Match Group Inc (MTCH) 2006 Q1 法說會逐字稿

Ladies and gentlemen thank you for standing by and welcome to the IAC Q1 earnings conference call. [OPERATOR INSTRUCTIONS] I would now like to turn our conference over to Tom McInerney, Executive Vice President and Chief Financial Officer.

Please go ahead.

Thank you.

And good morning.

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

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 that 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 have been 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 all comparable GAAP measures and full reconciliations.

After I highlight our financial results, Doug and Barry will each make some comments before we open up the call for questions.

For the quarter, revenue increased 36% to $1.6 billion, and operating income before amortization grew by 42% to $158.2 million.

Excluding the results of Ask and Cornerstone, both of which we did not own in the year-ago period, and excluding transaction expenses and inter-company eliminations related to the spinoff, each of which reduced our corporate and other line on a year-over-year basis, Q1 revenue increased 11%, operating income before amortization grew by 12%, and operating income increased 8%.

Adjusted EPS was $0.31 for the quarter, compared to $0.22 in the year-ago period, and I point you to the press release for GAAP net income, and GAAP EPS figures, each of which was affected by the inclusion of Expedia as a discontinued operation in the year-ago period, as well as some certain other items outlined.

For the three months ended March 31, free cash flow decreased to $62 million from $156 million in the year-ago period.

This decrease is primarily due to the timing of the tax refund received in last year's Q1.

This, plus capital expenditures related to our new headquarters, along with the inclusion of Cornerstone, which had negative free cash flow in the first quarter, as it builds inventory for the spring selling season, and was not included in the year-ago period, reduced our Q1 free cash flow.

I also want to point out that in accordance with the adoption of FAS 123-R, which impacts the GAAP classification of excess tax benefits from stock based awards, our year-over-year comparison of operating cash flows and free cash flows will be adversely affected in 2006.

Free cash flow for the full year 2005 included $153 million of excess tax benefits from stock-based awards, $4.2 million of which was recorded in the first quarter of last year.

Despite this new reporting classification, there is no change in economic substance, and we'll footnote these amounts each period.

Looking forward, as we outlined last quarter, free cash flow for the full year 2006 will reflect some of the above effects, including a higher amount of net tax paid for the year, although the quarterly effect may be uneven.

We expect the second and third quarters to be relatively more favorable on a comparative basis, and Q4 to be less favorable.

But we really think you have to look at this on an annual basis.

And over the course of the year, we expect to see relatively stronger free cash flow than Q1 would indicate.

To turn to the operating results, let me first address the three principal operating areas which are currently the most dynamic.

The first is our retailing sector generally and HSN specifically.

For the quarter, HSN's overall top line declined 2.6%, and margins contracted due to gross margin pressures and certain operating expense increases.

On our Q4 call in early February, and again in late March, I spoke about the headwinds at HSN.

As we look at the business, we continue to believe it is strategically important and fundamentally sound with plenty of opportunity.

That said, we have clearly had execution challenges, which we believe we are addressing, to which Doug will speak further.

Notwithstanding our long-term confidence, because the negative trends in Q1 have continued through April, we remain cautious about the near-term.

And due to the planning and inventory cycles inherent in this business, you shouldn't expect an immediate recovery.

Despite good performance at Cornerstone, which will be fully anniversaried in Q2, we expect our total U.S. retailing segment to show modest year-over-year profit declines in the second quarter, with the contraction at HSN outweighing gains at Cornerstone.

The second business I'll address is lending.

Going into the year, we anticipated a worsening mortgage market, and that certainly occurred.

As discussed last quarter, we planned to increase Lending's marketing to capture share.

And we did both of these things.

Demand remains strong, with crank transmitted QFs up 28% and revenue up 58%.

But because our close rates declined more than anticipated in a tough market, our marketing costs grew much faster than revenue, leading to an operating income before amortization decline of 16%.

Doug will speak further to our key operating initiatives in this business.

From a spending perspective, we're recalibrating our marketing and other investment levels, and we think the twin objectives of share and profit growth are achievable for the year, but the macro environment obviously remains dynamic, so this will require great execution.

There is a bit of a lag effect between this recalibration of spending levels and the benefit hitting the P&L, and thus, we currently expect for Q2, healthy revenue growth, albeit likely not at Q1 levels, with profits down year-over-year, and margins that are sequentially stable.

Third, let me speak to our media sector and specifically Ask.

On a pro forma basis, IAC search and media, which was previously known as AskJeeves, grew revenue by 9%, attributed largely to query volume growth in the U.S. offset by lower revenue per query, due primarily to our reduced monetization, which lowered the amount of paid advertising on Ask.com.

As you know, we are taking a long-term view of this business from an operating perspective, and we've said that we're not running the business for profit growth this year, and, in fact, we're spending what we think is necessary to take this business to the next level.

Near term, we expect Q2 profits to be sequentially flattish.

Midway through Q3, which happens to be a seasonally slow quarter for Ask, our reduced monetization efforts from a year ago will start to anniversary.

So it really won't be until Q4 and into next year, when we should see the beginnings of financial growth.

While the three businesses I've just touched on are not seeing profit growth currently, our other largest businesses, including ticketing, vacations, and personals, are seeing very positive traction.

Ticketmaster picked up where it left off in 2005, growing revenues by 16%, with ticket sales remaining strong in concerts and sporting events, which collectively make up more than half of Ticketmaster's business.

In Q1, worldwide ticket sales increased 12%, and international revenue grew 25%, excluding the impact of foreign exchange.

International acquisitions, primarily in Australia where we purchased the remaining interest in our joint venture in April, 2005, accounted for a quarter of ticketing's overall revenue growth.

Vacation's top line grew 8% year-over-year, benefiting from 5% growth in members, and profit growth was 10%, helped by a 19% increase in online confirmations.

Interval continues to be competitively strong and a rock solid contributor to our growth in free cash flow.

Personals grew revenues and operating income before amortization by 35% and 10% respectively.

On the Q4 call, I said that Match would follow a similar pattern of marketing spend as it did in 2005.

This approach brought the business so much success last year, where we marketed strongly in a seasonally important Q1 and enjoyed accelerated margins as the year progressed.

We followed this pattern thus far in 2006, particularly overseas, and the results have been positive, with worldwide paid subscribers up 23% in Q1, with a 20% increase in our international base.

I want to spend a minute talking about our corporate expense line which ran higher than normal throughout the first half of 2005, due to both spinoff expenses, and to certain accounting effects related to the pulling of Expedia into discontinued operations.

This was the principal driver of the year-over-year improvement in this line, as the year-ago period reflected $12.1 million from these effects.

We'll see this favorable comparison through Q2 before it mitigates in Q3, and goes away entirely in Q4.

Going forward, and all things being equal, we are likely to achieve more normalized expense levels in this line, consistent with what we saw in the back half of last year, while operationally, our continued investments in Ask and elsewhere, along with the headwinds at LendingTree and HSN, will affect most immediately our Q2 growth rates.

We believe certain of the operating initiatives Doug will address to have positive impacts on the back half of the year.

Turning to the balance sheet.

During the quarter we repurchased approximately 4.2 million shares at an average price of $29.12, and since the conclusion of the quarter we bought an additional 3.4 million shares through April 28th, at an average price of $29.41.

Our actions with respect to buybacks remain consistent with our commitment to put our capital to work.

It is through investments in the business, acquisitions, or share repurchases, and currently we see opportunities primarily in investing in our own business, and our own stock.

We finished the quarter with cash and securities of $2.4 billion and pro forma net cash and securities of $1.5 billion.

So our balance sheet remains very strong.

With that, Doug will make some remarks.

Thanks, Tom.

In the first few months of my new role, I've observed firsthand the enormous value and potential within IAC.

I've also seen things that we can clearly do better, and we're very focused on a handful of key initiatives in each business.

I'll spend a few moments highlighting some of our biggest priorities with the exception of Ask, which Barry will discuss.

First is retailing.

And our overall focus there is to get HSN back on track.

HSN had good years in 2003 and 2004, with solid growth, share gains against QVC, and improved overall execution.

But beginning in the first half of 2005, with the Cornerstone acquisition and management turnover, the business failed to leverage that momentum and find a real merchandising rhythm.

I've spent a lot of time at HSN and have come to know the people, all of whom have enormous energy and passion for the business, and as you know, we've got fantastic distribution into 90 million homes and nearly 5 million active consumers and greater than 25% online penetration.

So the good news is that we have a solid business with very good people.

But we clearly recognize and took action against some key priorities.

Our first priority was to bring in some great new management, and we've done that with Rob Gruen, our new EVP of merchandising, who has been on board for only about seven weeks, and most recently, with Mindy Grossman coming on board as CEO of IAC retailing.

Let's face it.

This business begins and ends with products.

When you put great products on air, they sell.

Rob is doing the heavy lifting of making sure that the 200-plus items we sell on television each and every day are compelling, differentiated, and intelligently priced, and ensuring our product mix ties to a rigorous merchandising strategy, based on an intimate knowledge of our customer needs, wants, and desires.

Some of the other key initiatives in retailing focus online, including expanding the assortment on HSN.com, particularly with the Cornerstone products, and beginning online marketing to attract new customers.

Additionally, Cornerstone has a host of initiatives under way to grow online sales.

Already, catalogs like Garnet Hill, Smith+Noble, and TravelSmith have more than 40% of their sales coming from the web, but all of the Cornerstone brands have a lot more online opportunity to tap.

The theme in ticketing is to capitalize on its already strong momentum.

Ticketmaster is a gem.

The combination of a powerful business model, consistent execution, and great people make this an outstanding business for us.

As the leading player in a relatively mature market, our top focus has always been to optimize our core client relationships, while striving to provide consumers with absolute convenience and value-added services.

Some of our key initiatives include first, reducing the number of unsold tickets at our client's venues.

With the exception of big name shows, over 50% of most events tickets go unsold.

Ticketmaster is doing a great job implementing new ways to help clients sell those tickets.

In the first quarter alone, we sent 325 million e-mails to subscribers, who bought more than $40 million worth of tickets in response.

Second, we're rolling out dynamic pricing with auctions to a greater degree.

We're now auctioning thousands of tickets annually, and the pace is accelerating.

Clients are increasingly responding favorably to auctions because they're able to more efficiently scale the house so that ticket prices are more in line with true market demand.

Third, we're moving more aggressively into the secondary market with our exchange products.

We continue to believe that we offer a better secondary market product for clients and consumers.

Because we act as an event's primary market ticket seller, acting on behalf of the venue promoter or team, we can ensure customers that they're purchasing a valid ticket, bringing legitimacy and trust to the after-market transaction by providing a safe, event-authorized transaction for consumers.

Our team exchange product already has more than 40 clients on board.

And our brand new ticket exchange product already has a handful of clients and 12,000 consumers who have registered for an account to resell tickets.

The key for both of these is to drive client adoption higher.

And we're having hundreds of conversations with clients about how Ticketmaster is the winning alternative in this market.

We believe we're already winning on the team side, and believe over time, we will win on the single ticket side.

We're also generating new sources of growth internationally, as evidenced by our string of strong results.

Ticketmaster currently operates in 11 international markets, along with affiliated business relationships, as joint ventures or licensing arrangements in six more, and has developed -- development activities in several others, including China, where we've submitted a bid to ticket the 2008 Olympics in Beijing as part of a broader market entry strategy.

Now, shifting to lending, where we are in the midst of a cyclical contraction.

According to the Mortgage Banker's Association, the overall market is projected to be $2.4 trillion in 2006, down from $2.8 trillion in 2005.

The good news is that LendingTree has been gaining share, increasing revenue in the first quarter by 58% from the year-ago period, and our goal is clearly to gain more.

The challenge is that growth is coming at a price.

It is costing us about 50% more this year to get every customer than it did last year.

And because interest rates are higher, and thus it's less compelling to refinance a home, conversion rates on our core mortgage products are lower.

What we've been very pleased to see at LendingTree is that they've handled these challenges well and have put a number of aggressive initiatives in place to profitably grow share in a difficult environment.

Some of these improvements are simply to the site to make it easier to use.

We've added functionality like click to call, eliminating questions in the qualification process, and continuing to test forms and landing pages in order to optimize the consumer experience.

We're also focused on purchase mortgage, and we remain very intent on increasing our penetration in the purchase lending portion of the overall mortgage market.

The MBA expects purchase mortgage to be flat in 2006, compared to refinance which is expected to be down 28%.

We actually saw record purchase QF volume in March and while we're happy with that, conversion rates can certainly be better.

To crack the code in purchase, we are, among other things, building up our base of purchase-only lenders who focus solely on converting purchase leads, and continuing to improve our purchase incubation process to help consumers who have yet to find a home navigate the loan process.

Finally, we're taking aggressive steps to improve our marketing efficiency.

By reallocating our resources and our spend to the most profitable channels online and offline, and pulling back on the channels that are not working.

Shifting now to personals, in our personals business, there has been a real turn-around story and its results reflect great momentum.

The team at Match is doing a wonderful job, and their priority is to strengthen our market leadership worldwide.

Match is very focused on growth.

They're doing this with great product, effective marketing, and win-win affiliate relationships.

In fact, Match recently extended its online partnerships with AOL and MSN.

The recent Dr. Phil advertising partnership and related mind-find-bind add-on product are doing very well and lifting subscription growth faster than we originally expected.

Chemistry.com was launched nationally in January and is geared to the more serious relationship market, where we hope to take share away from eHarmony.

Initial results are solid with more than 650,000 consumers having completed Chemistry's distinctive personality test since its launch.

Internationally, Match is working on securing leadership in the key markets, namely the U.K., France, and Germany, penetrating further small markets such as Sweden and Spain, and on entering entirely new markets such as China.

Each country is unique and full of sprouting competitors, so it's certainly a challenge, but we are on a clear path.

I will briefly mention our vacation's business, the third largest contributor to IAC's profits and our gold standard with respect to operating leverage.

Interval's primary focus right now is to continue executing with precision.

Meanwhile, we're excited about its initiatives to elevate online penetration, which currently is 24%, to higher and more profitable levels, as well as accelerating its international footprint.

Nearly every one of our businesses, in each of its markets, has real opportunity for growth.

And we are working on business excellence and consumer-focused initiatives aimed at unlocking this potential.

We're also working ever more closely with our operating leadership on IAC-level initiatives as we continue on our path to becoming a more fully integrated operating company.

We'll dive into these one-company initiatives more as the year progresses, but I will say that they're rooted in our belief that our success will not only be based on business synergy, but also about people and process synergies.

So, these initiatives are focused on building a world-class human-resource function across the company, unlocking best practices, and improving processes across all of our businesses.

With that, Barry will now make some remarks.

Thank you.

Well, you've heard enough numbers, context, and background from Doug and Tom so I'm not going to numb you with much more.

But with respect to HSN, I would just add that after years of backing and filling, a step forward, half a step back, we have finally hired a senior executive that's really seasoned, with wide and deep operating experience in every area of retailing, and I believe we've taken the right steps.

But I recognize that results, not rhetoric, is what you're interested in, and that is not going to come in a flash.

Two days ago, the new regime began, and began with a mandate to drive the hell out of this business, short and long term, so we'll see.

As to Ask com, if I'm asked what's the right time to expect that our investment is going to begin to come through, I would say around the first quarter of '07.

If I'm asked what progress we've made thus far, I'd say we've introduced the new Ask com about two months ago, and I haven't heard a bad word since.

Truth is, we've had overwhelmingly positive reaction, except for the deep Jeeves loyalists, and we've gotten outstanding reviews from all corners, and the site is is what we wanted it to be, differentiated from the other search engines in ease and intuition, to find what you're looking for, find it better, find it faster.

We began advertising Ask about six weeks ago and are going to step up the campaign over the next months.

While it is too early to tell much, so far, so good.

Share is growing.

There's no denying that this is an ambitious initiative.

If we pull it off, if the advertising transformation to online continues as me and every other bird brain thinks it will, then we'll have plenty of earnings and added another large asset to the company.

So, with that, I think that we've given you enough data, as I say in context and all, and we ought to go to questions.

So let us start that process.

Thank you.

Ladies and gentlemen, at this time, we will begin the question-and-answer session. [OPERATOR INSTRUCTIONS] Our first question comes from Mark Mahaney from Citigroup.

Please go ahead.

Great.

Thank you very much.

I'd like to ask about two segments that don't necessarily get a lot of attention.

First, the real estate business, it looks like you're trying to build out brokerages in parts of the country.

How material of an investment will you make behind that effort?

And secondly, on the vacations business, the results there actually increasingly look pretty impressive, and they are sizable, so are those margins, that 45% OIBDA margin in the March quarter, is that sustainable?

Can that increase going forward?

And in terms of the international growth there, is that something that you're just starting to tap?

How big is that opportunity for you?

Thank you very much.

Sure.

Let this is Doug speaking.

Let me address the real estate business.

And first off, just to explain the brokerage model that we are undertaking, because it is very different than what you see in the rest of the market, the model is that centrally, through the web, and through call centers, you control the lead flows coming in, through marketing online, and offline.

Those leads are then transmitted over the phone, and over the web, to agents in the field.

The nice thing about this model is it comes with substantially less capital expenditures than the traditional real estate model, comes with we think much higher conversion rates, much higher scalability, and importantly, much higher margins than traditional real estate.

The economic model is that the house, the brokerage, if you will, keeps about two-thirds of the commission, and the agent gets about one-third of the commission.

So we feel good about this.

We're already live reasonably substantially in two markets, we're about to be live in a total of four, and the early results are very good.

In Portland, since only the month of March, we've already gotten, for example, 30 homes under contract, and 12 new listings.

Now, regarding the investment, I think my reaction so that would be the investment will sort of continue at its current levels.

It is definitely a long-term pay back here.

But for now, we're very much in a testing mode.

We're going to get these four markets live.

We're going to see how the model scales.

And then we are going to read it before we evaluate and then go later, but the early results are very, very encouraging.

To the interval question, I think it was clearly a great quarter.

That business has been performing very strongly for us.

But we got it going, I think pretty much on all cylinders this quarter, and it was nice to see the revenue growth, both in terms of member growth, as well as kind of transactions growth, continued growth online.

And when you get any kind of a revenue growth of that business, you get pretty good flow-through.

I think in general, the current levels of margins and some degree of increases year-over-year are sustainable. at least, we expect them to be.

There are some seasonal effects, and there are some things that happened in Q1 that I wouldn't say literally the 44% is sustainable, but I think the general trend you're seeing in that business reflects the value they're providing to their clients, and to their consumers, and we feel pretty good about the outlook, and I think the last part of your question was international.

That's been a very tough aspect of this business.

On the one hand, it's a positive in that we've been able to drive those results without a real degree of kind of compelling momentum.

That gets into all sorts of regulatory and market-specific conditions, suffice it to say the kind of the macro market has not been super receptive to timeshare development, which is obviously the pre-condition to our participation, so we're still cautious on that, and longer term, that represents opportunity, but it requires some industry change that we have to wait and see on.

Thank you very much.

Thank you.

Our next question comes from Justin Post from Merrill Lynch.

Please go ahead.

Yes, first, on -- if you look at HSN results, it looks like you listed three or four categories that kind of underperformed your expectations.

I remember last year, you were able to re-accelerate the growth after just one down quarter, I believe, in the third quarter.

Is this kind of a broad-based problem?

Or is it something that can reverse pretty quickly?

I know you said it might take a while.

But really, what's your outlook?

And do you feel like your viewers are spending more time on the channels or less, or how do you see that?

And finally, as you move online, it is a very competitive environment online, especially on margins.

How do you see HSN maintaining their strong gross margins?

Justin, I think the results were, as you pointed out, weak in the majority of classifications across Q1.

So, we got off to a tough start in the specific product categories that we thought we were kind of driving it, specifically fitness in the first six weeks, and I wish that were the only issue.

As you say, it was broader-based than that.

And as I alluded to in my remarks, that has continued into April, and we don't expect kind of a very quick fix to that.

I think the nature of the business, as you alluded to, looking in the past, is kind of multiple levels of execution.

We certainly hope that through a kind of renewed focus, renewed energy, that the type of activity and energy that can come from a new leader, that we see a step up, an immediate kind of day-to-day execution.

This is a business where product and sourcing is part of it, but it's also about managing the grid and managing contingencies and the types of things that happen when you are producing 24 hours of live television, and we certainly think some of that has been the driver behind the softness and that we think is correctible in reasonably short periods.

To fundamentally change kind of the merchandise, and merchandise mix, which is the backbone of the service, and the backbone of retail, as Doug alluded to, that tends to be a longer process.

And sourcing cycles in this business can be anywhere from three months in certain classifications, on the short end, to up to a year, on the longer end.

So what we're looking for is gradual improvement in phases over coming quarters, and I think that's the best we can kind of do on that at this point.

But as we did say, that's in the context of the soft start in Q2.

Online, I think, online is competitive, but it's also growing at, 25 or 30%.

So there is no question that kind of with frictionless consumer ability to move from site to site, everybody bidding on the same keywords and things like that, it's a competitive environment, but if you bring to it a real advantage, which we do in terms of that merchandising skills, our direct-to-consumer fulfillment scale, and obviously, the kind of the promotional elements of the network, we think there is real advantage.

And that's why we've been growing at north of 20% on a sustained basis, and that's one of the reasons we continue to be optimistic about the business long-term.

For us, the online business is not analogous to other pure commerce online, low-margin operations.

And I think as it relates to the -- HSN, and its near-term, in addition to -- it can't be said really any or way, kind of screwing up the right-out-of-the-box January fitness, which had historically worked very well for HSN, we also had imposed on HSN a kind of conservativism on the inventory side.

And that's why the category, that's why it's spread, I think, beyond that, in February and March.

That's going to take a bit of time, as Tom said, to recoup, but the focus is there, the energy is there, and when you get the products in, and you do have that, it does turn fairly quickly.

Thanks, Barry.

And one follow-up.

Comps were kind of underestimated some query volume for the leaders in search in the first quarter.

You can talk about your query volume?

Has it picked up at all in March and April since you did the re-launch?

Yes, it has.

Except for what happens to us every Easter, which is that because of the -- really, the history of Ask is, is lots of very young people, school kids, using the service, which we think is a good thing, but during the Easter period, they don't use it as much, because they're doing whatever they're doing on their breaks.

So we had a bit of a shortfall, but overall, when you take the whole period, yes, we have grown queries.

Thank you.

Next question?

Thank you.

Our next question comes from Anthony Noto from Goldman Sachs.

Please go ahead.

Thank you.

Barry, I had a strategic question.

There has been a lot of talk within the industry as it relates to Internet companies and search engines from the standpoint that these companies don't own the PC; they don't own the pipe or the network; they don't own the browser, and they can potentially be cut off from distribution to the consumer.

Do you worry about that strategically, and if so, what are some of the things that you're doing at Ask to potentially solidify some toolbar deals or other strategic relationships?

And then Tom, second question, I think you mentioned sort of the pure organic growth number in revenue for the quarter was 11%, on I think, that excludes foreign currency.

If we think about that 11% today, and the fact that your businesses are fairly big, and any new business probably won't be big enough to change that growth rate over time, how do you think about the longer term revenue growth beyond 2006 over a three-year time period?

Do you think it is a high single digit revenue growth business?

Do you think it could be in the double digits?

Thanks.

As far as toolbars on Ask.com, we just actually I saw this morning, we closed a deal with Sony, to be on their small business toolbar, when they distribute their machines.

We're working on lots of toolbar deals.

I can't predict what will happen with them.

I do, of course, have the same concerns everybody does, about IE7 coming out.

I think there will be some restraint shown there.

I do think it will be kind of a multiple-choice question but I do think that Microsoft has got an embedded advantage, which is going to have some effect.

All of that said, I also believe that people will go -- it is not hard to do this --if you like something, you can make this switch.

I think we're differentiated enough, our plan is to be even more differentiated, than the other search engines, that if you take a liking to it, just like anything, you will get to it.

So that's partly what we're doing in terms of our advertising, in terms of the messaging that we're making.

And it's also, I think, going to have -- I think we've been able to grow share on really daunting circumstances, where the -- with Google as a verb, et cetera and all of the stuff that you read about that, so I think we can continue to do it.

For us again, growing share off the small base we have, it is going to be very rewarding.

So for us, going up in share, take whatever time it takes, is -- has got a greater weight for us than it does from other, so to speak, share gamers who’ve got different issues to consider.

And Anthony, on your second question, the 11% was the organic revenue growth, excluding Ask and Cornerstone.

That was actually with the FX effect.

So FX probably cost us another point to a point and a half so it would have been 12, 12.5 without the FX effects.

I think longer term, obviously we have many, many growth opportunities, many initiatives, and what that consolidated overall growth rate looks like on the top line long term will really be a function of kind of the relative mix of how will all these come through.

And how quickly can we get some degree of scale in real estate.

How much can we move on Ask, et cetera.

There is no one way to think about it.

One of the ways I think about it is in our kind of three large businesses, that have been around for 30 years, which are HSN, Interval, and Ticketmaster, I think over the last several years, and somewhat in fits and starts, although particularly with HSN recently, but in general, over the last three year, if you look at the revenue growth in those three businesses, either individually, or combined, it has been pretty darn solid.

Anywhere from mid-single digits up into the -- well into the double digits.

So if you can continue -- if we can continue the execution and pursuit of the agenda in each of those businesses that we have, obviously fixing HSN, and then you start to layer in these earlier stage businesses, there's no question you get up into the double-digit rates and then how far and how quickly and over what pace, I don't know.

Great.

Thank you.

Next question?

Thank you.

Our next question comes from Safa Rashtchy from Piper Jaffray.

Please go ahead.

Good morning and thank you.

Barry, a kind of a strategic question on the HSN side.

I know in the past you have been steadfastly defending HSN's inclusion as part of InterActive's portfolio, when it makes sense strategically in the long term, but it does appear, at least on the surface, that this is a fairly typical business to manage, and a relatively low-growth one.

It is not clear whether the issues you're seeing are just one time, and are structural, and you'll fix them and you'll have nice, 7, 8% growth growing forward, or if they'll come back to haunt you.

It does appear that the -- it is a fairly difficult one to manage, merchandising inventory, given that difficulty and low growth rate, can you share with us again your thoughts on why do you think it is important strategically for HSN to be part of InterActive?

Sure.

Sure, I can.

I've always felt, and I think that that it is now coming into reality, evidence, which is that, as this broadband pipe expands, and as you get convergence of audio and video and text, that these shopping services are going to make a transition to very rich online, because I think there's going to be multiple screens in a house, and they will have all of this ability that I talked about, and they'll have one-click ordering, and you'll be able to not wait for the sweater to come up, but you'll be able to call it up; you'll be able to do all sorts of things.

We have really great expertise in all of these lines, in terms of shooting product, in terms of very wide, very deep inventory across almost every retail category.

And I think that that's what is going to happen.

It is going to happen not -- I mean the experiments in digital, so to speak, are in ITV, which are just beginning.

We actually started I think the first one, haven't we in Hawaii, or in Honolulu?

Yes.

But I mean starting in Hawaii is not, as we would say a big market rollout, but in a sense, it tells you it is not going to happen tomorrow, but I don't think it is going to take more than a couple of years, three years, before the home is equipped the way I spoke of, with multiple screens., So I very much think it is worth it.

And also, this retail business that we run by the minute, it is a great discipline.

It is not easy to manage.

And as I say, you know, we have actually -- we had a pretty good run to gaining market share, and then we fell back.

I expect, I hope, Doug certainly drives this very much, alongside me, as does Mindy Grossman who just started, we're going to push this.

I think it is right for InterActive.

I think it is right for IAC.

And for what I absolutely believe is going to be the future of commerce, and of the systems that we've got, and I think near term, and by near term, I mean throughout the -- growing throughout the balance of the year, getting back on track, starting to grow again, starting to take share, I think the short-term is good and I think the long term is really good, and I think it's a very key part of the company.

Okay.

Thank you.

You're welcome.

Next question, please.

Thank you.

Our next question comes from Michael Millman from Soleil Securities.

Please go ahead.

Thank you.

I wanted to follow-up amongst other questions on the viewership.

What is happening to the viewership at HSN in terms of all the metrics you have at its disposal?

And I have a couple of other questions.

Sorry.

I didn't hear that last little part that we having what?

In terms of whatever metrics you use.

Oh, okay.

I think, Michael, given the nature of the service, where it tends to be people have it on, and they're interacting with it ,and they're going on doing other things as opposed to dedicated viewing, where you sit, and you watch a show for 30 minutes or 60 minutes, viewership has been to us never been a kind of a meaningful metric in something we track.

I would say when we look at other metrics of activity, customer base, frequency of different customer groups, things like that, I'd say there is nothing that gives us any pause about kind of longer term effects.

The customer base is very solid, nearly 5 million.

As Doug mentioned, our loyal base is there.

We're just as in any retail business, when you don't get that merchandise and the presentation of that merchandise right, people are on the margin not taking out their wallet and transacting with you just quite as frequently, and you're not getting that growth.

But nothing in the other metrics would indicate anything more fundamental.

By the way, and by the way, just so everybody knows, I mean when you do have a product, a series of products, that audience is very much there.

Very much there in, you know, 50,000 amount units, for certain products, very much there, the other day, for about 1,000, 1200 laptops.

I think I'm close to right on that.

For a tune of 9 million on the day.

Sounds right.

I think that's right.

I don't think it is much off, if it is off, whatever.

So it is there.

When you have products.

We have gone through what the -- the one thing that is for certain, nothing has changed, nothing strategically or fundamentally or in terms of systems or anything is any different.

The issue we had is totally an inventory product-based issue.

The picture looks good.

The other day, we sold, what was it, Doug, on Sunday night, what was it?

Literally selling through handbags over $1,000 a pop on HSN, and selling them at roughly a 50% more than they were expecting an I think this just really accentuates that product and other products that you see that this, as Barry has always said, is an item business, when you get a very good compelling unique item on air and you price it properly for the audience and for what it's worth, it sells very, very nicely.

And a question on lending.

You show, at least in your cash flow, that there was 61.5 million gain on sale of loans held for sale was kind of double last year.

Can you explain what that's about?

Are you holding on to some of these loans?

Or is there some MSRs involved here?

Nothing fundamentally changed.

The actual calculation of that gain and kind of looking at it quarter over quarter can change due to a lot of individual pricing effects, and a lot of specifics in terms of the mix and everything.

But the practice is absolutely the same.

We -- the minute we make a lock commitment, we immediately lay off that risk and sell it forward.

But nothing changed in the practice whatsoever.

Okay.

And then I guess I will ask the non-PC question, no one else has asked.

We like that.

That's depending of course.

If you can talk about what Berkowitz leaving --

Oh, sure.

Both to Ask and to Equisoft.

Well, I certainly am not going to say what it means to Microsoft.

I haven't a clue.

For many reasons, I don't have a clue.

But as to Ask, Steve played very much -- played it really from the time he came to Ask, and was one of the people who decided to buy Teoma Technology, which is the basis of Ask search before it was really a Q&A.

And that was a great decision.

And he was very much, I mean, responsible for ISH, et cetera.

He did not really play a line-line role in the Ask.com operation in the sense of operating on a daily basis.

It was really done by Jim Lanzone.

And the product was really created inside, the update for the product was created inside Ask.com.

I'm absolutely convinced we won't -- we won't skip a beat.

Jim Lanzone is now really essentially the chief executive of Ask.com.

All of the other areas have really good leadership.

Steve was definitely an asset to the company, and I'm sorry that he decided to leave.

But as far as our ability to operate, and grow the company, I do not believe it will have an effect on what we do, but of course time will tell.

Thank you.

Thank you.

Our next question comes from Doug Anmuth from Lehman Brothers.

Please go ahead.

Thank you.

My question is regarding Ticketmaster.

Can you provide some more detail on the trend in domestic ticket royalties over the last several quarters, including the year-over-year change in royalties per ticket?

And then also, what should we expect from Ticketmaster growth as the comps get tougher over the next few quarters?

Thank you.

The business on, the royalty side, has generally been the same, this quarter, this year, and if you go back several years, I think I've been giving this answer since the late 90s, but in general, as we continue to build that business, we continue to build services, we continue to drive the business online, build additional revenue streams, et cetera.

We're looking to share more of that with our client partners, and we have done some of that.

It is a very kind of gradual and controlled increase.

At the same time, we take costs out of other parts of the business, and drive operating leverage, so we have been actually been able to drive up our bottom line margins while becoming a better partner for our clients, and I would say that trend continues at exactly the same pace as it has happened in the past, and we feel good about kind of the fundamentals in that regard going forward.

In terms of the comps, I think comps do get a little bit tougher, but the business feels pretty good.

I mean there is a number of big acts that are slotted to go out.

We have some stadium business that we didn't have last summer.

Last year, there were some headline acts, the Stones, U2, but this year it feels pretty broad, Madonna's going out, Bon Jovi, the Tim Mcgraw-Faith Hill tour, so it's always hard to say.

That is not a backlog business.

The volume can move around.

Shows and tours get added.

Shows and tours can get pulled.

So we've never have quite the degree of visibility you tend to expect.

But in general as we look at Q2 and beyond, for the moment it feels pretty healthy.

Next question?

Thank you.

Our next question comes from Heath Terry from Credit Suisse.

Great.

I was wondering if you could just talk, I actually have a Ticketmaster question, as well.

If you could talk about the forward calendar for the concert sports, how do you think it shapes up versus last year's calendar, and then also, growth that from that business, how much of it's going to come from the size of the total ticketing market versus price improvements or revenue per ticket opportunities there?

And then any thoughts that you have on the secondary market?

Yeah, Heath, you may not have heard but I just said I think that the volume -- well, last year we had some very large tours.

The volume this year feels pretty broad-based, and the forward calendar feels reasonably healthy at least as much as we have visibility to it.

It can move around, but in general, it feels reasonably healthy right now.

In terms of the mix of the revenue growth, again, I'd say it's consistent with what we've seen in prior periods.

We have gotten kind of low double-digit price increases on average, and we expect that to continue on a revenue per ticket or convenience and handling charge per ticket basis, but obviously a lot of this is driving volume.

And it is driving volume domestically, as well as internationally.

I mean the nice thing about the Ticketmaster business this quarter, as well as last year, is we have very balanced growth on a global basis.

We added, in Q1, several hundred clients, and lost a single-digit number.

And so that obviously drives the volume as well as selling more of the tickets that have gone historically unsold or maybe were sold through box office outlets that we historically did not get a fee revenue on.

In terms of the secondary market, you want to address that, Doug?

Yes, in terms of the secondary market, I think it is safe to say that we're still early in our days on secondary ticketing, and we do it with it with the cooperation of our clients.

But we feel very good.

We've got a lot of clients signed up for it, as I said, on the teams, and now the real challenge is to move into the single ticket business.

But we feel we've got the technology for it.

We've got clearly got the consumer audience for it.

Now, the one challenge is just making sure we continue to increase client adoption of that product, and we think it will grow.

Secondary ticketing is going to grow over the next several years, there is no question about it.

Variable pricing of ticketing is going to happen, but that is probably somewhat further out.

So a couple of more questions.

Next question, please?

Thank you.

Our next question comes from Jeetil Patel from Deutsche Bank.

Hey guys, This is actually Herman in for Jeetil.

A quick question for you about the LendingTree business.

I noticed obviously there is a decrease in the conversion rate due to higher mix of purchase, mortgages versus the refinance side.

What do you guys see in terms of the -- what are you guys expecting in terms of the mix shift, for that in 2006, and longer term?

As well as if there is any change in pricing on the qualif-- QFs that you guys are transmitting these days.

Sure, I will address that.

First off, the decrease in conversion rates, let's talk about it in refinance.

Clearly, some of it is happening because of mix shift.

But as I alluded to in my remarks earlier, we are seeing, because interest rates are higher, it is less compelling -- the case to refinance your mortgage is less compelling than it is when rates are lower, so we're seeing conversion rates inside of the refinance product be lower as well.

So that's really what is driving that.

Now, the good news is, when you go back to the basic math of the LendingTree business, it is an interplay between your conversion rates and what it's costing to you get customers.

As we recalibrate our marketing spend, as we improve our online efficiency, as we continue to improve in search marketing and organic search, et cetera, we can keep that equation in balance, and we think continue to grow.

But we do need to recalibrate.

In terms of pricing on the network side, we're not assuming making any changes in pricing going forward.

We think our prices are fair.

And reasonable.

And we think we will leave them alone.

That said, we continue to evaluate it constantly, and take some minor adjustments from time to time, but I don't see any now.

Does this purchase mix in -- the purchase mix and transactions affect the amount of percentage that you guys close in-house?

I believe it was roughly about 19% or so last year, that you guys closed in-house.

Purchase -- the purchase mixed shift would not really change the -- what we close in-house.

We are focused on growing the purchase team, as I talked about, the purchase incubation process, internally, as well as through our network, so no, that won't change it.

We're very, very focused internally.

The key reason for that is we basically felt that in order to -- at the end of the day, really complete the play and purchase, we need to have direct control over it, so we continue to test, and we continue to scale, and we continue to change that process to give something great for the consumer so that those loans actually close.

Got it.

And just one last question on Ask.com, I was wondering if you can give us an update on the integration on some of the other properties, I believe you guys were testing, some of the Ask integration on Cornerstone, and just wanted that update on that, as well.

No, what we're really doing is, and we really have just begun this, and some of the stuff, the work that we've just seen, the prototype work for some of these integrations is just great.

With all of our sites, we put them -- we put Ask on all of the IAC transactional commerce sites, as a -- we think in a good way, but the real lift will come and I think some very unique things we are going to do with these 270 million people who course through our network every month.

So that stay tuned for.

That's just beginning.

But the early work looks very good, and the toolbars are all on, and it's all efficiently done.

And as far as the other sites that are part of the Ask operation, which include iWon and Excite and MyWay, individual work is being done on each one, which really hadn't been much done in the past.

Our Smiley business is just a smash.

And you say smileys and people say hmm, that sounds smiley but this is a business that last year did what specifically?

I don't think we have disclosed.

We don't do that?

It is a healthy growth.

You know what?

It is tens of -- can I say that without anybody shooting me?

Tens of millions --

You just did.

Thank you.

Well, I guess I did.

So that's just great.

I mean, we have so many different things going, and these other businesses, I think, that are not the big initiative of establishing Ask.com as a global search engine, but I think over time, they are going to be pretty robust so I added a little more.

So let's just go to the next question so we can try and service everyone.

Thank you.

Our next question comes from Imran Kahn from J.P. Morgan.

Please go ahead.

Hi, this is Derrick Newman on behalf of Imran Kahn.

I had a question for you guys on the network versus proprietary revenue.

Looking at the metrics, it can look like network revenue outgrew proprietary revenue is.

There any specific reason for this?

You know, it is a -- Derrick, it is really a composite of kind of a multiplicity of the different businesses that are in search and media, and so when you look at the various pieces of it, I think probably a key driver is our U.K. business which tends to be more proprietary than network has had its challenges.

That's one of the challenges we're addressed.

I think we talked about that on earlier calls.

That is probably the single biggest driver between.

It some of the other businesses which are doing well tend to have more network traffic than proprietary traffic, so it is really the sum composite of the individual business lines and I think it is more mix than anything specifically going on at Ask.com, for example.

Barry, a quick follow-up, can you give us a sense on how the early marketing returns have done for Ask.com.

I think they've done very well.

Prior to Easter, we were up, you know, 25, 35%, on daily volume.

So I think it has done well.

I think you can't -- the truth is, though, you're going to get an early bump, you always do from almost any kind of advertising.

The real issue here is will we -- will we be able to retain?

That's going to take a while.

It is going to take I think much more marketing and it will certainly take a while before we know that much.

But all of the early stuff, every single early metric that we look at is good.

Okay.

Great.

Thank you.

One more question, please.

Thank you.

Our final question comes from Robert Peck from Bear Stearns.

Hey, guys.

Thanks for taking my question.

Barry, as you think about AskJeeves and growing the market share north of 6% you have a couple of very interesting features that the others don't, something like binoculars which we like a lot.

What sort of barriers to entry do you have to technologies and patents?

How easy is it for Google to duplicate that type of thing?

And Yahoo more of a media company and Google more of a tech company and how does Web 2.O fit into your strategy going forward and do you ultimately have to follow into one of the other products you're seeing, whether it be a Google base or GBay or Yahoo's version of PayPal?

First of all, the barrier of entry in this area, they are pretty low.

I mean you've got some patent protection in certain areas, but the truth is, you know, a whistle here is going to probably be copied.

The truth is, I think we're ahead of them.

I think we've got a suite of things and we're going to keep pushing that.

Because binoculars we think is really nice.

But we really think that the smart answer that, that contextual response, our M-A-C product I think as most people think is better than anybody else's.

Our image product is absolutely anybody who looks for images on Ask looks for images anyplace else, Ask blows it away.

So while it can be copied, I think the copy the whole suite of differentiation is pretty hard to do.

And you know, that's really -- that's definitely our strategy, is absolutely differentiation.

What was the second part?

Web 2.0.

Web 2.0 is almost ask anybody what it actually means, but if you're talking about the inter-mix of different product, yes, we are doing it, and we -- we do not plan to do a mail product.

We don't think it is either necessary or appropriate for us.

We think the space really is taken.

We don't think we have very much to add in mail.

We also think that they are really quite separate functions and I don't think not having mail is a big issue for us.

We are going to be introducing probably three months, maybe six months, just to give us a little room to get it right, a news product that I think is going to be very, very robust.

One last follow-up there, as far as your ticketing endeavors, have you had any conversations with eBay or any impact that you see on eBay's tickets business?

We've had conversations going back some time.

We've never been able to really get anywhere.

I mean eBay's got okay ticketing business but essentially we've got the tickets, so in most cases, so I don't really think we will ever be -- I shouldn't say ever but I doubt that we really will be.

We are probably competitors to them.

And they have a very -- I don't know what's their share, would you think if it is even possible to know what it is, but it is certainly small.

Yes, I mean I don't know the share, but obviously, we have the distribution, I mean Ticketmaster has a massive audience, and distribution is not the key.

For us, the key in the secondary market is really working with our clients, since we do work with them closely, in the primary market, we need to do this in kind of a concerted and coordinated fashion, and really working with them and doing it in a way that serves all party's objectives from the artist side to the promoter’s side to ourselves on the music and also the teams on the sports side.

We're further ahead on the sports side, with really good traction.

We continue to sign up teams.

We think we're gaining share there.

And as Doug and Barry said, we're now just beginning on the music side, essentially the single event ticket side.

It is kind of obviously, it is going to be -- I mean if you have an authorized trusted exchange place or a place where can do variable pricing or auctions and those types of things inside the Ticketmaster system and do you get the cooperation of the artists and the venues and all of that which we think eventually you will, I would think that it will come us to rather than anyone else.

Thanks so much.

So thank you, all.

We will be back to you in the next quarter.

And in the meantime, I hope all goes safe and well for you.

Thank you.

Ladies and gentlemen, that does conclude the IAC Q1 earnings conference call.

You may now disconnect.

Thank you for your participation.