Investors warn of ‘disconnect’ as markets price in early Fed rate cut
Some traders fear markets underestimate US central bank’s determination to stamp out inflation
Some investors are warning of a mismatch between market expectations and the Federal Reserve’s stated commitment to stamping out inflation as traders stand by their wagers on interest rate cuts next year.
Traders in the futures market are betting the central bank’s main interest rate will be cut to 3.3 per cent by the end of next year after peaking at 3.7 per cent in March 2023. That implies the Fed will have to cut rates by the second half of next year.
However, some investors argue that the market is misjudging the Fed, which has repeatedly said it is intent on tackling inflation even if tighter monetary policy results in higher unemployment and slower economic growth.
“It is, to me, a glaring market mispricing,” said Rebecca Patterson, head of investment strategy at Bridgewater Associates. “Market participants are conditioned from previous cycles to expect the Fed to pivot” to a more dovish stance, she added.
The most recent summary of the Fed’s economic projections, known as the “dot plot”, showed most officials expect the federal funds rate to reach 3.8 per cent by the end of 2023, before easing to 3.4 per cent in 2024. That forecast from June implies there will not be a rate cut next year. A new dot plot will be published next month.
Doubts over the Fed’s commitment to bringing down inflation have percolated for months, as investors have wavered in their conviction the central bank will press ahead in the face of a slowdown.
But the Fed and its officials have stressed they are determined to address the highest inflation in almost four decades. Mary Daly of the San Francisco branch this week said she was sceptical the central bank would cut rates next year.
“The worst thing you can have as a business or a consumer is to have rates go up and then come rapidly down,” she said in an interview with CNN. “It just causes a lot of caution and uncertainty.”
She said it would be wrong to think of a “large, hump-shaped rate path, where we’ll ratchet up really rapidly this year and then cut aggressively next year”.
Also this week, St Louis Fed president James Bullard said he supported a third consecutive 0.75 percentage point rate rise at the central bank’s next policy meeting in September.
Despite such protestations, equity investors are sceptical the Fed will follow through with sharp interest rate rises.
When the Fed embarked on an aggressive tightening cycle in March, US stocks fell into bear market territory as investors bet that higher borrowing costs would hurt companies and consumers.
But the blue-chip S&P 500 and the tech-heavy Nasdaq Composite have since June recovered nearly half of their losses this year.
“There’s this disconnect between the market and the Fed, and there’s this idea that the Fed is going to have to relent in its tightening programme to allow for weaker employment and slowing growth,” said Gregory Whiteley, a portfolio manager at DoubleLine. “That idea is really strongly embedded in markets.”
The recovery in stocks has eased financial conditions, making it easier for companies to borrow and hampering the Fed’s efforts to cool down the economy.
A Goldman Sachs index shows that US financial conditions have eased significantly since peaking in mid-June after the Fed’s first 0.75 percentage point rate increase.
Weekend Papers Summary
NEW YORK TIMES
-President Biden is planning a series of measures to further reduce greenhouse gases, including regulations on vehicles and power plants, officials said. In pushing more executive action, he is trying to make up for climate compromises Democrats made to pass the Inflation Reduction Act earlier this month.
-President Biden may deploy a series of regulatory measures, including new regulations on emissions from a variety of industries, even after signing the Inflation Reduction Act.
-Louisiana doctors concerned about complying with new abortion bans in post-Roe America gave a pregnant woman a devastating diagnosis, but not an abortion.
-A conservative group in Michigan filed a challenge to adding an abortion vote to November’s ballot, based on word spacing.
-After a recent court ruling that allowed Louisiana’s abortion bans to go into effect, the abortion provider Hope Medical Group for Women in Shreveport said that it would move out of the state.
-A new strategy of attacks on logistical targets in Russian-held territory is having an impact, analysts say, symbolically as well as militarily.
Ukraine updates: Russia replaced the commander of its Black Sea Fleet following a series of setbacks in the war.
-A federal judge declined to stay an order that Senator Lindsey Graham appear before a special grand jury investigating election interference by Donald Trump.
-Two House Democrats demanded social media companies address right-wing threats after the F.B.I.’s Mar-a-Lago search.
-Senator Lindsey Graham of South Carolina has fought a subpoena to appear in person before a special grand jury in Atlanta that is investigating efforts by Donald J. Trump and his allies to overturn the results of the 2020 election in Georgia.
-Dermatologists said that the key ingredient in a topical treatment to grow hair worked even better when taken orally at a low dose. Brandy Gray, 44, was seen by Dr. Crystal Aguh before and after treatment with oral minoxidil.
-In deep red Texas, Beto O’Rourke takes on guns and abortion.
“I can’t win this with Democrats alone,” the candidate for Texas governor said during a 49-day drive across the state that included deeply Republican towns.
-Eyeing a 2024 presidential bid, Gov. Ron DeSantis of Florida is visiting hard-right candidates in Pennsylvania and Ohio.
-The killing of Freya the walrus has polarized Oslo and threatens to blight the image of a country more associated with diplomatic good deeds than with mob-like hits.
-Retailers stumble adjusting to more selective shoppers. In earnings reports this week, companies struggled to adapt to a consumer mind-set vastly different from what it was during much of the pandemic.
THE FINANCIAL TIMES
-Traders at Goldman Sachs, Morgan Stanley and JPMorgan Chase have warned clients in recent days that the bounce in shares is not underpinned by confidence the surge can last, according to interviews with traders and private brokerage reports. Rather, the rally — including the frenzied boom and bust in meme stocks that recalls last year’s market ructions — has been fueled by hedge funds covering short bets structured to profit from the market decline earlier this year.
-As financial markets soared in 2021, fueled by a pandemic surge in technology stocks that made Tiger Global one of the most successful hedge funds on the planet, the firm invited in US downhill skier Lindsey Vonn to offer advice to about 30 investors.
-Former president Trump’s return to the fore of the US’s political stage, with a barrage of seething rhetoric and under a cloud of serious legal trouble, risks blunting the Republican party’s advantage heading into the midterm elections by alienating swing voters at a time when it was already showing signs of ebbing.
-Sanna Marin, Finland’s prime minister, revealed she had taken a drugs test after a video emerged this week of her partying and dancing wildly with friends. Marin said she regarded calls for her to undergo a narcotics test as “unjust” but had agreed to it to dispel any suggestion she had taken drugs. In the clip that first appeared on social media this week, other partygoers reportedly mention the word cocaine.
-Berkshire Hathaway won the approval of a US energy regulator on Friday to buy up to 50% in Occidental Petroleum, giving Warren Buffett’s company the option to vastly increase its stake in one of the US oil industry’s most storied producers.
-A senior French official said President Putin had agreed in a call with Macron on Friday that the IAEA inspectors could visit from Ukrainian-held territory — as demanded by Kiev — and would not be obliged to access the power station from the zone invaded and controlled by Russian forces, although the Kremlin did not confirm this.
-WeWork’s valuation soared to $47B, pumped up by funding from SoftBank, then crashed in 2019 as its heavy spending and Adam Neumann’s erratic behavior sank its plans to go public. Neumann walked away a billionaire, but his story — retold in books and television shows — became a cautionary tale for unicorn-hunting investors. Less than three years later, however, one of the biggest names in venture capital has put $350M behind Neumann’s latest attempt to change the way we live. This week Marc Andreessen, the Netscape co-founder who spotted tech hits from Airbnb to Facebook, announced his firm, Andreessen Horowitz, would be investing in Neumann’s new company, Flow.
-Just a decade after Crispr was invented, the first drug to make use of the revolutionary gene-editing technology will be with regulators by the end of the year, with the promise that it will eventually transform the treatment of genetic diseases.
-Air travel on both sides of the Atlantic has been in disarray this summer. From the start of May to mid-August, a quarter of flights into, out of, or within the US, UK and Europe were disrupted — delayed or cancelled — as airlines struggled to scale up operations to meet soaring demand, while labor shortages ranged from pilots to cabin crew, ground staff and air traffic controllers.
NY POST
-Senate Minority Leader Mitch McConnell threw cold water Thursday on talk that Republicans would cruise to control of the upper chamber of Congress in November’s midterm elections.
“I think there’s probably a greater likelihood the House flips than the Senate,” McConnell (R-Ky.) told the Northern Kentucky Chamber of Commerce in remarks reported by Fox News and other outlets.
“Senate races are just different,” he added. “They’re statewide. Candidate quality has a lot to do with the outcome.”
-Elon Musk has approached brain chip implant developer Synchron about a potential investment as his own company Neuralink plays catch-up in the race to connect the human brain directly to machines, according to four people familiar with the matter.
Musk reached out to Synchron’s founder and chief executive, Thomas Oxley, in recent weeks to discuss a potential deal, the sources said. It is not clear if any transaction would involve a tie-up or collaboration between Synchron and Neuralink.
German central bank chief Joachim Nagel warns inflation to hit 70-year high
Bundesbank president says surge in energy prices caused by Russia’s gas squeeze likely to drive inflation above 10%
Germany’s central bank chief has warned that interest rates need to keep rising despite the risk of recession as inflation reaches double-digit levels for the first time since 1951.
Bundesbank president Joachim Nagel told the Rheinische Post that the recent surge in energy prices caused by Russia’s squeeze on gas supplies was likely to drive German inflation above 10 per cent this autumn and keep it elevated next year.
“The issue of inflation will not go away in 2023,” said Nagel. “Supply bottlenecks and geopolitical tensions are likely to continue. Meanwhile, Russia has drastically reduced its gas supplies, and natural gas and electricity prices have risen more than expected.”
He added that “the probability is growing that inflation will be higher than previously forecast and that we will have an average of six before the decimal point next year”, pointing out that this would exceed the 2023 inflation forecast of 4.5 per cent made by the Bundesbank in June.
Economists have slashed their estimates for growth in Germany and the eurozone this year, while raising their inflation forecasts and warning that an end to Russian energy supplies would force Berlin to ration gas for heavy industrial users.
Moscow stepped up the pressure on energy prices on Friday by announcing it would shut the Nord Stream 1 pipeline — the main conduit for gas to Europe — for three days to do repairs at the end of the month, having already cut supplies to 20 per cent of capacity.
German electricity prices have hit a new record, seven times higher than a year ago — driven by the sharply higher cost of gas, which has risen 10-fold in the past year.
Prices charged by German industrial producers rose 37.2 per cent in the year to July, which the Federal Statistical Agency said was the highest increase ever. On a monthly basis, the producer price index rose by a record 5.3 per cent, mainly due to energy costs.
A heatwave and dry spell has reduced water levels on the Rhine below the level at which barges can be loaded fully, restricting supplies for factories, which economists are warning will also erode German growth this year.
“If further delivery problems are added, for example due to prolonged low water [levels], the economic prospects for the second half of the year would deteriorate further,” Nagel said. “As the energy crisis deepens, a recession appears likely next winter.”
He said the European Central Bank, where he is one of 25 members on its rate-setting governing council, would need to keep raising interest rates at its meeting on September 8. He did not say whether it would repeat the half percentage point rise of last month that lifted its deposit rate to zero.
“With the high inflation rates, further interest rate hikes must follow,” he said. “This is also generally expected. But I don’t want to put a number in the shop window.”
However, he said there were few signs of a 1970s wage-price spiral, adding that trade unions had “acted very responsibly over the past 25 years — they will do the same this time, I’m confident of that.”
The German economy stagnated in the second quarter, the weakest performance of the major eurozone countries. Last month, the IMF slashed its forecast for German growth next year by 1.9 percentage points to 0.8 per cent, the biggest downgrade of any country.
The German government announced plans on Thursday to cut value added tax on gas sales from 19 per cent to 7 per cent from October to soften the blow of higher prices for households. But large industrial users of gas, such as chemical companies, complained this would not help them with soaring energy bills.
German inflation last month rose close to a 40-year high of 8.5 per cent.
Several of the earlier measures launched by Berlin in June to tackle the country’s energy crisis — such as a cut in fuel duty and a subsidised €9 monthly train ticket — are due to expire next month, which will increase the burden for households and businesses.
Stablecoin issuers hold $80bn of short-dated US government debt
Ownership highlights how digital asset players are encroaching on traditional markets
Stablecoin issuers like Tether and Circle now hold $80bn worth of short-term US government debt, highlighting the expanding role of digital asset players in traditional financial markets.
Tether and its peers accounted for 2 per cent of the market for Treasury bills — debt instruments that are commonly used as a cash equivalent on corporate balance sheets — as of May, according to research from JPMorgan, more than the proportion owned by Warren Buffett’s investment behemoth Berkshire Hathaway. JPMorgan said the newer issuers had “considerable room to grow should stablecoins become a form of digital payment”.
The rising prominence of stablecoin issuers in a market historically dominated by lower-risk investors is one of the factors driving global financial regulators to step up their scrutiny of the broader crypto industry.
Stablecoins are cryptocurrencies designed to act as a bridge between the crypto and traditional markets, making it faster and easier for traders to buy and sell digital tokens. They are normally pegged to the world’s biggest and most stable currencies. The top three stablecoins by market cap, Tether, Circle’s USDC and Binance’s BUSD have a combined market cap of roughly $140bn, according to price-tracking site Coingecko. These are typically supposed to be backed at all times by reserves of highly liquid mainstream financial assets.
But in May, that backstop was called into question when Tether’s US dollar peg briefly snapped under punishing selling pressure — a slip-up that came hot on the heels of the failure of a smaller stablecoin, TerraUSD.
Janet Yellen, US Treasury secretary, said the collapse of TerraUSD was an event that “simply illustrates that this is a rapidly growing product and there are rapidly growing risks”.
Regulators have particular concerns over the quality of the assets that stablecoin operators say they hold in reserve. Terra was an algorithmic stablecoin that had no portfolio of reserves, relying on computers and financial incentives to track the value of $1.
The proposed Responsible Financial Innovation Act, co-sponsored by senators Cynthia Lummis and Kirsten Gillibrand, has also called for reserve disclosure requirements for stablecoin issuers.
In response, Tether and Circle, which together account for around four-fifths of all stablecoin issuance, have pledged to reduce their reliance on a type of corporate short term debt known as commercial paper and buy US Treasury bills, which are considered to be ultra low risk assets. Operators have also promised to improve their transparency.
Tether’s market dominance has shrunk from more than $80bn in May to below $70bn. But USDC — the stablecoin produced by Tether’s main competitor Circle — has been steadier, with around $53bn in issue.
“We believe one of the primary drivers behind the dramatic shift has been the superior transparency and asset quality of USD Coin’s reserve assets,” said JPMorgan.
China’s Videogame Makers Tap Overseas Markets as Home Prospects Dim
With fewer titles approved and domestic user growth slowing, Tencent and its competitors are looking to expansion abroad
Chinese videogame companies are moving rapidly into the U.S. and other overseas markets as regulations at home tighten and user growth stalls.
Tencent TCEHY -0.03% Holdings Ltd., the world’s biggest videogame developer, has doubled down on acquiring and joining with foreign studios. NetEase Inc., NTES -1.64% China’s second-largest game developer, has opened new studios abroad. Upstarts including miHoYo Co. and Lilith Games have established publishing labels that cater to global players.
The videogame sector is among the hardest hit by China’s regulatory crackdown on the tech industry. Since last year, authorities have approved significantly fewer games than before, tightened censorship of videogames and restricted play time for young gamers. China’s weakening economy, hurt by lingering Covid-19 restrictions, has pushed spending on games down.
As regulatory scrutiny increases and the economy slumps, videogame developers—like other Chinese companies—said they are recalibrating their business strategies.
“We had no choice but to go overseas,” said Yuan Yanbo, a former videogame executive in Shanghai who recently moved to Singapore to start a game company there. “You never know when your title will be approved in China. Maybe tomorrow, maybe in five years. But in five years, the company is probably dead already.”
In this year’s first half, China’s videogame sector had its first revenue and user drop since such data became available in 2008, according to the government-backed China Audio-Video and Digital Publishing Association. Total industry revenue fell 1.8% from a year earlier to about $22 billion, the group’s data showed. Domestic sales of homegrown games declined 4.3% while revenue from overseas grew 6.2%.
From videogames and films to news and social media, Beijing has long censored content to maintain social control. Under Chinese leader Xi Jinping, the Communist Party has tightened its grip on society and ratcheted up content control.
Last summer Beijing added new rules limiting play time for gamers under 18 years old to three hours a week, which authorities said was related to concern about the harm of videogames on the health of minors. Regulators also suspended granting licenses to new game titles for about eight months. Such approvals are needed for developers to collect money from in-game features.
More than 16,000 game companies in China went out of business during the approval hiatus, according to the corporate-registry database Tianyancha.
Until Mr. Yuan left his former employer in late 2021, he said he had been waiting for Chinese regulators to approve a game whose creation he was supervising since May 2020. The game is still stuck in the license-application queue, he said.
As recently as 2020, Beijing was approving more than 1,000 game licenses each year. Since resuming approvals in April of this year, regulators have issued around 240 licenses, mostly to smaller firms. Many games approved in recent months were submitted for regulatory review in early 2021. Several developers said that although licensing has resumed, the timeline for future approvals remains unpredictable.
Industry regulators have told companies that game content is subject to closer review, according to people being briefed on the rules. For example, games that feature same-sex relationships or transgender characters or that fabricate certain historical events wouldn’t be approved, those people said.
China’s National Press and Publication Administration, which issues licenses to games, didn’t respond to a request for comment.
Tencent, based in Shenzhen, in the second-quarter posted its first quarterly revenue decline since it went public in 2004, partly because of a 1% sales drop from a year earlier in its videogame business. It hasn’t received a new game approval since mid-2021, leaving it to rely on aging titles to compete with rivals’ newer hits such as “Diablo Immortal,” which NetEase co-developed with a unit of Activision Blizzard Inc. The game received approval in February 2021 and was released this July.
Tencent is counting on foreign studios in which it owns stakes, as well as in-house teams, to release games outside China for growth, its chief strategy officer, James Mitchell, told analysts this past week.
In December, it launched an international game distributor, Level Infinite. This year it has invested in at least six game studios in markets such as Canada, Spain and New Zealand. It is planning to invest more in France’s biggest videogame developer, Ubisoft Entertainment SA, people familiar with the talks said. Reuters earlier reported on Tencent’s plans regarding Ubisoft.
NetEase, based in Hangzhou, has opened two studios in the U.S. in recent months. Chief Executive William Ding told analysts in May that he envisioned NetEase’s overseas business eventually accounting for up to 50% of its gaming revenue, compared with the current rate of roughly 10%.
“As our company hasn’t been able to get any new game licenses over the past year, we have had to shift research and development capacity to the European, American, Japanese and South Korean markets,” Mr. Ding told analysts this past week.
This year the Shanghai-based game developers miHoYo and Lilith Games set up their global brands, HoYoverse and Farlight Games, in Singapore to publish games for overseas players. Both said they are hiring international staff to cater to players in different markets.
From diamonds to wine, investors rush to luxury collectibles
Previously the playground of affluent collectors, assets such as classic dresses and baseball cards are increasingly open to all
When Kim Kardashian sashayed up the staircase at New York’s Met Gala in May, wearing the crystal-studded “naked dress” Marilyn Monroe wore to sing happy birthday to President John F Kennedy, calls to auction houses surged in from an unlikely source: asset managers.
Demand for collectibles — one of the more “alternative” alternative assets — is soaring as appetite for recession-proof inflation hedges grows. Wary of overpriced, volatile stocks and bored to tears of low-yielding bonds, investors are increasingly pushing into niche asset classes such as wine, baseball cards, sneakers and diamonds.
Kardashian’s sartorial display called Wall Street’s attention to just how rapidly the dress — which is usually kept in an exhibition so as to preserve the delicate fabric — has accrued value over the past few decades. The garment gained 300 per cent between its 1999 sale for $1.26mn and its 2016 sale for $4.8mn. The S&P 500 index gained a relatively meagre 138 per cent over the same period.
The collectibles market has long been dominated by enthusiasts, says Darren Julien, the founder of Julien’s Auction house, which handled the second Monroe dress sale. But where there is money to be made, Wall Street will soon be. And while interest from investment firms has risen slowly over the past few years, there has been a sea change in the past six months. “Now hedge funds and professional investors are carving out pieces of the pie to put their money into collectibles,” Julien says.
Investment firms represent about a third of collectible purchasers, he says, a trend that is gaining speed as US inflation hovers around 8.5 per cent. In 2008, Julien’s had a record year, as people rushed to move their money out of cash and equities and into “hard assets”. This autumn is set to be a bumper season.
There is precedent for collectibles as hedges. Whisky has a compound average growth rate of 19 per cent over the past 10 years, according to trading platform LiveTrade Bordeaux Index. Pink diamonds offer a compound annual growth rate of over 11 per cent and have appreciated more than 300 per cent since 2008 according to FCR research. An index that tracks baseball cards has risen 1,000 per cent since 2021 alone.
Luxury collectibles were previously the playground of a small demographic of collectors or investors looking for creative places to stash cash. This is partly down to logistics: while gold bars can be purchased in increments as an inflation hedge, investors couldn’t break a diamond into shares without destroying its value.
Now, professional investors are turning the once privately hoarded assets into publicly investable, diversified offerings for clients. In July, Tribeca Capital manager Ben Clearly helped raise $50mn for a fund that holds rare pale-violet Argyle diamonds, with a minimum investment of $1mn.
Institutionalising the asset class is also helping to lower the threshold for access, letting everyday investors in. Luxus, founded by former Blackstone veteran Dana Auslander, is trying to catch this trend by bringing diamond investments to retail investors at a lower price point. Though investors might not be able to afford a rare 11.7-carat yellow diamond, they will be able to own shares of it, and benefit when it is sold on. Luxus plans to IPO the $1.7mn “Golden Dahlia” diamond in early September.
The broader push into collectibles has been catalysed, experts say, by cryptocurrency. Investment-grade wine has an average rate of return of about 10 per cent per year, according to LiveTrade. This felt sleepy compared to cryptocurrency — until crypto crashed earlier this year. “Crypto was a pull so far to the extreme, that everything behind it that felt so niche and esoteric before feels much more normal, and much less scary now,” says Tom Gearing, chief executive of wine trading platform Cult Wines.
Liquidity remains an issue for some areas of the collectibles market — including, ironically, wine. Funds that pool collectible assets for retail traders are nascent, but there are glimmers of the market broadening. Valt, the alternative investment start-up, pools assets such as collectibles for investors who want to own shares of Babe Ruth baseball cards and Bordeaux. Wine is soaring in popularity with retail as well as institutional traders — family offices make up close to half the market, according to brokers.
Still, some investors seek collectibles for a different kind of value. “We try to steer people towards looking at it for the merits of the asset versus a drink,” says Matthew O’Connell, chief executive of LiveTrade Bordeaux Index. “But I’d be lying if I said some wealthy investors didn’t occasionally dip into their portfolio.”
Tinder struggles to attract younger users as Gen Z singles look to new apps
World’s dominant dating app seeks new ways to achieve growth as rivals such as Bumble and Thursday thrive
Tinder is struggling to attract younger users who are starting to abandon the world’s dominant dating app, as Generation Z singles prefer hotter new services in the search for love after lockdowns.
The well-known app quickly became the dating service of choice for millennials since launching in 2012, as consumers switching from desktops to mobiles left older platforms such as eharmony and Match.com.
The latest generation of young people, who are returning to the dating scene after the pandemic, also appear to be shifting to alternatives to Tinder in the hunt for romance.
Downloads of Tinder, which allows users to accept or reject potential partners with the swipe of a smartphone screen, dropped 5 per cent in 2021 to 70.7mn. Rivals such as Bumble and new start-up Thursday have enjoyed consistent growth, according to new figures from app market researchers data.ai.
That trend has led Tinder to make changes in an effort to achieve new growth, from restructuring its leadership to betting on the so-called metaverse as the future method by which people will meet online.
“Sign-ups have not returned back to pre-pandemic levels,” Gary Swidler, chief operating officer and chief financial officer of Tinder parent company Match Group, told the Financial Times.
“New users remain a challenge and that’s where product innovation comes in. We need to give people a new reason to come into the [dating app] category, they haven’t had something new and exciting in a while.”
His comments come just weeks after Match said Tinder was failing to meet revenue growth expectations in its second-quarter results, ousting the company’s chief executive Renate Nyborg after less than a year in the role.
Match, which owns a host of dating sites including established brands such as Plenty of Fish and OKCupid, needs Tinder to retain its dominant market position. The app generated $1.65bn in revenue last year, more than half of Match Group’s total revenue.
The group’s share price has dropped more than 50 per cent this year, with its heritage platforms, such as Match.com, suffering declining revenues and paying users.
“It is on us to figure out what is the next great thing [in dating],” said Swidler. “It tends to come with technological evolution or revolution.”
One of Tinder’s big bets is the metaverse, where enthusiasts believe people will increasingly interact in virtual environments. Tinder is doing this through further gamification of the app, hiring executives from games companies Zynga, Electronic Arts, Glu and King in recent years to bolster its offering.
The platform is finding it tricky to execute this vision, rolling back its virtual coins feature this month, used for in-app spending, having only launched in November, after seeing mixed results.
The company is still figuring out how these features can effectively contribute to Tinder’s revenue and is currently reassessing the model. It plans to relaunch coins and introduce virtual goods on Tinder in the second half of 2023.
“A lot of older people are using Tinder now,” Swidler said. “If you’re looking for somebody who is a teenager and you’re thinking what are they going to use in a year or two when they are dating app eligible? That’s the audience we have to be looking at, the Gen Z audience.”
Reaching that audience is a challenge. More than 90 per cent of that generation feel frustrated with dating apps, according to Gen Z research agency YouthSight. They also feel less inclined to be in a relationship, with 40 per cent of respondents saying they were “happily single”.
Millie Shields, a 24-year-old influencer who creates TikTok videos about dating, said Tinder has a negative reputation, known for hookups rather than long-term dating.
“[Young people] tend to want to meet someone organically rather than have it forced on a dating app,” she said, adding that many people just use Tinder for entertainment.
Swidler said this stereotype was “hard to shake” but that the platform had now evolved and it was focused on making it a safe and positive space, including through the launch of a female-oriented subscription later this year.
“The key thing is the user experience being up to standard, making sure you actually are tackling those issues that younger people are very upfront about [like] abuse, harassment and unpleasant experiences,” said Rebecca McGrath, a senior technology analyst at market research provider Mintel.
“Tinder has tried getting into these other areas like currency and talking about the metaverse and . . . that’s not necessarily where they need to be putting their focus.”
Match does not share demographic figures of age or gender for Tinder, but estimates from data company App Ape suggest that 76 per cent of US Tinder users are male. Rival app Bumble’s design means women must initiate conversations on the platform — only they can send the first message to potential suitors.
Bumble increased downloads by 20 per cent last year to 21.1mn, according to data.ai, while fledgling app Thursday, which encourages in-person meetings, increased from under 1,000 downloads in 2020 to more than 200,000 last year and a further 100,000 in the first quarter of this year.
The introduction of gaming-inspired features and new subscriptions is aimed at boosting revenue as Tinder’s model relies on users paying for subscriptions or one-off spending.
In the second quarter of this year, Tinder had 10.9mn paying users — up 14 per cent year on year — amounting to more than 60 per cent of the Match Group’s total paying users who spend a monthly average of $15.86 per person.
In comparison Bumble has more than 1.9mn paying users, spending an average of just under $30 per month.
Both Tinder and Bumble declined to provide figures for total users, including those using the app for free.
However, as the cost of living increases, consumers are cutting down on discretionary spending such as digital subscriptions, which the company anticipates will impact revenue.
“Paying even a small amount for online dating is probably for many people a fairly easy cut if they can have a fairly equivalent free experience,” McGrath added.
Swidler remains confident about Tinder’s outlook. “Tinder is still the largest dating business in the world,” he said. “And that has a significant advantage because if you want to meet people, the best place to go is where there’s a lot of people.”
Manchester United’s descent revives ownership question
Plus, the Tokyo Olympics corruption probe, Disney’s sports empire, and much more
This summer’s transfer window has baffled the world of football. Todd Boehly and Clearlake Capital are spending freely at Chelsea, defying fears that American investors would tighten the purse strings. FC Barcelona have shaken off the financial straitjacket long enough to register some (not all) of the club’s many new signings. And newly promoted Nottingham Forest have taken an unorthodox “buy an entirely new squad” approach to this season, spending £130mn so far on 15 arrivals.
Over at Manchester United, a much bigger trade is rumoured to be in play: the Glazer family could, perhaps, just possibly, be willing to sell England’s most famous club. It’s worth noting that headlines about United being for sale have been around for more than a decade.
Still, we spent the week ringing up the sort of investors who’d love to buy in . . . but they’re sceptical. Further, we have a special dispatch from the FT’s Asia business editor Leo Lewis on corruption arrests related to last year’s Tokyo Olympics. Do read on — Samuel Agini, sports business reporter
Manchester United head into this weekend in an unfamiliar position: sitting bottom of the Premier League. The team’s dire performance has led to demands for “radical change” from the supporters’ trust, and helped fuel speculation that the Glazer family’s hold over the club might be up for discussion. Billionaire fan Jim Ratcliffe even pitched himself as a heroic white (or red?) knight should the “for sale” sign go up.
Critics accuse the club’s American owners of hoovering cash out since they bought it in a leveraged buyout in 2005. More than £1bn has gone on interest payments, debts and dividends under their ownership. All that money has come from the club’s own coffers, while rivals Manchester City and Chelsea have had the support of wealthy benefactors.
But United’s on-pitch troubles cannot be blamed on being frugal. The club has spent £1.35bn on players in the past 10 years, according to Transfermarkt, the fifth biggest spender in Europe and third highest in the Premier League. In that time the club has recorded a negative balance of £971mn in the transfer market, easily the worst in Europe. Waste, not want, has been the issue.
As recently as 2018, United sat at the top of Deloitte’s financial league table of European football in terms of revenue. Now it languishes in fifth.
The Glazers have long resisted vitriol from supporters. Despite the club’s poor start to the new season, longtime Glazer watchers are sceptical about the prospect of a change of control. After all, the family has sold shares before, notably in the club’s 2012 initial public offering in New York, without giving up their hold on the voting rights.
And if all that’s up for grabs is a minority stake, why bother? The Glazers, loathed by fans and struggling to build a side that can win, would still call the shots.
“Nobody in their right mind would take a minority interest in the club if the Glazer children continued to play any part in its affairs,” said a financier and United supporter watching the situation closely. The club has not commented this week on reports of a possible stake sale.
Others do see the logic. Sports bankers say United have no shortage of suitors. The club is a bigger brand and business than Chelsea, which fetched £2.5bn from US financier Todd Boehly and private equity firm Clearlake Capital in May.
Shares currently trade at about $14, well off the high of more than $20 last year. With an equity value of $2bn, getting in now could be attractive for an investor convinced of either better days ahead or a future buyout offer big enough to start a conversation. And in a scenario where the Glazers felt compelled to sell, a chunky stake should guarantee a seat at the negotiating table.