Match Group Inc (MTCH) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to the IAC's fourth quarter earnings conference call.

At this time, all participants are in listen-only mode.

Following today's' presentation, instructions will given for the question-and-answer session. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded today, Wednesday, February 8, 2006.

I would like to turn the conference over to Tom McInerney, Executive Vice President and Chief Financial Officer.

Please go ahead, sir.

Thank you and good morning.

Joining me on this call is Barry Diller, Chairman and CEO, and Doug Ledba, President and COO.

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

These forward-looking statements typically are preceded by words such as, we expect, we predict, we believe, or similar statements.

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.

Some of these risks set forth in our earnings release filed earlier today with the SEC and our other publicly filed reports.

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 comparable GAAP measures and full reconciliations.

After I highlight our financial results, Barry will make comments about our 2006 priorities and we will take questions.

IAC finished 2005 with another quarter of solid results with a good contribution from are established and new businesses bringing to a close a very strong year of performance.

For the quarter revenue, increased 45% to $1.8 billion and operating income before amortization grew by 67% to $276.4 million with margins increasing by 200 basis points to a record 15.4%.

The full year, revenue increased 37% to $5.8 billion and operating income before amortization grew by 59% to $668 million.

Excluding the results of Ask Jeeves and Cornerstone, both of which we did not own in the year-ago period, and excluding spin-off related expenses, Q4 revenue increased 17%, operating income before amortization grew by 38%, and operating income was $169 million versus a loss in the prior year period.

The full year on this basis, revenue and operating income before amortization grew by 18%, and 44% respectively, while operating income increased to $315 million from the year-ago loss.

On a GAAP basis, as outlined in the release, I will remind you the year-ago quarter included a $185 million impairment charge related to Teleservices goodwill and this benefited the year-over-year GAAP comparisons.

Additionally, full year 2005 GAAP net income benefited from after-tax gains totaling $392 million related to the sale of our interests in Euvia and VUE.

Adjusted EPS was $0.52 for the quarter compared to $0.41 in the year-ago period, while GAAP EPS was $0.33 compared to a loss of $0.13 in Q4, 2004.

GAAP EPS growth also benefited from the prior year impairment charge that I just mentioned.

For the 12 months ended December 31st, free cash flow increased 102% to $702 million from the year-ago period.

We are extremely pleased with this result, which reflects strong cash generation by our businesses and lower taxes than we anticipated earlier in the year, other than the taxes on the VUE game which are not expected in free cash flow.

Going forward, while we think the essential characteristics of our operations remain generally the same, continued investment in our businesses and what we expect to see materially higher cash tax payments in 2006 will make growing free cash flow off of this level a challenge in the near term.

To briefly highlight the operations, our Retailing results reflect the inclusion of Cornerstone, which we purchased in April 2005, and accordingly is not reflected in the year-ago results.

After a somewhat stronger Q3, HSN's overall top line growth in Q4 was a disappointing 4%.

This 4% does not reflect the impact of revenue recognition change, whereby we conformed to HSN's policy to recognize revenue at the time an item is shipped rather than the point credit is authorized.

After giving effect to this change, which essentially works out to about two days worth of sales, revenue growth was 2.4%, which is what is included in our reported figures.

2005 was a period of change for our Retailing business in which operational distractions were made evident by the choppiness of quarterly revenue growth.

For the full year, HSN grew revenue by 5%, or 4.5% after giving effect to the policy change I just mentioned, compared to 8% growth for full year 2004.

This was below expectations.

Nothing has changed fundamentally in the industry that should prevent us from returning to higher rates of growth over time.

That said, first quarter transactions thus far have not improved, and when you couple this with a seasonally slow quarter for Cornerstone, overall retail margins in Q1 are likely to be closer to what we saw in the middle of 2005.

Services was the biggest driver of our growth with revenue up 46% and operating income before amortization up 73%.

Ticketing ended its record year of firing on all cylinders, as concert and sports ticket sales remain strong.

In Q4, worldwide ticket sales increased 24%.

International revenue grew 49%, excluding the impact of foreign exchange.

International acquisitions accounted for 15% a ticketing's overall revenue growth.

So as you can see, there is substantial organic growth in this business.

The obvious question is can Ticketmaster sustain this level of growth?

We have also said that predicted growth in this business is a challenge, but all we can say directionally is that while we don't think the level of growth seen in 2005 is likely to continue, the Live Event Industry feels healthy, both home and abroad, so the underlying drivers feel good.

Lending continued to experience strong front-door consumer demand as Transmitted QF increase 50% over the prior year period.

This flow of demand enables us to achieve improved economics to closing loans in our own name, while at the same time driving more highly-valuable leads to are lender partners.

Lending's Q4 operating income before amortization was $13.9 million, up 87% from the year-ago period.

This reflected both typical seasonality -- seasonally low quarter, which we called on the third quarter call, as well as, a $5.8 million charge, we took for patent-related litigation in the business.

Going forward, it appears the overall mortgage market faces some headwinds and we intend to grow despite them by continuing to gain share, as we did in 2004's contracting market.

We are investing in additional marketing dollars in the first quarter, which will impact Q1 margins in order to drive volume, which should benefit us over the balance of the year.

I also want to highlight in the accounting reclassifications in Lending that we affected during the period.

Previously, direct loan origination expenses and other processing costs associated with sold loans were reported as operating expenses.

The new treatment, which we believe more appropriate, reports these costs as a reduction in loan origination fee revenue.

There is no impact on operating income before amortization now, or in the future, but as a result of the change, revenue in the first three quarters of 2005 has been reclassified to conform to this new presentation.

We have included a table on page five of the release which details the change.

In Media and Advertising, this was the first quarter that Ask Jeeves full quarter numbers are reflected in our results.

On a pro forma basis, Ask Jeeves grew its revenue by 9%, largely attributable to search query growth in North America, which was offset by declines in the United Kingdom and a decrease in revenue per query due to traffic mix and the reduced monetization initiatives that began in August.

Switching to Membership and Subscriptions.

Vacations results improved sequentially with revenue up 6%, and operating income before amortization up 25%.

Personals continue strong momentum, revenues grew by 34% and operating income before amortization grew by 113% in Q4.

Worldwide subscribers increased 21% as the business continues to effectively leverage its strength globally.

In 2005, we spent a lot of marketing in the early part of the year relative to consumer behavior in this business.

This was effective and we started to follow a similar pattern in 2006.

So you should expect to see very little profit in the Personals business in the first quarter, with better profits in the second quarter, and even stronger profitability into the third and fourth quarters.

Turning to the balance sheet, during the quarter we repurchased approximately 14.3 million shares at an average price of $26.34.

We have exhausted our most recent authorization in the first week of the new year buying 826,000 shares between January 1st, and January 5th at an average price of $28.76.

Additionally, our Board has authorized IAC to repurchase up to an additional 42 million shares of common stock.

With regard to future buybacks, we will do as we have always done, which is to be opportunistic.

We have not and will not buy back stock to support our stock price, but rather when we think repurchases represent the best possible use our cash at any given time.

We finished the quarter with cash and securities at $2.6 billion and pro forma net cash and securities at $1.6 billion.

Our balance sheet continues to be very strong.

With that, Barry will make some remarks.

Good morning, everyone.

The results for the quarter and the year are better than good, and superb execution is the principal reason.

At the risk of repeating myself, and in contrast to every other online or interactive public entity, our strategy is to establish leading brands across the spectrum of consumer interactivity.

We are now, with 60 brands and the worldwide monthly audience of more than 260 million people.

This is a conglomerate with many distant transactional, subscriptions, and advertising business models.

Ours is a conglomerate that operates a whole slew of businesses only in the interactive and online sector.

This gives us the ability, a unique ability, to use our growing expertise and our best practices across our landscape in ways no one else can.

As Internet bandwidth grows and convergence increases, our scale, expertise and ensembles of brands and business models ought to give us a real competitive advantage.

Last quarter, we told you we intend to invest aggressively in our businesses because their potential for the long term far outweighs any impact in the near term.

Not to say that we're not going to grow this year.

We will and handsomely.

With so much opportunity ahead of us, with much greater operational focus, with rich resources in the bank, we started the new year executing the investment initiatives I am going to now briefly describe.

In Retailing, after several consecutive quarters of gaining share, HSN's momentum slowed this past year.

After we acquired Cornerstone, its integration lead to distractions, and we did have a GAAP in our merchandising leadership.

We made some strides.

For example, five different Cornerstone brands are now selling live on HSN.

We're going to aggressively accelerate our singular multichannel approach to retailing.

We're going to use our 89 million television households and multiple catalogs to toss to our fast-growing Internet sites.

HSN .com is increasing sales by 24% and Cornerstone is now, about 40% online with three of its catalogs.

For 2006, this is what we are doing.

We have acquired Shoebuy as our entry into virtual inventory.

The model we're going to extend into other retail categories.

HSN is going to step up its investment in interactive technologies that allow customers to shop whenever, wherever, and however fits their lifestyle.

Cornerstone will add distribution channels, both direct and store based, as well as, launching new brands using our existing infrastructure.

With Ticketing, we have a record year, extending our global leadership position selling nearly 120 million tickets.

Really remarkable for a business entering its fourth decade.

Auctions are flourishing.

One example, we facilitated 26 individual auctions for Coldplay.

We launch TicketExchange which expanded our business in the growing secondary market for tickets.

Our international business which now represents close to one-third of ticketing revenue and has reached about 50% online penetration is going to push further as we enter Germany.

In Lending, there are indications with that the mortgage market is slowing,as LendingTree continues to grow.

The market share increased .8% in 2004 to 1.2% this last year.

LendingTree has 83% awareness among consumers.

We are going to increase marketing and we are going drive the acceptance of online adoption, just as we have done in so many other categories.

Online mortgage activity is a tiny fraction of the trillions of mortgage activities that goes on in this country.

In Real Estate, it is still very early stage, but we have got 1.4 million listings through RealEstate.com.

That is 40% more than last year.

We are going to proceed vigorously investing in enhancing the site, honing our marketing and establishing cost-efficient technology center on- the-ground brokerage services.

In Home Services, ServiceMagic doubled its revenue in the last quarter.

This is a fantastic business.

It has only got a fraction of the more than one million potential service providers enrolled.

So this year, we're going to dramatically grow our sales force.

By the way, did you know that IAC has about 1900 salespeople directly soliciting an endless array of businesses and consumers throughout all of IAC?

Think if you will, what sharing best practices is going to create in competitive edge for our sales forces.

In Teleservices, PRC has gotten back its energy, with significantly improved results, and finally an aggressive plot for the future, which is going to take additional infrastructure investment to achieve.

But that investment comes from their very own cash generation.

Ask Jeeves.

It's share of U.S. search queries was 6.3% in December.

That is up 20% annually and growing fastest on a percentage basis among the major search engines.

Reduced monetization on Ask continues to show favorable impact on usage.

Not only did Ask show the largest increase in general search quality, according to a recent study by [Keno Systems], but the metrics say it all.

Users, retention, and frequency are all up year-over-year and quarter-over-quarter.

We have just begun and we have an ambitious and very tough task ahead.

We're not looking to grow profits this year but rather to make the necessary investments that will help Ask gain more share over the short and long hauls.

We believe large revenues will follow.

Later this quarter, we're going to relaunch Ask's brand.

We will continue to innovate around differentiating our core search with features and tools that people actually use.

If you're watching television, you will begin to see, hear and emotionally understand our new message.

We will enter new areas such as mobile.

We are going to relaunch I-1 and develop new toolbar applications.

We have already started to integrate content from our other verticals, including Ticketmaster, Citysearch and Gifts.com.

This will provide users with a deeper penetration into the web with each query.

It will be more streamlined.

You will get more actionable results, such as immediate links to buy tickets, local reviews and tailored gift suggestions.

We are going to continue to invest in the U.K. and elsewhere overseas, particularly, Germany, France, Spain, Italy and the Netherlands.

Evite is now under the operating management Ask who is really a small killer.

Unique visitors events and invitations all increased by more than 30% year-over-year and one of the things we must look at, Page Views, increased by nearly 60%.

With Citysearch, we have nearly tripled the traffic over the last year, up to 27 million in users.

It is delivering its tenth consecutive quarter of sequential pay for performance revenue growth and its first-ever year of profits.

This business is finally, truly getting it right.

As measured against all internet Yellow Page sites, Citysearch is ranked NO. 1, ahead of Yellow Pages, White Pages, Super Pages and the Local Directory, AOL, Yahoo, MSN and Info Space.

Q2, we're going to hugely grow our sales force.

Given our enormous volume, we simply got to accelerate the number of merchants in our system as fast as we can.

Another of our local businesses, Entertainment Publications, struggled this past season due to its disappointing performance in fund raising sales and that was only partially offset by strong online results.

The fund raising part of the business needs to be fixed.

I promise you, it is being addressed aggressively.

With Vacations, despite two straight years of hurricane disruptions and an ongoing hike of rental inventory, integral delivered very impressive margin expansion which is in part due to its 22% online penetration.

In Personals, Match had a simply outstanding year.

Raising subscriptions month-by-month to record levels, strengthening its leadership in the U.S. and achieving the leadership position in Europe.

In 2006, we are going to invest in our Doctor Phil partnership and we are going to fully roll out our new premium service Chemistry.com.

I don't think there's any question that the last year was great for IAC's growth.

It is amazing to me and my colleagues that so much exchange took place in tandem with that growth.

Under the hood, we were executing the spin-off of Expedia, completing the wind-up of NBC's eventing partnership and reorganizing the entire structure of the Company from a holding to an operating Company and doing all of this as our ever larger car was moving forward smoothly in almost every area of our operations.

There is no question to me that Broadband inevitably forces video, audio, and text converge.

It is going to disrupt historic distribution paths and patterns.

I don't think there's any question that Search in all of its amazingness is going to help people navigate through this endless number of options that are available.

Understand that ours is a Company that has got about 30 vertical search enterprises and with Ask and its global search expertise, we have got more than 2,500 technologists coursing through our veins.

We mean to perform our own internal convergence and how we leverage all of this in the coming years.

Stringing the best of the best practices across our five dozen brands has begun to produce real benefits in call-center utilization, sourcing, technology and search engine optimization.

This year, we are going to work to leverage that further in marketing, infrastructure and the development of custom search toolbars, and a loyalty program that has personalized offers and discounts.

Joining us for the first time today is Doug Lebda, our newly named President and COO.

As many of you know, Doug founded LendingTree and he built its internet brick- by-brick into the powerhouse it is today.

Recently, I asked him to join me and my colleagues in the office of the Chairman.

I did this because everything I have just said is dependent upon executing this big agenda of ours.

I don't think it can be done without having a great manager overseeing all of our business operations.

This is the 10th Anniversary since we began with a Silver King's Stations.

I doubt we're ever going to get everything right.

I doubt anyone ever does, but I sure am [expletive] proud of what the people in this Company have already accomplished.

I do know how keenly ambitious and energized they all are about our future and with that, let's take questions.

Thank you, sir. [ OPERATOR INSTRUCTIONS ] The first question is from Anthony Noto with Goldman Sachs.

Thank you very much.

Good morning, Barry and Tom.

I was wondering if give us a sense of the organic revenue growth for the Company was for this quarter?

You mentioned that last quarter.

As we look at the Lending business, the growth rate has been very strong, well over 100%, about 123% year-over-year this quarter.

If I break that out into two components, one is sort of unit growth, so QF and loan closing growth, and second is revenue per unit.

As you go into 2006, do you think you still have additional growth in revenue per unit, revenue per transmitted QF is up 50% year-over-year and revenue per closing has also been up quite dramatically and it looks like they both could be topping off.

Thanks.

Anthony, it's Tom.

On the first question, as I said in the call, excluding Cornerstone and Ask, the two big acquisitions for the year, Q4 revenue was up 17%.

If you look at the full year basis in the same way, it was up 18%.

So year-over-year, very strong growth both in the quarter and the year top line.

If you add up all of the smaller deals in that quarterly number, it might take another point or so off of that growth rate, so still about 16%.

Okay, great.

On the Lending side, what I would be looking at overall is a return to the normal business model of LendingTree, which is what is our customer acquisition cost to drive a new customer and what is our revenue per customer.

It really then boils down to market share in that business, the margins per QF and the revenue per QF and closing are very strong.

Clearly, we are always going to want to continue to focus on that, but the big mover in the Lending business is absolutely market share and penetration, which comes down to doing more effective advertising and higher conversion rates over time.

Next question.

Thank you.

Our next question comes from Justin Post with Merrill Lynch.

It looks like If you look at comps for data My Way, it's driving a lot of the search traffic on Ask Jeeves.

Can you talk about the growth outlook for that going forward and do you think that the total share of your total search is Ask Jeeves is going to grow?

Yes, I think -- I will answer the latter first.

I do think that search traffic, search queries are going to grow.

That is the essential purpose that underlie our buying Ask.

We believe the fight for growth is a [expletive] good one.

It will take us time, it won't happen overnight.

But you will see February, 27th, you will see the so-to-speak relaunch of Ask and I think you will see about a week or 10 days after that a very large media push, the purpose of which is to get people to use the product because we believe that if people use the product that they're going to say, we think this is better.

We think this has actually got differentiation, enough differentiation to make the experience worthwhile and we think that by that, share is going to grow.

As far as My Way and all of the other properties that Ask has, we're quite happy the growth search from query's from any place.

I don't think that My Way is going to be the big engine of growth.

I think the brand Ask.com is going to be where the growth is going to come from.

Thank you.

Next question is from Michael Savner with Banc of America.

Thank you very much.

Two questions.

First on HSN, as you mentioned that growth has been relatively anemic recently, and you articulated why that was the case this year.

Can you give us some very specific examples of what initiatives are in place, their going to get that turned around whether at the management level or product initiatives that will help spur growth in '06, kind of real -- more granularity towards that would be great.

Second, maybe Doug can learn some insight on LendingTree.

Margins down relatively significantly on a sequential basis, even when you adjust for the one-time charge, and certainly the rising industry and new home sales environment it makes it more difficult, so even with your market share growing is it a function that the market share is growing but the pie is getting smaller during this part of the cycle?

And the margins we're seeing this quarter are maybe more indicative of what margins are going to look like, at least in the near term as your reinvesting in the market is somewhat slower.

Thanks.

Tom, why don't you start.

Let me start, Michael, with HSN.

Barry touched on this.

There are a couple of factors that we think have attributed or caused the slowdown in the top line growth.

We have been down a chief merchant which in this business is obviously critical as a merchandise lead retail business.

Not having that position filled for some period of time and finding the right person.

We think we have identified that person and we expect to have a solution to that problem very shortly and an announcement on that soon.

So that is the first step.

Beyond that, the focus is very much going to be on daily execution.

We had some distractions this year because of the management gap and the Cornerstone acquisition.

Not uncommon to have integration woes, not an excuse, just a reality.

I think part of plugging the management holes is back to focus on daily execution.

Beyond that, the top line growth strategy remain as they have in the past, which are very much focused on driving new lines of business, new merchandise lines of business.

Broadening out our brands, our classifications of building bigger businesses from a merchandising classification respective than where we are today and very much leveraging the strength of Cornerstone, now that we are over the toughest part of the integration, which are those brands both on television and HSN.com.

Finally, continuing to grow HSN.com, as well as the Web components of Cornerstone.

HSN.com had another strong Q4 .

It is becoming a very big web retail basis.

Our overall Web business counting both the HSN.com and Cornerstone properties is up over a quarter of our business now.

We think that creates all sorts of opportunities to enhance marketing and drive cross channels.

It is all of that execution that we're focused on.

Thank you.

On the lending margin question, it is somewhat complex but I will try to boil it down.

Obviously in Q3, we had very, very high margins in the Lending business.

Q4 obviously they are lower.

However, it's a comparison over Q3.

The reason is this -- When you peel apart margins in the lending business, it basically drives back to the core math between your customer acquisition cost and your revenue.

In Q4, what was happening is, we were investing incremental marketing dollars against the Home Loan Product.

When you do that, your cost to get every new qualification form goes up overall because of that.

That revenue shows up once those loans are actually closed and once they are actually funded and there is a lag there of -- call it three to four months.

So you would typically expect some of that to show up in the next quarter.

However, Q1 is also a big marketing quarter for the Lending business as well.

So you see the marketing higher in Q1 and then you see closing higher in Q2.

All of that, so it really comes down to again, putting marketing against your core home loan products.

We can to that, or not do that, to drive share and obviously share is the real focus.

When you look the core margins in the business in terms of what is the margins of loans that we are selling to the secondary market, those were absolutely strong in 2005 and we hope they are strong in 2006.

We haven't seen a lot of margin compression there yet, but given the shrinking market, you could see it.

All that said, the margins in that business are still very high and the market share overwhelms all of that as you move from 1% to 2% to 3% etc.

Thank you.

Next question?

Thank you.

Our next question is from Mark Mahaney with Citigroup.

Please go ahead.

Thank you very much.

Just one question.

It has to do with the Ask Jeeves performance in the U.K. market, could you talk about that in more detail?

You're saying that Ask Jeeves revenue was down year-over-year in the U.K.

That seems like a surprising result.

What would have caused that?

What is your sense about the growth that marked for Ask Jeeves going forward?

What happened in the U.K. is that because we had contracts -- we didn't get into the demodification process until fairly late.

The way that works is you reduce the number of links, sponsored links and you're going to get a hit by your queries are going to grow et cetera.

We did it very late, so we had a particular fourth quarter impact to it.

I don't think that again, I just think that it is simply this evolution of Ask and what we're planning to do with Ask, which is, again, to get it so that it looks like, in terms of sponsor listing with three or four sponsored links the most and then, good, solid, great web search.

Getting all of that mix right just takes time.

That is what happened to us in the U.K.

We would expect there is no fundamental reason for anything to be less than on a growth mode in the UK as well as the year goes on.

Thank you.

Our next question is from Robert Peck with Bear Stearns.

Please go ahead.

Can you give us more color on Ask Jeeves as well?

Maybe talking a little bit about the integration of Ask Jeeves across the various IAC properties and how that is going.

Also, can you talk a little bit more about 2006 appears to be more of an investment-type year and a lot of the properties for IAC, when do you see the fruits of those labors being taken?

Thanks.

I think use of the fruits of those labors coming through in 2005.

I think they will continue to come through in 2006.

We look to 2006 to be a solid earnings year.

But we should make investments in these businesses.

The investments we're making in these businesses are not in any way defensive.

They're all offensive.

As Doug talked earlier, the truth is investing in LendingTree, which has got this huge awareness, but the category itself still is very, very small in online adoptions.

Getting that category to grow and then LendingTree is going to be the principal recipient.

If it maps this big, big direction of the marketing for the first part of the year, That is strategic for us.

We profoundly thing that is in our interest.

It is not like we're going to do is simply dump investments and crater our earnings.

But it is true that where there is stuff for us to go after aggressively, we're going to go after it aggressively.

You can't talk to necessarily the neatness of the quarters, there are other things like that.

You can talk certainly talk to the building a growing values.

As far Ask is concerned, the integration with the IAC properties is proceeding on all of our sites but it is very early.

We have so much tinkering to do.

What we are trying to do here is take this enormous traffic that we have, this huge audience that we have got, and begin their early steps to link these things up.

And we are doing the plumbing work.

But I don't think you're going to see the results of Ask for certainly some time.

I hope you'll see growth in query's.

I think that you will see growth in certainly, hopefully, market share.

We believe, I don't think it would surprise anybody, if we're going to have growth -- we grow market share.

The money will follow.

There's no question about that.

We know what our task is.

I can tell you the amount a time that is spent getting the marketing rights, getting the site right, doing all of these things, again, debuting on the 27th, is quite large.

Thanks, Barry.

Thank you.

Next question, please.

Thank you.

The next question is from Scott Devitt with Stifel and Nicolaus.

Please go ahead.

Have a question about the buyback and the authorization. 42 million is a huge number,I think that it is 12% of the outstanding shares and noting the commentary on page 9, I was wondering if you could give any clarity as to your thoughts on timing or as to when you may be aggressive in terms of acquiring shares?

Thanks.

What we have done is we authorize, we have remarked on this and we will never discuss it.

It makes utterly no sense for us to discuss timing.

It's there.

You know what we have done in the past.

You know what our capitalization is.

The rest we will report next quarter.

If anything has happened.

Thanks.

Next question is from Safa Rashtchy with Piper Jaffray.

Please go ahead.

Good morning.

Good quarter.

A couple of questions.

First, Barry, could you give us your thoughts on where you want to go with the content business that appears to be created with bringing up Michael Jackson?

How will that tie in with the existing businesses?

How big a role do you envision for that division?

And second, the questions about 2006, it is still a little bit surprising that you need to have the level of investments that believe if I heard Tom right, would essentially mean that there would be no growth in cash flow given that '05 was a big year of acquisitions.

Can you give us more detail or color on where these investments will go and why it would be at such a level -- kind of fast growth in earnings for cash flow?

Thank you.

Thanks.

Tom, why don't you to the question about investment and cash flow first and I will follow-up with the other question.

The free cash flow issue really is not, we said investment but the real driver is taxes.

We completed the spin, we were looking for free cash flow.

We kind of expected by our estimates somewhere around mid-300s, maybe 400, if we were lucky, for 2005.

Obviously, coming in at 700 million plus, we were thrilled with.

I think there was a lot of good work to manage capital investment, manage working capital and the other elements of it.

But the thing that we really got a surprise on where the number of tax items to the point where we were really not a cash pair of taxes in 2005, and that is a function of NOL utilization, and option deductions and some other items that all added up to very substantial tax yields.

So as we look to 2006, we want to call out because of the free cash on a pretax basis, we expect to see real growth in that consistent with our income growth.

Because of the tax thing, the tax bite of becoming a full cash taxpayer, we're just about through the N0Ls, obviously, Expedia has some of those now.

We have a little bit left from Ask.

So we're through that and we don't have the big option deductions in 2006.

That big tax bite will impact that number.

I just wanted to call that out.

Don't miss understand the emphasis on investment.

We think it is good for us to invest money offensively, aggressively, in our businesses, but we're going to have growth.

We are going to have growth.

I don't want people -- I don't want an alarm bell to ring.

In fact, what we're going to do is go plunge in from extremely large amount of individual investment.

There are areas for investment and there are areas for us where in fact the areas of investment come back right away.

I do want to be sure that there is some nuance there.

It relates to contents.

This is very embryonic, this is just beginning.

Don't anybody, also in this area, don't think we're going back into the movie business or the entertainment business.

We are not.

But what we are going to do with Michael Jackson, is there are areas where this convergence is taking place and it is taking place in of a lot of ways.

It is taking place before essentially there is video and other things.

It is not that we're going into the Internet video business but there are lots of areas a pure contents that are worth us exploring as the world gets more and more digital and as this convergence continues.

This is very, very early first stage.

Just minimal development.

You may see some products coming out in this area probably in the middle or latter part of the year.

Does that give you some clarity to what is currently relatively unclear about content?

Yes.

Very helpful, thanks.

Thank you very much.

Next question, please.

Next question is from Paul Keung with CIBC World Markets.

I will try to get a better handle on the trajectory of your retail units.

If we exclude the recent success of integrated HSN, what organic growth did you see in the Catalog business fourth quarter?

And taking that figure, how should we think about the Catalog business in 2006 and longer-term and how big is the incremental growth?

If you look at the Catalog business, obviously, there are only on numbers for nine months but for the full year they were double digit growth on the both top and bottom line and that has been the case over the last several years.

The organic growth and that has all been organic in that Catalog business, so the organic growth has been higher than we have recently seen over the last several years at HSN.

Obviously, that group is getting bigger.

Whether we can sustain, kind of the mid -- it's almost mid-double digit top line growth at Cornerstone going forward off of a higher base remains to be seen.

But there is very good organic growth.

There is real competency in scale in that business.

We developed new titles, spin-off titles, et cetera, and by leveraging both the Cornerstone and the HSN assets, we will have the ability to roll out even new retailing efforts.

Even faster.

Over time, the one plus one equals two and a half, we should see better growth from our retailing business because Cornerstone is part of the problem.

Once we get ino -- we are getting into the rhythm of it, certainly, in the latter part of the fourth quarter as we start bringing Cornerstone more onto HSN and HSN on air this year has got a very ambitious program with Cornerstone to put almost all of the properties on HSN.

We really believe this multi channel approach, which is from Catalogs to On-Air to Online, and that circle is something that has got great promise for us.

I think it also caused us a bit of a retail slowdown or slow down in -- not as good growth as we would have hoped for, thought we would have, etc.

I think bringing those things together, which is never without sausage making is going to be for this year, next year, an extremely good thing.

Our retail operations, we just acquired Shoebuy, it is a great, really interesting model, a jewel of a business we think.

We think there are all sorts of things we can roll out around that virtual model and again, we will bring all of these things into this concept of Catalog, Catalogs will be online, they will be much more interactive than they have been in the past with Broadband, On-Air and the Vertical Online Systems.

We think it is a really, really good strategy.

A follow-up question, Barry.

The acquisition environment right now, what is it like today versus, you spoke on a call probably three quarters ago, what do you see the best opportunities now, and what type of a flow [indiscernible] pricing?

Sorry, could you repeat the last part of it, I didn't -- ?

In other words, in the acquisition environment, where is the good stuff and where is the bad stuff?

You will not hear me deal with that.

You have watched our acquisitions slow to less than crawl.

The only acquisition we made in the last, I don't know, Tom --what is it?

Six?

Ten months?

It has been a little shoebuy.

That is very small.

Which is tiny.

You do not need to hear it from me.

Prices are in this area wildly over hock -- particularly things going from their venture funding into the either public markets or as buy-outs.

I think if something comes along that we think is a good opportunity for us and it has got irrational price, we will do it.

If it doesn't, we won't.

Right now, almost nothing does.

And we don't need it by the way, because we have a big, bit plate here.

You certainly see what that growth produced in the last year.

That would be my feeling about acquisitions in general and specifically for us.

Thanks.

Next question is from Imran Khan with J P Morgan.

Please go ahead.

Yes, hi Tom and Barry.

How are you?

Two questions.

One, in terms of HSN, return rates have went up sequentially and year over year.

I am just trying to get a better sense, is it both in the U.S. and international end?

So why did the rates go down and what are you doing to reduce the return rate?

And secondly, going back to LendingTree's site, you have 83% but increasing of the marketing dollar, trying to get a better understanding of the rationalization, are you having a hard time conversion rates or what is driving the increase in the marketing?

On the first question, I think you were asking about the return rates?

I had a little trouble picking some of that out.

Yes, return rate on the HSN site.

Those as we look at them by category and we kind of disclose the aggregate to give you the overall picture, but as we look at them by classification, whether domestically or internationally, they are roughly constant.

So we don't think there is anything going on there of any material notes at all.

I want to point out, I don't know if it is part of your question but it is relevant, in our international retail business, we had a 2% year over year quarter but that reflected a significant FX impact which was helping us early in the year, it went the other way in Q4 and on a currency basis it was up about 12%.

It is still early days, but we have some increasing momentum in our German business principally and we're looking to continue that in 2006 and beyond.

On the LendingTree side in the marketing expense, LendingTree like many of our businesses, our direct marketing businesses.

You spend a certain amount of dollars to get a person to come to your site and fill out a form and you are able to monetize that effectively at the back end and simultaneously what you want to do is drive up your conversion rates and your revenue for every one of those visitors, and be able to find new ways to reach customers.

Barry hit on the challenge of market -- increase in marketing spending is a growth opportunity at LendingTree and we are not seeing any negative trends at all in conversion rates.

The challenge on marketing is to grow the category and grow our share.

Barry touched on the fact that that business has over 80% brand awareness but the percentage of loans that are done online is 4%.

We would like to increase that by talking to consumers about why LendingTree is great and why the category is great.

It is a direct marketing business, an opportunity to drive more customers in because we have a very, very profitable core business model.

It makes a lot of business sense.

One of the strategies we followed and has been followed in many of our businesses, as we get into the transformation from Offline to Online is to promote, so to speak, the category going online, the ease of Online at cetera.

When you have a leadership position, great investment for us.

Can you imagine, given the tight giganticness of the mortgage market in the trillions, if we could pump that by a quarter of a point, much less a point.

It will go, by the way.

There is no question, it is not going to remain at a single-digit level for the next five years.

It is going to grow.

The sooner we can't get it to grow the better for us because we are profoundly the leader in the area.

And we have seen, analogous to our Personals business, the story in 2005, that is the clear leader in that business.

Great marketing, great product execution can really move the category.

Most people thought by the way the category was dead last year.

I shouldn't say this aggressively but I can't help it.

Most people believed the Personals categories had flattened, there was no growth in it, et cetera, et cetera.

What had happened was it had simply lost its marketing sensibility and got a little confused.

The work that was done in Match.com, they have truly revived it.

We have had record days that are higher than anything we have had since we got into the Personals business.

Our subscriptions are now, above $1.2 million.

They are growing faster than I have ever seen them grow in the history of being in the business.

I think it goes to smart marketing.

We are getting a return, Match.com is earning quite well.

Enough said on all of that.

That's probably do two more questions and get out of your day.

Next question is from Jeetil Patel with Georgia Bank.

Please go ahead.

Thank you.

Two questions.

One, can you talk about the HSN side, are there any cable distribution deals?

I know it is kind of going back to the issue, or kind of area that hasn't been talked about in all while, talk about cable distribution deals coming up as you look at 2006, are you fairly solid on the almost 90 million homes passed or do you see any variability in that number?

Second, you have got some good ad exposure with the Ask Jeeves platform, obviously, the valuations still seem to be very high in the industry.

What you're looking at in terms of EBITDA multiples, changed any in the past year, given the rise in the -- overall multiples in the industry or are you sticking to the knitting here of -- I think you were historically around 13 times EBITDA?

This is Tom.

On the first question in terms of cable distribution, we have put a lot of our distribution agreements in place after we sold the stations a few years ago.

We said the 2005/2006 period was a big period of renewal.

If you lump 2005, and 2006 together, we are roughly a quarter of the way through that.

It is a process we're working through.

We have great partners with both the cable MSOs as well as the DBS providers.

We bring a lot of value to them.

They bring distribution to us and will continue plugging that through and we expect our distribution to remain where it is and growing slowly because we are fully penetrated as it is.

We don't see risks there.

As far as the evaluation, I am not going to get into multiples or valuations.

The only thing I would say, I am certainly not also going to talk about "Internet valuations or search enterprise" of valuations with a G. The only thing I would say is there's no question, advertising is moving on to the Internet.

It will continue and get more sophisticated.

There is going to be much more contactual things that are going to go on.

All of these things we are diving into and we have a very good platform for it.

It will be what it will be.

We are certainly in a vein that is not thinning out.

It is going to get richer.

So we will do one more question.

Did we do the two?

We have one more.

The final question is from Heath Terry with Credit Suisse.

I was wondering if you could talk a little bit about, as you are talking about the demonetization of Ask Jeeves, Yahoo who is spending a lot of time talking about improving monetization within their search category.

Not asking you to talk about their business but to the degree that you can talk about where the balance is for Ask Jeeves and page monetization and specifically what the steps that you're taking are to kind of find that balance?

Let me be clear.

First of all, we are not demonitizing the business.

What happened was that Ask in order to meet its quarterly goals, packed the site with ten sponsored links.

The result of that was they were getting fewer queries because people did not like that experience.

It is not a good consumer experience.

There shouldn't be more than three links.

We took it down to three links.

We did it, a lot of research backup.

It said to us, that if we do that, the queries would rise and take that difference between say ten to three and more than compensate for in the rise of queries.

That has proven true.

That graph has been following since we have done it.

It is now in our 10th or 11th month -- something like that, of doing this, and queries have risen.

The goal here is certainly to gain revenue, not lose revenue.

But we have got to get the site to be competitive.

I think you will see, that is done, that is in hand in the U.S.

We are going through the motions.

We're still working through it in the UK.

Every other new site we do in the rest of the world is going to have the right balance of ads and the right balance of web search.

I invite you all, we won't be with you until that moment has passed and we will be with you two months after that.

Again, when we do the first quarter but I do invite you to go into the site, you can go into it now, and do a search comparable to -- I think better than comparable to the competition.

It is differentiated, it does have these tools that we think people use and take another look at it March 1st, March 15th, something like that and make your own judgments.

We feel very good about it.

But by the way, this is not the biggest part of our Company.

It is a big effort for us.

The biggest part of our Company is what you have seen in terms of performance in the last year and all of the aggressive things we are doing in this year.

With that, on behalf of my colleagues, thank you for being with us and we look forward to seeing you -- not that we won't be seeing you, unless there is some new X-ray vision that the internet is going to birth, but we will be talking with you in three months.

So have a nice day.

Thank you, sir.

Ladies and gentlemen, this concludes the IAC fourth quarter earnings conference call.

You may now, disconnect and thank you for using ACT teleconferencing.