Match Group Inc (MTCH) 2005 Q3 法說會逐字稿

Welcome to the InteractiveCorp Q3 2005 conference call.

At this time, all participant lines are in a listen-only mode.

Later, we conduct a question-and-answer session. [OPERATOR INSTRUCTIONS] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to the Chief Financial Officer, Tom McInerney.

Please go ahead.

Thank you, and good morning.

Joining me on this call is a Barry Diller, Chairman and CEO.

As you know, we may during this call, discuss our outlook for future performance.

Also, you are aware there are risks and uncertainties associated with these forward-looking statements and our results could be materially different from the views expressed today.

These risks have been set forth in our public reports filed with the SEC.

We will also discuss certain non-GAAP measures.

And I refer you to our press release and the Investor Relations section of our website for all comparable GAAP measures and full reconciliations.

With that, Barry will make some comments, after which I will go through additional items before going to your questions.

Barry?

Good morning.

Today we're reporting excellent figures.

The fourth consecutive quarter we have done so since announcing the spinoff of Expedia last December.

Revenue increased 55%, operating coming before amortization by 103%; both growing faster than in quarter two.

Each one of our sectors performed well and margins expanded for most, which reflects the scalability of our operations, even while many are in earliest stages of growth.

We don't expect the hyperlevels of growth to occur every period.

For next year, we're going to invest even more in our businesses.

Their prospects are great and they deserve to be pushed aggressively.

That may produce short-term anomalies quarter-to-quarter, but we don't want to run our businesses quarterly.

We're here for the long-term and we won't sacrifice a nickel of appropriate investment in order to make a number.

Contrary to the flavor of the day, IACs actual advantage is that we are a conglomerate of multibusinesses, online and offline.

And we're building scale and expertise all over the place, where our content ranges from products to services to information to search.

Here's an astounding fact.

Well, at least it's astounding to me.

I just learned from the most recent comScore data -- comScore being an independent group that tallies traffic on the internet -- that IAC had an audience of 258,856,072 coursing through our sites in September.

I can't vouch for this precise number, but give or take whatever millions, it's an extraordinary audience.

An audience composed of people looking to buy, learn, search and explore.

Make whatever you will of it, but everyday, we're making the inner relationships that can only be accomplished in the very much interrelated conglomerate of IAC.

Now, some highlights about our segments.

In Retailing, HSN improved over the second quarter.

And while that's still not anywhere near the growth we want, it's got many aggressive and innovative initiatives of building.

Our Cornerstone acquisition brings instant breadth and depth to our merchandise mix.

Bringing these great brands on air is a key part of our strategy for next year.

And HSN.com continues to outpace online retail industry growth rates, increasing sales by more than 30%.

In Ticketing, it's been a great concert year.

Everywhere at Ticketmaster are other initiatives to drive sales.

Our 'sell more tickets better' program that delivers incremental sales, accounted for 9% of our domestic ticketing revenue.

We also sold 110,000 tickets via TeamExchange, our online marketplace where season ticket holders can sell tickets they're unable to use.

Last year, we had 23 teams enrolled, today it's 34.

Over the next few weeks, Ticketmaster is launching a great new product going beyond sports to single ticket buyers in concerts, arts and family events.

TicketExchange will provide event buyers a secure place to shop for guaranteed primary and secondary market tickets, while leveraging Ticketmaster's efficient TicketFast online delivery.

It's TicketFast that allows customers to print the tickets instantly on the personal computer.

It's a technology that's been adopted by more than 2,000 venues, 37% more than we had last year.

We began installing the scanning equipment about three years ago.

A real innovation in ticketing.

Now, it's our own internet turnstile for developing new markets.

Our Lending business closed nearly $10 billion in loans in the quarter, with revenue in mortgage, re-fi and home equity loans all up.

LendingTree's brand has 80% awareness.

And with all the groundwork intricately now laid, we're bullish about our ability to increase share, even in an environment of rising interest rates.

Online mortgage is still a pitifully tiny percentage of the market, which gives us enormous runway to grow.

In Real Estate, we're still laying track for the online transition that is inevitable.

We have now got 1.5 million listings available through RealEstate.com.

With ServiceMagic, we have the nation's leading online marketplace which connects home owners with home service professionals.

It's continuing to grow and innovate with the new online directory for small and medium-sized home builders.

Ask Jeeves' priority is to gain share and we doing just that. 6.4% of queries in September which is up 25% since January's 5.1%.

And we estimate that Ask posted the largest annual and sequential gain and retention among the major search engines in September.

Now, one month is hardly indicative of much, but we'll take it each month until we have reached parody with the larger players.

Citysearch is now IAC's second most trafficked site, in part by doing a great job in online marketing.

There is no company that has as much expertise across dozens of sites in optimizing search results.

Just one of the benefits of being a multibusiness enterprise and we're extending every best practice we have throughout our system.

Evites unique users are up 30% to 4.4 million, page views are up 43% to 452 million.

Not bad for a little business that people everywhere love using.

And it's practically never spent a dime on advertising.

On Vacations, we launched Live It Up, an online travel and a lifestyle membership club with a full-range of travel offerings and benefits.

From specially priced travel packages to 24 hour a day, seven day a week, personal assistant, identity theft assistance, discounts in IAC products and services and the ability to earn and redeem points.

In Personals, we now have a new record of 1,200,000 subscribers.

To those who say this catagory is saturated and stagnant, you should know that during it's first year of operation, Match.com registered 60,000 new members.

Now, every day we register more than 60,000 new people on Match properties.

We're number one in the U.S., the UK, Spain and Europe overall.

Match is growing two times faster year-to-date than the 9% growth rate predicted for the industry by Forester.

And we've just launched Chemistry.com, a new premium site which has began testing in four cities.

The results we're showing today continue to validate our multibusiness concept, which I have certainly been underscoring this morning.

It's all still in the early days, as is the internet way of accessing information, goods and services and I can't imagine both not growing a pace.

Now, Mr. McInerney.

Thank you, Barry.

To reiterate, IAC's third quarter results were very strong, driven by solid operating performance across all sectors of the Company.

As you all know, we acquired Ask Jeeves and spun-off Expedia over the summer.

Accordingly, results for Ask Jeeves are included in IACs Q3 results from July 19; while Expedia's results prior to the August spin-off are treated as discontinued operations.

For the quarter, revenue increased 55% to $1.5 billion.

And operating income before amortization grew by 103% to $156 million.

Excluding results from Ask Jeeves, Cornerstone, which we own for the first quarter and not in the year-ago quarter, and spinoff expenses of $2.1 million, revenue increased 28% and operating income before amortization grew by 83%.

IACs GAAP operating income was adversely impacted by a one-time, non-cash compensation charge of $67 million, which relates to the treatment of vested options in connection with the spin-off, resulting from adjustments made to preserve the value of IAC options post spin.

To be clear, this was entirely mechanical in nature.

No incremental value was given to any option holder and this charge is not expected to occur.

The accounting rules dictate a charge because of the spinoff-related adjustment.

Adjustment EPS was $0.32 for the quarter compared to $0.19 in the year-ago period.

While GAAP EPS was $0.19 compared to $0.24 in Q3 '04.

In addition to the non-cash charge just mentioned, GAAP EPS was impacted by a lower contribution from discontinued operations.

Expedia and other discontinued operations were included for the full quarter a year ago and not the in the current year.

For the nine months ended September 30, free cash flow increased 3% from the year-ago period to $223 million.

Free cash flow grew more slowly than operating income before amortization, due primarily to higher cash taxes paid, capital expenditures and working capital requirements.

In general, Q3 is not a strong cash flow quarter for us, as we build inventories in our re-selling and discounts businesses in anticipation of Q4 and remit cash to ticketing clients for event sales in Q2.

I also want to point out that this quarter made two slight modifications to our definitions of non-GAAP measures, which can be found on page 16 of our earnings release.

Adjusted net income now excludes non-cash income or expense relating to changes in fair value of derivatives, or what the accounting rules call derivatives, created as a result of the spin.

What this means is that we have an obligation to deliver IAC and Expedia shares to holders of the convertible debt we assumed in the Ask Jeeves transaction.

Per an agreement between us, Expedia has an obligation to deliver their portion of this, but due to the specifics of the technical counting, each quarter we have to mark-to-market our obligation to the convertible holders because of this construct.

In this quarter, it was actually a gain in our GAAP numbers.

But regardless, we believe it's appropriate to exclude this non-cash item from adjusted net income.

The second change is that free cash flow now excludes taxes paid on the gain from the sale of our VUE interests.

This is completely a technical adjustment to the definition.

We don't include any of the proceeds or gain from the sale in pretax flow, so it would be totally distortive to include the cash taxes owed.

With that, let me comment on financial items from the businesses, beyond what is included in the press release.

Our Retailing sector reflects the inclusion of Cornerstone this quarter but not in the year-ago period.

HSN US had improved performance after a sluggish Q2, with revenue growing by more than 8% and operating margins up slightly.

Gross profit margin was down in the quarter, due primarily to discounting of inventories which accumulated after the slow Q2, but we were able to offset this with a host of operating efficiencies affecting both our variable and fixed costs.

Cornerstone delivered double-digit top-line growth on a proforma basis, with solid contributions from Ballard Designs and TravelSmith.

From integration perspective, we're making progress.

Bringing the great Cornerstone brands to life on HSN requires many elements; having the right inventories, the right sets, the right on-air guests, to name a few of these.

We have been experimenting since the close of the transaction, all the while laying the track for deeper integration going forward.

We're on track with the real benefit yet to come.

Services grew operating income before amortization 91% this quarter, which certainly exceeded our expectations.

Ticketing had another excellent quarter, thanks to the strong summer concert season, as well as increased sports event sales, primarily from baseball, where five of this year's post season teams were ticketmaster clients.

We sold 28% more tickets worldwide as compared to the prior-year period, driving revenue higher by 25%.

International acquisitions accounted for 5 points of this growth.

So it was a strong organic growth quarter.

At the same time, international ticketing revenue is now 25% of total ticketing revenue.

Moving to Lending.

To increase transparency for the first time this quarter, we've broken out Lending and Real Estate as separate reporting segments.

These businesses continue to benefit from very close coordination under Doug Lebda's leadership, but they certainly have their own dynamics.

And we thought it would aid in your understanding to show them separately.

Lending continued to pose strong growth with many of our key growth initiatives bearing fruit.

Our strategy in Lending is simple; to drive ever-increasing numbers of high-equality leads through our service and provide these leads to either participating lenders in our exchange or close them in our own name; in the latter case, immediately selling the loan.

The strategy is mutually re-enforcing as we make more money on the loans we close in our own name, allowing us to increase on and offline advertising dollars to increase the number of consumers we can drive toward our service.

This strategy is working.

Critical enabling pieces of this include first, having a great consumer front-end and a recent redesigned and simplification of the site that has improved conversion.

Second, we are working closely with our network lenders to ensure they get the right leads in predictable and growing volumes.

Finally, we have a myriad of initiatives to grow our purchase mortgage business, which quite naturally, has been slow to develop, given the predominance of re-fi volume over the past few years.

And this, too, is working.

In addition to breaking Lending out as a segment, we have added a new metric to our release, which is Transmitted QFs, which increased year-over-year by 52%.

QF's are the number of customer qualification forms placed with at least one lender which we think is the best single indicator of unique growth in our overall lending business.

It's also important to point out there are some seasonality in the consumer lending business, so while we expect very strong year-over-year growth for our lending business in Q4, and that of course is what's key, sequential results might be more flattish.

I also want to take a moment to highlight our Home Services segment.

We estimate the advertising market for Home Services categories to be at least $10 billion, spread over many traditional forms of media.

ServiceMagic is simply inventing a better way to match home service professionals with consumers in need of service.

Service professionals pay for highly targeted leads in the service categories and precise geographies in which they're interested.

We have a clear leader in a catagory which is in the early stages of development.

Like with Lending, we've historically seen some seasonality in this business, as home owners turn their attention away from repair and remodeling in the fourth quarter.

Sequential results may reflect this.

While we expect year-over-year growth to remain strong.

In Media and Advertising, Barry highlighted Ask Jeeves market share trends.

I would only add that progress from the reduction in the number of paid advertising links on the site is at or slightly better than hoped for.

We told you last quarter that we expected the change to reduce year-over-year revenue growth at Ask Jeeves to the low double-digit range in the short-term and Ask came in at 15% top-line growth in the third quarter.

Switching to Membership and Subscriptions.

Vacations grew revenue by only 4%, but operating income before amortization grew by 18%.

This is the same general pattern we saw in Q2 and the underlying causes, a tight supply environment and migration to the internet, remain the same.

Personals reported a record quarter.

Revenues grew by 33%, while operating income before amortization grew by 271%.

This significantly enhanced second-half profitability was expected, as we have aggressively moved our marketing span to the first half of the year to fit the more natural seasonality of the business.

This trend should continue in general in the fourth quarter, although we don't expect the effect to be quite the same degree, since we increased marketing post-labor day after being quiet in the summer.

Turning to our balance sheet.

During the quarter, we repurchased a approximately 9.9 million shares at an average price of $25.10.

Subsequently, from October 1st to October 28, we repurchased an additional 8.2 million shares, bringing the total amount of shares repurchased since the beginning of the third quarter to 18.1 million and leaving the total authorized amount of shares to be repurchased at a approximately 7 million shares.

We finished the quarter with net cash and securities of $1.4 billion.

Proforma for taxes to be paid in connection with our previous sale of the VUE interest, the maturity of the senior notes this fall, share buybacks through October 28th, and excluding LendingTree loan debt that non-recoursed to IAC, we will have $1.3 billion in net cash and securities.

Given these moving pieces, for clarity we added a table to our press release on page 8, which will walk you from our actual net cash to our proforma net cash.

In closing, I would like to reiterate that our results this quarter, in combination with the growth initiatives, some of which we touched on today, reflect our continuing committment to both driving near-term results, while constantly investing in and focusing on our longer-term strategies.

As we're fond of saying, we most emphatically don't manage our quarter-to-quarter results.

And we certainly would like to believe our discipline of operating allows us to take both near and long-term opportunity as it allows.

We're equally proud this quarter of our strong year-over-year growth.

And the fact that we have just launched, or are about to launch, exciting new services in many of our principle businesses.

At this point, I would like to open it up for questions.

As always, we would like to accommodate as many people as possible on this call, so we would ask each questioner to please limit their questions to one or two max.

Operator?

Thank you. [OPERATOR INSTRUCTIONS] Our first question is from Michael Savner from Banc of America Securities.

Please go ahead.

Hi, good morning.

Thanks.

If I could ask two questions.

Barry, it looks like you were quite aggressive in your share repurchases during the quarter since the spin-off, with only 7 million remaining under the current program.

Would you consider expanding that authorization so you have the flexibility to buy more shares should the opportunity arise?

That's my first question.

And second, on Ask Jeeves, the market share increased in search queries looks to be 25% from the beginning of the year.

Been trying to figure out how much of the market share might be attributable to the lower rates and the rebranding effort.

And what we're getting at is -- is there risk that marketshare corrode once you try to exercise some pricing power?

Or are you already seeing some pricing power with certain advertisers?

Thank you.

the answer to your first question is yes.

And as it relates to Ask -- what we have really seen is that when we're just -- as Thomas McInerney said a short while ago, the amount that we're -- we expect it to get, in terms of decreasing the ads, which increases the queries -- the plot we have been on now for some 10 months, but increasingly actually in the last four or five months, when we really adopted it.

Two months is it, Tom?

Yes, about 2 1/2, right after we reported it --

it's shorter than I thought.

We have been experimenting for some time to prove it through.

The early indications are that it's exactly, plus a nickel, what we thought it would be.

I think that's going to increase.

And certainly, indications are that that when you reduce the number of ads in -- above the fold, queries come.

And from queries, without any question, we get revenue.

So I think it's all on track.

As far as rebranding is concerned, we haven't begun.

I would say that you would look for the -- if you can call it rebranding.

I would just call it telling people the wonderful differentiating points of Ask as against other global search engines really will begin in the first and second quarter of next year.

And that's when we would expect -- as you know, we have been gaining a little share, but that's when we would expect to make a real run for share.

Won't happen overnight, but it will happen, we hope, over a year or so.

Thanks very much.

Thank you.

Next question is from the line of Justin Post from Merrill Lynch.

Please go ahead.

Two quick questions.

Tom, could you give us a little bit of your outlook for free cash flow in the fourth quarter and maybe into 2006?

And also, if the Cap Ex on the building starts to come down?

And then secondly, can you give us a little help with the Ask Jeeves margin outlook?

I think the margins for that group were 11% this quarter.

Does that improve into next year?

Sure, Justin.

In terms of free cash flow, just a couple of comments.

One is, we don't want to give a specific guidance on Q4, but I'll point a couple things out.

One is that last year the number was -- for IAC as currently configured, $133 million, so it represented about 40% of the year's total.

And with the travel businesses now gone, every year will be a new story, but I say in general, with Retailing being a bigger percentage and our discounts business, Q4 is more important from a free cash flow perspective than before.

As you said or implied, it was exacerbated this year by our corporate headquarters building.

And on a year-over-year basis, '05 to '06, the spin will be approximately flat, perhaps up slightly on that project.

It will continue but it will not hurt year-over-year comparisons as it has this year relative to the prior year.

On an overall basis, you look at our trailing 12 months on a free cash flow basis, we were at $355 million -- that factor in kind of the Q4 seasonality and gives you a better indication of the current free cash flow generation of the businesses.

With respect to Ask Jeeves -- I think, look, we're -- as Barry said, we're very early in this process.

I think last quarter we said our first priority was growing share.

The nature of this business -- the physics of this business is such that if you grow share, particularly in a rising market environment, even if you only hold share -- our intent is to grow share -- then you get very high incremental margins which will flow through to the bottom line.

We're not running Ask neither for near-term percentage margins this quarter or even next year.

At the same time, we're not going in and completely transforming the economic model.

Our intent is to take profits as we can, but the first focus is making the investments necessary to compete.

And I think we'll -- we'll keep you posted as it goes.

The only thing I will point out is on Q3, that is a seasonally very low quarter for Ask, given the natural seasonality of the business in the summer and things like that.

Thank you.

Next question.

next question is from the line of Mark Mahaney from Citigroup.

Please go ahead.

Thank you, I wanted to dive in a little bit more just on the HSN part of the business.

Last quarter, you'd expressed some concerns about that business and some talk about some changes you wanted to implement.

It looks like the results from this quarter seem to have supported of those changes.

How sustainable are those changes?

Is that kind of growth rate that you did in the quarter organically year-over-year, is that sustainable going forward?

Thank you very much.

Yes, I do think it's -- what I hope is more than sustainable.

I hope it accelerates.

We have put in -- we always do, but I mean increasingly, several initiatives.

And that, plus what Tom spoke about in terms of Cornerstone, where we're going to get very aggressive now that we laid all of the -- actually the track of figuring out how to put the products on air in the best way, but that really goes into '07.

So -- I'm sorry, '06.

So I would -- I would hope, yes.

What happens when you have -- in this business, we have it, QVC has it -- when you have a difficult quarter, you fall into a bit of a draw.

It takes -- it takes a while to climb out of it.

And it wasn't that deep for us, but it wasn't anything like we had planned.

And that depresses things in the next quarter because you built up merchandise that you got to not take particularly large gains with, in terms of margin.

So I do think that there is no question that you just look at every day -- which this is a business run every minute -- but every day, you see the definite solidifying and improvement.

Tom, you want to add anything to that?

I think only that the macro conditions, longer-term, which favor, we think, a cross channel retailing -- people that can combine, in our case, the compelling power of television with the compelling convenience of the internet in increasingly value-added ways for the consumer.

The wind is at the back in that context.

The short-term execution issues are as Barry suggested.

And our challenge and objective is to execute well so we can take advantage of those longer-term favorable conditions.

Next question.

Thank you.

Next question is from the line of Anthony Noto from Goldman Sachs.

Please go ahead.

Thank you very much.

Barry and Tom, as I look at the QF growth -- for the Lending business it's been extremely strong, accelerating for the third consecutive quarter, from 26% growth year-over-year in March to 39% in June and 52% this quarter.

I wondered if you could give us insight into what is driving that acceleration on the QF's and do you think it will continue?

And then Barry, on Ask Jeeves, obviously reducing the amount of ads on the page will improve the search experience and drive more queries.

As I think about the second, third, fourth steps beyond this -- being able to put the right ad in front of the right consumer will drive higher click-through rates and ultimately drive better conversion rates in the back-end and better ROI's for the advertisers which, would really be the additional leverage in the business.

Which really requires owning both the algorithmic technology and the monetization technology.

Could you talk a little bit about where you are on the second piece of that technology?

And what talent you may need to bring into the Company to be able to have that second, third and fourth step down the road?

Thanks.

On the -- Anthony, I'll take the first of your questions, in terms of Lending.

If you say the 52% is very strong QF growth for the quarter, and I think -- it's a number of initiatives.

The ones I would call out are first, getting is getting the site to work as efficiently as possible.

The QF process and the LendingTree's value to it's lenders and to it's participating lenders, is it delivers highly qualified leads to those lenders.

That means consumers go through a QF process where they fill out the form.

The key is to make that as efficient as possible for the consumers and the lenders.

The consumers are doing it quickly and the lenders, on the other hand, are getting the information they need.

And we continue to get better and better in that, which increases throughput and conversion.

If we can tweak up conversion of someone we bring to the site to complete the QF process, that allows us to be more aggressive on the marketing side.

And so we have had a number of initiatives there.

Working with our lenders -- I highlighted this in my remarks, but lenders want the right leads at the right time in predictable volumes.

And that's simple to say and complicated to execute.

And we're getting better and better at that.

Which, again, allows us to convert a higher percentage of those QF's to close loans, which allows us to make more money, which allows to go back and market more aggressively.

And lastly piece is just being more aggressive in marketing.

LendingTree's hallmark strength was creating this great brand -- as Barry said, 80% awareness -- that the challenge for them has been -- and the success, thus this far with more to come, has been broadening that marketing outreach to be much more number of varieties to include direct response, targeted specific lending products, much more extensive online -- to just cast a wider net for what is essentially, a better way of borrowing money and getting that to the right lender.

So it's all of those things.

And they kind of work in tandem and the more successful you are, make more money, allows you, again, go be more aggressive to cast that net and things are clicking.

On Ask Jeeves.

Yes, there is no question, the queries go up, the satisfaction goes up when you get the ads down to the three -- basically three or four above the bar -- above the algorithmic free search results.

As far as the ad works system, as I think you all know, we're with Google for another two years at least.

And you certainly know that Google is an efficient server of ads.

So, what we're doing internally is, we're beginning to build the system where we will -- and we are doing it in small amounts now -- where we will increasingly -- which we have the right to do under our agreement with Google -- but we will -- we will increase this to the extent that we think is sensible.

We both use our own tools in-house, we have extremely good technology.

We don't necessarily have every smart person in the universe at levels above 187, which is what Google seems to claim.

But we've got really, really good people in technology.

In both internal and external things that we're using -- methods that we're using to build our own ad works.

But, in a couple of years, I think we're going to be in this great position.

We will have gotten it built.

We will use it to the extent it makes sense.

We think it will be a much more important factor in in Google's ad search, which would put us in a very good situation with at least three other ad search engines, plus our own, to plot the next course.

Great, thank you.

Pleasure.

Next question, please.

The next question is Michael Millman from Soleil Securities.

Please go ahead.

Thank you.

On the LendingTree and in particular, can you talk about the share that is going to Lending -- of these QFs that are going to LendingTree loans?

And also, maybe talk about how Lending Tree loans makes its money.

Is it secureitizing loans, is it whole loans, sales or something in between -- basically how it records profits and reserves?

Sure.

The percentage bounces around from quarter-to-quarter, month-to-month, et cetera -- but I'd say right now, we're trending less than 20% of the front-door leads that come through LendingTree getting closed by LendingTree loans in our own name.

In terms of how it makes money -- it's essentially -- it's closing loans, what is technically called in the industry a correspondent.

It closes loans in its own name, so it does all of the underwriting and paperwork -- so it collects the documentation and does the hard manual labor of A; selling the consumer the mortgage and enrolling the consumer, if you will, putting all of the paperwork together, putting the loan files together, closing the loan in its name while simultaneously selling that to one of different investment vehicles or investors.

And it's done in different ways -- the secondary market activities, what we call secondary market activities, depending on the nature of the loan.

It's essentially -- by doing that work, that kind of hard work of converting the consumer to a closed loan, closing the loan and then selling it off, it makes margin on that particular transaction.

And it sells these then as a whole loan with no liability?

Yes.

And also, are they all prime loans?

Are they subprime and prime loans?

There is a mixture that I would say generally parallels the market.

And they are selling the entire loan, including the servicing rights and everything that goes with it.

Thank you.

Thank you.

Next question, please.

The next question is from the line of Imran Khan from J.P. Morgan.

Please go ahead.

Yes, hi guys.

A couple of questions.

Can you give us an update on Ask Jeeves International plans.

It seems like a big growth in search coming from international markets.

What is your plan to roll out the product -- search product beyond UK and Spain market?

Secondly, a follow-up to Ask Jeeves, in terms of integration process, it seems that you have Ask search box in most of IAC sites.

I was trying to get a sense -- what's the next step, in terms of -- are you focusing on tool bar?

Or maybe integration with the shopping channel part by HSN?

Can you comment on that?

Thanks.

I'll take the latter part first.

All over the place, Ask is beginning to integrate itself with IAC and to push these initiatives, which go from certainly tool bar, where we have a very, very good business and all of the IAC properties.

Yes, you will see on everything -- and you will see a search -- an Ask search bar.

You will see -- it on Expedia, beginning, probably, right after the first of the year.

And it's -- again, these are -- these are new things that we're doing.

Which is to line up the symbiosis, which is natural between a search engine and these fantastic -- forgive my word fantastic, I shouldn't say it.

But I think it is, actually.

We have the best vertical services.

So, whether it's the search and traveller, the search for loans or it's the search for -- I mean I can rifle through them all -- but they're true content value-added services.

And as you -- as you integrate them into this global search engine, you really do give the consumer just a much better -- really value-add than they would get anyplace else.

That's part of the differentiation of what Ask is and will be in the future.

And I think it's in the differentiation that we will gain share.

Just one quick add-on to that.

The people that want a quick visual, just a -- literally a tiny example.

But if you search today on anniversary gifts on Ask, we have a very small, just started business called Gifts.com -- which I would encourage you to check it out -- we have done a quick integration, just to get it up for Q4 and the gift-giving season.

And it just gives you an example, if you look at that return on Ask -- of the type of integration.

And this from a Gifts.com business, that has been in business for about six months -- not to the level of our other leading verticals.

So, plenty of promise.

On the international question, we just came out of Beta in Spain, as you alluded to.

And we are very -- in the very near-term, going to launch Beta sites in Germany, France, Italy, and the Netherlands.

And so we're very much focused on the European and ultimately global opportunity and it's early days.

Thank you.

Next question, please.

The next question is from the line of Jeetil Patel from Deutsche Securities.

Please go ahead.

Thank you very much.

A couple of questions.

You guys saw a QF growth of 52% and obviously shifting the model from agency to principle.

Can you give us the sense of -- should we expect the Lending growth to be comparable to that 50% growth as we look out over the next year?

Especially given the shift from agency to principle on that side of the business.

Second, not to beat a dead horse, but everyone's excited about Ask Jeeves still.

And I think the key question I have around the business is, are you see anything sort of lift -- any way to characterize what kind of lift you're seeing as you have integrated the Jeeves search box across the different brands out there?

Which seems to be a major source of leverage for you as you go forward.

On the first one.

Again, we're not going to give specific guidance, in terms of going forward.

All I will say is the 52% QF growth is a good indication of unit volume growth in this particular quarter.

In fact, if you go back in proforma LendingTree loans, it was not included in the Q3 a year-ago period, if you proforma that in and look at apples-to-apples, we grew topline 87% and OIDA growth 142%.

There is plenty of organic growth in our Lending business.

And where that goes in Q4 and '06 remains to be seen.

But when you think about the -- as Barry would say, the pitiful share of the market we currently have and that this is simply a better way, and we're the leader, it adds up to a nice equation.

Where do you think you can take the mix from 80/20?

Where do you think that goes over time?

I don't think that we want to predict exactly where it goes.

I think it'll -- we have got this enormous demand at the front door.

And we have a very good network -- lending network.

And we have a very good emerging network -- not network, but emerging loan closing operation of our own.

So, I don't think that -- what I do think is important here is that we are very much -- there is so much runway in front of this business, because LendingTree continues to get its proposition across and imbedded with people that it's a better way to access a loans.

And to the extent that we keep doing that and to the extent we keep fulfilling as efficiently as we have, I think it's -- and given our tiny percentage of the market currently, I think that's all you need to know at the present.

I don't think you can percentagize it, so to speak, to the future.

On Ask, it very much -- the integration of our search boxes, we're not seeing any particular lift -- now that they've been up for two months, three months -- some taken down and re-put up.

You really have to tinker with it to get it right.

That's going to take us months to do and not years, but it will take us months to get this symbiosis right.

To get the relationship between our vertical search and Ask's Global Search in the right balance.

As I said before, I don't think there is any question that over time, all of these things converge into a search box -- Global Search will be the entrance.

It's the gateway to all information, goods and services.

And the more information that you have got, the more good content that you got is, I think, going to be a very good differentiator.

And there is no question, we have a lot of very good content that we have been building for years.

Next question, please.

Next question is from the line of Heath Terry from Credit Suisse First Boston.

Please go ahead.

Great.

Thanks.

There has obviously been a lot of talk about the holiday season -- the holiday shopping season starting later this year on the back of general consumer spending concerns.

Can you talk a little bit about what you're seeing in the HSN business relative to last year?

And how you view the online component of that HSN.com having an impact on the business's growth and, of course, profitability?

Sure.

I think we have always said -- and I have always said, that the macroenvironment for retailing effects HSN but it doesn't drive HSN.

And that remains our best sense of it.

When the consumer is focusing on gas prices or anything else.

It can't help, but at the end of the day, it's not the driver.

And the same is true when it's positive trends.

It's much more about our own execution, our own merchandising and our own service, et cetera.

The macroenvironment is something we're looking at, for sure.

I would say in terms of --the only specifics I would say at this point, the general trends we have seen in Q3 continue.

Not marketably better or not markedly worse.

And we're guardedly, cautiously, insert your word, optimistic for Q4.

In terms of HSN.com, every single day -- and I don't think this is an exaggeration.

Every single day, we find important and interesting ways to relate our on-air and our online businesses.

Very simple things like having people come to HSN.com and tell us that they want to be notified via e-mail when their particular favorite vendor or guest or brand is coming up on air.

We call those 'when to watch e-mails'.

It's a simple concept, but it's very much taken up steam and it's a very important tool for consumers.

We have launched customer ratings on HSN.com, which allows consumers to rate products, nothing novel in that.

What is novel, when you have the television network, is you can then use that to build programming shows.

So we have had programming on air, where we only feature products that customers on .com have rated four or five stars.

Very successful.

Those are two examples and it continues.

These two services continue to be highly complimentary and we think -- it goes back to what I said earlier.

The reason we think longer-term -- over the long-term, multichannel retailing, particularly with this configuration of assets -- the wind is on our back, because of examples like -- examples like that.

Thank you.

Next question, please.

The next question is from the line of Douglas Anmuth from Lehman Brothers.

Please go ahead.

Thank you.

Barry, you mentioned earlier in the call, if you would be making more investments in the business in '06, which we would all expect, especially given the early nature of many of them.

Can you elaborate on some of those investments?

If there is anything in particular, the comment on, it's incremental.

In terms of the Ticketing business, I think in the release you said there is increased cross-selling on behalf of the other IAC businesses.

Can you talk about that a bit?

And were there any new relationships?

Any specific drivers here that increased things in 3Q?

Thank you.

As far as investments for next year, what I really wanted to signal is that there is no one of our businesses that we are not investing some in -- something in.

Because there is no sector that we have got that we don't think has growth worth chasing.

So, I wouldn't want to break anything out.

Not at this stage.

But I think, again -- without being redundant about it -- that businesses that obviously have higher growth, actually don't take that much additional investment.

It's opening up new areas, new initiatives where in fact, we're going to go and start this travel club in interval.

We're starting two new -- one new service in Match.com and we have some other announcements that we'll be making about Match.com soon that take additional investment.

We think it's -- we -- contrary to everybody else, we think the Personals catagory is anything but saturated.

We think it has got enormous growth ahead of it and very worthy of investment.

You can just pack down almost -- at HSN and at Cornerstone, because we think we're going to sell much more Cornerstone product -- there is some infrastructure you have to add.

You actually have to have a deal with warehouses and the inventorying of goods -- and where you're going for a much bigger reach sales goal, which we are.

So I think that's what it is.

Again, we'll balance investments with return -- we balance investments with our current operating profit.

We don't want to trash anything, but we certainly don't want to not make an investment on a timing basis or make an investment -- not make an investment because of some expectation here or there.

If we're doing our jobs correctly -- we're making the correct investments for the long-term without sacrificing a single thing short-term that is sensible of -- to keep as it is.

On the Ticketing business -- the cross-selling?

Well, we do some cross-selling with several other of IAC's businesses.

There is some natural -- some kind of obvious natural things.

We do some with our discount programs, we do some with Expedia -- it's good for Expedia and good for Ticketmaster.

And Ticketmaster is such a good service unto itself.

And we're a bit cherry about using the Ticketmaster audience to cross-sell.

Not that we won't do some, hopefully, natural and good -- good efforts there.

But we don't want to overburden the consumer.

Thank you.

Next question.

The next question is from the line of Robert Peck from Bear Stearns.

Please go ahead.

Hi, guys.

Just a couple quick questions.

One, Barry, I think that Clear Channel accounts for somewhere around 20% of Ticketmaster's revenues.

Can you talk about your current relationship with Clear Channel?

And how it may evolve going forward?

Number two, I wanted to get your general thoughts on what you thought about AOL.

There has been speculation about AOL paring up with some of the search engines.

I wanted to get your thoughts there.

And lastly, I wanted your opinion on the shortage for the Vacations division and whether you see that sort of clearing up anywhere in the near-term?

First on -- well, what was your first question?

Clear Channel and Ticketmaster.

Clear Channel is less than 20% -- it's between 15% and 20%.

Our relationship is very good with Clear Channel.

They made a management change.

We're supportive of that.

We think their new management is excellent.

We're always in conversations with ---we're probably at the -- at our smoothest point.

Any time between distributer -- supplier or these kinds of relationships -- they often have friction in them.

Just as kind of a general understanding of their relationship, but we're doing many things with Clear Channel.

They're very supportive of some of the really great initiatives inside Ticketmaster that deal with TicketExchange and getting into the secondary ticketing business, et cetera.

So I would say it's very solid now.

At the same time, I think that Clear Channel is probably going to say, all options are open, as they move into -- as they do end up moving into independent status as it relates to ticketing and other matters.

But, again, we just exercised our option for another three years.

So we're together, we're going to be together and we hope we'll be together for a long time.

As far as AOL is concerned -- I don't have anything to say about that, except I think that -- I hope that Time-Warner also takes care of the long-term.

And I think they have a great business in AOL and I hope it doesn't get clogged up.

On Vacation -- let me jump in on that one.

There has been a number of factors which have affected top-line growth.

As you have seen throughout the year, profit growth has been very strong.

Part of this is -- in a tighter-supply environment -- travel supply, hotel occupancy, supply environment, there is less available inventory in the system.

And it's kind of a complicated equation how inventory -- condo inventory ends up in the system available for exchange, but developers can put it in on their own.

And in a tighter environment, they're selling some of that separately.

We're actually in a tighter environment, as in essence a distributor, in this sense.

We're seeing lower exchanges and lower -- what we call 'getaways,' which is when someone books ancillary travel in connection with the timeshare exchange.

We think an element of that is industry cycle.

The movement to the web has been a positive -- you see the metrics on this and the release -- it's been a positive from a profit perspective.

It's simply a more efficient way of doing business.

It hurt us a bit on the revenue side, because without that phone operator -- call center, operator interaction with the customer, you not getting as much travel upsale and ancillary services provided.

We think that's solvable over time.

We've solved it in other businesses.

And that's a work in process.

And the last piece is international growth.

Interval has a reasonable international business and for a variety of country-by-country reasons, the international environment has been tough.

There are pockets of the world we're now optimistic about.

And I think the same things that have fueled the growth in the domestic industry ultimately will prevail in international markets and we should be well-positioned to take advantage of that.

But it's kind of macro factors that will play out over some time.

Finally, Barry mentioned in his remarks, the launch of Live It Up, which is our travel club.

We think it's an exciting new initiative which will, for the first time, make Interval's tremendous supply of unused condo inventory available to the general public.

And encourage people to check out the site as it moves from Alpha to Beta to full production over the coming period.

And we think there is tremendous deals for families taking vacations.

thanks, guys.

Next question.

The next question is from the line of Paul Keung from CIBC World Markets.

Please go ahead.

Paul Keung, your line is open.

Hi, Barry.

Hi, Tom.

Hi.

Thanks.

Most of my questions are answered.

One that you kind-of touched up on, that's on the Retailing side.

We're seeing mixed results right now from retails and catalog orders out there.

I am curious what relative strength or weakness are you seeing, either by segment in Retail or by demographic?

And I guess specific to you in Cornerstone, between home decor and the apparel categories?

It's interesting.

When we think about the Cornerstone brands, and as you know, there are now seven principle brands plus some derivative-developed titles, we have strength and weakness in each of both home and apparel.

We have multiple brands in each of those areas.

And in the home area, I think we called out in the release or in my remarks, we have had a strong year and continue to.

At Ballard -- Front Gate, which is the other large home business in the portfolio, has had a much tougher and softer environment and that continues.

So, very mixed.

Just a function of the merchandise and a variety of merchandising initiatives.

On the apparel side, TravelSmith has been very strong.

Not all travel, but partly.

Whereas other apparel businesses within the portfolio has not been as strong.

I'd say the same is true for HSN.

In retail, it usually doesn't get down to broad generalizations, it gets down to very specific product classification and execution issues.

And the nice thing about Cornerstone is they do have a portfolio of brands, all of which are significant and material to our Retailing business, and so usually we're able to offset weakness with strength in other parts.

We have a very, very good retail portfolio now.

Between catalog, on-air and online.

And we -- we now are on so many multiple burners that you're going to have both good news and bad news.

Overall -- the overall pull of our business is -- is just completely positive.

Okay.

And one housekeeping question, if I may.

Sure.

Looking at the tax payouts, the secures -- you've increased those secures of what benefit you have had from paying out the more and trying to [trade more] partners there.

I'm sorry, could you repeat the question?

I was wondering what benefits have you had in increasing your payouts to your network partners within Ask Jeeves?

Which partnerships -- ?

Paying out to network partnerships for Ask Jeeves.

What trends are you seeing in your payment of your tax?

Are you increasing them or decreasing them?

And what benefits have you had, either way, in terms of where you're spending the tax?

Let me try -- let me take a shot at it, if I understand the question.

I think Ask has a number of different methods to apply our customer -- distribution methods that range from customized portal deals to search integration deals to other forms of -- obviously in the tool bar business, a variety of downloadable online marketing tactics.

And I would say in general, all of -- the market for all of those customers are competitive.

We have seen some pressure in spot areas.

I don't think any of it's game changing.

But obviously with a highly competitive search market that continues to grow very rapidly, our arbitraged opportunities and opportunities to make margin are going to get arbitraged away by competitors.

But then you go find other opportunities.

It's constantly a competitive game.

I don't think anything is sea changing there.

It's something we focus on every day.

One last question.

Operator.

You're done with Mr. Keung?

Yes, thank you.

We'll take one last question.

Thank you.

We have that last question from the line of Scott Kessler from Standard & Poor's.

Please go ahead.

Hi, thanks very much.

Two questions, if may.

First, can you explain why the Ask Jeeves percentage of revenue from proprietary sources declined in the quarter on a sequential basis?

Does this at all reflect the new sponsor links offering?

And how is that going at this point?

The second question is a bigger question -- I wanted to know if you could talk a little about your vision for becoming more of a player in interactive media.

Things have been referenced over the past several quarters.

You guys are doing some things in that area.

Where do you think there could be opportunities in that particular area, given your current base of assets?

Thanks a lot.

On the -- on your first question, you really have to -- given the seasonality in the business, you really have to look year-over-year.

We think that's the right comparison in this particular one.

Because the source of revenue does move around seasonally, and so Q3 is a lower seasonal quarter for some of the proprietary as opposed to the network.

Flat year-over-year, we think, is indicative in the current trend in the business.

As far as the future, which I am -- look to be much of a predictor about.

But what I would say -- actually now, I will go and do it -- which is, and I don't think it's very much a prediction to tell you the truth.

It's hardly looking around the corner.

But clearly, video -- digital video is going to be increasingly, increasingly a part of the interactive internet world.

As bandwidth increases and you do get the ability for rich media, for video, that is a whole world.

Now, we are already in the closest thing to it.

Because at HSN we have video, now all digitized.

And we have, as we talked during this call, enormous amount of efforts that relate between HSN and the symbiosis with HSN.COM and their interrelationship, which will more and more merge.

Each will be always separate but they'll be very much true sisters of each other.

There are all sorts of other things that are going to happen through digital video.

And this Company does intend to begin to make investments -- small investments at this stage, because I think it's really probably -- it's certainly off, meaning off by some digit of years.

I don't think all that many or we wouldn't --or we would just wait.

So I think it is sensible for us to begin in various forms of content creation, of digital delivery, et cetera.

Those forms where we're going to start to make small investments in in the next year or two.

And if I could just follow-up, do you think right now your company has the assets that you'd like to kind of pursue what is going on in interactive media?

Specifically, are you thinking about proprietary elements of this type of area?

Or are you thinking about what you have done historically, which is essentially connecting buyers and sellers in a variety of different areas?

Well, I don't know yet, to tell you the truth.

I don't think -- actually, I don't think we should know yet.

It's too -- it's too much early days.

This Company is very much concentrated on -- on being of service to consumers.

We -- and being of service to consumers about goods and information.

The next forms, which will be probably more -- if you could say it, I mean they're all content-based.

But may be in the narrative area, may not.

Don't really know yet.

Certainly will be in the area of news through Ask, which is very much now is in it and thinking about how to aggregate services for the future.

So I don't yet know where it's going to go.

I do know that the areas that we think about deal with gaming, they deal with gaming of all kinds.

We have some little embryonic efforts of that right now.

One in of the UK -- two in the UK, actually.

So whether it's gaming or whether it's entertainment, narrative, et cetera, I don't know yet.

But, again, as I say, it's not an area of capital deployment at this stage.

I don't believe it will be one for awhile.

And I think you got to look probably towards the end of next year, the following year, for anything really significant to develop there.

Great, thank you very much.

It's our pleasure.

On behalf of Tom and my colleagues and I at IAC, thanks for listening.

And we'll be back with you, I think, sometime in February.

So, an early wish for a nice holiday.

Thank you and good day.

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