Match Group Inc (MTCH) 2007 Q3 法說會逐字稿

Good morning ladies and gentlemen, and thank you for standing by.

Welcome to the IAC Q3 earnings conference call.

During today's presentation, all parties will be in a listen-only mode.

Following the presentation, the conference will be open to questions.

If you have a question, please press the star, followed by the one on your touch-tone phone.

If you would like to withdrawal your question, please press the star followed by the two.

If you are using speaker equipment, please lift the handset before making your selection.

This conference is being recorded today, October 31st, 2007.

I would like to add, ladies and gentlemen, please turn off all cell phones and Blackberries.

I would like to turn the call over to Mr.

Tom McInerney, Executive Vice President and Chief Financial Officer.

Please go ahead, sir.

(technical difficulties) Forward-looking statements typically are preceded by words such as we expect, we believe, we anticipate, or similar statements.

These forward-looking statements are subject to risks and uncertainties and our actual results could differ materially from the views expressed today.

Some of these risks have been set forth in our Q3, 2007 press release and our periodic reports filed with the SEC.

We will also discuss certain non-GAAP measures.

I refer you to our press release and the investor relations section of our web site for all comparable GAAP measures and full reconciliations.

Joining me on the call is our President and CEO, Doug Lebda.

Barry Diller had a conflict and was unable to join us today.

In addition to today's call where Doug and I can answer questions about Q3 and current performance.

Like we did last year, we will have another Q4 call in the coming weeks with our full management team to talk about the going forward strategy of the company and our 2008 agenda.

Let me make a few observations about our results and then I will turn it over to Doug.

We are pleased with the quarterly results.

While the overall growth rate is not what we aspired to, we had enough double digit growth in enough of our businesses that we were able to post slight overall operating income before amortization growth for the quarter despite a sharp decline in Lending Tree's profits.

At HSN, we made the progress we hoped for when we last spoke to you.

For the quarter, HSN grew revenue 5% with very consistent growth in each month of the quarter.

While gross margins were down 140 basis points year-over-year, for largely the same reasons we told you last quarter, this was significantly better than Q2, where we saw more than twice that rate of decline.

We also made progress on the inventory issue which has plagued us all year as we finished Q3, carrying $6 million more inventory than the prior year.

This figure is down from $49 million in Q1, and $18 million in Q2.

We do still have some aged inventory, but we will continue to work through that in the fourth quarter so we can enter 2008 as clean as possible.

In Q4, we expect continued steady growth on the top line, and further improvement in narrowing the year-on-year declines in gross margin percentage, which we have in Q3 as I have already mentioned.

If progress continues at its current rate, we expect to see flattish OIBA in Q4.

Now to LendingTree, where mortgage market conditions continue to deteriorate during the quarter, narrowing the focus of the business to where it's almost exclusively low margin prime conforming loans.

As was the case in the first half of the year, a decline in house values and more stringent lender underwriting criteria, which resulted in lower close rates, fewer loans closed and sold, and lower average revenue per loan sold all impacted results.

Additionally, lower close rates led to an increase in our average cost per loan.

Profit declines included a gain of $6.7 million after netting the combing of a favorable legal settlement, an increase in legal reserves and a restructuring charge.

We continued to reduce costs in the quarter, and year-to-date, we have shrunk the LendingTree work force by 40%, while reducing marketing spend by 24% and total operating expenses by 33%.

Obviously, we have been chasing our tail a bit as this market has continued to deteriorate, but our focus over the balance of the year is positioning the business to achieve at least break even results in 2008, and for as long as this environment lasts.

Obviously, we also expect to capitalize on any upturn, when that should occur as the business will come out of this leaner and more competitive.

Switching gears, Ticketmaster recovered nicely from the aberrational second quarter, as worldwide ticket sales increased 11% and revenue increased 13%.

International ticket sales grew 28%, while domestic ticket sales rose a modest 3%.

It was good performance in the case of tough year-over-year comparisons in an exceptionally strong concert season last year.

During the quarter, domestic concert ticket sales declined 2 percentage points, 54% of the overall domestic ticket mix.

Ticketmaster grew operating income before amortization 9%, slower than revenue as we are still absorbing the operating cost increases which impacted Q2.

A solid number given the investments we are making on a global basis.

Ticket volume in the fourth quarter has thus far been solid, but year-over-year comps will remain difficult with the results in the year ago period reflecting a very strong concert season.

You will also recall that we highlighted the benefit some of nonrecurrings in our Q4 ticketing OIBA numbers.

So for the quarter we are expecting profits to be flat to up slightly versus the year ago period.

Briefly on Service Magic, revenue grew 33%, but profits declined due to a ramp up in operating expenses as we opened a second sales center in Kansas City, and experimented with offline advertising during the quarter.

Fundamentals of this business remain excellent, and given the company's dominant position in the homes service segment of the local market, we think these investments make a lot of sense and will pay dividends in 2008 and beyond.

Median advertising, Interval and Match all had strong quarters.

Median advertising benefited from continued growth in queries and our syndicated search business, as well as queries and revenue per query grow that our funweb product business, and query growth at Ask.

Doug will speak more about our results and initiatives in this segment in just a moment.

Interval continued its long track record of growth in Q3, growing revenue and operating income before amortization 35%, and 24% respectively.

We will point out that Q3 numbers include a full quarter of results from ResortQuest Hawaii which we acquired on May 31st of this year and this acquisition effect is solely responsible for the margin contraction in the quarter.

Excluding ResortQuest Hawaii, interval grew revenue 9% and OIBA12%.

The growth coming from both increased membership dues and increased transaction volume.

At Match, results benefited from an 11% increase in revenue per subscriber and double digit international subscriber growth.

Robust profit growth during the quarter benefited somewhat from a shift in marketing spend to later in the year.

In Q4, we will increase our year-on-year spend in marketing in international and domestic markets to strengthen the core brand, bring greater awareness to chemistry.com, which continues to grow strongly, and build momentum going into the pivotal first quarter.

As such, we expect profits in the quarter will be flat to the year ago levels.

We'll end the discussion about the segments with a quick comment on the entertainment business which improved in earnings through Q3, compared to the year ago period, but much of this is timing related.

For the full year, we expect results to be on par with the year ago period.

Turning now to the balance sheet, which remains strong.

We ended September with $1.8 billion in cash and securities, and pro forma net cash and securities of $956 million.

During the period, we repurchased 8 million shares at an average price of $27.54, bringing our year-to-date spend on share repurchases to $509 million.

Free cash flow for the first nine months of the year was $293 million, $60 million lower than the same period last year, due to lower operating profits and higher cash taxes paid.

To conclude, this felt like a bit of a turning point for us after what has been a difficult year.

We have opportunity and, of course, challenges a plenty but we feel we are surviving the turmoils of the mortgage industry, righting the ship at HSN, and have much more positive momentum in the rest of the portfolio.

Regardless of the final 2007 tally, we are obviously looking to finish the year with the right momentum heading into 2008.

And with that I will, turn it over to Doug.

Thanks, Tom.

I will spend a few minutes adding some operational details of the financial results.

Beginning with retailing.

At HSN, we are seeing definite signs of progress, financially and operationally.

The business has a clear and differentiated brand identity and the work continues to increase the pace, newness and variety of products on air and online.

Q3 included exciting events like HSN's 30th birthday celebration and Fall Fashion Week, as well as HSN's first national advertising campaign since 2002, all of which were unmitigated successes.

Fall Fashion Week was sponsored by Elle magazine, featuring tips and trends from their key editors on air every evening, and resulted in the sale of over 42,000 Elle subscriptions,far exceeding our expectations.

In addition to Elle, we are expanding our print coverage in the fourth quarter to include sponsorships from Gourmet Magazine to feature our chefs and Allure for our expanding beauty category.

We are also seeing increase in new vendors wanting to become part of HSN's success.

We recently launched entertainment guru Colin Kali and Dr.

Robert Ray, aka Dr.

90210.

Colin Kali did over $2 million in sales during his two-day visit with 25 sell-outs.

Dr.

Ray sold over 13,000 units in one hour.

Other product successes during the quarter included the worldwide exclusive launch of GE's new digital camera on HSN in which 10,000 units were sold in just three and a half hours.

While chef Todd English sold 320,000 units of his new non-stick cookware in only 12 hours of airtime.

This truly phenomenal production highlights the immense distributive power of this medium when we strike the correct balance between product and presentation.

We have more exciting launches and programming concepts planned throughout the fourth quarter.

Most importantly, success is showing up in our customer metrics.

During the quarter, our core customers grew 7%, and on average, spent 4% more with us.

For the quarter, the total 12 month active customer filing was relatively flat, increasing slightly for the first time since December 2005.

Hsn.com continued to grow at a double-digit rate following the site's relaunch on July 31st.

Sales and margin were up in almost every category.

Graphic grew 7% compared to last year and conversion was up 20 basis points.

The new site includes virtual hosts and personalities, original content, interactive blogs, and over 8,000 video product demonstrations.

Turning now to LendingTree, where macro economic challenges persist.

During the quarter, an already difficult interest rate environment was exacerbated by the perhaps worst credit crunch in history which saw liquidity all but dry up in August.

The operating metrics continue to soften with transmit rates, close rates and margins all dropping precipitously from where they were a year ago.

I want to take a moment and remind you about LendingTree's business model as I know this has been an area of investor concern.

Principally we are a lead generator selling leads to our network of lender partners.

At Lending Tree loans we are a correspondent mortgage originator, which means we close loans in our name and sell them to a number of large lenders who in turn securitize the loans or hold them in their portfolios.

As you have seen from our press release, we increased our loan loss provision in the quarter but our risk model is different from those lenders that you see taking large write-downs in this environment.

Simply put, our exposure is limited to losses from changes in the market value of loans we hold for a very short time and loans we have sold but are put back to us as a result of early payment defaults, underwriting or compliance issues, as well as fraud.

We typically do not hold these for more than 30 days, nor do we hold a portfolio of loans for investment.

While it is difficult to maintain profits in this business, in the current environment, our losses are much lower and of a very different nature than much of the industry.

That in mind, we have implemented a strategy to better position the business in today's mortgage environment.

First and foremost, as Tom mentioned, we are reducing costs.

Second, we are implementing new automated sales force technology to streamline the process from lead to close.

Third, we have increased prices on the exchange and broadened our pricing into 64 segments which allow us to be much more granular in how we set pricing going forward.

Finally, we reduced our marketing expense significantly, but we still maintain our pro consumer brand positioning with the recently launched campaign to educate consumers how to make smart borrowing decisions, even if that means not taking out a loan.

This consumer advocacy approach is the correct one and will benefit us as the market improves.

Moving to Ticketmaster, which posted solid results in Q3.

Concert ticket sales picked up towards the back half of the quarter with acts like Hannah Montana, Van Halen, and Bruce Springsteen.

Client sales and retention activity continues to be strong, and Ticketmaster renewed or signed 306 accounts and lost only eight.

Development and rollout of our auction and ticket exchange products continue to gain traction with 19 national tours enabling ticket exchange for the majority of their event days.

We ended this quarter with 541 venues agreeing to participate in ticket exchange, up from 30 a year ago and 263 at the end of Q2.

Meanwhile, the number of auctions conducted this quarter grew 57%, versus the same period last year, with an average increase over the starting bid of 82%.

Still in the transaction sector, at our real estate business, the company owned brokerage business continues to expand within its nine markets and now boasts over 650 agents with 102 more agents added this quarter alone.

In Q3, we saw a 20% increase over the prior quarter in closed transactions from real estate.com generated leads that were sent to those agents.

This business will open three or four new offices on the East Coast by year's end, as it continues its march towards profitability.

In our membership and subscriptions sector, Interval predictably posted another quarter of solid gains including the acquisition of ResortQuest Hawaii for first full quarter.

Interval recently launched two initiatives for continued growth.

First, we have a new lead generation web site for Interval's developer clients called vacationsource.com.

Over time we think this will add real value for Interval's clients and add a new revenue stream for Interval.

Second, we entered into a long-term strategic alliance with preferred hotel group to create preferred residences which will be a new exchange in membership program for luxury fractional resorts and private residence clubs.

Our median advertising sector grew revenue 40% this quarter driven largely by growth in our syndicated search and Fun Web Products businesses.

Now with over 10 million registered users, Zwinky.com's momentum remains impressive.

In April, we launched Webfetti, a free donwloadable application allowing users to customize their social network pages and blogs.

The site now has over 4 million uniques, up from 2.8 million at the end of Q2.

Q2 products, along with our past successes with smilies illustrate how this team can invent, test, deploy and scale new customer applications in a very short period of time.

Q3 was the first full quarter of the new Ask 3D experience and it's been received positive by critics and consumers alike.

In August, Ask posted the largest gains in consumer satisfaction, as measured by the American Consumer Satisfaction index, Next step beyond the changes to the user interface is to rebuild and redeploy the infrastructure of the core search engine, and we're in the midst of that now.

For the next few months and quarters, expect to see search results on Ask that are more relevant, more complete and fresher than anything that Ask produced before.

Note in Q3, we saw usage of Ask mobile continue to rise and bloglines released a very well received new version of its service.

And we continued a roll-out of Ask 3D adding content in categories like maps, real estate, local, movies, music and health.

Ask rolled out a new advertising campaign in mid-September with direct product demonstration spots highlighting the uniqueness of our product.

This campaign positively impacted queries late in Q3 and continues to do so in Q4.

We are taking a very similar approach in the UK market as well.

We have spoken in the past with IAC's advertising strategy on the buy side.

In this quarter I would like to speak to you about the sell side, which also holds great promise for the company.

Our advertising solutions business, unit that sells ads on behalf of all the IAC, is achieving strong double-digit increases in CPMs, more effectively monetizing previously unsold inventory and is doing larger deals in larger categories with larger advertisers.

Its increased scale has helped us attract a diverse mix of significant advertisers like AT&T, Ford, American Express, Universal Pictures and Target.

This is happening because of a new team and a strategy put in place beginning in late 2006.

Initiatives included reorganizing our sales team, migrating ads serving onto a single platform, and continued optimization of the Ask-sponsored listings network.

It's still early, but in 2008 and beyond, we expect continued results from advertising on our site, as our technology investments, operational improvements and early forays into things like video ads and behavioral targeting begin to bear fruit.

With that, let's get to your questions.

Operator?

Thank you.

(OPERATOR INSTRUCTIONS) Our first question comes from the line of Justin Post with Merrill Lynch.

Please go ahead.

Thank you for taking my question.

Could you just get into a little bit about the lending provision on those $8.2 million this quarter.

Did you up that or some of the loans that you had done prior to this quarter?

And how comfortable are you with that provision?

And then one quick follow-up on Ask.

Yes, Jeff, this is Tom.

The quick answer is generally yes.

As Doug mentioned -- you know, our business here is essentially originating loans and closing them and getting them off the books.

And the only cases where we have losses generally speaking is where there's an early default, usually in the first or second month, something like that, or there's a fraud, there's a problem in the file.

And, you know, you get into all sorts of specifics in terms of those contracts.

So the losses in the business historically have been, you know, I think it's fair to say astronomically low, you know, kind of in numbers.

$4 million cumulatively of incurred losses over five years, which is 1.5 basis points of the total kind of $26 billion in production at LendingTree loans over that period.

And so it's really -- it's a very different animal than anything else you are reading about in the papers.

That said, in this environment we are seeing because of all the unrest and dislocation with the investor community and the people who bought the loans, A, there are some increased early defaults on those first or second months.

And B, people are scrubbing when they do have a problem, they are scrubbing those loan files more closely than before and so we have seen people coming to us with one or the other of those problems, with a greater frequency.

The majority of this is related to either no documentation or low documentation loans, or second mortgage positions.

We have stopped originating those, you know, roughly in the second quarter.

But there's going to be kind of a trailing -- you know, there will be a trailing flow to that a bit.

So we're comfortable with the reserve.

We scrubbed it very hard.

You know, historically because of what I talked about earlier, you know the loan loss provision in any given period might be $1 million or something like that.

This is obviously materially higher than that, but we think it's a bit of a catchup unless something changes again which is always possible, we think we have the right number.

Great.

And then follow up on Ask, you are seeing a reacceleration in growth.

Are you benefiting from some of the network at Yahoo!

and Google?

And how do feel about the core website?

Are you seeing an acceleration of queries on some of your recent changes?

We are definitely continuing to be helped by Google's monetization.

They do a great job of optimizing the ads that they serve, and that has certainly helped.

We obviously have our own initiatives, which have helped to do that as well, particularly our own Ask sponsored listings business which continues to grow in the number of advertisers competing for those listings and we can slot those in and that absolutely helps as well.

On the Ask.com site, I mentioned this, we are very pleased with Ask.com.

We are pleased with the growth in queries.

We are pleased with the product, and the infrastructure, you know, we love the interface, and next up is the infrastructure, as I mentioned.

As the infrastructure improvements are continuously rolled out and the responses and the search results are much fresher, and more accurate, we expect to continue to grow share inquiries.

Our next question comes from the line of Anthony Noto with Goldman Sachs.

Please go ahead.

Thank you very much.

The acceleration in the median advertising line to 40% year-to-year growth from about 32% last quarter, I was wondering if you could actually switch the perspective on that growth to sequentially.

It's up 9% which is a meaningful acceleration versus the seasonality of the September '06 quarter.

My question is, do you think that you get one quarter step up due to improved monetization in September and then you go back to the normal seasonal trend, or do you think there's continued benefits that can impact the sequential growth rates seasonally over the next several quarters?

Anthony, it's incredibly, as you can imagine, a very complex equation, which I think gives us to a sense, a degree of low visibility on it, because you have a number of moving parts in here.

You have obviously what's going on, kind of on Ask.com proper, in terms of site launches, in terms of marketing initiatives and the like.

You have all of the moving pieces in the syndication side of it, both the distribution of Ask, as well as our syndication businesses.

You have all of the initiatives in the tool bar area and as Doug said, we continue to drive a lot of innovation there and we are getting very good growth.

And then, of course, you know, we are a bit of a taker in terms of what happens on the monetization side across all of those businesses under the Google agreement.

So as we add all of that up and parse it in a million different ways, kind of judging it quarter to quarter in acceleration or deceleration in any given quarter of trends is virtually impossible.

All we can say is we've got good and balanced growth in that business kind of across all of those things that I just mentioned.

And we hope and expect that we will continue.

Great.

I appreciate those four variables and basically that's what we are trying to think through.

So I appreciate the challenge.

The second question as my follow-up, the Olympics in Beijing, there was obviously a fair amount of press today about the collapse of the ticketing system.

I was wondering if you could just comment on that and whether or not that could have a direct impact on costs as you go into the December quarter and if could provide any high-level color on the December quarter like you had in the past.

Thanks.

Yes, I think on the overall cost and profit impact, that will be immaterial.

Obviously this is something we didn't want to happen and we had done significant testing in advance at all sorts of levels of expected demand.

We anticipated it would be very high and demand was just significantly higher than anything we had tested against.

The team there on the ground is working through that.

And they've got the situation well in hand, but the overall operational and financial result is immaterial.

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

Please go ahead.

Great, thanks.

Quick question on the HSN turnaround that's continuing here.

Can you just talk about the positive comp of 5%, do you think that was more of a function of easier comparisons or, you know, the underlying metrics improving?

I guess, is it more product selection or just using better frequency in your customer base?

And kind of a follow-up to that, what is your strategy -- what was the optimum mix you would like to see in the growth rate of the business from a user standpoint, versus a -- call it a frequency, again, customer purchasing activity standpoint?

Jeetil, it's categorically in your alternatives.

Categorically the latter.

I don't think there is really a comp issue at play here.

You know, you all kind of have been with us through this ride of 2007.

We have changed a lot of things with a significant merchandising overhaul, a lot of team changers, team changes and we have had a combination of issues that relate to that and when you are trying to completely reprogram the network from a merchandising perspective, it takes a while to get all the gears to mesh.

And so as we look at the metrics, now we have strength.

Generally speaking, and there's a couple of pockets of weakness, but generally speaking across all key merchandising lines and divisions, we're getting very good performance out of our core customer and as Doug said, kind of the customer file has stabilized really for the first time in over a year.

And, you know, all of the metrics, both kind of new, weekdays, weekends, no matter how you slice it and dice it, is good and balanced growth at that 5% figure.

We think it's essentially the changes are working and the execution, the day-to-day execution which is the nature of this business, is better.

And I think in terms of the second part of your question, in terms of the optimal long term, I guess it's trite and it's cliche to say, you would always like to see both.

We would love to see customer count grow, and obviously you want to get more dollars per customer.

I think at the end of the day, it's hard to say what that mix will be, and if you -- we know that in that 4.5 million customers, that there's a heck of a lot more buying power than what we're currently taking from them.

They buy on our competitors.

They buy on other Internet and direct channels.

They buy in stores.

And so I will answer it this way, if that never grew, we could still do just fine.

Obviously we hope you get it both ways.

I guess you have been making quite a few changes on the inventory selection side, can you just discuss -- you know, you obviously have been winding down like old inventory and ramping up with a new selection.

Can you talk about what percentage of your kind of transformation in that area is complete at this point?

I think it's well underway.

I mean, if you look at the businesses -- there's no easy way to summarize it and you have to look at it line by line.

If you looks at the 10, 15, 20 businesses that we were in, say, a year ago where we said it should be smaller.

It may be a great business.

It may be good business for our customer, it's been overrotated, over exposed and pushed beyond its natural limits and that should be smaller, I would say, you know, in all of those cases that has happened and to a material degree.

And so we're well on that way.

I think that that's -- you know, that's the tough part.

As you pull out some of that tried and true and you're trying to replace it with new, it's hard to find of the new that works at high enough productivity levels that you have year-on-year sales growth.

So where are we in that?

Look, until we are -- you know, until we are consistently quarter in and quarter out growing a sales growth rate, ideally in excess of even the 5 and at gross margin rates that are flat or better year-over-year, then, you know, we still have plenty of work to do but we think the consistencies there, month after month now, and we have gotten a good start into that.

The only thing I would add on HSN is just the success of dot com mentioned earlier about the relaunch of that.

We've also changed the merchandising strategy of dot-com to have much more dot-com only merchandising to really widen the assortments there so we can use it not only as a vehicle for -- for keeping our existing customers but also attracting new customers.

And as that site gets continually enhanced, and new features are added to it, we're just seeing great performance on the dot-com side.

Next question, please.

Our next question comes from the line of Imran Khan with JP Morgan.

Please go ahead.

Yes, hi.

Thank you for taking my questions.

Two questions, one related to HSN and one related to Ask.

HSN, it seems the ASP was up 5%.

I was wondering how sustainable that is, and what drove the ASP growth rate.

and secondly related to Ask, our analysts show that your take rate from the Google deal is in the high 70s closer to 80.

As the deal is coming up for renewal in alternative search engines.

Can you give us some color, like how confident are you that you can get better rev share?

Yes, we will take them in order.

On the price point issue, you know the blended price point, we struggle with this because it's hard to summarize.

At the end of the day, it's an amalgamation of so many factors that it tends not to be something that's particularly meaningful.

The way we manage the business is first of all, average price points is division line by division line.

So whether it's find gold, gemstones, whatever it may be in the jewelry category, et cetera, through the other classifications.

And then also looking at the number of entry-level price points that we have in given lines of business.

If the average goes up, that's fine.

The key question is: In those categories where we know they are good drivers of new customers, new names, are we giving them enough selection at lower price points, because you are more likely to get a new customer until that trust is established.

And on all of those metrics, you know, percentage of time devoted to lower price points, number of products with below $50 price points, what we call perceived price point, which is the percentage of air time devoted to that actually sold, all of that, all of those metrics are saying, we are giving the customer more variety at those entry level price points.

As long as we are doing that, the average will go where the average will go.

On the second question, as people know, our sponsor listing deal expires at the end of the year.

Discussions are in process, and, you know, we expect to have a favorable resolution soon and that's about all we can say at this point.

Thank you.

Next question, please.

Our next question comes from the line of Mark Mahaney with Citi Investment Research.

Thanks.

Tom and Doug, I wanted to ask about the Ticketmaster business.

Earlier in the quarter you made public statements that you didn't expect a continuation of the Live Nation and the House of Blues deals when they terminate at the end of '08 and beginning of '09.

Any update on that?

Any thoughts on your abilities to substitute what could be material 15 to 18% of your ticketing business?

And are there any signs that you are seeing in the market place to date that indicates that customers of Ticketmaster are already thinking about potentially Live Nation as a new company to work with or IE, seeing greater competition potentially in churn rates or anything in the market place?

Thank you.

On Live Nation specially, there's no update there.

To your broader question, we are actually, you know, continuing to make progress on a number of fronts with Ticketmaster and we remain -- we think that next year and beyond, that Ticketmaster's business will be absolutely just fine.

When you look at all the changes that we've -- that we have instituted and all the new strategic relationships, the success that we got in secondary marketing, the continue -- you asked about client churn.

The continued ability to sign up and renew clients, despite the fact that this is a very competitive industry, we are very successful at signing new clients.

We have got much greater adoption of the secondary ticketing initiatives, much greater adoption of auctions.

We continue to add acquisitions, continue to expand internationally, and continue to bring in new product lines like echo music and others.

And to work very closely with our clients and artists, et cetera.

All of that is working and continues to expand.

We remain very confident on Ticketmaster.

The business, if you step back and think about it, the business every single day is increasingly more balanced, yet you obviously don't replace -- we get that question a lot -- a client or, you know, a ticket volume or revenue stream.

You don't replace that with one thing.

You know, but the business is more balanced.

I mean, just this quarter, for the first time ever, one of our top 10 events came from Australia.

We did acquisitions in Spain and Turkey.

As Doug said, we signed nearly 1,000 clients and lost a handful, a small handful.

We are getting new revenue streams in multiple places.

This will play out over one to two years and as it does, we will grow all of these revenue streams and obviously at the right times we will quantify this a bit more for you, but it's a pit premature in that regard.

And just to put an exclamation point on I think the last part of your question.

I think, you know, no, we have not really seen any change in the competitive environment in any way at all.

I think Ticketmaster's position remains as it was.

Thank you Tom, thank you, Doug.

Our next question comes from the line of Robert Peck with Bear Stearns.

Please go ahead.

We notice you have no acquisitions this quarter and previously you had a couple of acquisitions in Q1 and Q2.

Are you scaling back a little bit on the acquisition front or is it more of the timing of the potential acquisitions you may be doing?

And number two, Barry has historically talked about increasing the leverage on the balance sheet.

Could you give us an update there on where you stand on that?

What would be the catalysts or drivers to have you make some moves there?

Thanks.

Yes, on acquisitions, the answer is no.

I mean, I think -- I'm sorry we are not scaling back.

There's always going to be timing elements to this and I think as best one could say -- and we always caveat it by you never know when opportunity presents but as best one could predict, you know, kind of the type of activity you have seen really over probably the last two years now, I think since the Ask deal which is now more than two years old, we have been in these kind of smaller to modest-sized acquisitions that either establish an interesting position for us in some new space or add to what we have.

And, you know, there's been a number of them last year this year, the fact that there's nothing in Q3, is more timing than anything else.

We expect it to continue kind of as it -- as it has.

On kind of the balance sheet, as you all know, you know, it is never something where we can kind of move towards a specific or an established goal.

We have said and I think hopefully have shown by this, you know, quarter's action and previous quarters, we view ourselves as overcapitalized.

We are moving in the direction of shrinking that capital.

It won't come at a predicted pace.

And it won't move to an established end line, but actions speak louder than words.

We bought back $1 billion in stock last year.

We bought back $500 million worth of stock this year.

We had a very strong cash flow last year and cash flow, despite some of the earnings pressures have continued to be good.

So we are buying stock back and yet we remain quite capitalized, I think that general environment and general aspiration remains without any specific moves contemplated or specific goals articulated.

Thanks, Tom.

Next question, please.

Our next question comes from the line of Brian Pitz with Bank of America.

Please go ahead.

Thank you.

First a question on the media business.

Any color on your decision to switch from double click to atlas for your media properties and thoughts on monetization relative to previous levels?

And then a second follow-up on LendingTree.

Any view on potentially moving towards a CPM or cost per (inaudible) model, versus a primarily lead gen based model?

Thanks.

Sure, I can take both of those.

First off, on the doubleclick versus Atlas, we actually didn't switch from double click to atlas.

We basically did a companywide RFP where we talked to double click and atlas and some others about getting on one platform both on the buy side and the sell side.

Several of our businesses had used atlas.

A couple of our businesses had used double click as well and we looked at all the pros and cons of both, going back almost a year now, and thought atlas was the right answer for both the buy side and the sell side.

The buy side has been implemented as I talked about in the past and the sell side is in process now.

We have several sites converted over with several more launching in the first quarter.

In terms of monetization, the key benefit of monetization that we have seen so far on advertising has come from the better -- from a couple of things.

One is our own ability to go sell, and be much more effective at selling and as we get more scale in advertising, we can attract more advertisers in and we can raise the prices.

In addition to that, though, we have also seen the operational effectiveness, really improve.

We are better at the sell through and the measuring that.

We are better at figuring out which advertiser you put in a given slot, when they might overlap and all of that has helped to improve the CPMs on the site.

On LendingTree, the CPM versus lead fee, I don't think we would move to a CPM on lending tree and at the end of the day, the way lenders look at this and the way that Service Magic's clients do and all of our other businesses that are in lead gen, they look at it on a cost per funded transaction.

And they see -- and they try to get an attractive marketing cost.

So whether we're on a CPM or a lead fee or a closing fee, none of that -- you know, at the end of the day, they will look at it in an all-in cost.

Now what we have done, as we increase the pricing on the LendingTree network, about 10%, we've also shifted a lot of the revenue -- a lot more of the revenue to an up front fee as opposed to the back end fee.

The reason there is it obviously reduces our risk, brings in more of the revenue upon transmitting a lead as opposed to actually closing.

And it also is an effective price decrease for your best closing lenders, because they buy fewer leads to get every closing and it helps to thus get more you in line with your best partners and really puts the price increase on the worst performing lenders.

So what they are doing is gradually moving it more towards the up front with our get smart product.

It's 100% up front but I don't see us moving to the CPM model.

Thanks for the color.

Our next question comes from the line of Doug Anmuth with Lehman Brothers.

Please go ahead.

Thank you.

Tom, first, can you clarify in terms of the outlook for the fourth quarter, I know you went through the various divisions on what your outlook is for OIBA in 4Q, and then secondly now that we are seeing better top line growth in both HSN and Ask, can you talk about when we're going to see more of an emphasis on the bottom line, what the key initiatives are there and when can we expect to see that in the numbers.

Sure.

Obviously, we're not going to give you a detailed guidance.

When you think of Q4, I almost think of it relative to Q3.

In Q3, we have the very steep decline as I said in my remarks, on lending, and that was in a sense offset by very positive year-over-year results that match, which is how I think about it and we got whatever we got from the rest of the businesses.

When you go into Q4, because we shifted the marketing spend and you want to invest in some of those domestic and international personal sides in the fourth quarter to set us up for, you know, a very strong Q1 and Q1 is kind of the game in personals to set you up for the year as we have seen year after year now, we are going to -- you know, depending on where we are lending, we make $17 million in lending a year ago.

And so, with the loss of that, with whatever the final tally at lending ends up being, that's going to be a very steep mountain to climb to get back to any kind of growth position for IAC overall.

And, you know, the kind of go through the businesses and, again, we are hoping to have a flat to slightly up quarter at HSN.

We described kind of roughly the same at Ticketmaster.

There's some real comp issues in the Ticketmaster a quarter a year ago and you can go back to the Q4 release of a year ago and see that spelled out.

And, you know, we should get some good results in other places, but that LendingTree kind of loss from a year ago makes it a tough mountain.

We start to get much more favorable comps in Q1 and beyond.

Until then, it's just very hard to grow overall.

I think on your second question, you know, I think more to come from us on that, in the sense, I think we're not really ready to address that.

As I said earlier, we are getting good growth kind of across the search and media properties and generally have continued to invest in that, you know -- back in the core search engine, Ask.com.

In given quarters and, in fact -- you know even this year, we have gotten good profit growth.

it's certainly a net contributor, and profits will be up materially in the median advertising business and the search businesses collectively, you know what the mix on that is and kind of what that long-term balance is.

I think more to come on that.

It's premature to articulate it.

Next question, please.

Our next question comes from the line of Aaron Kessler with Piper Jaffray.

Please go ahead.

Thank you, guys.

First, can you give us the demographics of the typical Fun Web Products user and also how sticky are these products and how are you gaining traffic here?

Is it more viral marketing, SCO or something else?

And then one follow-up.

The general on Fun Web Products will vary by the product.

For Zwinky, it's predominately teenagered.

It would skew more female than male.

And then -- in terms of stickiness, we find them to be very sticky.

We have seen the time on site improving dramatically, particularly as we launch the virtual world part of Zwinky where people are increasingly hanging out and doing different things in this virtual world.

We have had virtual concerts and we now have merchandise, we have licensing and we now have the opportunity to put a home on Zwinky and to customize that.

The more of those things you add, the stickier it gets.

In terms of how you get traffic on those, it's been predominantly viral and the reason is, in addition to being in the virtual world, Zwinky as well as smilies have great viral components to them.

You can put them on social networking pages, you can put these things on blogs.

People obviously put smilies on emails.

In order to then see them, you download many times the tool bar on the other side in order to send something on.

So all of these things have great kind of viral elements to them.

In addition to that, we spend a lot of money on online marketing in that business, particularly through adnetworks.

It's for the most part -- the very large most part, it's all CPA-based advertising, and the team there is fantastic at it.

And that's how we have been driving traffic.

Great.

And one follow-up.

How are you viewing the current state of the real estate market?

Obviously it's a negative, but are you viewing that as an opportunity to pick up share, and maybe acquire some properties that are distressed right now or how should we think about that going forward?

As always with acquisitions, we don't comment specifically on that.

Let me give some broader comments about real estate.

The real estate market, nationwide is obviously experiencing challenges, but it's particularly acute in five kind of key states.

We do hope to gain share in real estate.

I don't, however, we are being cautious here.

We have a lot of great success in the real estate business, but we have not yet proven fully that we can attract leads at a very low cost of getting leads to grow that business and that our conversion rates are where they need to be yet to really scale the business where you would go at this much more aggressively than we have.

So we have made some very, very small acquisitions in years past.

We are adding offices, and we are adding agents very aggressively because they are not employees, and we're increasing our marketing spend in local areas but we are being cautiously -- I would say cautiously aggressive, but not yet at the point where you would really want to step on the gas.

Great.

Thank you.

Our next question comes from the line of Jeff Shelton with Natixis.

Can you talk about the branding for Ask.com.

I think earlier this year there were comments made about $100 million being spent in branding.

Do you think -- are you in line with that for this year or under or over?

Sure.

Let me just -- Tom is looking up the specific number.

Just in terms of the overall, our Q3 spend was much less than it has been in prior quarters.

However, with that we are still seeing great results from the advertising.

We know that product demo spots worked and the more we can highlight the great tools and features of Ask.com, the better we see that working.

We have increased, particularly in the online space where we can get a very direct result between running a product demo online spot and seeing a direct result to click through.

So that's one area that we increased and on the specific numbers --

Yes, in general, I would say our commitments are along the lines of what we previously indicated.

The year has been an evolution in kind of -- in trying to find what works, earlier in the year, we had algorithm campaign.

We've moved it more to a call to action featuring the site and we have been shifting around a bunch of the online spending.

So I think the investment is there.

I think, again, more to come on this but as we look towards 2008, the focus will be not necessarily spending more money but on spending comparable amounts of money.

Don't take that too literally.

I don't know if it's up a penny or down a penny.

We continue to invest in the brand, but I think we learned a lot this year and we will be much more efficient at it as we go forward.

Are you still seeing increased retention frequency that you talked about last quarter?

Absolutely.

The new 3D experience has moved those numbers -- has moved those numbers nicely.

It still doesn't approach yet where the Googles of the world would be but those numbers are certainly doing better.

So you think at this point you are poised to take some market share?

Excuse me?

You think you are poised to take some market share in terms of queries?

You know, it's -- we are poised to grow our business strongly.

I mean, the market share, just an editorial side note, is becoming an extremely complicated calculation because you, you know, comp scores change their definitions of it.

More and more, they are including searches that originate on distributed sites, affiliated sites and under some definitions that they report, even under nontraditional search sites.

And so I think, you know, the definition of that is becoming complicated and then, of course, you know, Google is just so big that what they do is obviously moving the market.

I think where the market share count rolls up, I don't know.

I say we feel very good about our ability to continue to grow the volume of the business, the monetization of the business, you know, and its financial health overall.

And one small note that is indicative of how you continue to innovative here.

One of the recent launches we made was the ability to skin.

To be able to have your customized background on the Ask.com page.

We are now getting the home page, about 10% of users are starting to use those and we see much higher retention and frequency as people do that.

So you can -- you know, you can just imagine making Ask.com your own over time, and as you work -- as you become an engaged customer, you stick around and use the service more frequently.

Why don't we take one or two more and then we'll let you all go.

Our next question comes from the line of Heath Terry with Credit Suisse.

Please go ahead.

Great, thank you.

I was just wondering if you could give us an update on the strategy for Match.

We actually saw for the first time in four years, paid stubs decline.

Is there anything behind that other than how you are dealing with marketing spend or -- or is there something else that we should be thinking about with regards to the personals business?

You know, you are referring obviously to the -- you know, the domestic place is where it levels off this quarter.

Sure.

Two things.

One we try to optimize the business for revenue.

Late last year we took a price increase in different packages and things like that.

And so revenue in the domestic business is up nicely.

We could drive subs tomorrow by cutting that price and it's always that optimization game.

We don't think -- you think about it differently in different businesses, obviously.

In this business, we don't think having sub growth at a certain level is a strategic issue.

Now if it declines materially, we might change our mind on that.

But within the ranges of what we are talking about, we think the guiding philosophy of revenue optimization is the way to manage the business.

The second thing is, you know, we have been -- we bought this business at $6 million of revenue in 1999.

If you go back and chart it, subs have always grown in some sort of stair step function.

It's always been a business where you have to kind of drive category growth.

And if you think about it, there's only really two branded players domestically that are out there to educate the customers and bring them to the category, ourselves plus -- plus eHarmony.

And it's always been a function of, you know being coming up with, you know, clever and creative product innovation and married to very effective marketing campaigns offline and online.

And historically, again, when you get that magic right, the category can jump, will grow, and at times it's leveled out.

And it's been going on for eight years and our best guess is we'll grow again soon.

And, you know, the category is still very under penetrated relative to the 80 million singles who are out there kind of eligible for the service.

Great.

Thank you.

Why don't we take one more question if there is one.

Our next question comes from the line of Jeff Lindsay with Sanford Bernstein.

Please go ahead.

Hello.

Thank you for taking my question.

We wanted to ask about two things.

Basically qualified forms at Lending Tree seem to be down by 29%.

Could you give us just some sense of the prospects for improvement?

Could you change the mix or could you change the product set here to restimulate growth?

And then second in Ticketmaster, we notice the take rate is down.

Would that imply that you're discounting to preserve share, or is tit a mix shift and how should we think about this going forward?

I will take first one and Tom will take the second one.

On QF, volume of qualification forms in Lending Tree is related to advertising spend.

The good news and bad news of this business is that those two are very highly correlated and LendingTree targets its ad spend in areas where it's profitable.

As profits have declined on a per customer basis, your marketing in certain channels and certain placements goes negative and then you just cut ad spend as a result of that.

So the way to stimulate QF demand would to spend more and obviously we are not going to do that because we want to make sure that our marketing is profitable.

What you can do, though, you can shift it to a much stronger call to action, and we have done -- well, you know, we have done some of that and you will see that in the new spot that you run.

There will be more online rather than offline and you will see that mix continue to happen.

You will see us over time probably accentuate some of the products that are less recognized on LendingTree today, as the mortgage business has taken off.

For example, we have an auto business, a credit card business, a personal loan business, student loans, et cetera.

So there's opportunity in some of those markets.

We can leverage the get smart brand on a so called short-form lead.

So there are definitely things that you can do to boost it, but in this environment, you really want to be conscious that you don't overspend on marketing.

So we will air on the side of keeping marketing spend low and letting volume kind of be what it will be, as opposed to trying to drive volume.

Jeff, I'm sorry, could you repeat your second question?

Yes.

So on Ticketmaster we noted that the take rate is down.

And so we want to ask you, is this a conscious policy of discounting to preserve share or is it a mix shift and how should we think about this going forward?

You are talking about revenue, kind of revenue per ticket, if you will?

Yes.

No, it's mix shift.

It's absolutely not the former or discounting or anything like that.

Pricing generally is controlled by our clients, first of all.

So we don't set those prices.

And that, you know, the handling fees, it's all revenue per ticket in a sense are negotiated in, and generally are tied to the face side of the client.

In the quarter, I mentioned it was a very good concert season in Q3 a year ago.

It accounted for 2% lower of our business than in the year ago quarter.

And music tickets tend to have higher-- face value tickets have higher convenience fees.

So if you adjust it for mix, and also a bit for international growth, international convenience fees tend to be a bit lower, and we are growing fast international.

So those two mix issues drive the overall segment by segment, country by country, there's nothing -- you know, there's nothing changing or going down.

Thank you.

Okay.

Thank you all for joining us today, and we will talk to you soon.

Ladies and gentlemen, this concludes the IAC Q3 earnings conference call.

Thank you for your participation.

You may now disconnect and have a pleasant day.