven deals Zhou has overseen for Kunlun since April. The company hopes its newest addition will broaden its portfolio of services and create a new source of revenue. It is expected to leverage Grindr's popularity to augment income from outside China by directing users towards its games.

“Grindr is the top platform in their area and is mostly known as data-driven, as well as for their great user base,” Chen said in an e-mail to Bloomberg. “It’s essential to the Kunlun global Internet eco-sphere.”

Although the deal awaits antitrust review by the U.S. Government, Bloomberg reports that Beijing Kunlun’s shares rose by the maximum daily 10 percent limit after news of the pact went public.

The move isn't a surprise for those who have been following Grindr's maneuvers behind the scenes. The app had been exploring a sale or fundraising round for much of last year in hopes of accelerating its growth beyond the matchmaking sphere.

In the wake of Kunlun's majority investment, Grindr has been valued at $155 million and founder Joel Simkhai assured users that it would be “business as usual” for the app in an open letter posted on the company blog.

“For nearly seven years, Grindr has self-funded its growth, and in doing so, we have built the largest network for gay men in the world,” he writes. “We have taken this investment in our company to accelerate our growth, to allow us to expand our services for you, and to continue to ensure that we make Grindr the number one app and brand for our millions of users.”

Simkhai also promises “a renewed sense of purpose” and “additional resources” post-investment, as well as new features and services planned for 2016.

Grindr, founded in 2009, hosts 2 million visitors daily across 196 countries, according to a company fact sheet. Despite its runaway success, the Los Angeles-based mobile app does not list China among its top 10 markets by daily active users. The US takes the top spot, followed by the UK, Mexico, Brazil and France.

China’s attitude toward homosexuality has changed radically in the past decade, meaning the scene could finally be set for Grindr to expand within the country, although it will face stiff competition from a domestic gay social networking app (founded by a former police officer) called Blued.

The business of online dating continues to grow, as more apps enter the market and compete for funding from investors ready to cash in on the next Tinder. The latest financial news in the industry involves popular gay dating app Grindr, who just announced that Chinese online gaming titan Beijing Kunlun Tech has taken a “majority investment” in their app.

According to The New York Times, Beijing Kunlun’s stake in the company will be about 60%, with the remainder to be owned by Grindr employees and Joel Simkhai, the company's founder. The valuation of Grindr seems to be about $155 million according to the same article, although the actual amount invested was not disclosed.

Interestingly, Grindr had not raised capital from outside investors prior to their deal with Beijing Kunlun. The company was started and funded by Simkhai himself, who began with only a few thousand dollars. He grew the company and the brand: according to PC Magazine, the average user spends up to 54 minutes a day on the app – a figure that exceeds Facebook’s 42 minutes and Instagram’s 21 minutes.

According to leaked documents back in August, Grindr predicted pulling in about $38 million for 2015.

According to Financial Review, Carter McJunkin, chief operating officer of Grindr said in an interview: "We have users in every country in the world, but in order to get to the next phase of our business and grow faster, we needed a partner," McJunkin added that the relationship made sense for Grindr because of Beijing Kunlun's digital expertise, and because the company agreed to let Grindr's founders continue its operating structure and retain its current team.

Beijing Kulun saw Grindr as a good opportunity to expand beyond its core gaming focus, into more of an overall “lifestyle” brand. 

It’s interesting to note that Beijing Kunlun’s choice to purchase stake in a gay dating app seems incongruous, since homosexuality is still a taboo subject in China, and many gay people face widespread discrimination. It is not clear if Grindr intends to expand its business into the Chinese market, but there would be social stigma to overcome.

Beijing Kulun might see Grindr as a sound investment above all, despite its target market. Or perhaps they are paving the way for other Chinese investors to expand and reach out to invest in more diverse, successful brands outside of China. "We have been very impressed by Grindr's progress to date and are extremely excited about the future of the company," Yahui Zhou, chairman of Kunlun, said in a statement. "We will continue to seek out and invest in high-quality technology companies led by top-tier management across the globe.” For more information on this gay dating app you can check our our Grindr Topic.

Friends Reunited won’t be available to message, post and keep in touch anymore. The once-popular social site, founded in 2000, was left in the dust by rivals such as MySpace and later, to a larger extent, Facebook.

Friends Reunited has a turbulent history. At one point a tech darling after quickly gaining three million subscribers in 2003, it was sold to ITV in 2005 for 125 million pounds, or about $208 million US. At its peak, 23 million users were on Friends Reunited.

But what the company didn’t intend was that employers would begin to use the service to check on potential and current employees, gauging what they said on social media as opposed to how they conducted themselves at work. It led to businesses using the site as a way to spy on employees, gathering information such as whether an employee was looking for another job, what they were saying about co-workers, or what interviewees and potential employees were saying online that could be potentially harmful.

At one stage, according to UK newspaper The Telegraph, Friends Reunited was blamed for a spike in the divorce rate on the grounds it encouraged classroom sweethearts to rekindle romances.

Instead of a positive, uplifting social experience where people felt secure to engage and share, the company found its platform being used as a way to spy on people for bad behavior. Naturally, users over time stopped posting and using the service. Membership dropped, especially when Facebook entered the picture a couple of years later. While Facebook continued to gain users, Friends Reunited found itself floundering.

The company was sold yet again in 2009 to DC Thompson for only 25 million pounds, and had only a fraction of its user base still active on the site. In 2012, the company decided to do a reboot and rebrand itself “Memory Box,” hoping to take on Facebook’s rapid growth. Memory Box did not succeed.

In 2014, DC Thompson offered the platform back to the original founder of Friends Reunited Steve Pankhurst, who thought he could restart the fledgling website. But in an announcement made on self-publishing platform Medium, Pankhurst announced its closure in January.

He wrote on Medium: "The first part of our plan was to put Friends Reunited back to make it more like the original site  --  that is, listing your schools and memories of your school days." However, this didn't really happen.

Pankhurst is now working on a new social media site called Liife, which allows you to upload photos and mark and share them with friends to identify significant “moments,” like trips, awards ceremonies or graduations. He said the new site would in no way replace Friends Reunited.

The related service Friends Reunited Dating still appears to be in operation and is not affected by the closing of the social service Friends Reunited. For more information on dating site please read our review of Friends Reunited Dating.

A year after laying off 15% of its staff, Zoosk is ending things with another 40 employees. The break up will see the San Francisco-based dating platform part ways with 1/3 of the company.

Despite $61 million in funding, Zoosk has hit hard times. The old-school web dating app first hit it big building extensions for MySpace, Facebook, Hi5, and Bebo. Two years after launch, it reached 40 million registered users and 12 million active users. Bessemer Venture Partners, ATA, Crosslink, and more offered millions in funding. Other money came from selling subscriptions for premium features, like additional ways to contact dates.

Despite its early success, Zoosk has struggled in recent years. The company has found it difficult to adapt to the changing, increasingly mobile-focused times. Apps like Tinder, Hinge and Coffee Meets Bagel now dominate the market, edging out older dating services that haven't evolved to incorporate modern technology.

Zoosk has felt the sting severely. The company was forced to abandon its plans for an initial public offering in 2014, after filing for a $100 million IPO. At the same time, its founders stepped down and former CFO Kelly Steckelberg became CEO. The management shuffle was followed by a layoff of 15% of the company in January 2015.

Circumstances have failed to improve, leading Zoosk to its latest decision to let go another 40 team members. Steckelberg gave TechCrunch this statement:

“This reduction will increase operating efficiencies and streamline responsibilities as we prepare to bring several innovative product announcements to market in 2016. Our optimism for these developments that we expect to positively impact our growth does not diminish the reality of today’s news felt by our staff. We are committed to treating the impacted colleagues with respect and support during this transition.”

Zoosk is not the only one suffering in the current climate. As funding becomes harder to find, a number of startups are having to part ways with staff to stay in business. The online dating market is particularly difficult to compete in, as there are so many options for consumers.

Britanny Carter, an analyst for the research firm IBISWorld, spoke to the Wall Street Journal about the issue. “In terms of revenue, the online-dating industry has matured," she said, "but there are too many players and not a lot are generating sufficient revenue for these sites.”

Unless Zoosk has a major overhaul in store – something that can drag the dated service back into relevance – it may be doomed. It's best hope now could be a buyout from a bigger dating company. For more about this service you can read our review of Zoosk.

Online dating provider Spark Networks has released its financial report for the third quarter of 2015, revealing a mix of highs and lows.

The company suffered a 22 percent drop in its year-on-year revenue, taking in a total of $11.7 million for the third quarter. Along with the dip in profit, Spark Networks also saw a net income loss of $822,000 for the quarter, compared to its $95,000 loss for Q2 of 2015.

But it's not all bad news. The report also highlights positive results that could mean things are looking up for next year:

• Both Jewish and Christian Networks show simultaneous subscriber growth for first time since Q1 2013
• Spark's mobile presence now exceeds over 200,000 monthly active users across five brands
• The acquisition of JSwipe expands Spark's offering for the Jewish community
• The re-launch of both JDate and ChristianMingle is on schedule for Q4 2015

CEO Michael Egan stated, "The last three months represent a true inflection point for Spark Networks and the clearest indication yet that we are on the right path towards turning this business around.” He notes four achievements in particular that he believes will be instrumental in getting Spark Networks back on track.

First, the subscriber base grew for the first time in two years. The growth was modest, but it came during what is traditionally a seasonally slow period. The momentum could carry into Q4 and Q1 2016, which are typically the strongest seasonal periods for Spark.

The second accomplishment is a record contribution margin on ChristianMingle. A new marketing strategy, and more sophisticated communications with members, has proved to be highly beneficial for the service.

Third is the launch of a handful of new mobile applications. Only a year ago, the company didn't have a single native mobile app. Today Spark Networks has nine apps across five different brands representing over 200,000 monthly active users. CrossPaths, targeted at millennial Christians seeking to meet others who share their faith, has been especially valuable.

Finally, in early October, Spark Networks closed the strategic acquistion of Smooch Labs. As the developer of popular Jewish millennial dating app JSwipe, Smooch Labs is a powerful new ally for Spark. With JSwipe added to JDate, which traditionally serves an older audience, Spark Networks now offers well-rounded romantic solutions to all singles of the Jewish faith.

Successes aside, Egan knows there is still work to be done. “We remain committed to driving revenue and EBITDA growth and continuing to execute against our product improvement roadmap,” he said. “Through both organic development and acquisitions we are proving that we can build and grow fantastic brands that serve important market niches. It is a very exciting time for Spark."

For more information on the popular Spark Networks dating sites and apps you can read our review of Christian Mingle and JDate.

IAC made major strides in the third quarter of 2015. Not only did earnings beat analyst expectations, the company also announced the $575 million acquisition of PlentyOfFish and plans to go public with an IPO.

IAC's third quarter financial results show a company that continues to dominate in its field. Highlights include:

• IAC will continue its partnership with Google for four more years. Google will provide IAC and its network partners with sponsored listings and other search-related services.
• The Match Group revenue increased 19%, or 25% excluding the effects of foreign exchange, to $274.2 million. The Match Group Adjusted EBITDA increased 37% versus Q3 2014.
• Within Search & Applications, Applications queries and revenue increased 28% and 2%, respectively, the first quarter of revenue growth since Q3 2013.
• In the Media segment, Vimeo grew paid subscribers 22% to over 650,000 with revenue increasing 27%.

Greg Blatt, Chairman of The Match Group, believes the company has plenty to look forward to. “We expect to complete our acquisition of PlentyOfFish this week,” he said in a prepared statement, “adding another of the leading global dating brands to our portfolio, at which point we will have over 59 million monthly active users and 4.7 million paying users. All in all, a solid quarter with lots of positive activity.”

Tinder is still one of the hottest topics in the dating world. The Tinder subscription business continued to perform well in Q3 2015. “We have been able to deliver optional paid features that a portion of our users highly value,” said Blatt, “while enhancing the vibrancy of the community through their introduction.” Though monetization is important for Tinder's success, the app focus primarily on growth initiatives going forward.

The other big news for The Match Group is the forthcoming IPO, which is expected to be completed during the fourth quarter of 2015. IAC will sell a 14 percent stake in Match Group, offering 33.3 million shares priced between $12 and $14 to the public. At the midpoint, Match Group will raise $433 million.

The IPO is not without its detractors. In an article for Forbes.com, Peter Cohan outlines four reasons the IPO isn't worthy of a right swipe from investors. He notes that the structure gives the public shares very little voting power, that the proceeds go to repaying the parent company's debt, that the valuation is far below what analysts expected, and that the underwriters are weak.

Multiple similar companies have pulled their IPOs in 2015, including online dating platform Zoosk. It will be interesting to see where The Match Group goes in the final quarter of 2015. For more information on IAC's flagship dating services, you can read our Match.com review and our Tinder review.