Match Group Inc (MTCH) 2002 Q4 法說會逐字稿

Good morning and thank you all for holding. All participants will be able to listen only until the question and answer session of today's conference. This conference call is being recorded. If you have any objections, you may disconnect at this time. If you need assistance during today's call, please press star, zero and I will assist you.

I would now like to turn the call over to Mr. Victor Kaufman, Vice Chairman of USA Interactive.

Thank you, sir. You may begin.

Why thank you, operator, and good morning everyone and we appreciate everyone participating again in the conference call with us since our earnings call late last week.

Once again, our lawyers insisted that I say that we may discuss on this call our outlook for future performance, and there are of course risks and uncertainties associated with these forward-looking statements, and our results could be materially different than what we currently anticipate. And we refer you to information regarding these risks contained in our public filings at the SEC.

We may also discuss certain non-GAAP measures today and I refer to you our earnings release and budget for comparable GAAP measures and a full reconciliation.

Joining me on the call today are Barry Diller, our Chairman and CEO, Dara Khosrowshahi, Executive VP and CFO of USA, Doug Lebda, founder, Chairman and CEO of LendingTree, and Roger Clark, our Vice President of Finance and Investor Relations.

As you all know, we announced this morning a tax-free stock-for-stock merger with LendingTree. As a result of that transaction, USA will issue 18.3 million basic shares, or 21 million shares on a fully diluted, treasury method basis. The value of the transaction, based on our closing prices of our stock between April 28th and May 2nd is somewhere between $626 million and $734 million. Obviously, that's a changing number because it's a stock-for-stock exchange and ruled as the market does.

Transaction will be neutral to USA from an accretion/dilution standpoint, but most importantly, we think that LendingTree has the growth prospects that equal the highest growth prospects of any of our other operating groups. The board of directors of LendingTree has approved this transaction by a unanimous vote. It's subject to a LendingTree shareholder vote, and we have entered into voting agreements with shareholders representing approximately 30 percent of the as-converted common stock.

One thing just to point out. This transaction is totally consistent with everything that we said that we're about, which is to act as a middle-man between supply and demand. Under no circumstance are we putting our balance sheet at risk in entering into this area, or in any way entering into the area of issuing or making mortgage loans or any other form of loans, insurance or anything else that might come up in the financial service area.

We are a key-based business operating in the middle. And with that, I think Barry Diller has some remarks, as does Doug Lebda.

Yes, thank you, Victor and thank you all again.

Since this is a whole lot of our piece (ph) . I mean, it is a fast piece, but it is all of the strategy that recently resulted in our simplifying, of course, the capital structure, et cetera. And every time for the last, I don't know, I think probably going back a couple of years, when we've been asked, all right, you're in some parts of interactivity and Internet life, what else are you going to do? And about every time, we've said, well, we can't be too specific here, but financial services and real estate certainly interest us. It's been extremely consistent and we have been on the case of it really for the last couple of years.

And I'm really -- this is -- Doug Lebda will also tell you, founder and CEO of LendingTree, this is something where we've had lots of discussions going over a long period of time. This is -- this was, as I say, it's not only on our screen some time ago, but I think our discussions with LendingTree go back almost I think about a year. And then, of course, we've been somewhat curious about this, I guess, in the last -- I don't know, probably four, five months, something like that. Then, of course, the deal life (ph) takes over and develops its own rhythm.

But just a couple of things about this area and how much it relates to what we do to what -- to the other businesses that we have. We're in a lot of high-growth businesses. This one's revenues are growing 30 percent annually, certainly high growth. It's at a critical mass. It's at revenues of 150. We'll have revenues projected of about 150 million this year.

Somebody earlier this morning said this is like a small business. And I said, what are you talking about, a small business? I mean, every experience that we have had, whether it's when we initially bought into hotels.com when revenues were, I think, $60 million a year, and a few years later, it was at a billion. Expedia is now doing in a quarter what it used to do in a year, as against a couple of years ago. These businesses -- a great part of this for us, and I think for this whole area, is interactivity, is that once established, once you get scale and leverage, even at a small level of scale and leverage, you get really very, very strong growth and the other part of it is as you're doing it, of course, you're reinforcing your brand. And not erecting impossible barriers to entry, but pretty good ones.

This one is -- this area -- the basic business is very early in online migration, but has all of the characteristics for why it ought to work just like the other areas that have come before. It's less than one percent of the consumer lending market, and it's got already, in terms of Web-branding awareness, 67 percent of the Web knows about it. So it's -- as I say, I think it's ideal for us. And the other part of it is that their initial efforts in real estate, and also an area that we have spent, I mean, an enormous number of hours studying, getting all sorts of people to study it with us to figure out what we should do, we really like what LendingTree is doing in this real estate sector. We think this is an area that over the years is going to have also enormous growth, also perfect for online, perfect for high-speed, broadband and all the other things that I think are going to come even more swiftly in the next couple of years.

So, for us, though, given our present side, which shouldn't relate, frankly, to anything we do, except in terms of the potential for the things we add. But we think this, while not in absolute size as we speak today, but we think this strategically is probably the most important strategic foot we've put down, certainly in the last more than year -- probably some time between a year or two. And we are very excited about it. We are very excited about the management of LendingTree, which is we believe committed to -- not only to their own business in the zealotry way that takes place in these sectors -- more than at least my business experience, that I've ever seen. But not only are they people who care (ph) about their own business, but I think they really like this alliance with USA.

And we've got 40 million, so to speak, places that we touch the consumer across everything we do. So it's not hard to think that the natural alliances are going to help LendingTree's growth. So with that, without going on, frankly, an inch longer, I would like to introduce Doug Lebda, who wants to say a couple of things.

Then we'll go to your questions, and we won't keep you very long. We'll be finished with this call certainly in a half hour, 40 minutes, tops.

So, Doug?

Thanks, Barry.

First off, I want to just let everyone know that I'm joined here by Tom Reddin, our President and Chief Operating Officer, as well as Keith Hall, our Chief Financial Officer.

Let me start off by saying that we too are extremely excited about this transaction for everyone involved. For our shareholders, this is not only a great transaction for their LendingTree investment, but more importantly, it's an opportunity to capitalize on the enormous potential of USA Interactive. For consumers, we can now count on expanding our presence to the nearly 40 million USAI unique users that span across all of their companies. And for our lender and realtor partners, many of whom have built entire businesses around LendingTree, this will mean more consumers and more transactions for them as they continue to grow as we grow.

And before I talk about what this transaction means to the future of LendingTree, I'd like to spend some time providing some background information for those who may not be intimately familiar with our company. As was already mentioned, we operate two distinct but highly complementary businesses, a lending exchange where consumers can fill out one form for any loan product and receive multiple competing offers from lenders, and a real estate exchange where consumers can complete one form and be matched with multiple, local, certified realtors who not only provide great service, but also significant value in either cash, gift certificates or airline miles, depending on the source partners.

Consistent with other exchange businesses, those that have already obviously been talked about and are very familiar to USA, both of these industries are very fragmented and very large. In 2002, real estate commissions were over $67 billion, and over $3 trillion in consumer loans were originated. Not only is this is a big business, but it's also extremely scalable and rapidly growing. We've had sustained gross margins over the past several years north of 80 percent. We've grown revenue at a rate of almost 150 percent since 1999, and I publicly stated that we expect to grow earnings and cash EPS at about a 70 percent growth rate through 2006.

As was already mentioned, our brand is one of the strongest in the arena of consumer lending, with brand awareness that is over 67 percent nationwide, and by the way, that is equal to even the major money center banks in the United States.

Now, even with all the strengths of our business, we're still in the very early days of these industries. Last year, LendingTree had only about seven-tenths of one percent market share in the U.S. consumer debt markets and essentially an insignificant market share of total real estate commissions. However, real estate is the fastest growing part of our business. And going forward, we see great opportunity for LendingTree and both USAI as a result of this merger, for several reasons.

First, obviously a larger capital base will enable us to significantly invest for faster growth and penetration of these businesses. Second, there are obviously going to be synergies, given the expertise of the USA management team and their history of growing exchange-based businesses very effectively. We're looking forward to the synergies with these other businesses inside the USA family and hope to be making some traction there very soon.

Third, and very importantly, we expect great synergy with USA's local strategy. In our business, the number one driver of our success is the conversion rate between applicants and closed transactions, and the number one reason consumers don't close with us is that they use a local provider, either a realtor or a mortgage provider. If we can embed our service in USA's localized content and vice versa, we can bridge a significant gap in our strategy to ensure that consumers feel that LendingTree is connected to them locally, not just remotely through the Internet.

Finally, on a personal note, I and our entire management team, and everyone at LendingTree is tremendously energized by the potential of this combination. USA's culture is highly entrepreneurial, results-driven and growth oriented. Frankly, so are we and we are pleased to be joining what I believe is one of the best companies and the best management teams in business today. Our goals are 100 percent aligned and we are laser-focused on the goal of growing the financial services and real estate verticals within USA by capitalizing on our early leadership position and USA's strength to create what I hope will be one of the great growth stories of USA Interactive.

Doug, thanks very much. I think we'll just cut to the questions.

So, operator?

Thank you. At this time, we are ready to begin the question and answer session. If you would like to ask a question, please press star, one on your touchtone phone. You will be announced prior to asking your question. If you would like to withdraw your question, you may press star, two. Once again, if you would like to ask a question, please press star, one on your touchtone phone.

One moment for the first question.

Our first question comes from Victor Miller. Your line is open. Please state your company name.

Wake up, Victor.

Victor Miller, your line is open. You may ask your question.

Hello.

Victor Miller, your line is open.

I'm on the line. Can you hear me?

Yes.

Yes.

OK, good. Doug, question for you in terms of not being as familiar with your company. But could you talk about the operating metrics you look at in your business, maybe year ago, where it is today, and where it should go in terms of number of users or number of lenders. What are the metrics you use as how you look at how you're building your business, either from the product side or from the user side? And then, Barry, could you talk about how you're going to do the marketing on this company, as you've done with Room and hotels? And the hotels at Expedia? And then lastly, when will you update your operating budget formally to include this in your EBITDA and all those other metrics. Thanks.

First, in terms of the metrics that we track, it's a very simple business. On one side, you focus on the cost of customer acquisition. And we focus on that in what we call the cost per either qualification form or the cost per transmitted customer. And that has come down significantly since we've established our brand build in 2000. Then, from there, you focus on the average revenue per customer. And the important metrics there are what we call the transmit rate. That's the percentage of the applicants who match lenders. The transmits per, which are the number of lenders that each consumer matches. And then most importantly, as I noted, the close rate, the percentage of the applicants who actually close.

And if you combine those two figures, what you see is about $30 to $40 per customer of positive what we call contribution margin, meaning about for every $30 we spend on marketing, we're going to get over $60 in revenue in return for that.

And, could I just get a sense, what was your customer base in terms of size a year ago and how many lenders and real estate agents did you have a year ago? What's the growth just in the product and the users side that you've seen just in the last year.

Sure. Tom, do you want to answer that?

In terms of the size of the customer base and the size of the number of lenders over the last year?

Right, and real estate agents that you work with, agencies that you work with, et cetera. Right.

Sure. First of all, we've had tremendous growth on both lending and also real estate in terms of lenders. We've gone from approximately, I'd say, about, somewhere in the neighborhood, of about 120 or so lenders about a year ago up to a little over 200 lenders currently.

In terms of real estate brokerage companies, we have 650 brokerage companies, which include both name-brand, national franchises, along with leading independents, and they represent over 9000 realtors who are on the exchange.

What did that look like a year ago?

That was fairly consistent on the number of brokerages. As we've scaled our volume, we've added realtors within the brokers, but the brokerage number was in the 600 range or so about a year ago.

And if you think about that business overall, the challenge in real estate is right now growing volume. The challenge in the lending business is more along the lines of the conversion rates. The real estate product is extremely well built out with the 650 real estate brokerages and some fantastic partners. And now we're going to look to ramp up the volume on that side.

And are you concerned at all, by the way, the level -- we've just had an amazing level of refinancing. Are you worried at all that that leg of the growth is starting to slow somewhat?

Absolutely not. And what we're experiencing in this business is very similar to what hotels.com and Expedia have experienced during slowdowns in the overall travel business, which is that you get offsets between supply and demand. So as the refinance volume has been very high, mortgage lenders have not quite frankly needed us, because their traditional channels have been essentially booming. However, as mortgage rates rise, refinance volume falls off, lenders come onto our exchange, they open what we call our filters, which is how they determine the amount of volume and the types of consumers they're going to get. They take increasing amounts of volume, the close rates go up, the transmit rates go up, and essentially supply comes onto the exchange and that balances out.

And we'd rather operate in that environment, quite frankly, because then we've got more supply than we've got demand, and you can go get demand by marketing more aggressively, which is another reason why we think this combination makes so much sense, because as interest rates go up, we'll have an excess of supply and we can work with USA to help grow the demand side.

And Barry, on the marketing side?

Thank you, yes, Victor. I was going to pick up right on the heels of that. I mean, LendingTree is projected to spend close to $60 million in marketing this year, and has done just an excellent job in every part of their marketing. I mean, their marketing is unique, it's clever, it's compelling. Most people who have no interest or no use for loans remember it. I was the first one, at least that I know of, that just said, You know, those ads are really interesting. I'm not taking out too many loans, but nevertheless, it's just done an excellent job.

The company, USA, spends about 400 million -- we'll spend about 400 million in marketing separate, apart from Lending, so we're fairly -- obviously we're quite aggressive in this area, and essentially, I mean, there's no group effort. The way it works here is each of the spenders really are completely in charge of their brand, their message, and from every overview we can find, I mean, meticulously piece apart just how to apply it out there.

And so other than group things that we are starting to do, marketing for us in each of the brands that we have I think has been one of the things that's worked very well, so we don't intend to screw it up much.

Victor, on the third part of your question, in terms of budget and revising budgets, et cetera, I think what you'll see is the transaction will close late summer, early fall. You'll have another quarter of LendingTree's own numbers as a public company, at which time I'm sure that they and we will give some indications of the way in which the rest of the year looks, but I think the most important time to look from us is as we put out our budgets for next year, later this year, which will talk extensively as to where LendingTree will be.

Thanks very much.

Good question.

Thank you. Our next question comes from Lanny Baker. Please state your company name, and you may ask your question.

Thanks a lot, it's Smith Barney.

Barry, you said that you thought this transaction was maybe the most important strategic foot that you've put down in the last year. And I wonder if you could -- maybe I'm not picking it up yet, but can you flesh that out a little. Is that because it's a business that's really outside of the USAI system that you're moving out into a new business? Is it because the financial category is one where you see many more transactions you're going to be able to get ahold of through this? I mean, how do you think about expanding the LendingTree brand, which kind of speaks about lending, into other parts of financial services if that's why it's so strategically important.

If you just kind of build out -- I think it's an impressive asset, certainly a lot of growth in it. But strategically, why do you see this as being such a big strategic new deal.

Because the market's exceptionally huge. The truth is, as you look at things, and this takes us from being in about 50 percent of the categories to being in 75 percent of the categories, just simply because of the size of the market, from the categories of how consumers spend money.

And this is a company that is in goods and services, and so for us financial services and real estate, which are of course interrelated. But both of these, both discrete and combined, these markets are not only huge, but when you think about them, when you think about how they interface to consumers, to customers, and how little they are online at the moment, and how this company, which is what we have done is taken essentially offline businesses and helped them to move online and get the sale and leverage that comes therefrom. These areas are about the richest there are for such online migration. And if you get the same kind of scale effects that we have seen in travel, that we have seen in personals, that we have seen across all of the things that we do, then my God, you don't have to say it much more about what would underscore my statement about how strategically important this is to the company.

I mean, this does not in any way say that anything really -- doesn't say anything negative about anything. Our company, our services and products, et cetera. What it really does say is it's the next evolutionary step for us in being -- relating more to consumers and what consumers do in terms of the acquisition of goods and services.

OK, that's helpful. Just kind of follow up with one other question is -- in the comments about it being neither accretive nor dilutive, are you talking about EBITDA or free cash flow or both, and then second and kind of attached to that, are the NOLs at LendingTree fully transferable USAI?

First, we're talking about both, EBITDA and adjusted EPS, and Dara will address the NOLs.

We will get to use the NOLs, subject to certain laws. So our use of NOLs are going to be somewhat limited, again, but [Inaudible] then on the specifics of the deal when it closes.

OK, thanks a lot.

Thanks. Next question, please.

Thank you. Our next question comes from Gordon Hodge. Please state your company name, and you may ask your question.

Good morning, Thomas Weisel Partners. You talked about the share of the market that LendingTree has as just a little under one percent. I was wondering if you could give us a sense for what the percentage of online, the whole online market is, and how fast that's growing? I gather LendingTree's taking share. And then who your biggest competitors are. Thanks.

Doug, would you like to take that one?

Sure. It's interesting if you look at -- unlike some other industries, getting accurate and good data on online penetration for lending, specifically, is very hard to do and the main reason is is that most research companies have stopped publishing it because most of the competitors have essentially gone out of business. Our best estimates are that it's probably about five to seven percent of overall lending. It is mostly dominated by single lender Web sites. As I mentioned, I believe, there were about 10 companies creating online lending exchanges, all of whom have gone away. The only thing that you have left are some I would call referral models, where somebody will sell your lead to a Web site, but they won't bring back offers and the real price discovery mechanisms that come.

And quite frankly, we see our main competition as the offline local mortgage broker and the offline local realtor who's not a member of our real estate exchange. That's where most of our consumers go, and that's the number one reason why loans don't close and consumers don't use our realtors. What is such a great opportunity about that is if you look at the over 50,000 mortgage providers, for example, in the United States and the level of fragmentation, you see essentially no national brands, no scale, and business models that are very process-dependent and very people intensive, unlike the very efficient LendingTree exchange.

So our major competition is essentially offline, local providers.

Great. Thank you.

Next question, please.

Thank you. Our next question comes from Eric Wasserstrom. Please state your company name and you may ask your question.

Thanks, it's UBS Warburg.

A couple of questions. The first is, gentlemen, can you tell me, how is LendingTree going to be organized within the USAI system? In other words, is it going to continue to basically run as it's been running, or is it going to be integrated in some way.

Bob said that it would be integrated. I mean, we really do believe that our divisions, our businesses, should be run by the people -- by their senior executives. And we believe in pushing as much authority and responsibility down as we can. Doug Lebda will join what was basically the group of eight. And sit at that table, which is the leaders of each of our business areas, sectors, and -- but as far as the culture that's been built up, as far as the business practices, as far as all of the things that made us want to associate with them, after having gone through -- I don't know, we must have gone through so many. I mean, Dan Merritt (ph) was very helpful in this, who's run strategic planning for the company is sitting here.

I don't know, Dan, how many endless different companies we looked at in the sector of real estate and anything that had the slightest bit of a connotation to financial services. I mean, we picked LendingTree because we liked the company very much. We do not intend to change it or its culture, et cetera. What we will do, which we have been able to do for the balance of our businesses, is that God knows we've got great resources. We're not total dopes, so every once in a while we can be helpful. We do absolutely have our building now and now have pretty -- I mean, 40 million is a pretty potent customer base across our services.

So there's lots of work that we can do in that arena, but what we will not do is integrate their business into our business.

OK, and that then applies to their existing operational and finance staffs?

Absolutely.

OK, great. And Doug, if you could just maybe flesh out for me this 40 million number keeps coming up and it is an impressive number, but what is it -- can you give me a specific example of how you can leverage those touch points or that customer base?

I think it's tough at this early stage to get too specific. One of the big areas that I think is important is what USA's doing locally through CitySearch and their other content areas, where LendingTree's realtor network would be embedded within their content, where we could make sure that the goods and services that we are promoting there are available then also to our realtors. We think there are some interesting things you could do with travel, as well. If you think about the major events in a consumer's life as they walk through their lives, clearly it's going to be things like buying homes, getting loans, going to events, travel. And all of those areas are potential areas where we can be effectively cross-selling and cross-promoting each other's services.

Tom, do you want to add anything to that?

Sure. Obviously it's early on in this stage, and if you viewed this and interactivity as through the screen, through the PC screen, through the Internet, as well as through the television, you can see that there's a world of opportunities in capturing consumers, not just online through the Internet, but also through the telephone channel and leveraging all the various relationships and properties.

We're just at the ...

We're just at the beginning.

You're absolutely right. Not only we're at the beginning of this relationship, but we are at the beginning of this era, which is when nobody has had a group of properties that are all interactive and all of which in one way or another, some subtle, some very direct, interrelate to each other. So for us, just the amount of data that we will have in terms of serving people, and given that we're going to treat very carefully with that data, meaning we'll never improperly exploit it. But relating A to B to C to D in terms of data warehousing and all sorts of things that we have just begun to get really serious about, is of course an additional kind of flywheel to everything that we do. And I think you will see that. Again, the absolute specifics of which, we can give you absolute specifics as it relates to hotels and [Inaudible] and match.com, et cetera, which are beginning to get a bit impressive.

And we think that there is natural law there. There is just natural alliance that will take place. And I think we'll probably in a year or two will become quite significant.

Great. And just my final question, can you give me a sense of how these conversations between the two of you evolved over time. How far back to they date, who approached whom and why this transaction is occurring at this specific juncture?

As I said earlier, I don't know, Doug, something like a year or so ago?

At least, yes.

And as I said, we've gone over -- we've done our homework here, and our interest in the area goes back a couple of years.

And once we knew about LendingTree and started thinking about it and we started having conversations and we went and spent some time understanding it on-site and we talked, as you do in these things, with varying time lapses between conversations because of this or that. But it was very clear to us, certainly I think six months or so ago, we said, look, we very much want to do that. And we were in the position, which is appropriate for us, of so to speak arguing why we would be a good fit for LendingTree, certainly rather than the other way around.

I think it can be definitely said that LendingTree was reluctant, believed that they were at the earliest stage of growth, et cetera, and I think we made a compelling case that not just in nominal first amounts share, but how we could be of great value to their growth, particularly on the real estate side. And that process just, as it does, went on for as I say it started up in real intensity six months or so ago. And finally, as always, you get very hot at the last minute and difficult. And the last month has not been an easy process, but we were both able to surmount -- I think we and LendingTree and its directors feel very solid about the transaction that they've done. That's a statement of the obvious, but I think in the end it was a fair and balanced transaction and we're all happy about it.

And in terms of, Eric, for the reasons for I think this specific time, from our standpoint, we are at a I think unique point in the lifecycle of LendingTree, which is we've built a brand, we've established clearly a great deal of success, and while we have grown rapidly, we're still a small company, but with enormous potential. And we've got this unique position that our brand is almost bigger than our business. And at times like that, I think you look for the right partner who can take that brand and who understands your business and give you the energy and the capital to grow it significantly, especially as you look to a new business, meaning a real estate business, which has tremendous synergies with our lending business, but is at a much earlier stage of growth than even the lending business is.

However, it's one that consumers tell us makes total sense for LendingTree to be in. So for all of those reasons, we saw this as the perfect time and saw USA as the perfect partner.

All right, thanks gentlemen, and congratulations.

Thanks very much. Next question, please?

Thank you. Our next question comes from Darrell Smith. Please state your company name and you may ask your question.

JP Morgan. Good morning. Are any plans to become an originator of loans, which could potentially be more profitable but also apply more risk?

No, absolutely not.

And the second question was, concentration in revenues among your lenders or brokerage companies, comment on that, and then also on the length of the contracts you have negotiated.

Sure. In terms of concentration, it's actually very spread out where no individual lender represents more than five percent of our revenue. And what we see is that the top lenders ebb and flow, so in any given month, some lender will have great service and great pricing, and they'll be hitting the bid, if you will. And then in another month or another quarter, things change at those lenders and they come in.

So there's definitely not revenue concentration on the lending side, and there's definitely not concentration on the real estate side, where it's even more fragmented than that.

And the length of contracts?

The lengths of contracts that we sign with our lenders are typically one year, as they are with our real estate brokers, but we keep those very flexible. It's interesting. Right now, because in the industry we have more lenders and realtors petitioning, if you will, to join our exchanges than we can possibly take on. We have a very rigorous screening process and have about 50 inquiries for every lender that we let on the network in that business, and similar statistics on the real estate side. So we can allow lenders to come in and come out and hit the market when they want to hit the market and leave the market when they want to leave the market. And that's the way it's designed. I mean, this is an exchange. We don't want to lock these lenders in. We want to add substantial value to their businesses. And what's interesting that you see is that these lenders have essentially, many of them now, built entire businesses around LendingTree, where they will have hundreds of people 100 percent dedicated to the LendingTree channel. In many instances, they do 100 percent of their business through LendingTree on the mortgage side and on the loans side. And we expect a similar evolution in the real estate side with further and further penetration into these individual entrepreneurs' actual business.

And the last question is, capture callers on the deal?

No. Next question.

Thank you. Our next question comes from Kathy Styponias. Please state your company name and you may ask your question.

Hi, Prudential Securities. Couple of questions for Keith and/or Doug. You said that you expect EPS to grow at a [Inaudible] of 70 percent for 2006. I was just wondering what your expectations are for what percent of the overall business goes online and what your market share is to get to those types of growth rates. And second, do you currently have any affiliate agreements with other CitySearch-like Web sites, i.e., Digital Cities. And does the deal with USA preclude you from doing anything on a go-forward basis.

And then third, Barry, for you. At what point do you expect to create some sort of affinity group or service that kind of wraps around all these services? I think you've talked in the past about creating some kind of point system so that if you're a user on a USA property you're accumulating points. At what point do you feel that you need to do that to really start leveraging the growth of some of these businesses, in particular, LendingTree.

I'll actually start your last question and then turn it over to Doug. That is what I was really referring to before in terms of the work that we're just beginning. I can't view any absolute timetable for this. I would say that it's certainly work we hope that will result in a real activity this year. And we're certainly -- we certainly believe that we are -- our unwalled garden, as we refer to it, is now getting such nice growth in it with breadth, et cetera, that it is natural for us. We absolutely believe it will become a real development of Internet and interactive activity -- that the ability to offer rewards program, discounts, [Inaudible] and things that resemble points systems is as you would think, I mean, it doesn't take any kind of rocket scientry to think that the Internet in particular and all the work that can be done kind of behind the screen, and done in such computational fast processing is going to -- is kind of natural ingredients for this.

So, as I said, I can't be really more specific about it other than we've said it, we've talked about this, and we intend to do it, and I would say hopefully that sometime this year -- I'd certainly say it's no later than first quarter next year.

So there, to the balance of your questions, Doug?

Sure. First, in terms of market share, the beauty of this business is that first it's so enormous. We had about $22 billion of total loans that we facilitated on the exchange last year, and that was about seven-tenths of one percent market share. This year we expect it to be about nine-tenths of one percent market share and the growth projections that I talked about would imply about a two percent market share five years from now, and about five tenths of one percent to 75 tenths of one percent in the real estate business. So you can get significant growth with very, very small changes in market share.

And as part of USA, we would hope to significantly increase these numbers over time with some additional investments. In terms of affiliates, we do not today have affiliates in the local areas online. We do have some significant online partnerships with portals. MSN is a significant partner and Yahoo! is a significant partner, Overture is a significant partner. And we also have a small -- what we call an affiliate network, which represents very small Web sites. There are over 10,000 of them that also send volume to LendingTree.

We're not dependent on these online channels. In fact, about 75 percent of our volume is coming from people coming to LendingTree directly, but these are very profitable and very important relationships for us.

Thanks. Next question.

Thank you. Our next question comes from Anthony Noto. Please state your company name and you may ask your question.

Thank you. Goldman Sachs. Two questions. The first is a financial question. As you run the analysis in acquiring something, a LendingTree specifically, what type of internal rate of return are you calculating on a return basis, and how does that compare? What type of hurdle rate do you need above your cost of capital to justify it, and does it assume any cost savings. And then secondly, could you segment the financial market for us, the way you look at it, and then in a similar fashion, to be analogous to the travel sector? The travel sector obviously is segmented by products, with air, hotel and cruises and packaging, but it's also segmented by end markets in terms of wholesale and retail, and then corporate and consumer.

As you look at the financial services sector, what segments would you define today that LendingTree's in? What segments do you think LendingTree could be extended to, and what would you need to go out and get other assets, either build them greenfield or acquire them to fill in those other financial services segments.

Thanks.

OK. First, on the first question, our hurdle rate, as you know, is really different depending on the acquisition and area. On this one, we really anticipate that this can have the kind of growth that we have seen from hotels.com, from Expedia, from match.com and any of those which are kind of off-the-chart growth. But that's what we believe about this business and its potential for the future.

I think at this stage I don't think it is -- I think it's just not productive for us to get more specific about what potentially could be next. I don't think anything's going to be next, I would say, certainly while we exhale a few minutes here. We've been, as you all know, extremely busy of late. I mean, if you look at what has been accomplished in one year, it even surprises us for swiftness of action. And we think it's all demonstrably so, carefully done. But as far as the rest of the area of financial services, I think what you would look for is probably in a few months we will probably get to talking more expansively about the product itself, and we think that of course we're not going to get into the areas of supply. I would say every other category of financial services and every other category that relates to real estate services are those that we would be in.

One thing to add to that is as you know, we've talked and talked and talked about those transactions as a percentage of online gross transaction value that we have, and based on prior definitions, we've been at eight percent. We believe we're going to increase that. I think we have to work in a more sophisticated way as to the way you actually calculate that for the financial service and real estate areas, and that's something we'll be updating over the next couple of months.

OK, thank you.

I think we'll have time for one or two at most more questions. So let's go to it.

Thank you. Our next question comes from Shawn Milne. Please state your company name and you may ask your question.

Thank you. Soundview Technology Group.

Doug, just a quick question. You laid out your three five-year goals, growth for LendingTree. Can you talk about -- would this transaction change the investment in the business in the near term? You've seen significant leverage as of late, you just raised your earnings expectations. Would this cause you to step up investment and possibly lower margins in the near term?

I would say it's probably too early to answer that. We just completed this transaction. I would say that this -- working with USA probably helps us ask the question, whether it makes sense to trade short-term profitability for much longer-term faster growth, but that's a question that we're just beginning now to ask ourselves.

OK, and secondly, in the real estate side of your business, you've got the referral model going and sort of the home-gain model if you will. Would you try to extend that into -- or find a property model. Do you believe you need to add property inventory to get more consumers to the site?

Yes, in terms of what you're talking there is specifically about listing. First off, we do not have a referral model. Our model in real estate is of getting paid for closed transactions. It's a model where the consumer fills out one form, gets choice of realtors, and gets a discounted service that is of a higher quality from name, local brokers in their market. So it's very different from the other models online. In terms of -- the other thing to note there is the brand awareness in terms of what is happening in real estate and the fact that there are essentially no other branded competitors in real estate make that seem just incredibly rich for us.

Very similar to our situation on the lending side, we think listings are nice to have, but not required. If you want interest rate information, there are lots of places on the Internet you can go, but you come to LendingTree to have banks competing for your business.

Similarly, if you want to go see the most homeless (ph) things, there are lots of places you can go, but if you want a consistent value-added service where you get choice and empowerment and turning the tables and have realtors seeking you out and getting your business, you come to Lending Tree. We do have listings on our site, it is resident (ph) after you complete the form and over time I think we would seek to expand that, but it's not something that we think we're required to do. While everybody else is focused on real estate, merely in terms of listings, we think that we can build a differentiated value proposition in a total different way, where listings is something that is nice to have but you can integrate it not only with our core service but with other things like property valuations and other services as well.

OK, thanks, that's helpful.

Next question?

Thank you. Our next question comes from Paul Keyung (ph) . Please state your company name and ask your question.

Yes, CIBC World Markets. I want to know on the Lending Tree side. How much of your business do you think is a direct result of the refinancing boom and how has USA discounted that when you look in terms of the growth of this business in the next year or two?

[Inaudible] We don't care. We're buying a business because of long term prospects, because we believe that the market, as we said earlier is, to say the least, big enough. We are the trainiest (ph) part of accessing that market. We couldn't care less what happens in the very, very, very near term. What we care about is that we've bought the right business in the right category or convinced we have. Doug, you want to answer the other part of it?

Just in terms of percentages, it's tough to put a specific number on because you need to remodel the business with changes in assumptions and you need to take a count for the variance between supply and demand that is encountered. But I can say that the fastest growing areas of our business are the purchase mortgage business and the real estate business and we plan our business around everything except for refi. And when refi happens sometimes it's nice and sometimes it hurts our business because it actually takes away from the other, much more profitable areas.

OK, and just one quick followup. It seems that a lot of success with your model is a function of the fragmented nature of the real estate business. Do you see yourselves as facilitating a consolidation of this business over the long term, or do you think that you'd like to stay where you are in terms of a pure secondary player?

No, we think that fragmentation is our friend in these businesses. If you look at the retail side of consumer lending it is incredibly fragmented. All of the consolidation that's taken place has taken place on the wholesale side where people essentially outsource the customer facing activities to mortgage brokers, and we are going to stay totally focussed on the retail side of the exchange where we can touch and be interfaced directly with the consumer.

Thank you.

One last question.

Thank you. Our last question comes from Rich Rapeto (ph) . Your line is open, please state your company name.

Yes, Podman Luddell, NBF (ph) . I just am trying to say investment banking representation, who represented, if there was and who represented the buy side and sell side?

USA is represented by JP Morgan Chase, and Lending Tree by Allen Company (ph) and Merrill Lynch. Sorry.

OK, last followup. There's been a lot of questions about timing and it's been long follower of Lending Tree and supporter, but still, Barry, was there any consideration taken into the timing here. You said you're looking longterm, but still, would you agree that we're at a mortgage peak -- was there anything that told you right now is the right time versus, say, after they prove their way through a refi slowdown?

Well, first of all, I don't think you can, you know, cut the salami, as they say, that thin. I mean, you can't -- these things happen when they happen and the one thing we were convinced of, us course it occurred to us, it doesn't take a lot for that to occur as well is this big refinance boom, and what effect it will have, but as I said earlier, the only thing that is important to us, we're absolutely convinced they will not only manage through this, but in fact, in a way, the timing of this is our opportunity, and so we're -- the refinanced pieces, as Doug said earlier, is just piece of the puzzle and it's probably not the most robust piece anyway, it may have masked things in the short term in terms of their own growth, etc., but the only thing that is of import is this: do they have a system that is beneficial to consumers and is that system that they have devised, and the fact that they have a lot of pleased customers in all of the segments.

Is that system that they've devised sturdy enough to scale and leverage magically, which is what's going to happen with all things that can go online propelled by the very properties of our internet and interactive life.

Frankly, people were asking us the same question [Inaudible] that after September 11th, why would you be getting into the travel business in such a weak oncoming (ph) travel environment that may have been about to rare. Actually getting into businesses that connect these suppliers to consumers in times of oncoming weakness make the business much stronger when these businesses come out of it. So we see a great parallel in the travel business such as works out for us, and we think that it will work out for us again.

OK, great, thank you.

Thank you, thank you all very much. We hope that we will not be back to you with the frequency that we've had in the last week, but as you know, you can't ever tell, so don't anyone think that what we are going to do in the next period is do anything but organize ourselves to meet the execution challenge of being engaged in all these great businesses. So with that, thank you all and we will speak with you soon.

Thank you, this concludes today's conference, thank you for your participation.