Zoosk, the fast-growing online dating service, just filed the paperwork for an initial public offering, and its S-1 provides the first in-depth look at the company's financials as it seeks to raise $100 million in capital.
Backed primarily by Canaan Partners, Bessemer Venture Partners and ATA Ventures, Zoosk booked revenues of $178.2 million in 2013, a 63% jump over the previous year, and cut its losses by 87%, to $2.6 million. Most of the revenue comes from subscription fees, but about 13% of the 2013 total came from the sale of virtual currency, which members can redeem for perks like the ability to promote their profiles to other users.
IBISWorld estimated last year that Zoosk controls about 8% of the U.S. dating market, although that share is likely somewhat higher now, with its membership growing 44% year-over-year in the interim.
A few other takeaways from the S-1:
Zoosk spends an awful lot of money on marketing. That rapid membership growth didn't come free. Zoosk spent nearly $129 million on marketing last year. That one budget line accounted for 83% of the company's expenses for the year. Marketing spending exceeded research & development spending by a factor of nearly nine to one; this even though the company employs nearly four times as many people in R&D as in marketing (80 vs. 22).
There's nothing wrong with spending money on marketing if it works, but for an online dating company, overreliance on it as a customer acquisition tool is problematic. Churn is high in the dating industry, where the definition of success means losing a customer. That makes it hard to throttle back spending in pursuit of profits.
It's also strong on mobile. From the S-1: "During 2013, members using mobile devices had an average of 32% more sessions per day than members using personal computers. We were the #1 grossing dating app and a top 25 grossing app on the iPhone in the United States as of December 31, 2013 and our Android app has been downloaded over ten million times." Also, this: "In 2013, 41% of first-time subscribers paid through a mobile device, up from 22% in 2012."
And that's good because...
Tinder is a real threat. The "risks" section of an S-1 are mostly boilerplate, but when Zoosk says that "new and different types of social discovery may also increase in popularity at the expense of online dating," it resonates. After all, Tinder already has 10 million daily active users and got there without spending hundreds of millions of dollars on advertising. It may not be worth $5 billion or anywhere close to that, but Tinder could be hard to dislodge.
