Match Group Inc (MTCH) 2003 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the IAC Q2 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will open up the lines for questions and answers. (Caller Instructions). As a reminder, this conference is being recorded. At this time, I'd like to turn the conference over to our host, Vice Chairman, Victor Kaufman.

Thank you operator and good morning, everyone. Before we get started, our lawyers once again insist that I say that we may discuss on this call our outlook for future performance. And of course there are risks and uncertainties associated with these forward-looKeung statements and our results could be materially different from what we currently anticipate. We refer you to information regarding these risks contained in our public reports filed with the SEC. We will also discuss today certain non-GAAP measures, and I refer you to our earnings release for all of the comparable GAAP measures and full reconciliation.

Joining me on the call today is Barry Diller, our Chairman and Chief Executive Officer; Dara Khosrowshahi, our Executive Vice President and CFO; Julius Genachowski, Executive Vice President and Chief of Business Operations; Eric Blachford, CEO of Expedia; Bob Diener, President of Hotels.com; Tom McInerney, CEO of HSN, Doug Lebda, CEO of Lending Tree and Roger Clark, our Vice President of Investor Relations and Finance. We do hope on all of our conference calls to have heads of our operators joined us so you can ask them specific questions.

Our quarter was really very strong, led by the travel and electronic retail. Travel continues to be our big growth engine. Our revenue in this sector grew 72 percent and operating income before amortization increased 92 percent over the comparable period last year. HSN has definitely also hit its stride. Domestic revenues grew by 8 percent and operating income before amortization grew by 25 percent. This is the second quarter in a row and a first for us in our history that HSN's domestic operation have increased at a faster pace than QVC. We're finally taKeung away share. Now we need to build on this consistent performance and internationally, HSN's growth is even greater than in the U.S., led by Uvia (ph), which was not included in the prior year period.

On an overall basis, adjusted EPS was 18 cents and we anticipate equally or exceeding our budgeted adjusted EPS of 75 cents for 2003, even though we will have significantly more shares outstanding. Cash, once again, is very strong. The first six months of 2003, we generated 823 million in free cash flow, helped by an increase in worKeung capital through our merchant hotel business model. We now anticipate that our free cash flow for the year will be approximately 1.2 billion. Even though cash is vital to us from a valuation standpoint, we don't believe investors should try to put a multiple on free cash flow. Rather, we believe that adjusted EPS is the best metric for valuation purposes. Our cash also grew during the last quarter through Liberty's exercise of their preemptive right. Even though we were not permitted during this period to buy back our stock in the public marketplace because of legal restrictions relating to pending transactions, we did buy back IAC warrants from Vivendi in a private transaction covering 28 million shares for $407 million. Now that the transactions will be completed over the next several weeks, we will be in a position to buy back stock under our already approved authorization. But as you know, we are extremely cautious in this area and we will be opportunistic about timing and price. We are well aware of our substantial cash and securities balance and it is a high priority for us to utilize those funds in the best way to create shareholder value. As you know, this can be achieved in a number of ways that we have already previously discussed, including through investments in our existing businesses, acquisitions and through the shrinKeung of our capital structure. With that brief introduction, here's Dara with some operating highlights, after which we will turn it over to Mr. Diller, who will have a few remarks, and then Q&A.

As you mentioned, we reported excellent results across the board, especially in travel, despite the war, which affected revenue negatively in the early part of the quarter. The travel business has generated $2.6 billion in gross booKeungs, a 58 (ph) percent increase over last year, including 7.5 million hotel room nights sold. Overseas, Expedia and hotels.com both continued to grow aggressively with hotels.com launching 14 international versions of its web sites and Expedia international gross booKeungs growing 148 percent year-over-year. (indiscernible), which wasn't included in our year ago numbers, contributed 21 percent of travel's revenue growth this quarter, and that is strong performance, despite the difficult travel environment. Ticketing performed as expected with used (ph) sales down slightly in the quarter due to the shift of some significant on sales from normally the second quarter to the first quarter before the war. If you take Q1 and Q2 for ticketing together, revenue and operating income before amortization for ticketing grew 16 percent and 32 percent, respectively, year-on-year. The dot-com portion of the business continues to grow with 51 percent of total worldwide tickets sold online in Q2. The personals business increased its revenues 62 percent and operating income before amort (ph), 32 percent. Paid member counts did decrease sequentially as expected in the seasonally weak second quarter, but the rollout of Match 5.0 (ph), which is the new site, has been a great success and we expect to see good growth in the back after the year, based on very encouraging results in July. Our efforts in local services continue with EPI launching the data version of a digital coupon book and Citysearch such rolling out its PSE model. Lastly, PLC (ph) has made great strides in rationalizing its cost structure in the call center business and is positioned to sell for growth on a go-forward basis. As we grow, our businesses continue to scale. Our overall margin for operating income before amort increased to 13.3 percent, its highest ever in Q2, versus 12.5 percent in Q1 and 10.7 percent in the year ago period, excluding certain charges. This shows extraordinary leverage in our businesses, even as we invest aggressively for future growth. With that, Barry had a couple of remarks.

A very couple. First as you all know, I think you all know, some people even now say whatever happened to you, I thought there was this company, USA Interactive. But in the quarter, we changed our name. We think that over time that (indiscernible) IAC shorthand for Interactive (indiscernible) will bear well with the test of time. It is hard for us to talk because it's hard to get used to of course because we had our own shorthand but it got hardwired into our brain. So every once in awhile, we're going around saying USA. But in time, it will all change. I think in this period, also, it seems that the trinity of Amazon and eBay and Yahoo has been extended by one to include us, so sometimes people call us now four horsemen or whatever. Whatever you can call us, it's nice that we're added to it. I think that one fact that when we realize, even surprises us that our relative strength in this sector, the sector that as we all know, has had such growth, in terms of its relative to almost any other business and given the Internet and things. But it is kind of remarkable that our cash flow to date is greater by a lot than eBay, Amazon and Yahoo combined, and that is really to us an extraordinary fact. I think it supports our strategy of becoming the largest and most profitable e-commerce business using multiple brands. They may not know IAC, but it is awfully hard to look at us relative to our peers, given the growth that we had and the fact that we do lead in almost -- I think it is almost every number that there is, I guess with the exception of gross booKeungs, gross transaction, where I think eBay leads by some amount. Anyway, it has obviously been a good quarter. We have been at work simplifying things, getting to be an operating company, getting to use our name effortlessly and now we look forward to your questions.

(Caller Instructions). Victor Miller, Bear Stearns.

Good morning. I have to two behind the numbers questions, if I May. First, in your February budget, you projected free cash flow at approximate 811 million for the year. Now you're saying it could be 1.2 billion for the year. How do you achieve the 50 percent more in cash flow? Could you talk about your CapEx versus your original budget? It seems like you're tracKeung much lower. And how should we look at the worKeung capital and its quality, and I have a follow-up.

I think on the cash flow, the worKeung capital, which is to some extent, seasonal, we see higher worKeung capital now in Q1 than in Q2. It came in higher than we expected frankly because the travel businesses have performed better than we expected in the budget. The CapEx is running below budget. Part of that is due to seasonal and timing in that some of the CapEx is going to be more related towards the second half than the first half, and that's why the relative cash flow second half versus first half is a bit lower. So it is a combination of worKeung capital and CapEx.

On the question of worKeung capital in and of itself is part of this free cash flow. As you know, a significant part of that element is from our merchant hotel business as part of Expedia and hotels, and it is real free cash flow. It is money that is consistent with the business model on which we operate. It is money that we can use and it is money that, as the business of Expedia and hotel grow, actually expands.

And the quality, I would imagine, of the credits is quite high, no?

Absolutely.

Second question -- you said you would still do 75 cents per share in adjusted EPS. In your original numbers in the budget in February, you had 555 million average shares out; now you only have 790 million shares. That implies that your adjusted net income could be 176 million higher than the original budget. If we tax affect this, it would imply EBITDA (ph) could be even much better than that number. Am I missing something? Is that true?

You're missing the minority interest. In bringing in the subs, we took away the minority interest that was in front of the budget, so that is a combination of minority interest. It's appearing, and of course, operating income before amort overperforming, and I do believe our tax rate has turned out to be a little bit less than budgeted, so it's a combination of all three of both.

Your net income should not be -- is your income of 176 going to be a higher number than you expect to exceed your EBITDA budget? In other words, how does that translate back into the EBITDA line?

The EBITDA translates -- on the budget, we had EBITDA translating into net income, but we were subtracting minority interest away from that. So I am saying is that the relation between budgeted net income and forecast net income and budgeted EBITDA and forecast EBITDA is not the same. The two are not going to be freezed (ph) at the same rate, because you have minority interest in the budget, which is not there anymore.

Thank you very much.

Darrel Smith, J.P. Morgan.

Great, thank you. With only 3 percent of the European travel booked online and limited competition, the European travel market appears to be ideal conditions for you guys to succeed. Can you comment on where you see the most near-term opportunity, relative to European demand between air and hotel offerings? And also on the supply side of the equation, can you provide more color on the traction you've had signing up European hotel operators and the potential margins with the merchant model there? Thanks.

I think the opportunity in Europe is (indiscernible) correct as you characterize it, as being very large. I think it's diverse. We look across air and hotel and see good opportunity (indiscernible) landscapes changing pretty rapidly, but it has historically been very much a packages market and we think we're in pretty good shape, given our technology base with (indiscernible) packaging and what we've done in the U.S. to do very well there. We're already seeing good results. We have about 148 percent year-over-year growth already in our international revenue. The hotels.com folks I know have also been quite aggressive about signing up hotels, and we're finding that, given the fact the European hotel market is actually more fragmented quite a bit than the U.S. market, we're looKeung to get very good traction there I think over the next year or so.

Paul Keung.

I'll limit myself to two questions. One is -- looKeung at hotels.com and Expedia, I noticed the room rates in one has gone up 3 percent, the other one is down 5 percent. Meanwhile, the room rates, or rooms sold, increased at Expedia, but (indiscernible) slightly in Hotels.com. I just want to give you (ph) some color in terms why you're seeing those trends. And I know you break it down international as well, in terms of what you're seeing there. The second question has to do with home shopping network. LooKeung at online growth has accelerated the last few quarters. I was wondering if you expect that trend to continue and what are the most significant issues that contribute to that?

On the room rate trend, I think with Expedia and hotels.com to some extent, serve different markets in that Expedia.com has more of a concentration in destination markets in Hawaii as (indiscernible) from vacation and the Caribbean. So it is more of a vacation type customer, and that portion of its business has been growing faster. And those kinds of destinations carry higher AVRs with them than other destinations. So I think as far as hotels.com goes, its' AVRs (ph) track pretty well with industry AVRs and it's really a function of industry as to where AVRs had upwards or downwards. And as far as relative growth, I think Expedia, it's not -- both Expedia and hotels.com have are share and are very, very strong. Expedia just as you all know is gaining share at a very, very quick pace, so the difference in room rates is really just a function of that.

Anthony Noto, Goldman, Sachs & Co.

Thank you very much. A couple of questions in the travel sector and then a question or two on capitalization I will follow up with. On the travel sector, Expedia and hotels are both still gaining share, Expedia obviously gaining more than hotels. I was wondering if you could comment on the trends you are seeing into the third quarter, specifically on the demand-side as it relates to units and then revenue per unit, either ADRs (ph) or revenue per ticket. And do you think that we could after a year of declining revenue per unit rates, start to see an improvement in revenue per unit as the business traveler comes back and there's less capacity, and then I have a follow-up on the capitalization. Thanks.

Erik, do you want to comment on travel trends? I don't think that we really talk about Q3 in the trends in Q3, other than the trends look good. Erik or Bob, do you want to talk about ADRs?

I don't think that we've got too much to say about ADRs. I think July looked fairly strong from the demand point of view, compared to Q2, but I think that is largely because April is somewhat depressed by the war and SARS. We would expect over time for ADRs to go up. Also from hotels.com perspective, we recently launched (indiscernible) dynamic packaging, but we're still a very small percentage of our business. ADRs are higher in the packaging segment. So as we book a larger percentage of our business, as part of the package, we would expect those ADRs to be higher.

On the capitalization question, in the press release, you talked about 845 million shares in the fourth quarter of 2003 expected. I was wondering what assumptions go into that. Does that include any additional preemptive rights taken by Liberty in relationship to the lending tree acquisition? Does that include an increase at all in basic shares or other acquisitions? And then one other question for Bob on hotels. How did your profitability go in the quarter relative to the first quarter, given you launched so many international sites? Thanks.

On the capitalization, the assumptions include the Lending Tree share hitting for the fall quarter. And also, we do have some assumptions in there regarding option exercises based on pasting really this year and last year. Those options are exercised the shares outstanding, the basic share number has increased. And we do have assumptions on basically the share price staying where it is. What was your second question? (MULTIPLE SPEAKERS) hotels.com growth internationally, given our recent announcement of a launch in 14 new international sites. (indiscernible) just recently launched them, so we expect much of the second quarter building the infrastructure. We now have 14 foreign versions of Hotels.com. So consumers that come in various countries, such as France, Italy and so forth, can see a local version of their site. We believe that will drive very strong demand and it will increase our book to book over time. We're seeing very strong growth similar to Expedia in Europe, and we expect that to continue. We also plan to launch a marketing campaign for hotels.com in the fall this year, so we would expect that to also accelerate our international growth.

[Safa Rashtchy] Piper Jaffray.

Good morning. Barry, can you talk about what stage do you see the portfolio of companies in producing higher than some of the their components (indiscernible)? In other words, some benefits of integration among the companies, as well as expected benefits of migration to online from companies such as (indiscernible) and API where the acquisition was largely based on this thesis that there would be some migration and combined with the some (indiscernible) integration, it could produce above expected returns. And also, a quick question on match.com. This appears to be the first quarter that there was a sequential decline. Is there anything to be read in that, is there an inflection point to kind of (indiscernible) wall, or is it just a hiccup (ph) until the next growth phase happens? Thank you.

First of all, as it relates to the sum being greater than the parts, we're at the very beginning of this process. As I think you all know, we have just kind of gotten to the stage where we're getting confident in being an operating company and confidence I think of the business leaders that run our operating businesses. And we started several parallel kind of initiatives that we think that over the next year, two, three, because we do think it is a fairly long cycle, we will begin to make relationships between our various sub-brands. We think there are all sort of things -- we've talked about this before -- that we will begin doing, whether it is in terms of rewards programs or various marketing programs that tie them together. We are now -- I think we are now -- we have held steady at about number 8, in terms of our combined reach. We are certain that in the spaces between our properties, we are going to be able to create relationships that are going to give us a greater rate than they will be by standing alone. But we're really just at the beginning of this. As it relates to -- I would not look for anything really for the balance of this year. I'd look rally for some of these initiatives to come in line, online and in '04.

As far as our integral and EPI, both of them have embarked upon going online. As you all know, that has really been our experience -- taKeung off-line businesses and bringing them online and the scale and leverage effects, they take effect, do wondrous things. So they are just beginning those processes. And again, I think that you really look for 2004 to see both of them having much more online adoption. As a relates to match.com, yes. Match.com had a decline in memberships that went on for about, I guess it probably was three or four months, something like that, and it has reversed itself with the introduction of match 5.0, which we invite all of you to do and you should each of you take the personality test on match.com, because it will teach you many things about yourself and about your relationship to others. I'm not saying that you should all get on the dating service, because that's probably not appropriate for most of you. But in fact, match.com and its 5. release and all of the bells and whistles that are part of it, including these personality tests, are really just great, really fun to do and very enlightening. In any of event, it has reversed itself and for the last I guess 30 days, every single day, it has been a net up day of I think real significance. So match is back, gaining net subscribers. It will have -- you saw we were there about three weeks ago and we saw some of their plans for new releases towards -- I think it's probably towards a little bit the end of the year where there will be even more -- the ability for match to take people's attributes and more perfectly match is growing every day, and some of the new products are just dazzling in that regard. you see them and you just go -- how could you do that? How could you actually have a system that -- (indiscernible) I think it's going to get people to stay together any longer. We're not necessarily in surface (ph) of that, but given the odds and the averages, we're really happy with the development of match.com.

I will give it a try.

To answer your first question, one piece of low hanging fruit that we are embarked upon cross company is cross company sourcing, and it is an effort that we just started. And already this year, we think that we will have a $10 million benefit to that. So it's putting all of the telecom together, the hosting, etc., disaster recovery. So it is just the tip of the iceberg (MULTIPLE SPEAKERS) there's a lot to do there. There's much to be done. Again, as we now have the blinders on for this as an operating company in the space of interactivity, there is a list of things that we need to accomplish on an execution basis. It is very long, but one thing that I think I can say -- I think my colleagues all agree with this -- is one by one, we are beginning to accomplish them and that is good. Next question.

Gordon Hodge, Thomas Weisel Partners LLC.

Apologies, I got on late. I'm curious on City Search and the EPI integration, if you could talk about that a little bit, is the EPI sales forces selling CitySearch inventory now? And also, can you talk a little bit about the reach that the CitySearch sites are getting now in the major markets since you have some anecdotes there?

First part of the question, no. EPI is not selling CitySearch. One of the things that we've learned since this acquisition, the agenda for EPI, which is to go offering some new products, etc., etc., that is agenda enough for the balance of the year. And until we know more, we're not going to combine those sales forces. CitySearch has begun its PFP -- paid for performance model -- and it is in the early stages of execution. It seems to be going well, but it is early. We certainly know that that model from everything you all read about Overture and Google, is a positive one. We're absolutely certain that local, it will work, if not better than anyplace else, certainly as equally as well anyplace else. I don't have in front of me, so we'll have to get them to you, the monthly reach figures, but they -- on uniques and whatever -- but they have remained fairly stable I think over the last several months. There's no change in them, but I am looKeung at too many figures this morning. So I don't have it in my head, but we will certainly get it to you, Gordon.

Great. I know that long-term, I think -- correct me if I'm wrong -- but I think your vision there is that CitySearch may actually be the funnel of traffic that will drive -- in the absence of having a portal like a Yahoo or a Google or AOL or Lycos type franchise driving traffic to your sites, that CitySearch may actually bubble up from below. Is that still a division or?

Yes. We think the bubble up is definitely going to be a both offensive and defensive way of generating traffic to the things that we do. We're really do -- everything that we have learned in the last period about search and about everything tells us that we're very much onto something with our CitySearch. But it is very much, even though it is definitely not a business yet and it is not going to be a business for awhile in the terms of business meaning that you have more net revenue than your cost -- but CitySearch for this company, which has invested a considerable amount in it already -- but CitySearch for us is a very, very core activity. We want to build it. We think if we now next month have the product, that the next step is telling people about it. And that if we do that with focus and attention and more discipline than we've ever had in the process of building CitySearch, that in a while, we will have something extremely important for the company. It is the one area that is not obviously brand commerce directed, but it is the one area for us again for both offensive and defensive reasons, that I think is critical to our growth. So we very, very much -- we spend a lot of time on it. I do believe as I say (indiscernible) industry redundant, we are more focused than we have been and know what we need to accomplish. And we are about the execution thereof. And as I think again, you will start to see hopefully, you will start to see real results for CitySearch in the 2004 year. But given the strength of this company, given how all of our other businesses are performing, this kind of deficit spending, investment spending, is exactly what we should do. And I will be redundant, so I'm not going to go on anymore. I think answered the question.

Great, thanks.

Kathy Styponias (indiscernible), Provincial Equity Group

Good morning. Three questions. First with respect to Expedia, if you could just give us a sense of lay of the landscape in terms of what Expedia's market share is overall and online travel, and in particular in the merchant business, relative to hotels.com and Travelocity. And if there's anything in particular that you're seeing on the horizon from your competitors that causes you to pause, that gives you some sense of worry. Second, with respect to the reversal of the reserves (indiscernible) is that related to state local taxes -- I was just wondering if you anticipate any larger deltas in the reserve on a go forward basis, or will they be of similar magnitude, if at all. And third and finally for you, Barry, interactive has an incredible amount of cash on the balance sheet, almost 5 billion. That will probably be closer to 6 billion at the end of the year. Could you just -- I know you're going to be investing in your own businesses, potentially buying back stock and/or looKeung at acquisitions. With respect to investing in your own businesses and acquisitions, could you maybe gave us a little bit of a better sense where internally you think you might be spending the money, where you think you'll get the best return? And on the acquisition front, maybe you can answer for us -- in the last 6-12 months, maybe what looks more attractive or less attractive in businesses that you have looked at in the past? Thanks.

Erik, why don't you take the first part of this.

Sure. We don't tend to actually think very much in terms of market share. I guess we compare ourselves to the next leading competitor, and we're growing a lot more quickly than Travelocity is, both sequentially and year-over-year, so we feel pretty good about that. Obviously, the travel market overall is enormous. Is it is the world's biggest market overall, and online, is still a pretty small slice of that. I think Forrester had it at about 16 percent of all travel was online last year, and that's growing very quickly. So (indiscernible) the category keeps growing quickly, we feel pretty good about our position overall.

Dara, you want to take the second part?

(indiscernible) occupancy (indiscernible) reserves. We establish the reserves in light of all the back end (ph) circumstances. So based on what we know now and what our intentions are, we think that the reserve is appropriate. Of course, that can change on a go forward basis based on what happens. So it is difficult to answer anything at this time.

On the third general question. First of all, we're investing our money in our businesses. Primarily, I would say, the largest piece is in marketing. We believe that it is very much in our interest to pour every dollar that we can into maKeung these brands stronger and we're doing so wherever there is opportunity. We're also certainly spending in technology. We are certainly maKeung investments in real estate through Lending Tree. I don't know Doug, if you want to talk for just a brief 30 or 60 seconds on some of your thoughts about real estate that? I think that would be fine right now. Sure. I think overall specifically, if you take the business first overall, what we are excited about is obviously the fact that the mortgage market is starting to turn. Interest rates are starting to go up in the mortgage business, and what that causes is very similar to what Expedia has seen and hotels at times when the overall travel industry has challenges. That makes you that much more aligned with your suppliers and that much more important to your supplies, and we're starting to see that and we're starting to see all of our operating metrics in the lending business perk up. And what that means is that our purchase mortgage business does better, which obviously then translates over to the real estate business, where it is a likely affinity for consumers who are getting purchase mortgage loans to also get realtors. What we're doing specifically in real estate, and I think Barry hit on it already, was marketing -- we have a great operation in real estate today from the standpoint that we have 650 brokers around the country signed up. These are the actual local franchises. We have about 10,000 realtors who are signed up worKeung with the Lending Tree business. The business is growing. I believe it was up 40 percent last quarter, in the second quarter that we announced and that's all in our press release. The issue with real estate is just promoting that Lending Tree is in the real estate business. You can come to Lending Tree and find a realtor and get matched with a local realtor. And we obviously get a revenue stream from that. So it is not an operational challenge there, it's more of a marketing challenge. And that is what we're very excited about with the relationship with IEC, because we will be able to launch that product much more effectively than we think we could have on a stand-alone basis. So I think I would look for us to be investing in the marketing and the real estate side, as well as building out some of the MLS and the listings technology to bring listings onto the site as well. But predominately, that will be around marketing and driving that business. The other area that I didn't mention is international, and we've talked about this before. The opportunity for us, particularly in travel internationally, is certainly far greater than it is in the United States. Think about that, given the growth in the United States, it is a pretty profound statement. So all investment that really can be justified and made, we are maKeung internationally. Erik you want to talk a bit about some of things that we're doing to build those businesses?

Sure, I would be happy to. I think probably nothing is more exciting for us right now, other than the international opportunity. All you have to really do is look at the size of the markets. The European market alone is probably a bigger travel market overall than the U.S. market; certainly only leisure side, that is true. I think over time, the Asia-Pacific market is probably going to be bigger than the U.S. market as well. Now I certainly can't make predictions that our being able to penetrate those markets anything like what we've been able to do so far in the U.S., but certainly, we think that our operating philosophy is the right one. We tend to go into these markets, build teams, local teams, everything is local. We get good leverage out of our code (ph) base, which we develop here in the estates, and then we roll out the actual travel service locally. We've been pretty aggressive in growing our businesses as stand-alone in the UK and in Germany where we have the leading site in the UK now and a very strong position in Germany. We're also very pleased with the progress of our joint venture with the S&C -- that's the national railway in France -- and we will be continuing to grow that pretty aggressively. I think going forward, you're going to see us enter more geographies. We're going to be prudent about that. We're going to go into the geographies that we think are ready for online travel to be adopted. We're not going to front run, but at the same time, we want to make sure that we are there as those different markets start to take off. And I think you'll also over time see us as we start to get a little bit better and get more traction in the corporate travel market, I think you will probably see us address that opportunity internationally as well. When I look at the business long term, I can easily see that half of our revenue for Expedia overall will come from markets outside of the U.S., and I think that would be a pretty good balance to achieve over the next, say, 7 to 10 years.

As far as acquisitions in general, there's not really anything I can say about it. We track at any one time in a really active way. Probably right now, we are at the early mid stage on probably 10 different acquisition possibilities. But obviously, there is nothing that walks that we don't look at in the interactive space and can't really talk about the specifics of them, except that we are pretty sure there is opportunity in front of us. And we know, obviously, as well that we have big cash reserves and ability to do almost anything we want in the space. As we have often said, we have no intention of maKeung a big mistake, so don't look for something ridiculously dramatic or transforming from us. But there is definite near-term opportunity. I cannot imagine that the year will end itself without our maKeung an acquisition or series of acquisitions in the billion or so dollar range, and that is really -- it is not possible to be any more specific.

Tom Underwood, Legg Mason.

Thank you. A couple of questions. First on the Ticketmaster side, I was wondering if you could give us an update in terms of how the business is facilitating, secondary ticket sales is going as well as pricing trends at Ticketmaster? And then within travel, two things. One, what was the EBITDA at Hotels.com, and did that include a reversal of a reserve, similar to what we saw at Expedia? And then how is corporate travel progressing at Expedia, in terms of clients, revenue or any other metrics?

I think on the Ticketmaster side, our efforts in the secondary ticketing area continue. Actually, one area that I think we have 16 teams signed up now. And as especially basketball gets going, we're going to see how we have a number of partnerships with basketball teams and we expect great results there. We're also turning to pricing in the primary markets. The secondary market only exists because the primary market is essentially mispriced (ph). And in talKeung to our venues, they are very much interested in really trying to get the pricing for the primary market correctly so that our venues can get that money rather them brokers getting that money. And in light of that, we actually launched our first primary market auction product with the Staples Center. There is a Lennox Lewis fight and we auctioned off those tickets, and you not only get the benefit of the auction itself and the interest from all of the customers, but you also get a great lead of what the market will pay for those tickets so that you can price the rest of the house. So I think actually, primary ticket pricing is going to be the next generation, in addition to our secondary to getting efforts. This is all just at the earliest, earliest stage of development. First, you had to get the infrastructure in, which has taken at a couple of years to do. And then you have to get the credibility with the venues and the teams or the acts or whoever it is. But inch by inch, first of all, primary pricing, it is going to get much more sophisticated than it has been. And a real honest secondary ticketing market is going to grow under the Ticketmaster brand, because it is going to be the fair broker for secondary ticketing. So the combination of those things and all of the kind of two work, so to speak, but has had to go into getting the systems, getting this organized is now in place. Adoption is going to take awhile, because you have a lot of people that you have to convince. It is a complicated area, but we begin. On the hotels.com question, we are really looKeung at travel and travel services as one line of business and on a go forward basis now that we own 100 percent of Expedia and hotels.com there is really no distinction between the two. So we look at everything universally and we are not necessarily going to look at hotels.com individually or disclose that. We have increased, on your question on the reserves, we have increased hotels.com reserves based on facts and circumstances. The net change in the reserves for ICS as a whole is not significant.

Great, thanks.

Shawn Milne (ph), Soundview.

Thank you. You just mentioned that you're not going to break out hotels.com separately, but Bob do you have the percent book directly through your brand in the quarter?

It was approximately 41 percent. Hotels.com is continuing to grow as we push the brand more, we recently launched a totally new marketing campaign with new TV commercials and that is continuing to accelerate the growth of the brand. Bob, how long has this brand been in existence? We only launched it in late March of '02. At 41 percent a year and a quarter later, I mean is an amazing thing if you think about it. And that's the power of two things, the power of marketing online a product that is just to anybody's ears is just plain sensible, hotels.com -- go direct.

Agreed. A follow-up on that, maybe Eric and Bob can chime in. What did the impact of the war in April -- can you quantify that impact on the quarter?

That is meaningless but go ahead, Eric. From the Expedia side it is always hard to know exactly, but we sort of ballparked it and think that probably absent the war and SARS we probably would have booked between 50 and 75 million more travel in April. And then we did not really see I don't think any material impact in May and June.

Bob?

We probably booked somewhere around 3 percent -- somewhere 3-4 percent more in merchant hotel rooms, and it certainly drove down ADR (ph) somewhat. So there was certainly a negative effect.

My last question is Barry, I think about six months ago, you were talKeung or maybe three months ago that we should look for a little bit more, in terms of integration and the tail end of this year, possibly some loyalty programs, some low hanging fruit like that. Now, it seems like that is being looked at for a 2004 event. Am I taKeung that incorrectly? And secondly, is there a number that you can start to point us to as we roll into '04, maybe an active customer base that we can track gross transaction value, relative to the active customers? Thanks.

I think realistically, we're not going to generate anything in '03. One of the things that you learn every day in this is that the execution demands in doing something as real or high, and we want to get this right. We've organized it I think correctly, we've put somebody in charge of it who's young and bright and focused and aggressive. And it's going to be a bit of a while before we get it out there and get it so that it generates revenues. So I really do think that it is certainly a really an '04 activity.

And I think while you're not going to see that much activity that is cross-company, across the various companies early, each company is worKeung together in significant ways. TLC (ph) is taKeung calls for HSN and hotels.com, and that activity is probably going to increase. Ticketmaster is selling tickets on Expedia's part of the packaged product. It's a great product for Ticketmaster to sell to its venues, because it is tickets that customers would not have bought normally and it is a real differentiator for Expedia. And with TVTS (ph) in the UK, you're going to see TVTS and Expedia going to work very, very much more in alignment -- Expedia's probably going -- is definitely going to be the back end web site for TVTS in the UK. So again, while --

And EPI is going to be on HSN. In terms of distribution, there will be a lot more distribution, so there's no question but there is a lot (indiscernible) there's a very long list and one by one. There are very natural synergies between these entities. And then of course there are some unnatural ones, and it's unnatural ones that we really have to organize in an absolute effort, which we have begun, and I think will come into play over time. So in this area, to be really significant, and we are convinced there is significance in the relatable power of our database, the information we have, the traffic we have, etc.. But to be really significant, you have to build on very careful blocks, and we've started the process. So we'll have more to report, but it won't be I think significant activity for a while until '04, I'd think, at the earliest.

Thank you.

I think we have time for one last question. Hopefully, by the way, it would be about HSN, which no one has really commented about and for which we've, I don't know, 700 quarters where we have had to say that HSN, we're rebuilding it, we're trying to get it back to get some traction, etc. -- and finally, we've been able to achieve this and we've been able to do it now for certainly more than a couple of quarters and the performance in this last period, in this last month has been great. HSN and Tom McInerney and what he has brought to this place and how everybody there has now finally gotten in gear with each other is just beginning to get traction. And the fact that we're growing against our much bigger competitor and we've done it now for the second quarter is I think of real significance, and we intend to put more pressure on that system. So there wasn't a question, but there us definitely a statement.

Matthew Harrigan, Janco Partners.

One last query. You're a mass-market consumer company and broadband is now becoming more of a mass-market product. When you launch a new version, say, of match 5.0, how much of that is increasingly customized for broadband, and I guess you can even comment on HSN in that regard, if that is your wont.

It isn't really customized yet for (indiscernible) without any question. Broadband makes all of the difference, particularly when you're inside some of the things that match.com does. But we have said, we believe and we think that the work we're doing in this area is very, very organized, so to speak. (indiscernible) is passing me a note that I cant read -- (MULTIPLE SPEAKERS) -- video personals. Video and our personals business, there is a beginning effort that we've made. It can't work without broadband. So much of the things that we're doing are going to depend I think the real lift -- and certainly it's true about real-time retailing with moving pictures, a-la HSN.com, etc., which depends upon broadband. But our feeling is this -- that all of the progress we have made to date is puny in comparison to what we think will happen when we get over half broadband penetration in this country, which is not that far away. And when we get things to be on any time, all the time. The trick to us as we see it is when there is distributed appliances that are on all of the time, all around the house, wireless, wired, who cares -- and that are not simply just in front of some desk with an office, whatever -- that and all the things that we do are going to be doing are just going to get more and more real lift and scale. Broadband is vital to everything we are going to do. It is going to make -- just the fact that people are going to use this magic box more and more to access goods and services. And the more verticals we have, but the more brands we have that do that, are just the promise of this enterprise, which as you all know, has certainly grown swiftly to this day. But I really do believe and I do not think it is hyperbole to say that when broadband gets just a flip or two further, which is absolutely inevitable coming faster rather than later, then I think our businesses, which we have always said are still in their very early stage, are going to have real hypergrowth.

Thank you.

Thank you all. We look forward to answering your questions, doing whatever we can do in the interim between now and the next time we do this thing. Have a nice summer and we will see you in the fall. Thank you.

Ladies and gentlemen, that does concludes your conference for today. Thank you your participation.

(CONFERENCE CALL CONCLUDED)