Match Group Inc (MTCH) 2007 Q4 法說會逐字稿

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

Welcome to the IAC fourth quarter earnings conference call.

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

(OPERATOR INSTRUCTIONS) Following the presentation, the conference will be open to questions.

(OPERATOR INSTRUCTIONS) This conference is being recorded Wednesday, February 6, 2008.

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

Please go ahead, sir.

Thank you, operator, and thank you everyone for joining us today.

Joining me on the call is our Chairman and CEO, Barry Diller.

During this call, we may discuss our outlook for future performance.

These 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 Q4 2007 press release and our periodic reports filed with the SEC.

We will also discuss certain non-GAAP measures.

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

We're now very much in a transitional phase as we plan and execute the spin-off transactions.

I will update you on these efforts in just a few moments, but first, I want to touch on the operating results for the fourth quarter.

I'll go through this by focusing on each of the five companies to be established by the spin-offs.

First to retailing, The turn around at HSN is in full force, with revenue growing 8% in Q4, excluding America's Store, and profits growing proportionately.

Drivers of the turn around remain the same, with improved sales efficiency across the majority of product categories.

Gross margins were down a quarter of a point due almost exclusively to pressure on net shipping revenue, as costs continued to rise and we offered more shipping promotions to drive customer engagement.

We continued our progress in managing margin and inventory levels.

We enter 2008 optimistic, albeit, of course, a bit cautious given the macroeconomic environment.

But we believe we are better positioned than last year to see our strategies take hold and realize top and bottom-line growth.

The Catalogs business had a challenging fourth quarter.

This was a combination of specific merchandising and execution issues at certain titles, plus a very difficult macro environment for retailers, particularly in the home category.

Overall, sales were up slightly, but profits were down materially as margin rates were negatively impacted by heavy promotional activity given the environment, and operating expenses were slightly higher due to investments we made before the environment worsens.

We're spending the first quarter completely recalibrating our 2008 plans for this business.

Inventory purchases and expenses have been reduced, capital spending plans have been cut by one-third, and merchandising and mailing strategies are being revisited.

It's premature at this stage to translate these actions to figures, but I think at least the first six months of the year will be a challenge in this business and we'll evaluate it from there.

Now to Ticketmaster, which once again posted record worldwide ticket volumes.

Revenue for the quarter grew 27% on international ticket sales growth of 30%, and domestic ticket sales growth of 7%.

Concert tickets represented 51% of the ticket mix relative to 49% in the year-ago period.

Operating income before amortization grew 8%.

Slower than revenue as prior year results benefited from certain non-recurring items and we continued to put increased resources against international development, secondary market initiatives, marketing efforts to drive sell-through, and product and technology initiatives to serve our clients better.

Client retention remains very strong.

We've increased our presence in the college sports market by closing the acquisition of Paciolin in January.

This last month we also announced the acquisition of TicketsNow in the U.S., and Get Me In, in the U.K.

Additionally, Ticketmaster recently signed secondary market deals with the NFL, NBA, and NHL, and extended its contract in the primary market with MLB.

I said on our last call, that while it would be unreasonable to expect to replace the Live Nation volume we will lose in 2009 with any one action, it would be a multi-pronged effort.

We think these actions, coupled with our ongoing efforts to extend Ticketmaster's lead on a global basis, puts us in a strong position for 2008 and beyond.

We do however expect Q1 to be our toughest comp of the year.

As you'll recall, it was a very strong quarter a year ago pulling some volume from the second quarter.

As such, and with visibility into one month of the quarter, growth in the first quarter in unlikely, but we will have better comps after Q1.

Turning now to LendingTree.

The business continues to operate in a difficult mortgage environment and in the fourth quarter we took a $476 million noncash charge related to the writedown of goodwill and intangible assets for the lending business.

For the quarter revenue declined 58%, with the drivers of this the same as they have been all year.

Profit declines reflect $11 million in restructuring costs and a $8 million provision for losses on previously-sold loans.

In 2007, we shrunk the LendingTree work force by 57%, removing over $110 million in annual nonmarketing expenses.

We also reduced marketing expenses substantially.

Break-even is the near-term goal while we await better market conditions, and in Q1 we expect to be closer to that point.

Fed has cut rates 175 basis points since our last call in October and we are seeing some encouraging signs on the refi side.

In January, refi QF volume increased year over year, and we had a number of days of record refi QF growth.

(inaudible) as it's been under the assumption that at the time of the transaction, the lending business will be fully stable and ready to chart its course as a stand-alone public company, having positioned itself to capitalize on the inevitable turn in the macro market.

Turning now to Interval.

As we prepare for the spin-offs, we are excited about Interval's prospects as a separate public company.

In Q4, Interval grew revenue and operating income before amortization 35% and 12% respectively, with the inclusion of the acquired ResortQuest Hawaii in the current period, but not in the year-ago period, the primary reason for profits growing less quickly than revenue.

Still on Interval, I want to expend a moment to explain an accounting adjustment we made during the quarter, which is set out in detail in the earnings release.

Prior to the fourth quarter, Interval improperly recorded renewal revenue and certain directly-related costs beginning in the month a member renewed his membership rather than beginning at the actual start date of the renewal period.

Accordingly, revenues and profits were overstated from Q3, 2002 through Q3, 2007.

While we're extremely disappointed this mistake was made, it impacts in no way the value of he business.

This is timing only, the cash flow was exactly as recorded and there was no customer impact at all.

Now to what will remain following the spins, the new IAC, which will contain our Media & Advertising businesses, Match, ServiceMagic, Entertainment and our emerging businesses.

Overall, new IAC results in the fourth quarter were significantly impacted by challenges in our entertainment business, as well as transaction expenses and certain nonrecurring items in our corporate expense line.

We think this belies the real growth in new IAC.

For example, for the full-year 2007, revenue and OIBA grew at a strong double-digit rate.

By business within new IAC.

Media & Advertising grew revenue 42% and OIBA 55% in Q4 on the strength in our FunWeb products business.

Ask.com, our distributed tool bar and advertising businesses, and Citysearch.

The quarter was not impacted by our new Google contract, which was effective January 1st of this year.

One note on this new contract -- which I mentioned when we announced the arrangement but I wanted to highlight again -- the contract provides us with better economics while simultaneously better aligning our interests in the syndication area with Google.

This means that over the course of 2008, a greater percentage of our revenues will come from the higher-margin proprietary side of the business, and a lesser percentage from the lower-margin syndication business.

Net-net this will be good for profit growth, but it will lead to optically unimpressive overall revenue growth for the coming year, with this effect beginning in Q1 and being fully effective in Q2.

We'll walk you through it each quarter after we report, but we didn't want anybody to be surprised by this.

Turning to Match, which grew revenue 14% in Q4.

As we told you on our last call, we shifted marketing spend from Q3 into Q4 while also increasing the amount we traditionally spend at the end of the fourth quarter in domestic and international markets.

As a result, OIBA for the quarter was flat, but we completed a very successful full year with OIBA growth of 24% in 2007.

We expect OIBA to increase only slightly at Match in Q1, as we continue to market our Match and Chemistry brands aggressively on a global basis in this seasonally-important quarter.

At ServiceMagic revenue grew robustly, up 43% year over year, but profits declined as we continue to invest in sales force expansion and experiment with off-line advertising to drive better awareness of this business.

During the quarter, ServiceMagic did experience some of the effects of the housing and consumer spending slowdown, with slower growth in nonessential home repairs and improvements requests.

As a somewhat new business it's difficult to say at this point how economically sensitive the business is.

It's clear that it's a great consumer value and has strong long-term growth prospects, and as such we'll continue to invest in it, which may lead to profit declines in Q1 if current macro trends persist.

Our Entertainment business remains challenged and experienced declines in the core fund-raising channels during the quarter.

As a result, we've taken a $57 million charge on this business related to goodwill and intangible assets and are exploring all strategic alternatives for the business.

One note on our emerging businesses, which include gifts.com, Pronto, College Humor, Garage Games, Primal Ventures and a number of our other early stage companies, we continue to see attractive long-term opportunities we believe worth funding, but we expect our 2008 losses in this area to approximately double from the $12 million in 2007, as these are early stage.

Corporate expense increased during the quarter, reflecting $4.1 million in spin-off transaction expenses, and a $2.7 million increase in payroll tax payments related to the exercise of options during the period.

2008 will be a transitional year for us as it relates to corporate expense.

We'll have transaction-related expenses flowing through that line and we'll have significant resources devoted to the spin-off.

Half those transactions and beyond will seek a reduction consistent with the smaller footprint of new IAC, but it's premature to quantify at this time.

I will remind that you in 2007 we made a number of minority investments in early stage businesses, which are in investment mode, and are likely to adversely impact the below-the-line figures.

These investments were made subsequent to Q1 '07 and will thus affect the year-over-year numbers in Q1 '08 by a few million dollars.

Those investments include our stakes in FRONTLINE, to help Central Network, [Metum], and our joint venture with Dow Jones, called FiLife

Turning now to the balance sheet, we ended the year with $1.9 billion in cash and securities, and pro forma net cash and securities of $1.1 billion.

We did not repurchase any shares during the quarter, but did repurchase six million shares at $24.25 per share in a private transaction from one large holder in January.

Additionally, the previously-announced acquisitions of Paceoin.

TicketsNow and Get Me In, and our investment in the HeathCentral Network, all of which have closed or are expected to close in Q1, represent an aggregate use of cash totaling approximately $450 million.

Free cash flow for the year was $428 million, $136 million lower than in 2006 due to lower operating profits and higher cash taxes paid.

You'll recall from earlier comments that a portion of this delta was related to the timing of certain tax payments.

Effectively, we were able to defer approximately $43 million of tax payments from 2006 into 2007.

Adjusting for this timing effect, free cash flow was still down, albeit slightly less than OIBA, as we were able to reduce some capital spending and manage working capital.

I mentioned Q1 trends a handful of times today, and as a result of some of these discreet issues it's not expect to be a real growth quarter for us.

As we look into Q2 and beyond, we expect a resumption of double-digit growth.

In particular, we look for our Media & Advertising, Ticketmaster, Match, and Interval businesses to have good growth, and of course, we'll begin to comp against prior-year quarters in lending and real estate, which reflected market realities.

We remain generally on schedule for the spin-off transactions and are deep in the planning and execution stages of the process.

The timing remains roughly consistent, as we've previously discussed, and we'd expect to complete them late in the second or in the third quarter.

And with that, I'll turn it over to Barry.

Morning.

We had a tough fourth quarter, with both good and bad news, for a mix of reasons that's already been covered by Tom.

For those of us who work in the Company, what the quarter was primarily about was intensive planning for the spins, their organization and their strategies.

That work's gone extremely well.

We are doing every right thing in pursuing the course of splitting IAC into five parts.

These companies and their managements will be far better served being solely focused, with independent boards that can directly supervise their progress.

I can't imagine a better scenario for shareholders and let me tell you specifically why.

HSN has definitely turned the corner and operating consistent skill over the last months in every area of its operations.

Mindy Grossman is a superb executive, fully capable of leading a public retailing company.

Ticketmaster, as Tom just told you, has just completed a quarter with record worldwide ticket sales.

It's just announced the very strategic acquisition of TicketsNow, which is the number two player in secondary ticketing.

It has a critical number of initiatives it's undertaking as the live event industry evolves, and has a fine management team under Shawn Moriarty at CEO..

LendingTree, now back under the direct operation of Doug Lebda, its founder, it's slimmed its business down to meet the demands of the turbulent mortgage and real estate markets and I have no doubts, none, that LendingTree is going to emerge from the current mortgage mess.

It's brand has lost no equity, it still gets a huge number of loan requests, and as I've said to Doug, whatever it comes out at as a public company is going to provide a lot for those that have invested.

Interval is a jewel of a company.

It's executed flawlessly for 30 years and will continue to do so with Craig Nash as its leader.

Now let me talk about what we call new IAC.

Last week we had an all-day planning meeting for the strategy for new IAC.

It was nothing but exciting, and that's because of our much more naturally integrated 30 brands, a good amount of cash, and tremendous enthusiasm for all the future opportunities known and unknown.

With the continued growth of queries at Ask, big increases in distributed toolbars, more subscribers at Match, and abundant promise from ServiceMagic and our emerging businesses, IAC is going to be a very compelling high-growth Company for investors.

As to the litigation, it is, of course, an unfortunate situation.

We organized the process in such a way where no harm would have come to Liberty prior to the court resolving our dispute.

So I do wish Liberty hadn't raised the roof on this in such an aggressive way, but they have.

And while the court decides this matter, I'm going to do everything I can not to let it become a significant distraction in the running of the businesses.

During this period we will operate the Company with as much focus as possible, and I do believe we will prevail, as the course we've been recommending is in the best interest to shareholders.

Responding to the many false allegations in the litigation is just a pointless exercise.

All the directors, including Liberty's, approved the spin concept and nothing that has happened or is likely to happen ought to [deture] that very right course.

So with that, operator, let's now take questions.

Thank you, sir.

(OPERATOR INSTRUCTIONS) Our first question come from Jeetil Patel of Deutsche Bank.

Please go ahead.

Thanks.

A couple of questions here.

Can you talk about the proxy battle with Liberty?

Have you pushed out your timing by any couple of weeks or months in terms of the timing of the spin?

And I guess can you discuss the timing of the court ruling, when they could actually come to a decision?

Is there a timeframe that they're looking at or you're looking at that you think you'll get some perspective back?

And then second, you have EPI and LendingTree that have still been major performers and it looks like EPI you've been trying to sell for some time.

Can you update us on how those conversations are going?

Do you think it's dead in the water?

And also on LendingTree, are you -- are you wedded to this business or could you actually shut it down in general or try to sell it off, as well, in light of the current environment that doesn't seem to be getting any better?

Then I have a quick follow-up.

A follow-up after all that?

Yes.

Let me take the first one, which is the litigation.

It appears we are scheduled, at least, to go to the trial on March 10th, and you probably think that a few weeks later, as these things go, given that it's somewhat expedited by all the things we wish to do, that we could get an initial decision.

It has -- our planning is continuing just as it was.

Realistically, this could push us back, could push us back quite sometime, but it could push us back technically by, I don't know, about a month or so, something like that.

But we don't know -- at this point, we just don't know.

I think the next question --

Yes, I'm --

You'll do.

I'll do the one after this and then we'll wait for the follow up.

Okay.

So EPIG, obviously it's been a disappointment for us.

It's a very seasonal business.

We had better expectations for Q4, which were not realized.

We do think there is still real value in this business.

Despite its declines, it was still earnings and cash flow positive for the year, albeit obviously at a reduce rate than prior years.

Given the nature of its seasonality and the nature of its business, its fit within new IAC is not good, so we are considering every alternative and because there's real value there we're sure we'll find one.

In the meantime, while it's hurting us in terms of this quarter or that quarter from an overall resource perspective, cash flow positive for the year, et cetera, it's not hurting us in any real way.

The most effect, of course, on the fourth quarter.

Right.

As far as LendingTree, let me talk about that for a minute.

LendingTree has relatively little exposure to actual loan defaults, but what it has had -- and certainly it was most pronounced in the fourth quarter -- is that it's been slimming -- I built up this business.

This is a cyclical business, as you all know.

It built up its business during all of the previous two years of refi -- really more than two years, but last three years, I guess, of refi, and it slimmed itself down, which involved restructuring costs and the like, and it's now mostly, mostly, mostly at the end of that period.

Now, given the rate cuts, refi, of course, looks like it probably is coming back.

As an indication, it set -- LendingTree had more than 9,000 refinance requests on the day following the 75 basis point rating cut -- I mean cut, and it set an all-time record for -- actually for those requests.

So I don't have any doubt that with the brand intact, which it definitely is, and with them having slimmed their business down, their expenses down, that LendingTree, while it's still going to have to come out of this mortgage mess period, but I think LendingTree has got excellent prospects for the future.

Sounds like it's hard to sell at the bottom.

\On the acquisitions you made of Paceoin and TicketsNow and Get Me In, in aggregate can you just give us a sense of the revenue and OIBA contribution, that for 2008 on an annual basis, I know they closed at different times and is that enough to offset the impact from Live Nation as you look in '09?

Thanks.

Yes, we're still working through a lot of the synergies and integration plans and stuff like that, but I'd say it's very substantial, maybe $20 millionish combined with a lot of detail work still.

So while we laid down certainly what we would call real capital, there's real immediate return from that and more importantly real strategic value going forward.

So I think I said earlier -- and a couple of these remarks may have been cut off, because I know there was a technical glitch there -- that you don't replace Live Nation in one move.

I said that last quarter, again today.

We think these acquisitions, the league deals we've done, the NFL, major league baseball, advanced media, NHL, et cetera, and just very significant work going on that we don't have really time to get into in detail, but around the globe, expanding Ticketmaster's footprint, all of that puts us in good position to work through that '09 transition and grow and beyond, so that's kind of the update.

Next question, please?

Our next question comes from Justin Post with Merrill Lynch.

Please go ahead.

Hi.

I see a lot of press speculation that you've had a lot of maybe private equity or other people interested in all of your divisions.

If you could walk through your philosophy on potentially liquidating them.

Is there a potential problem with Liberty approving such a deal?

Are there tax consequences?

As you look at Street sum of parts, what can you say about the valuations you're seeing for these four or five businesses that you have prior to the spin-off?

I'll take -- get the first part and then.

Tom, you can come in.

Yes, we've had a lot of interest.

Understand that we have no interest in selling an asset in its entirety prior to the spin.

So the discussions we have been having are really what's called [incent type] or sponsored spins or minority investment by third parties who would just join in the public spin process and we continue to have them.

And as it relates to Liberty, all of this depends upon the litigation, and as we said, we think that will be resolved certainly before we take any action with regard to any of these.

So I think that we're going to just continue on our pace, as we said.

We're going to make our plans and we will -- again, it's probably one or two, could be three, but I think it's really one or two of our businesses are possible for others to join with us as they become public entities.

Tom, you want to add to that or any other --

Well, the only thing I'd add is I'd say we view it as pure optionality We've had a lot of interest.

We said from the very first day we announced our intentions that we were open to anything, but we're going to be very tax conscious, which immediately, as Barry said, limits outright sales.

And we're engaged in these discussions and we'll look at the benefits of that versus not doing it.

Next question, please.

Our next question comes from Robert Peck with Bear, Stearns.

Please go ahead.

Hey, Barry, I was wondering if you could comment a little bit about probably one largest transformational things in our industry, which occurred Friday, the potential acquisition of Yahoo!

by Microsoft.

How does that impact new IAC going forward?

Can you give us your view on that?

Also, have you reached out at all to Jerry Yang?

Then Tom, I have a quick follow up.

Yes, I don't think it's appropriate to talk about any conversations in the whole situation regarding Microsoft's bid.

What I think is the following.

I think that if Microsoft does acquire Yahoo!, I think it certainly will strengthen competition in terms of having at least two players that are strong and probably enduring.

One of the problems that's been in the past is it's very difficult to compete with Google on distribution or in being anybody's partner other than Google in advertising.

We had extensive conversations over the last year with Microsoft and with Yahoo!.

Both were very desirous of having Ask's business.

I mean, after all Ask is, I think, Google's biggest outside partner.

And as much as they wanted to, they simply did not have the ability -- I mean, they had the ability to deficit it, but they didn't have the commercial ability to bid for us.

I think if they combine, I think they would have.

That's one part of this.

The second part of it is that it does happen, given that Ask has unquestionably been the most innovative in terms of product -- and I do think innovation is going to count, it has counted.

We've certainly gained queries.

We haven't gained much share but we've certainly gained queries -- that if this happens, I think for at least a couple of years the integration challenges and all of the things -- I think's it's actually already probably happening, in that I doubt many people at Yahoo!

can concentrate fully on innovation at the moment and I think probable the same is true in the at least contemplated upheavals at Microsoft.

I think this gives us an advantage, and so long as we continue to innovate and so long as there are two players, two strong players, then I think this is both pro competitive and I think it's very good for Ask, both short and long term.

And, Tom, a quick follow up for you.

We were somewhat surprised by the strength of HSN in which is somewhat of a recessionary environment right now.

Can you give us any more color around that and where you see it playing out if we do enter into a more global recession in 2008?

Yes, it's -- HSN, the thing that benefits it, particularly if you contrast it to the catalogs business for example, is it's very broad merchandise assortment.

So whereas the home fashion, the soft side of the home and apparel were weak, which is what really hurt the catalog business, HSN's productivity in those areas was down, but it was able to more than compensate it through strength in other areas.

So that breadth of business mix is an advantage in this type of environment.

And then the second thing is just the essence of the service itself, the fact that it's so compelling through your screen into your house, allows it to a degree -- and you never know for sure -- but to a degree to transcend some of that macro stuff; the host and the guests and everyone else coming through that screen to talk to you, the individual consumer.

It's just a more engaged type of interaction than a catalog being mailed to your house or do I get in the car and drive to the store?

So we've always thought -- and history would suggest -- that we will be more subject to our own efforts there, good, bad, and otherwise and obviously now good than what's going on on the macro side.

We're guardedly optimistic but you can't ignore what's going on so we'll have to see how it plays out.

One indication is that certain sectors are extremely strong.

Last Saturday, I think it was, we had a computer sale day and it was huge volume.

I think it was $12 million or something.

So the business is still there to be gotten.

I think it'll probably be somewhat choppy and spotty in different categories, but Mindy Grossman -- we spent some time talking about this.

Mindy Grossman's plans for the future include now to spend 48 straight hours in terms of the product mix over the next couple of months.

In a sense, counterpunch this spottiness of what's happening in retail and people's concerns and things like that.

The one thing that's great about it is that this is a team now that's certainly gone through a rough period and getting things together last year, but is now, as absolutely necessary in this kind of business, it is working in perfect synchronicity, and I have tremendous confidence in this team.

Next?

Our next question comes from Mark Mahaney with Citi.

Please go ahead.

Two quick questions, please.

Tom, I think you referred to $20 millionish related to the Ticketing.

What were you referring to, revenue or OIBA?

Secondly, can you talk about where you think long term over the next three years where the Media & Advertising segment margins can go?

You made some comments about maybe muted revenue growth -- or optically muted revenue growth next year, but there should be some nice margin expansion.

Where can those margins go, do you think, best case?

Thank you.

The reference was to OIBA and the question was on a full-year pro forma basis.

We closed the transaction.

We've not yet closed the Paceoin transaction, we've not yet closed the TicketsNow transaction, and obviously we're still working through some of those plans, particularly on the Paceoin inside, where a lot of the post close integration couldn't be done because it was a -- reviewed on a regulatory business.

We're still going through that work.

But the point being is these are real businesses with real revenue and real OIBA from day one.

We put real capital against that.

We'll get some return now, and obviously the big strategic benefit is longer term.

And I'm sorry, Mark, your second question was with respect to which business?

Media & Advertising segment margins.

Margins.

On Media & Advertising in the future.

Yes, there's two pieces of it.

There's what's been going on generally and then what's been the result of our new sponsored listings arrangement with Google.

I think it's premature to put an exact, kind of specific figure there.

We have a new leadership team as you know.

We're going through strategic planning with them, et cetera.

But I think the -- in part because of the arrangement, which better aligns our incentives with Google to focus on the proprietary side of the business, which have naturally much higher margins versus the syndication side of the business that don't, so there'll be a mix effect there.

And then I think in general we're looking to scale through continued strong revenue growth -- across all of the businesses in that segment we're looking to scale the investments and the fixed expenses we have there.

So what I would say without specific metrics is we are categorically looking for good OIBA growth from that business this year, we're looking for margin expansion this year, and the trends are real and I hope and expect they'll continue.

Next question, please.

Our next question comes from Jennifer Watson with Goldman Sachs.

Please go ahead.

Thank you.

Can you provide more detail on the year-over-year growth trends in the fourth quarter versus the third quarter in terms of the paid lead growth and pricing per lead at Ask?

Specifically, just trying to get a sense if you're seeing any changes in consumer behavior in terms of their searching and clicking activity, given the macroeconomic environment?

Yes, it's -- the short answer to your question is no, we're not seeing -- the data tends to move around.

We've looked at this pretty closely, including through January.

and there's nothing we can see right now that we would trace back to the economy.

Monetization in the fourth quarter was very strong generally.

The mix of that, when you go through click-through rates and coverage and all that stuff, was, I'll say muddled, because we're experimenting with some new technologies there that dictate when we serve sponsored listings and the like.

So it's a little bit hard to trace that through exactly what was going on at one piece or the other, but monetization through Q4 and through January appear very much to be tracking in line with what we saw earlier last year and what you'd expect.

Great.

Thank you.

Next question, please.

Our next question comes from Doug Anmuth with Lehman Brothers.

Please go ahead.

Thank you.

I wanted to ask about the retailing business and in particular Cornerstone.

It's now been a few years since you've had Cornerstone and I was hoping you could talk about some of the benefits that you're seeing, if there are any, with HSN and whether you really think Cornerstone is a core business that you need to own going forward with HSN?

Thank you.

When we bought Cornerstone we did think that there were some obvious natural benefits for integration with HSN, particularly in the home area, and we've been disappointed in that.

We've not seen that integration.

I don't think that it's not because people either haven't tried or it's not because the environment was wrong or any of those things.

I think that actually, in truth, the catalog business is the kind of business that is -- it is really not rhythmically relatable much to HSN, and the truth is it's been on the sourcing area, which is where we thought we'd get real benefit.

I think HSN sourcing has now improved so much that's really not needed.

So all of that is really to say the answer is no.

We do not think that Cornerstone is a core asset of the Company.

We don't think it's a core asset, necessarily of HSN going forward.

When HSN spins itself out with Cornerstone, I think that it will probably improve, because I think that it's going to get much more strength and focus and attention from management, but at the same time, I think that if there's a good opportunity, I think that it probably won't be core to HSN.

But HSN will be able to determine that on its own after it's been spun out.

Okay, thank you.

Next question, please.

Next question comes from Jeff Shelton with Natixis.

Please go ahead.

Thanks.

A follow-up question on industry consolidation for Barry.

Barry, in the past you've expressed interest in AOL if it were for sale.

I was wondering if you felt the same way, given some deterioration in the business?

Well, I don't know, I don't really feel the same way now.

I think that -- I'm not saying that AOL isn't a good business.

It has obviously continued to be a good earnings business.

But I do think that the concept of portals is -- while I don't think they're going away, I don't believe that the portals -- I didn't believe it, by the way, a while ago, either.

I didn't think the future for AOL was in the continued development of its portals, but what I did think is that they had such a strong audience and such absolute ties to their audience that, in fact, you could really move them into all sorts of areas profitably and they did line up off a lot of things that we were doing, et cetera, et cetera.

I just think that's less true now.

I think we would much prefer to concentrate on what we're doing on search and advertising and in the combination of all of our audience, that natural audience that I spoke about earlier, that will represent the new IAC and that really is our strategy for the future.

Now if AOL came down in price to something really ridiculous, we probably would look at it, but I doubt that's really going to happen and therefore I just doubt we'd have very much interest in if.

I think the areas that we're in -- rather than fixing something, and dealing with the legacy of something, I think the areas that we're in have un limited runway in the future, so I'd much prefer to do that.

Thanks, and then a follow-up question for Tom.

Could you -- the network growth that you saw at the Ask.com in '07, how much of that was related to channels you'll no longer be serving in '08?

Well, it's a complicated question but I think a good percentage.

We do see network growth in a variety of areas.

It's one of these things -- I think as new IAC, we have to take a step back and look at all of this nomenclature and disclosure to clarify some of this stuff, but in the network business, we're in a number of businesses you'd consider network, including distribution of our own Ask-sponsored listings where we've seen very good growth and that's been an interesting business for us, distribution of toolbars other than our own FunWeb products-type toolbars.

And so we have seen good growth on the network side but a big percentage of it has been in lines of business that have been deemphasized from this new arrangement, again, being fully compensated for that on the other side of that arrangement.

Yes, we're going to be less in the arbitrage business than we are in the business of getting out and getting audience and then putting that audience against this new Google deal and creating all sorts of new products to do that very same thing.

So when you say optically lower revenue growth in '08 versus '07, it could be as low as single digits but you guys still see 50% plus OIBA growth?

The revenue growth and the revenue impact, there's a lot of moving pieces so I don't want to make a precise forecast, but we do want to be heard clearly which is that it will be materially impacted by this effect.

When you're in that pure arbitrage business, as Barry said, there's a lot of revenue at thin margin, so it will be a material impact.

We'll get part of that impact in Q1.

We'll get a lot of it, probably most or all of it in Q2 and beyond.

Each quarter we'll break it down for you.

We do expect, notwithstanding that, to see real and substantive OIBA growth.

We can't qualify it at this point in time.

And we're also going to develop new revenues to offset that in all of these other areas where we actually provide real service rather than simply arbitrage.

Next question, please.

Our next question comes from Imran Khan with JPMorgan.

Please go ahead.

Yes, two questions.

One, on ticketing, what will be the impact of increased secondary markets on your ticketing revenue and margins?

And secondly, on the Match.com, is the margins decline purely because of the cost elevation?

How should we think about the Match.com long-term margins?

Ticketing, if I understand your question right, Imran, margins are a funny question in this business, because we don't really manage TIcketmaster on a raw margin basis.

We're really focused on dollar and percentage OIBA growth.

If we were purely focused on margins we wouldn't look to expand the business in certain international markets where that percentage margin isn't there or certain adjacent markets in the U.S.

So there is no question that as we moved into --

Have to invest a hell of a lot less in technology.

Yes, we'd invest a lot all over the place, and we would have a smaller business, both on a revenue and OIBA basis at a higher percentage margin and we don't think that's, obviously, the right strategy.

It's really been a consistent strategy to go back and trace these numbers for six or seven years as they move around quarter to quarter.

There's no question that as we've done some of these arrangements, as we've moved into this secondary market, and now with this acquisition, it impacts margins.

You see it in Q4, although I think that effect is particularly pronounced for a variety of reasons that are not, probably, worth getting into right this second.

I don't think it'll be as dramatic as it was in Q4, but I do think the trend will generally continue and our focus is on OIBA growth.

Management, the thing is Ticketmaster is going to evolve into a much broader and larger business.

Ticketmaster is not going to be just in the primary ticket business.

It's going to be in the secondary ticketing business, and actually, as time goes on, in fact, when you get to variable pricing and those things, then all of it, I think, is going to involve in change.

It's also going to be in music business in a sensible way, because music and live events now relate directly to its business.

It's going to be in the fan merchandise business, because that is an area.

There's no question but that while I don't think what we're going to do is be in the "360" business, because I don't think what we're going to do is go out and buy somebody -- some superstar at wildly inflated to ever-realizable return amounts of a commitment.

What we are going to do is widen the business and at the same time we're deepening it.

The tools that we provide, the abilities that we have to serve clients are getting enhanced, and I think the result is going to be -- and certainly this a superb group at Ticketmaster -- the results are going to be a larger business participating in live events all over the world, and I think that that is one area that's not going to be disintermediated by anything that I can ever see.

Now maybe somebody else could say something in terms of holograms and things, but I think people are going to want to go to live events and Ticketmaster is unquestionably a leading profit company in the live area, without any question and in real terms.

And it's going to invest now and extend that so that as this world turns and evolves it's going to be the leader in live eventing.

I want to add one thing so people do not get concerned about this.

What we are not going to do is we are not going to get into the promotion business in a way that is "with the structure, infrastructure, expenses low margins, et cetera of the largest player of that area."

Imran, could you repeat your second question on Match?

Yes.

On Match.com I think in the call you said that the cost was -- that you shift some Q3 cost to Q4, so I was trying to think about the Match.com's margins.

How should we think about the long-term Match.com margins?

I think if you look at Match for the full year, for '07 -- because we're always moving figures around from quarter to quarter and there's spurts and things like that -- but I think if you look at it for a full year in '07, I think that would be roughly indicative of what we would expect it to be going forward.

At times when we can get good volume growth on a global basis, there should be some natural operating leverage in the business, but as the category leader on a global basis and in the U.S., we're very much driving that category growth, so you have to spend behind it.

So I think you look at '07 on a go-forward basis, it's a reasonable proxy.

Thanks, Tom and Barry.

Next, question, please.

Our next question comes from Aaron Kessler with Piper Jaffray.

Please go ahead.

Just a couple questions.

First, IAC obviously operates in a number of different business segments with a lot of exposure to the consumer, so you have a pretty good macroeconomic indicator.

And some of the data yesterday in the ISM index suggested a weakening from Q1 into Q4.

Just trying to get a sense across your business have you seen any noticeable changes going into the new year?

And then one follow-up question.

We really haven't.

Again, you can see a little bit of choppiness, but -- at the rea tail business on HSN, but choppiness has actually had with it net gains year over year, and it's been compensated for by the very large appeal of products.

You can't really get a big deed on it.

Cornerstone you can, to the extent that it's so exposed to the home, soley.

ServiceMagic has had some exposure to this, a little exposure began, so exposed to the home, the obvious stuff.

But the actual figures of everything else, we just don't see provable metrics.

Tom?

Yes, I think that's right.

Continuation of the Q4 trends not in -- don't take that in terms of linear extrapolation from the results of Q4 to Q1 or anything like that, but the macro trends, the businesses that were feeling impact in Q4 continue to.

Those that weren't have not.

Great, then one follow up.

Can you expand a little on getting out of the arbitrage business for the Ask search and was this more Google's initiative to try to clean up its partner base or is this part of your initiative to clean up your partner base, as well?

I'm just trying to get some of the rational for getting out of that arbitrage business.

Thank you.

It was one part of the arrangement with Google.

When we sat down with them we understand their objectives in a renewal, they understood ours.

They were many of issues on the table, it wasn't just about rev share this or that, and there were a host of things.

It was what came out.

We think it's better in this situation to be as closely aligned to them as possible while dong a good economic deal for us, and we think both of those things happened.

Yes, look, there's no secret there in the fact that nobody could like for their partners to "arbitrage" what think pay and what is true in the syndication business.

That's true.

At the same time, the deal that we made with Google is still advantageous for us and as I say, we're going to, I think, more than make up for this revenue over time in what I would consider to be much more solid businesses for us, which is building sites and being engaged in distribution where we gain viewers, where we gain audience, and then with all of our tools more perfectly modified.

Next question, please.

Our next question comes from Jeffrey Lindsay with Sanford Bernstein.

Please go ahead.

Hell.

Two questions, one specific and then one more general.

We wanted to ask if the weak performance by Cornerstone is a short-term phenomena or is it more an indication of structural weakness in the catalog business and loss of sales to on-line players, such as Amazon, who recently expanded their product categories?

And then secondly, in the undoubtably unlikely but possible event that the Liberty Media view were to prevail in the courts, could you comment on what kind of contingency plans you would have, what that would mean for interactive Corp, and then would Mr.

Diller stay as CEO?

As to the -- the first question was what?

On Cornerstone.

Oh, on cornerstone, sorry.

On Cornerstone, I think the catalog, it's not a comment on the catalog business.

The catalog business is going to be the on-line business, it's already.

A lot of catalogs are in excess of 15% of ours are and some are in excess of 75%.

Over the next several years it's going tobe probably less a paper-based business, like most things, and much more an on-line business, so I don't think this relates to category of catalogs.

As to the litigation itself, we've -- there's no way, really, for to us do contingency planning here.

If Liberty does prevail, either one or the two separate pieces of litigation, that's going to obviously have consequences.

We don't think that's going to has been, but if it does, there will be, of course, consequences.

As far as IAC goes as an operating Company, I can't see -- well, I shouldn't even comment on it.

It's ridiculous.

It is a country too far and one that I don't think we're going to get to.

And again, I know this is difficult for people.

It's difficult for people in the Company, but I believe everybody here believes in what we're doing.

I think everybody here absolutely believes in the concept of the spins.

Liberty agrees with the concept of the spins.

They approved it fully at our director's meeting when we initially proposed it.

We'll get through this period.

I don't think it'll last very long, I really don't.

I think at most probably it's probably a couple of months.

And we're plowing forward, both to operate our businesses and to conceptualize -- continue to conceptualize and organize the companies when they go out publicly and stand on their own.

So that's about all I have to say about that, unless there's anything further from anybody at the table.

Okay.

Next question, please.

Our next question comes from Scott Devitt with Stifel Nicolaus.

Please go ahead.

Hi, thank you for taking my question.

There's been a lot of acquisitions here over time ,and LendingTree Entertainment and Cornerstone specifically were all acquired businesses for IAC.

So I was wondering if you could just talk qualitatively how the Company approaches acquisition targets from a return on capital standpoint, as well as how inquisitive, or maybe not so, the five entities will be post spin?

Thanks.

Well look, we can lay out all of our acquisitions over time and without any question, the weighing machine would say there's been tremendous value created.

I think LendingTree is a true moment in time.

It is a cyclical business.

We knew it when we bought it.

I don't think any of us -- God knows I couldn't say any of us -- certainly almost every single financial institution in the world predicted what has happened with the mortgage business and real es -- and the great product of loans and all of that that has caused so much suffering in so many different areas.

One thing about LendingTree is it was a low-risk player.

It never contemplated taking risk on loans and participated relatively little on these more obscure products, and it has had very little loss on loans.

It has a great -- we brought it for its brand.

We brought it for its brand and the fact that it was only 3% on line.

Now I guarantee you one thing.

The brand is solid.

Guarantee, I've got no need to guarantee it to you.

It really honestly is, by any measure, the brand as come through this with consumer confidence and great familiarity attached to it, and that's the most important thing.

The second part of this is that it is probably going to enter a new period of refinance, which is where LendingTree did extremely well.

I believe -- I don't think it's going to happen this year, and I probably don't think it's going to happen next year -- but I think that LendingTree is going to earn back for IAC investors and anyone else everything that we're invested in it.

I think it'll take time, but I am absolutely confident of this.

I told Doug Lebda I think of the companies that we have going out, LendingTree is certainly one I probably will invest more than the stock that I'll receive in the spin-out because I think it's such a good opportunity.

So I don't want to -- I want to just categorize it.

Entertainment & Publications was a mistake.

Now it was a very good idea in the business of discounts.

We thought, and still believe, that discounts can be online.

They've made real progress in getting discounts on line, but the base business we bought fell apart.

That's it -- that's the -- I would characterize it as a charitable fund-raising channel has had really a tough periods over the last couple of years.

Nevertheless, it's not core to us and we will.

The third business that you mention was?

Cornerstone.

Cornerstone.

All right, Cornerstone's in terms of value solid.

I think it's a business that has been steady for a very long period of time.

It remains steady, other than the issues of the home business, so I think we'll receive value for that.

In any event, I just tried to rift through the ones that you said.

I'm not being defensive about them.

They are their own realities.

And for a comprehensive look at all of our acquisitions, it's all on the table.

All of the acquisitions, what we paid for them, all the stats for it, are there for, I think, anybody to analyze.

Does anyone have anything to add on that?

Well, the only thing I'd add just to your question about how we approach it is very much look at the nature of the acquisition and bucket it in its appropriate place.

So for add-on acquisitions within our existing businesses, we're very much focused on operational integration, how the thing will be run, how it will strategically enhance what we're got and this will -- motherhood and apple pie, but we'll pay an appropriate price relative for the endemic growth of what we're buying..

So if it's a geographic expansion play in Ticketmaster, we've expanded Ticketmaster around the world.

I think it was -- 40% of revenue was overseas in this most-recent period, which was up substantially over the last several years.

And I'd say five years ago zero.

And that's largely been done by buying companies in-country as single-digit multiples.

For more strategic plays in new spaces, obviously you're going to have to pay more for the growth.

So it doesn't lend itself to simple explanation, but it is something we spend a lot of time on.

As far as the companies that -- once they're spun out, I think that other than Ticketmaster -- generalization is difficult here, but other than Ticketmaster, I don't think that there's going to be any great big planning in terms of acquisitions for these spun-out companies.

Don't think so, but can't really predict it..

Pardon me, Tom?

I was just saying why don't we take two more question?

Okay, good.

Our next question comes from Heath Terry of Credit Suisse.

Please go ahead.

Thank you.

I was wondering if you could give us an idea of the 17% growth that we saw in Ticketmaster revenues over the course of this past year, what percentage of that would you attribute to ticket volume versus pricing or new businesses?

And when we look out to 2008 and you look over the -- at least what we know about the tour schedule at this point, what expectations do you have for ticket volume increases?

I don't have the full-year breakdown in front me, but throughout the year -- you can go back to the quarterly statements or we can get it to you supplementally -- we've seen a very good and balanced mix between volume growth and pricing.

Meaningful contributions towards that 17%, so it's probably mid single-digits on the volume side, mid single-digits on the pricing side.

We have been help by FX all year.

That's probably a couple points and there's probably a couple points of acquisitions.

That would be a rough order of magnitude.

It's been good and balanced growth with the investments, as we mentioned earlier, impacting the OIBA side.

In terms of going forward, it's a funny business.

I've been involved since '90, '99, and you do not have the visibility one would expect.

Tours go on sale at the last minute, often they go on sales with ten shows and then the number of shows get doubled, depending on what their response has been, and lots of other factors come into play, so visibility is measured in weeks not months.

I would say we are certainly aware of many high-profile acts on the music side that we think could be very well received, and we've seen no red signals.

Q1 is a tough comp for us.

You can go back and look at last year and we had an extraordinary Q1 with a lot of volume in March pulled from Q2, but I don't think it will be reflected there so much.

But as we get into the back half of the year, we're optimistic.

Next question, please?

Our next question comes from Brian Pitz with Banc of America.

Please go ahead.

Thanks.

Looking ahead in terms of your online advertising opportunity, do you think you may be able to better leverage ad networks or exchanges in terms of the monetization of that inventory on your site?

And also, any thoughts on how the balance sheet might be split up between the spin-offs and maybe you could comment on the ideal capitalization you're really looking for each of these spin-off business?

Thanks.

Let me do the second one first.

We really comment on it.

We're spending a lot of time on it, as Barry mentioned, doing all of the right things and I think it's something we're studying closely, inside resources, outside resources, and the like.

And all of the analysis we're doing is what you would expect to us do, looking at the business prospects, the cash flow needs, et cetera, of each of the spin CO's and obviously new IAC, looking at the capital markets, et cetera, so I won't bore you to death with our process.

But it's premature, and obviously when we've made a determination, we'll walk you through that.

And could I ask to you repeat the first one because I don't think I got it?

Yes, just in terms of the outlook for online advertising and your ability to better leverage ad networks or exchanges to better monetize your inventory?

Yes, you're referring to the sell side?

Yes.

It's something -- we're actually building an ad network.

The display advertising side is not a place where we have been a major player.

We've had a nice business there, but it's not been a major revenue stream for the Company, and because of the margin characteristics, it's definitely something where we think there's opportunity.

We spent all of last year getting on one back-end platform, which is the operational step that one needs to do, and we obviously have a lot of properties with a lot of inventory, and we do think there's an opportunity to grow that business over the long term.

One of the great opportunities, I think, for new IAC is to much, much more relate now these naturally-related sites to each other to build up really aggressive, strong, and probably very niche advertising operations for each of the appeals of these things, all served by a master backroom with efficiencies, et cetera, where I think what we can do is absolutely sell advertising more effectively and I think we can sell it at let less operational over time.

It's one of the things that we are really going to get intensively engaged in.

It does not mean we're going to buy, like others have done, an outside advertising tool operation because we're not going to do that.

What we're going to concentrate on doing, for which we've had really great success over the years, is audios.

We're going to take and continue to build audience.

All of the stuff we're doing in emerging businesses deals with audience building, of which we have dozens of prospects at relatively low capital costs.

Certainly less than others are paying for sites that have got lots of audience and no revenues.

We tend to get involved in things that have business models and that have audience and revenues attached to them, and that's really going to be what we're going to be concentrating on, it's always opportunities.

I think that this world of advertising, which is absolutely making its crossover to on line and it's going to continue to do so over probably forever, that's a very, very deep mine for us to play in.

So with that, thank you all very much.

We appreciate your attention.

We'll be back with you next quarter when I suspect we'll have a good amount of news and hopefully progress.

Thank you.

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

You may now disconnect and we thank you for using ACT conferencing.