Match Group Inc (MTCH) 2006 Q3 法說會逐字稿

Good morning ladies and gentlemen and welcome to the InterActiveCorp third quarter earnings conference call. [OPERATOR INSTRUCTIONS].

I would now like to turn the 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 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 anticipate 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 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 discussed certain non-GAAP measures and I refer you to our press release on the Investor Relations section of our Web site for all comparable GAAP measures and full reconciliations.

I will highlight a few items in our financial results before turning it over to Doug and Barry.

Rather than bore you by reading off the results from page one of our earnings release, let me jump right in a a discussion of some additional numerics and a few observations.

Excluding the results of IAC Search and Media which we owned for only a portion of the year ago period, and excluding transaction expenses related to the spin-off, each of which expanded our corporate and other losses in the years ago period, Q3 revenue increased 8%.

Operating income before amortization grew by 4%.

And operating income excluding a $67 million non-cash comp charge in Q3 2005, relating to the spin-off of Expedia increased 20%.

For the nine-months ended September 30, free cash flow was $310 million, up $90 million from the year ago period due primarily to higher operating income and non-cash expenses.

Turning now to the operating results and starting first in retailin6. 0 sick.

Retailing results reflect the inclusion of Shoebuy, acquired in February of this year; single-digit growth in catalogs and flat sales at HSN.

New leadership has been in place for five months and while still in early days science of removed energy and focused necessary to run the daily operations of a 24 hour TV shopping network are evident.

Flat sales at HSN during the quarter cannot be as good in a thirty year old business where history indicates that mid-to-high single digit top line growth rates are achievable.

That said, Q3 was marginally better than Q2 and we would hope to continue to see tangible evidence in improvement as we go.

While looking for modest top line growth in HSN in Q4 will be a challenging quarter on a year to year earning basis for a few specific reasons.

We saw lower operating expenses and variable costs in the fourth quarter a year ago that we do not expect to benefit from again, and we are seeing higher year over year program distribution costs.

Thus, even if we achieve modest top line growth at HSN in Q4 we expect margin contraction in the quarter and profits to be down.

While this may be partially offset by unanticipated or by anticipated profit growth in our catalog business we expect domestic retailing profits to be down at a high single-digit percentage rate.

Turning now to our ticketing business.

A balanced contribution from increases both in the average revenue per ticket and ticket sales led to continued worldwide revenue and profit growth.

Looking forward, we have always said that predicting growth in this business is a challenge.

However, in the fourth quarter, we think we'll have a tough comp given the strength of the year ago period.

Q4 2005 results included strong play off success from our MLB clients, the return of the NHL, the Commonwealth games in Australia and a strong contribution from other international operations.

We currently anticipate mid single-digit revenue growth with approximately flat margins compared to the year ago period.

But to be clear, the fundamental growth drivers in ticketing have not changed.

We have said consistently that will growth can jump around quarter to quarter and this is indicative of that but we feel very good about our prospects here.

In lending we continue to operate in an environment significantly less attractive for mortgage refinancing and home purchases than the prior year period.

Close rates across all home loan products, especially refinance, were lower in Q3 leading to year over year revenue declines.

As you know, we have cut planned marketing expenditures in this business to strike the correct balance between gaining share and improving margins in the back half of the year.

Although we did come in a little shy of our hopes on the revenue side in Q3, it cost us 4% less to acquire a new customer versus last year and 11% less versus Q2 leading to a 400 basis point increase in sequential margins.

The fourth quarter in lending is an easier comp and we look to grow profits again in Q4.

Now let me spend just a moment on a business we don't always speak about.

ServiceMagic, reported as home services in our release, has a scalable business model matching over 200,000 consumer service requests per month with a network of over 40,000 prescreened service providers and has really begun to gain traction.

Q3 revenue and profit growth were 51 and 71% respectively.

As you look at Q4, it's worth highlighting that as we lending we historically see some seasonality in this business as homeowners turn their attention to the holiday season and away from repair and remodeling, so sequential results may reflect this, but this business is starting to be a real contributor to our overall result.

Now let me speak to our media and advertising sector, where the effects of our efforts to differentiate Ask.com and grow share are early but promising.

On a pro forma basis IAC Search and Media grew revenue by 34%, encouraging when you take into account that for one-third of the quarter Ask.com was comping against a higher ten paid link monetization format.

Looking deeper into the numbers Ask.com continues to grow queries at a rapid pace in the U.S., and declines in Ask in U.K. while still disappointing, are showing science of lessening.

Our syndicated search and fun Web products businesses both exhibited strong query and revenue-per-query growth with the latter business benefiting significantly from the highly-successful launch of our [jlinky] product, personalized avatar which can be used for chat, blogs, social networking and other places on the Web and desktop.

This latest innovation which added 1 million registered user during the quarter accounted for over half the new downloads in the quarter and just one of many examples of the business' ability to create product that resonate with its audience.

Its membership and subscription sector results in verifications of personals businesses continue to benefit from growth in worldwide membership that both exceed their global footprint.

Match.com continues on its march to being a true global brand.

It achieved excellent profit growth despite significant and innovative marketing efforts in a number of early international markets including the UK, France and Spain.

Turning to the balance sheet, we continue to repurchase our shares from early August when reported Q2 results and have repurchased additional 7.3 million shares through October 27 at an average price of $26.44.

Year to date we have repurchased a total of 34 million shares at an average price of $26.75 at a total cost of $909 million. 8.8 million shares remain in our current authorization and yesterday our board authorized IAC to repurchase up to an additional 60 million shares of common stock, although obviously we will determine in our usual manner if and when this this is the most appropriate use of our capital versus other alternatives.

We finished the quarter with cash and securities of $1.9 billion and pro forma net cash and securities of $1 billion.

So our balance sheet remains very strong.

With that, Doug will make some remarks.

Thanks, Tom.

I would like to expand on the results you've heard about.

To sum up our overall performance reflect continued progress and momentum in several businesses, particularly search and media, both Ask and consumer applications, ticketing and personals.

Strong performance from home services and vacations and two businesses where we are still working through challenges, lending and retailing.

The challenges aren't simple to solve but there is clearly some very solid work going on and we are making progress.

In retailing, Mindy Grossman and her team are in place.

They are improving execution and discipline across the operation, including how sharply we define our brand and target audience, how that brand articulation is carried through to the products we buy, how those products are sold on air and then backed up by more seamless and high quality operations.

After months of intense review, Mindy and team have key operating priorities for Q4 and 2007 including: Bringing in new people particularly in merchandising and planning, already four out of the seven merchandising heads have changed and we have a new head of planning as well.

As late as last week we transferred in the new head of our dot-com business who previously ran our very successful start up Gifts.com.

Processes are being totally revamped to ensure depth, quality and selling at the right price points.

Second we've decreased our reliance on core vendors and dramatically increased the number of new, better and more current brands that we carry.

You will see those effects throughout 2007 as we launch these new brands.

Third, we launched a company-wide quality initiative.

We are looking with fresh eyes as many processes inside the company and holding ourselves to much higher standards.

We intends to have higher quality products, fewer product defects, better streamlining of how products get on air, when products get ordered and how we predict order quantities.

Lastly, we are deploying video and new technologies both on dot-com and on television.

We are starting to see early adoption of video on demand in our test markets and on line our video capabilities have been dramatically improved.

All of the on air shows are now archived on the Web, many are pushed to video sites across the Internet and increasingly, our web experience will be much more interactive than it is today.

It is clearly early days here, and the overall effect of these initiatives will take time to manifest themselves in operating results but early indications are good.

In lending and real estate we are obviously fighting a well known macro environment.

The mortgage market is down 29% in Q3 versus last year, according to the Mortgage Bankers Association with a 43% decline in refinance.

In the face of these headwinds the team at Lending Tree has put in place a number of initiatives that are gaining traction.

These include continued focus on the purchase mortgage business.

At Lending Tree loans the number of purchase dedicated loan officers has doubled year over year.

Purchased closings at Lending Tree loans are up 39% year over year in a market that's down 14%.

While we clearly need more progress, including new initiatives to step change the success of purchase mortgages, both on the network and at Lending Tree loans.

We made very solid success in on line marketing.

A year ago Lending Tree was encountering new competition who were frankly better at on line marketing than we were.

We put in better technology and better people and gave this important area significant focus.

One year later we are beginning to see the fruit of that hard work.

In spite of seeing costs of on line media rising dramatically in 2006 and conversion rates and thus revenue falling, on line advertising partners where we couldn't advertise profitably a year ago are now making money.

In addition, GetSmart, our lending brand geared towards consumers who want a shorter qualification form improved its cost of customer acquisition by over 30% year over year.

This is translating into on line share growth.

Through internal tracking and third party data, we track consumer leads generating through Lending Tree and all of our competition.

A year ago, Lending Tree and GetSmart combined to generate about 39% of all the on line qualification forms and that number is now north of 45%.

Lastly we are continuing to innovate in our forms and on our Web site.

The QF has been streamlined, that's the qualification form, through a continuous program of testing and experimentation that has yielded great results.

For example, one recent change in the refinance form yielded a 15% improvement in that form's conversion rate.

Additionally, Lending Tree has now launched an integrated short form business which is generating incremental loan requests every month and hopefully will be a significant driver to contribution profitability next year.

Obviously we wish the picture were better at Lending Tree but we firmly believe we are growing share, doing better than most players in the marketplace and grew profit margins sequentially by vigorously managing our discretionary spending.

Offsetting year over year declines in these more challenging businesses was another strong quarter of ticketing.

Event pipeline was seasonally healthy with popular events domestically as well as Major League Baseball.

We also did very well internationally, particularly in Canada, Australia and the United Kingdom.

Contributions from the acquisition of Tick Tack Ticket in Spain will add presence in one of the top markets in Europe, and we just announced our JV with local partners in China to serve as the exclusive supplier of the 2008 Beijing Olympic games which provides us with a foundation for ticketing operations in China.

Innovation in ticketing continues.

We made steady progress with initiatives in the secondary market.

The sports ticket exchange business added five teams and we expect more.

In this past concert season, we are seeing real traction with our auction product.

This quarter saw a 100% increase in the number of auctions and 187% increase year-to-date.

At Ask we are definitively taking share.

Ask.com share was over 2.4% in September, up from 2.18% last year.

Query growth for the quarter was equally strong, up about 30%.

According to comp score, Ask traffic was up 46% in September compared to September, 2005.

Second only to Google in terms of growth.

And we now lead AOL in search rankings for IAC Search and Media.

Innovation will continue across the search and media businesses.

At Ask.com we fundamentally believe we have a great search product and future releases will be even bed.

We recently launched Ask Mobile where you can locate what you need on any web-enabled phones with a few keystrokes, with faster page loads and better navigation.

In our consumer applications group, our Fun Web products which includes Smilies, continue to grow dramatically.

Fun Web Products tool bars were downloaded almost 13 million times this quarter, up from 10 million last year.

CitySearch, too, has rolled out innovations, recently launching send to phone which text messages merchant's contact information to the consumers cell one and adding CS411 to perform searches uses text messaging, and we are investing to expand the merchant base by aggressively launch CitySearch sales force and launching a self-enrollment program to make it even easier for merchants to sign up and receive leads.

In Personals, we've had just another strong performance due to very healthy growth in Match.com's domestic and international business.

Domestically, the partnership with Dr. Phil has been helpful in distinguishing the site from the rest of the pack and driving new users.

Internationally Match is now present in 33 countries and offering services in 15 languages, making this a truly global business.

I would like to close with an update on what's happening in some of our cross company initiatives.

We've had six different cross company best practice sessions in the largest and most fertile areas of commonality in our businesses, including on line marketing, off-line marketing, strategy in business development and technology among others.

As a result of these, we've now launched new projects in each discipline.

We are beginning to change the way we deal with the major portals and search engines as well as.

Instead of each business dealing solely independently, we are beginning to conference coordinator across the businesses.

Starting this fall we will have people from each business come together and meet senior executives and product reps from Google, Yahoo and MSN.

These meetings will be the first step in ensuring we have the proper attention and care from these partners, and we are seen as one combined IAC advertiser, not a dozen smaller ones.

We've created virtual forums on our corporate intranet, and dedicated them to the key disciplines such as marketing and technology.

Now employees from one IAC business can easily connect with their peers in another IAC business in order to exchange ideas, collaborate on projects, or help each other with recruiting.

We put in place an SEO Program and report card with action plans and metrics to measure search and engine optimization performance and return on investment.

And perhaps most importantly we've made a commitment to a common way of measuring customer satisfaction across our businesses by integrating the net promoter score program into all the IAC Web sites for early next year.

For those of you who don't know Net Promoter, this score is a simple way of measuring customer satisfaction by ask one question about a consumers likelihood to recommend your service.

We think this common measure, along with persistent follow up will a enable us to improve how we are viewed by our customers across our various businesses.

As you can see, the work at our businesses is progressing, and the results from our efforts to transform IAC into an integrated conglomerate are showing early traction with the hope and belief that there is a lot more to come.

We fundamentally believe that our focus, execution and discipline in these areas is well placed and will bear fruit in the short term and even more so in greater earnings growth in ever more delighted customers in the quarters and years to come.

With that I will turn it over to Barry.

Good morning, all.

I believe more and more that these minutely scrubbed and prepared remarks have really severe limitations.

While they do give you a lot of useful detail into our results, they just don't allow for talking about the fundamentals of our business models and where we think that they are going to go in the future.

The truth is that given the time constraints they are not much of a forum for any real strategic discussion.

So this morning all I'm going to do this time is tell you that we are going to have a conference call in December to talk about our businesses, their trends and hopes for the year ahead without trying to squeeze all that in during earnings season.

You know our feelings that formal guidance is a poor practice and we are not about to change that.

But we do want to tell you everything we can about our ambitions both in the near and in the long-term.

And before we get to questions one of my colleagues said that I should wish everyone Happy Halloween.

And it's unfortunate that you can't see us because we are all in costumes which we thought that at least we enjoy.

So now to questions.

[OPERATOR INSTRUCTIONS].

Our first question comes from Mark Mahaney from Citigroup.

Great, thank you.

Two quick questions, first can you talk about the strategy for international retail ton what, tent lessons that you gain from as you work through the U.S. turnaround can you applied there?

And secondly to what extent do you have to be concerned about challenges to the percentages business to the rise of the social networking sites?

You got acceleration in personal subs but at some point do you have to change the product experience or do you have to make adjustments to that or is that a non-issue?

Thank you, very much.

I think, Mark, on the international retail, you said it well, which is we clearly need to do a better job of taking our learnings from our new leadership team at HSN and exporting that overseas.

I think that would be a second priority.

It is a second priority to focusing on getting HSN U.S. growing again as we've constantly alluded to.

This year we had a number in Germany which is really the HSN international business.

We've had a number of kind of operating distractions and disruptions, some market related and some by our own hand moving to a new fulfillment center, we've mentioned that before, on this side of the business which I still call small in retailing world, that type of thing can be highly distracting and flows back into your merchandising operations and everything else.

We think that particular problem is behind us.

We had to solidify certain distribution arrangements.

We think we are well through or most of the way through that and we think we are now in a position where we can refocus kind of the entire management team on the core television retailing disciplines which are merchandising, marketing and selling on air and it's absolutely the plan to do a better job of kind of knowledge transfer across border which we've not historically done.

But again I think that will be a second priority to the HSN U.S. focus.

On Match, certainly I'm not, I don't think that the people that are on social network sites aren't flirting and interested in flirt, chat, all the things that used to be done on the telephone.

But I don't think that as carefully as we've looked at this I don't believe that it's serious, dead serious but people who join, register and join Match.com are doing so because they really either don't want to waste time, don't want to go out and stare across the room and not get enough stares back, they want tools and help and a huge database of people who are registered and who subscribe.

I think it's a different practice.

I think certainly there will be more and more, there are obviously what is a better definition of a social network site than Match.com.

But I don't think that one leads into the other and I don't think that the models will change, not that I can see.

Thank you.

Our next question comes from Anthony Noto from Goldman Sachs.

Please go ahead.

Thank you.

A couple of questions, Barry and Tom, as you look at the percent of revenue that's from Internet revenue within retailing, it's leveled out over the last several quarters at 26% of revenue and it's accelerated to about 16% year over year growth.

I wonder if you can comment specifically on what initiatives you can implement there to accelerate that growth and at get it back to at least where e-commerce stands today.

As it relates to the cornerstone business do you think you can leverage redistribution channels such as the internet and television and can you comment on what percentage of cornerstone sales were from TV or Internet?

Anthony on the first thing I think what you are seeing there in terms of this flattening out is in part due to mix effects.

Because of cornerstone growth and cornerstone growth relative to HSN growth, that's changed some of that as well as seasonality.

We are seeing when you pull apart the numbers, we are seeing Internet growth at those HSN and in the cornerstone properties.

So the cornerstone properties are over 40%, HSN now is over 20%, and each of that is growing consistently.

I think it's probably fair to say at a slower rate at least at HSN than it has historically.

And there's a number of new initiatives, I will rattle off a couple and Doug can jump in in terms of driving that.

On HSN it's really trying to drive this integrated video experience so we are now capturing automatically in real time all of the live programming into HSN.com and so if you miss a show on television you go back and look at it on HSN.com.

This is one kind of baby step in a long a series of steps that will allow our customers to kind of break down in linearity model where you're watching on TV V. and kind of stick are stuck on what we are presently as opposed to what you may want.

That's just beginning.

I think we will look to completely revamp the site next year with a lot more video integration.

As relates to Cornerstone, they are only really starting to think of their business as an Internet business.

It's really been thought of as a catalog business not withstanding the high Internet penetration.

So they are doing a lot of what I call pretty basically blocking and tackling steps in terms of SEM and SEO and things like that, as well as really trying to leverage Pan-IAC as well as HSN experience.

There is plenty opportunity and I think those numbers will continue to rise quickly.

It's going to grow.

There's no way it can't grow.

Some Internet penetration at Cornerstone was pretty high.

Garnet hill, for all of you who want great products go to Garnet hill in textiles, God knows, I guess it could be said I'm not a low end shopper but Cornerstone's Garnet Hill has products that I don't think has a peer in terms of cashmeres and blankets, so that's my little commercial.

We should make some money out of this deal.

Do you have a second question, Anthony?

You are trying to tighten me up, Tom.

Let me just finish, Garnet hill has 54% Internet penetration which is pretty good.

But it's clear, you get more broadband without any question you are going to get higher and higher percentages of catalog business moving over to the Internet.

And in the last, I think months or so we really have begun to task the Internet and I think given them a lot of help with getting it right.

Anything else, Anthony?

You had mentioned that you made a change there in who's running that business.

I don't know if that was Frank that was moved out of that business.

I was wondering if you could clarify.

On HSN.com?

Yes, we took William Lynch who was running Gift.com, who really started it for us and did just a great job.

I mean, what are we at kind of on gifts?

We don't break it out really I recollect it's a mid single-digit depending on Q4 which will be a big year, it's multiple million in revenue this year and just a shade under break even, really should be break even on a run rate basis.

Literally a year and a half in business, I mean that's pretty good and it's got pretty good traffic.

Any way, we took Mr. Lynch and we put him in charge of HSN.com because we really want the same kind of super charged atmosphere at dot-com that he's been able to give us at gifts.com.

Anything you want to add, Doug?

One thing that Tom mentioned the major site redesign next year will really try to bring a lot of the features that are innovative and the consumers want to the forefront, make it easier to find and in addition just make it easier to navigate.

This is a site that is still in the early days of SEO and SEM, and there will be lots more of that and also changing the merchandising focus of HSN.com and making sure that our buyers know that when you are on dot-com you need to show a wide assortment of products, not just a couple examples.

So we are expanding our product examples in HSN and also integrating within the other IAC businesses for example Shoebuy, and bringing all that product to bear on HSN.com.

By the way ShoeBuy is a little business we bought and that is just a stellar operation and it's just a virtual, it has utterly virtual inventory, carries zero inventory against its competitors and it's a little jewel for us.

Anything else?

I guess since you prompted me I would just ask one question on ticketing.

I shouldn't have done that.

It's almost 50% of your absolute growth in EBITDA today.

And as we look into 2007, 2008 do you think it can sustain this high single-digit revenue per ticket growth especially as you are in renegotiations with LiveNation hit by the ends of '07?

You know, Anthony, there's been a multi-prong kind of driver growth.

You can go back probably five, six, seven years and TicketMaster has consistently grown at rates faster than the underlying market.

It comes from kind of multiple letters, even on a volume basis including Internet picketing up clients.

While it has a lot of clients, there are always more to get, adding new services that are now starting to kick in in terms of volume, things in the after market, thing in auctions, et cetera, International has been a big piece of the story and we are really kind of firing on all cylinders growing in the international businesses as we grow into new markets.

In addition to the one Doug mentioned, we are actually announcing yesterday or today the acquisition of a property in Turkey, another new country we are moving into.

So we are very bullish on TicketMaster's growth opportunities even on volume basis notwithstanding the fact that some of the underlying markets may be at a lower rate than what they've been able to do.

Next question.

Our next question comes from Justin Post with Merrill Lynch.

Thank you.

Can you talk about Ask's proprietary growth versus network growth.

Why is network out performing so much?

And then if we do the math you said queries are up I believe 30%.

We have to assume that the monetization is improving as you work with Google.

What these kind of sustainable growth rate for proprietary going forward?

Let me hit the first part of that and let Tom pick up on the numbers, h first off on the network that is really driven -- these two things are relate the but also very independence.

The network growth is driven by great products and consumer applications and portals.

And that business will grow share largely independently based on how great their products and services are.

They've got great products in Smilies, they've launched a great new product in Jlinky, and they innovate like crazy and launch new products all the time.

Proprietary is obviously direct domain Ask.com and that is based on consumers hearing about ask, either through TV advertising or on line and coming to Ask.com purely direct domain a big driver of that is the inter-relationship between visitors and frequency and how many times they come, and retention that we actually retain them month over month.

The only thing I'll add is in addition to some of the strong performances seen in our syndications businesses is as we referenced a couple times the UK, Ask U.K. which is a proprietary business, has declined, has continued to decline including this quarter.

And so while Ask.com U.S. is doing terrifically, if that's a word, the U.K. had declined and that's waiting down that proprietary number and that's also related to your question.

We mentioned the query volume growth, that's really a U.S. refers.

If you layer on the higher monetization that gets offset by some of the revenue declines we've seen in the international markets.

As to sustainability, that's to be seen obviously it's a big market, it's growing quickly and we have a small share and we are firing on all product, marketing and everything else we see as an opportunity to continue to drive then we expect it to continual be it at what rate is to be determined.

On the U.K. we made a management change some months ago, about eight months ago and I think we've gotten it back in hand.

It's going to take awhile I think for to us get competitive again but I think we are on our way there.

Next question comes from Doug Anmuth of Lehman Brothers.

I wanted to follow up on questions regarding HSN, particularly talking about the product mix shift, it seems over the last few years it's moved around quite a bit and obviously in this quarter moving more toward jewelry and accessories, I was wondering if this was a more fundamental shift that's been driven by the new management team, should we expect this trend to continue going forward?

And also can you clarify why the reduced on air distribution at HSN international?

Thank you.

You know, the mix -- I think the answer to the first question is no, sir in the sense that quarter to quarter we are always going to see this mix move around.

It happens for as long as I've been involved in the business and going forward it will happen.

I think within those categories you mentioned, accessories, for example, I think that's a small business for us so that could be could be a secular opportunity where you see consistent growth.

But I think at a high level, HSN is competing in a very wide range of classifications across all hard and soft lines, jewelry, et cetera, electronics, and we see opportunity in all of those areas.

Within each of those kind of macro areas we think there's more opportunity and less opportunity in certain cases.

Once you get to kind of that macro level of Jewelry, home fashion, et cetera, I don't think there's going to be any long-term, as we see it now, kind of secular changes that will move around quarter to quarter depending on what we see, what we anticipate the customer is looking for.

And as to your second question, could you repeat it?

The reduced on air distribution internationally.

Yeah, internationally in Germany, the distribution market is really concentrated in three cable companies , unlike the U.S. where we tend to operate under long-term contracts there it's much more fluid, and as that country is going through a digitalization process it needs to free up capacity.

They are starting with much lower analog capacity to begin with.

As you go through digitalization, you have to free up capacity so you can make that move.

And in certain locations within the country, certain states and parts of states we had to work with cable operators to accommodate that move to digital.

I think it's a mid-single-digit percentage loss, it's something we will have to work through but I don't think it's long-term structural.

Next question.

Heath Terry, Credit Suisse.

I wonder if you can Ask integration into the network, how far along would you say you are with that or are you at a point where you feel the heavy lifting in that integration is complete and if so to what degree are you seeing the ecosystem building the way that you envisioned it when you first bought the company?

Let me touch on that I think it's save to say we are still in the very early days of integrating Ask.

And it will be integrated in two ways.

Clearly, for example, you have the search boxes on all of the IAC properties and those search boxes are beginning to propagate inside of the search experience, for example inside of Citysearch you can place it, in the right place for search queries that makes sense inside that product.

But it's still small and still early days.

We are also working with each of our businesses on tool bar distribution.

As our sites want to maintain a presence with their customers with a tool bar that they can download we've got those that are starting, that we are starting to work on.

Then you've got the reverse integration if you will, which is integrating IAC properties inside of Ask.com.

And that is beginning, I would say, and we are working on it and we are working with the product teams at ask.

The very good news I would say on all of this is, one, the people inside of IAC are very focused on this and understand that it's incredibly important and are open to it.

So we talk to the people at the businesses and they say, let's find a way to help ask grow share, and we talk to the people at ask and they want to integrate within IAC to differentiate their product from others but we are still in the very early days.

Great.

Thank you.

Thank you.

Our next question comes from Jeetil Patel with Deutsche Bank Securities.

Thank you very much, a couple questions related to the ticketing business.

I guess on a question asked earlier following up on that just as you look over the next several years what kind of mix do you think will you see in terms of ASP lift from a ticketing standpoint that's pushed along by your partners relative to the commissions that you will be able to capture, I think in the last quarter it was I think 5% lift in ASP and you picked up another 5% in commissions in addition to the volume.

Can you give us a sense of what it looks like going forward?

Second on the ticketing side, I guess can you remind us where do you think the biggest pricing power lies as you look inside the ticketing side?

Is it in the yield management side systems and infrastructure that you are operating or is it the marketing and distribution side?

The convenience per ticket rate that we've tended to get over the last several years as you mentioned to mid single digits on a per quarter basis these are contractually built into our contracts and largely tied to ticket prices.

So predicting where ticket prices go across tens of thousands of events over multi-year period is very difficult.

So we don't build the business and in a sense plan on getting back pricing although as you figure today I don't think it's something that necessarily see is going to abate.

We don't see science of abate.

Every kind of market segment is different, micro segment is, geography segment, but in general the trends that we benefit from as far as we can see it will continue but as I said it's not something we can control and it's a function of many kind of actions and factors.

I think you asked in terms of relative to what we get in terms what have we keep.

We have done a great job building a variety of value-added services for our clients and you hit on both areas and I think they are both critically important.

Their infrastructure in terms of them managing their buildings, managing their season ticket base in the case of sports clients, access control at the arena, et cetera, and increasingly it's about distribution.

We are selling now kind of 13, 14% I think it was this quarter of our ticketing volume was tied to specific products and services that were as a function of all of these new initiatives and that's up consistently.

And it will keep going up, there's no question.

And that's what gives us pricing power if you will.

I don't think we have pricing power but I think what we do have is we've invested enough with that infrastructure which we started to do several years ago that the services that we provide and the fact that we are leading on the ticket exchange and that we are, our auctions business which started a couple of years ago and this year is going to be, I mean really robust.

Other than that obviously we want to continue the health of these mature adults that are performing out there and we hope that they continue to stay spritely and healthy.

Next question, please.

Thank you.

Our next question comes from Michael Millman with Soleil Securities.

Thank you.

I wanted to look in a different area.

Can you talk about what you are thinking regarding your real estate?

Is that something that you ultimately have to do yourself or is that business basically to provide leads to the established companies in the industry?

And also where do you go with vacations?

Can you integrate that?

Is it a totally one off kind of business for you?

On real estate, we operate in multiple businesses there so the answer is both.

We will have a balanced business that provides leads to agents and brokers and right now we have two ways that we make money, either pay on a closing basis or paid on a subscription basis for a package of leads.

The other business that we have and we talked about in the past is our company owned brokerage business.

We are in I believe six markets live today and we are launching another four over the coming months and that's going really well.

We've doubled the number of agents and the transaction volume is doing really well in that business and it's starting to become a material contributor.

So it's going to be a mix and it's going to be a balance and we have optionality as to which way we go and where those leads go over time.

The other thing I'd highlight on real estate is a significant new RealEstate.com Web site redesign which you are going to see if you went there today nationwide is a much more listing focused, listings centric Web site.

And if you are in Dallas you will see a full range of new tools and integrations with maps and lots of other services around house alerts and linking directly over to a call center to give you support through the process.

So that's live in Dallas and we are going to be continuing to innovate that.

You have your own office in Dallas?

I'm sorry --

You have your own office in Dallas.

Today we are working in Dallas through relationships with our brokers.

We are not live there as a company-owned brokerage market but we are live in six other markets.

And you are going to see, I mean we are going to have a full service approach to real estate.

We are not just trying to scarf it off from one pure Internet sector.

We believe that it's got to be tied to ground service and I think what we are doing, the innovation that we are doing there which is our ground service is different than others is I think going to be the future of real estate.

I would encourage people to give it a shot in markets like Seattle, Portland, Salt Lake, Denver, et cetera, you go in, you look at listings, any time you want more information on the house, you get linked immediately through an 800 number with a live agent in the field who can give you more information, who will set up an appointment to take you out, see that home, list your home, come for a listing presentation, et cetera.

It's higher margin than traditional real estate because we don't have a lot of the bricks and mortar and the commission structure because we are sending the leads to the agent in the most part is more beneficial than traditional real estate.

But it's going to be, this is a long effort for us.

This is not overnight.

We are not going about it some crazy full throttle basis because it takes time to get the right relationships, get the right grounds brokerage and so we are deploying it as quickly as we think is prudent but eventually it will be all across the United States.

How much of that business do you have on the sell-side versus the buy side?

I'm not sure of the exact number.

I think it's roughly split two-thirds on the buy side, one-third on the sell-side but we will get you the exact number.

Thank you.

As far as is Interval is concerned, Interval is a stand alone business.

We do have hopefully will have relationships with Expedia in terms of the excess inventory.

It has some inter-relationships but relatively minimal with IAC.

This is obviously a business that we bought for how much? $500 million.

It's return -- I mean it's in a sense, a lot in a way, it's the perfect LBO in a sense.

We didn't borrow money to do it but -- we did a bond offering so you can say we funded it with whatever but if you look at it on those metrics it's not a little star it's a big star at IAC, its management in its operation, they are just, just superb.

You couldn't, it's not possible for you to get better.

So it stands very nicely along.

Next question, please.

Thank you, our next question comes from with Imran Khan with JP Morgan.

Hi, good morning.

A question, share buy-back, 12% and bouncing share buy-back, 23% of your basic shares, can you give us some kind of, I know you will not give an exact time frame but give us like what price you will be more aggressive on share buy-back and what seven-point change share on July 27, how much you bought this quarter?

Thank you.

Thank you for your good morning but my response to you is we are never going to talk about what price we will pay, et cetera.

We are never, we think it's very unwise for all the obvious reasons.

We make no announcements.

We simply report number one authorization of a buy back and, two, after the quarter in which we bought we tell you how many shares we bought.

Obviously we made a new authorization pretty significant, 60 million shares, but when, how, what, who, we will only report after it has been completed.

Tom, do you have a response to this?

If I understand stood your question it was what did we spend in the quarter.

Actually in the financials is a 12 million share reduction, the 7 million share reduction I mentioned was since we announced Q2, which is a month into Q3, so in Q3 reflected in our cash flows, et cetera, is a 12.4 million share buy-back at 2580 for a total of $320 million.

Tom, I was asking Q4.

I think Barry answered that.

I think Barry answered that.

Q4 you have to wait.

Okay.

You have to wait, sorry but there it is.

Next question, please.

Our next question comes from Robert Peck of Bear Stearns.

Hey, guys, congratulations.

A couple quick questions here.

First of all on Ask, could you talk about what the growth was when you strip out any of the traffic coming from affiliated properties?

Could you also touch a little bit on the tax increase during the quarter?

And what your view is with the google relationship going forward?

Secondly, Barry, could you touch a little bit on Capital Management for us and how you look at any large acquisitions going forward if there's any holes in your Parkway and maybe what you think the optimal leverage ratio is for you?

And lastly my clients e-mailed me and want to be what you are going to be for Halloween.

I am going to be what I am right now.

I was only joking.

I am costume-less.

I do have clothes on, though.

On Ask growth I think the difference between the affiliated sites and direct domain is what I answered before are the Ask.com inquiry growth is up about 30% and that is direct domain to ask.

The IAC search and media network would be the so-called affiliated sites which would be a combination of portals, our own Fun Web products and some other affiliated sites where we would have a so-called tack or we would be paying for distribution.

Do we have a number?

I think the traffic acquisition costs and the costs of syndication have been rising, that number has just gotten more competitive.

The good news is we are finding good syndication opportunities and good revenue and profit growth from that but it does come at a higher cost.

There's no question that over time, I think as we turnaround the UK hopefully continued the trajectory we are on Ask.com U.S.

I think at some point You see this mix between proprietary and network shift which is important to our long-term margin objectives.

As far as capital and IAC we don't see any so to speak holes, we see all sorts of opportunity in many of the businesses that we are in for add-ons, for bolt on so to speak, not an unusually huge size.

I've said in the last several quarters, several years, we deaccentuated M&A or big ticket M&A not that we are because we certainly are always alert, hopefully alert looking around, seeing what the opportunities are, but we are not, we've been more concentrate in the consistency of our operations.

Somebody pointed out this is our straight eighth quarter of consistent earnings.

We are much, much more disciplined in that.

But it doesn't mean that we don't contemplate making acquisitions and around the corner who knows what can come.

We are certainly ready.

We've got plenty of a good balance sheet to do whatever we want with it.

As far as leverage is concerned we've consistently said we are comfortable with two times.

Could occasionally go up.

But we use our cash, our strong cash flow to bring it back down.

So I think that's the most grounded picture.

If there's anything specific further I can answer you on capital, sharpen me up.

Thanks, Barry, appreciate it.

Our next question comes from Paul Keung with CIBC World Markets.

Good morning.

This is [Mayu Resh] for Paul Keung.

Given that you saw pretty strong revenue growth in media and advertising I was wondering if you could give some color on modernization trends for us and also how much the normalized growth would have been if you registered for the demonetization in last year?

And a follow-up question to that was that do you have any plans of monetizing your strong CitySearch website through video advertising.

We've seen good trends on modernization.

I think if you scroll back our decision to demonetize the site was premised on we will get higher retention, greater inquiry volume growth, consumers will like the service, customers will like the service more and at the end of the day we will use to it drive that volume growth and that will offset any reduced monetization because fewer paid links and that's exactly what's happening.

When we look at our overall revenue per query it's up strongly in the quarter year over year so the combined result that we talked about a couple of times reflects very strong inquiry volume growth at Ask.com, some of our other properties as well, and good revenue per query kind of monetization trends despite demonetizing the site.

So it's head line worked well.

Your next question was?

Citysearch and video.

On that I think what we would say is Citysearch has done a great job getting it to getting the business to break even, getting it to profitability and now growing it.

And I would say all thing are on the table in terms of continuing to increase traffic and continuing to monetize great leads to advertisers.

One of the things, it's not video but one of the things that they recently started for example is a whisper feature in key markets which when consumers call through Citysearch let's the merchant no the number of calls we are actually sending to the merchant.

So all thing are on the table and they are very focused on innovation and we will be hopefully as the quarters progress announcing more of those innovations.

Next question, please.

Our next question comes from Safa Rashtchy with Piper Jaffray.

A couple of questions one again on TicketMaster and I know we have talked about it for awhile but could you give us your sense as to the impact of live nation if they were though actually due begin to and what have your contingencies I know I understand the contract is not up for awhile but it appears they are pretty serious about doing something on their own and if you see this trend among others and second if you could talk especially Barry give us your thoughts about video content?

I understand you are an investor in black coal which is a very innovative new product.

Are you planning to get into either video content distribution or other types of video advertising perhaps in some way in the future and give us how you view that opportunity.

Thank you.

Hello?

Management, we can't hear you.

Sorry, I was on mute.

I already answered your question.

That was good one.

And I hope you enjoyed it.

TicketMaster has 2.5 years to go on the agreement.

We've been in discussions with them about renewing somewhat intensified lately.

I can't tell you whether or not we will or not.

We hope that we will.

We provide good service and people make statements about negotiating positions which is totally understandable but I'm not going to make one.

And as far as video is there anything further that, anything about that my colleagues want to add anything further on TicketMaster?

Other than nothing, good, okay.

As far as video is concerned, yes, without question, I mean Bright Co which is a really good product, series of products, tools, products, will be certainly BrightCo will be a consumer site sometime over the next year or two.

I think it will clearly develop into being the best tool I think it's going to be a consumer as far as IAC is concerned there's no question, we will in as many areas as we can, of course we are going to play at video.

HSN is already so to speak digital video.

And that's in the going to get richer and richer as broadband continues.

But as far as Ask is concerned, Ask will be in video, and there is just, it's not like we are growing to make hundreds, multiple hundred million dollars or billion dollars plus acquisitions in video, we are going to follow our disciplined approach of developing video out of what we do.

That's perfect, thank you.

Okay.

We are going to take two more questions, thank you.

Thank you.

Our next question comes from Scott Kessler with Standard & Poor's.

Please go ahead.

Thanks very much.

Barry you were quoted in the Guardian recently indicating that you are looking at things in the travel space.

I thought that was kind of interesting given that you guys just sold a lot if not all of your travel properties and wanted to get a little bit more detail on that.

Thanks a lot.

No, no, no, first of all, I was speaking for Expedia, certainly not for IAC.

In addition to being the Chief Executive of IAC I am the Chairman of Expedia.

And even in that I really wasn't saying that we were going to acquire travel properties on behalf of Expedia.

Expedia, I mean we may but we don't have a big interest here in doing so particularly, I mean, there are some opportunities, small relatively, we have leadership already in the UK, Italy, Germany, France, in on line travel and we are going to do everything to maintain it.

Great.

Thanks for the clarification.

You're welcome.

We will take one more IAC question as I consider that an Expedia question, we don't want Expedia having to compensate IAC for this call.

Go ahead, one more.

Our final question comes from Scott Shiffman from Lehman Brothers.

Great.

Thank you.

I guess two questions for Barry, I guess first related to the earlier leverage question, a question around investment grade ratings, is it still an absolute priority for the company to maintain investment grade ratings?

That's question one.

And, two, in terms of strategic direction, maybe you can just discuss the merits of staying public or would you consider taking the entire company private?

Thank you.

One of my colleagues just wrote something down to flash me, Mr. McInerney so I am going to let him respond to the first part of it and I'll think it's the second.

Scott, we think it's a goal.

It's always been a goal.

We think it has benefits.

We've issued the credit market so it's a goal.

We can never say never and we've always valued our flexibility and so it's a goal but we value our flexibility.

If and when it came to that.

As far as taking the company private we've had everybody knock on our door of the so to speak usual suspects.

They see all these values for us.

Every time it's happened I just do not think it's something that we would pursue.

I'm not really interested in it and I think we at IAC we are very clearly comfortable in our public company status.

We think that the market over time will reflect the values that we are building and we like that configuration.

And that would be that.

So I think if my colleagues don't have anything they would like to add because they do need to go rush to get into their costumes I would thank you all for be with us and tell you that we look forward to talking with you again in three months.

In December.

Sorry, forgive me.

We will have a call in December and we will give you plenty of notice on the date once it's set.

Thank you very much.

Thank you.

Ladies and gentlemen, this concludes the InterActiveCorp third quarter earnings conference call.

Thank you for your participation.

You may now disconnect.