Match Group Inc (MTCH) 2013 Q1 法說會逐字稿

Good day, everyone, and welcome to the IAC reports Q1 results conference call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Jeff Kip, CFO.

Please go ahead, sir.

Thanks, operator.

Thanks, everyone, for joining us this morning for our first-quarter 2013 earnings call.

Let me briefly remind you all that during this call we will discuss our outlook for future performance.

These forward-looking statements may be 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 first-quarter 2013 press release and our periodic reports filed with the SEC.

We will also discuss certain non-GAAP measures today.

I refer you to our press release in the Investor Relations section of our website for all comparable GAAP measures, and full reconciliations for all material non-GAAP measures.

I'm going to now turn it over to Barry for a few remarks.

Then I will take it back, and quickly walk through our financial results and outlook.

Then Greg will talk about some of the key drivers of the Business.

Then we will open it up to Q&A.

Good morning, everyone.

Not made as a stentorian announcement, but this is going to be the last regularly scheduled call for me with our quarterly earnings.

I've been doing it now for, I think, long enough -- 18 years.

And I think Greg Blatt and Jeff Kip and all of your questions are properly dealt with.

I don't think I add that much value.

I will come back when I have something specific to say about something.

One thing I would like to mention to all of you is something we have been thinking about in the last weeks -- it doesn't, certainly, change our reporting.

It doesn't change any of the way we actually do things, but it is a way of thinking about our Company and our businesses, which is that, as you all know, we have got two main businesses.

They have been our main businesses for some time now.

They are growing.

We spend time on them, and we should spend time on them.

We then have a group with the elegant name, Other.

In that group are 12 or so individual businesses that hopefully -- they don't matter to us, in the sense of materiality -- they're $600 million or so in revenues.

Essentially they will make or lose a few million dollars I think this year.

All of that revenue is planned to lose about $10 million.

These are businesses that we're investing in.

These are businesses that you could say -- why are we even bothering, rather than focusing primarily on the two main businesses?

The reason is, is that we're hopeful that one, two, three, who knows, of these could become a third large business, or a fourth large business.

Really for the last, almost 20 years, that has been the course of the Company, and how it has developed.

So, I just think orienting ourselves to think of two businesses, plus a lot of optionality that is not a drag on us, is a -- to me, it is a healthier way of looking at our Business.

It doesn't mean we're not going to talk about these businesses when we have something to say about them, but essentially, they're not of any great matter until one of them becomes substantial.

When one of them does, that will clearly be something we will talk about.

Or when we have prospects for them that -- individually, that are worthy of noting, we will do so.

So, with that, I will turn the call back to Mr. Kip, and we will proceed with the meeting.

I will stay on for the rest of this meeting, as well, for your pleasure.

Thanks.

We had a solid first quarter, with 16% revenue growth and 24% OIBA growth on an as-reported basis.

Pro forma for About.com and NewsBeast, revenue and OIBA growth were 8% and 29%, respectively.

The shutdown of Newsweek magazine in December effectively reduced the pro forma revenue growth rate by approximately 250 basis points for the quarter.

It is worth noting that this was IAC's 16th straight quarter of 15% or more OIBA growth, and our 9th straight quarter of OIBA margin expansion.

Search and Applications had a good first quarter, with as-reported revenue growth of 16% and OIBA growth of 27%.

Our revenue came in a little lower, and our OIBA a little higher than expected because of CPC softness at Google, which led us to hold back a little on marketing spend.

We did see CPC levels recover by the end of the quarter, however, giving us confidence in our expectations for the full year.

Additionally, on a year-over-year basis, we took about $5 million or so of unprofitable legacy Pronto revenue out of Websites as part of the restructuring of that business in the first quarter, which contributed to the lower than expected revenues there.

On an organic basis, Websites' revenue was virtually flat sequentially.

For the full year, we expect solid double-digit revenue growth pro forma for About, and somewhat stronger on an as-reported basis, with margin leverage resulting in strong, double-digit OIBA growth pro forma for About, or approximately 1,000 basis points or so higher on an as-reported basis.

This is modestly better than the outlook from our last call.

In the second quarter, revenue growth will roughly double from the first quarter rate on a pro forma basis, with a somewhat less dramatic jump on an as-reported basis.

OIBA growth will accelerate from the first-quarter rate, although more modestly than revenue, as we ramp up our marketing, which we have already started doing, after our CPC-related pull back in the first quarter.

In the back half of the year, revenue growth rates will be in line with our second-quarter rate on a pro forma basis, driven year over year by accelerating query growth in Websites, and improved monetization in Applications.

OIBA growth in the second half on a pro forma basis will be significantly better than the first half of the year, but higher in the third quarter than in the fourth quarter, driven primarily by timing of marketing spend.

I would also note that on an as-reported basis, both revenue and OIBA growth will be impacted by the anniversary of the About acquisition in the fourth quarter of 2012.

At Match, we had a great quarter, with 8% revenue growth, strong margin leverage resulting in 24% OIBA growth, and most importantly, solid PMC growth across all of core, developing and Meetic.

In the second quarter, we expect a modest increase in revenue growth over the first quarter, and we also expect PMC growth rates to accelerate again across all three PMC buckets, which will drive solid revenue and OIBA growth in the subsequent quarters.

The second quarter, however, has very tough marketing comps, especially at Meetic where we pulled back spending significantly last year, so we only expect single-digit OIBA growth year on year.

In the back half of the year, however, we expect to see revenue growth rates in the low- to mid-double digits with flattish margins year over year in the third quarter, but significant margin leverage in the fourth quarter, again, driven by the timing of various marketing decisions.

On a consolidated basis for the full year in this segment, we expect low-double-digit revenue growth, and strong double-digit OIBA and PMC growth.

In our remaining segments, we continue to see strong revenue growth at businesses like Vimeo and Electus, and we've dramatically reduced our OIBA lost at NewsBeast.

Our performances were offset in the first quarter, and will continue to be offset in the second quarter, by underperformance at HomeAdvisor, driven by some technical glitches in the rebranding of the service, which should be resolved by the end of the quarter.

Revenue growth for the full year for Local, Media and Other combined should be low-double digits on an as-reported basis, dragged down by the effect of the shuttering of Newsweek magazine.

In terms of full-year OIBA, we now expect low-double-digit millions in combined losses for the full year for the three segments, which means we expect an OIBA pickup of approximately $15 million versus the aggregate OIBA from last year, or actually significantly more than double that pro forma for NewsBeast.

Thus, for the remainder of 2013, we expect to be nearly breakeven on OIBA across the three segments, with minor losses in the second quarter turning to modest profits by the fourth quarter.

I will now conclude with our expectations for the full year and the second quarter on a consolidated basis.

We are reiterating our full-year outlook of solid double-digit consolidated revenue growth, or low-double digits pro forma on consolidated OIBA growth of approximately 30%, or mid- to high-20%s pro forma for About and NewsBeast.

Our improved outlook for OIBA growth at Search will offset our lower OIBA expectation for our Local, Media and Other segments.

For the second quarter, we expect solid to strong double-digit consolidated revenue and OIBA growth on an as-reported basis, with OIBA growth only slightly lower on a pro forma basis on low- to mid-double-digit pro forma revenue growth.

With that, I will turn it over to Greg.

Thanks, Jeff.

Hey, everybody.

Thanks for joining us so early this morning.

Hopefully, I will fully wake up by Q&A, but I will try and plow through these opening remarks until then.

I don't want to restate what Jeff said.

We feel really good about the road ahead.

I think I want to spend some time going through the big drivers of that.

I will start with Match.

First, is scale.

We have now cracked the 3 million subscriber mark for the first time.

That is more than double what it was just four years ago.

While I don't have an exhaustive list, and these things are subject to varying definitions, we're pretty sure that puts us in the handful of largest, pure online subscription business in the world, which is a pretty good place to be in.

While size is great, momentum is obviously better.

We are really getting it back.

At the end of Q3, I think I said I expected core PMC growth rates to decline in Q4 and Q1, before starting to rise again.

In fact, that never happened.

We basically stayed flattish at around 8% core PMC growth through those three quarters.

We now expect to start rising again, as we did previously, but from a higher starting level, which we're really excited about.

I think it is a real testament to the product work that we've been doing.

I think it is really solidified my view that there really is no ceiling on the benefit in a business like this, that you get from continuously revisiting your product, revisiting registration flows, optimization, et cetera, especially when coupled with fundamental product change like we saw in Events last year, which continues to drive the core consumer proposition.

Really, a great job by the Match team.

As pleased as we are with where Core is heading, which is up, I do want to spend some time talking about Meetic and Developing, which isn't something we have really had a lot of reason to talk about in the past.

But for the very first time, as Jeff mentioned, we've got meaningful PMC growth in Core, Developing and Meetic simultaneously.

Meetic and Developing have been a real drag on things for a while, but now they're all going in the right direction, and we expect this to continue.

Meetic -- doing a great job on all its optimizations.

Developing -- really, really seeing a lot of opportunities open up.

While the Developing numbers are affected modestly by some low-cost acquisitions, even without the acquisitions the Developing PMC number is up high-single digits.

Really excited about this, and that loss of drag feels great.

I want to focus for a second on the part of our momentum that comes from dating products that you wouldn't traditionally consider subscription services.

We need to come up with a better name for them, but we're talking about sites like OkCupid, Twoo, Tinder -- sites we currently put into our Developing bucket.

We look at lots of things in these businesses, but when you look at monthly active users, because the numbers for our traditional subscription sites are growing nicely, year over year.

When you look at the growth in monthly active users for these Other products, it's up nearly 500% year over year.

Our global users in these services actually now exceed those of our traditional subscription sites.

Now, users are good, but the key is how we make money off of them.

We're seeing real progress, and what we think is going to be a real core advantage for us going forward, is our ability to monetize and get revenue from these nontraditional subscription products.

Take OkCupid is really the test case here.

We bought OkCupid two years ago.

Our revenue per user is up about 50% during that period.

But that is actually muted by the fact that the ad revenue per user, which was the vast bulk of it when we bought it, hasn't changed at all.

If you focus just on direct revenue from users, that is up almost 500% per user in the two years we've owned it.

That's while maintaining and even exceeding the user growth rates that we had when we bought the business.

So, this is a hugely powerful thing for the Business, and we think we can leverage it globally.

Businesses like Twoo are really outside the United States.

That's actually the areas where the traditional subscription products are least powerful.

We're really excited about this.

We don't think that the contribution from these products is going to rival the contribution from our traditional subscription products any time soon.

We do think it is going to be an increasing part of the incremental growth.

That's at a much higher margin than our regular businesses, because there is, traditionally, no customer acquisition costs associated with this.

That is really exciting.

Before turning to Search, I think it is just always helpful to come back and think about the reasons we are so excited about this business, back from the weeds.

It is a high cash flow business with little CapEx and great margins.

It fills a global need that isn't going away, ever.

The domestic and international markets continue to grow.

We're the global leader in the category, across multiple brands, multiple products, and multiple geographies.

We have shown the ability to both maintain brand superiority and growth in our flag ship services like Match and Meetic, while growing additional nontraditional products around them, without negatively impacting the core engines.

Again, we're now firing on all cylinders with growth across the board.

We feel really good about where this is going.

I think I forgot to mention, just on the PMC trends, I said they are going to increase across the board.

This quarter, I think our total PMC growth was 11%.

We expect it to get into the high teens by the end of this year, so we're talking about real momentum in this business, and obviously, we feel great about it.

Turning to Search and Applications, we said at the last call this would be a bit of a reset quarter, and it was.

It was still really strong, as Jeff said.

We expect overall improvement throughout the year.

Focusing first on the Application side, Google's policy changes, which everyone has spoken a lot about, they have had an impact on the landscape.

But because our practices were already more in line with Google's preferences in the markets generally, and because of the nature and quality of the products we distribute, we believe the changes have a different degree of impact on us than what the rest of the market is experiencing generally.

The policy changes do bring down our short-term growth rates, and we've been clear about that.

But we will grow nicely, nonetheless.

I mean, the growth rates leading into this year have been off the charts, and now they're just going to be really good.

When you look at the impact of these changes on other people, they have been more severe, and in some instances have actually led people to shift their business to other sponsored listing suppliers.

We think this demonstrates what we've been saying for a while.

We've got sound business practices.

We invest more in technology than anybody else.

Our products are coupled with access to a well known, proprietary search and Q&A product like Ask.

We think that that really leads to a business that is fundamentally different than most others in this space.

I also think, as an aside, it is interesting to note how quickly some of the other big sponsored listings players jumped on the opportunity to pick up the business that was shaken free.

The search business, the search share associated with downloadable applications is real, and we think it is valuable to these guys.

I also want to point out, again, how strong our relationship is with Google.

I can't remember it being better, personally.

We support them in their efforts to make sure that this space is consumer friendly.

They continue to be our partner by choice.

We're not focused just on dollars today, but on dollars today, tomorrow, and the day after.

So, our decisions about business practices, partners, et cetera, are based on an extended time horizon.

In total, we believe all of these changes have left us in a better long-term competitive position.

Next, I wanted to hit on mobile for a second.

We've said for a while that it didn't really make sense for Mindspark to jump into mobile until the unit economics improved.

Unlike some businesses, this isn't a short- or long-term benefit, in the Mindspark business, from doing that, from quote-unquote investing in mobile acquisition.

But now we believe there are opportunities to go after on a profitable basis.

We're seeing the unit economics change.

We have just launched our first search distribution product on mobile.

It is a small test, proprietary application, but our plan is to distribute Search on mobile with a variety of products and distribution techniques that we have been developing.

Some are familiar and similar to what we have done in desktop, and others are novel and native to the smaller devices.

We have talked to the app developers out there.

We think there is a receptive marketplace for what we want to do, and we think our search distribution can play a meaningful role in driving revenues in the mobile space.

It will start small, but down the road, we think it can be a real contributor.

Given our belief that desktop usage is going to continue to be huge in relation to our overall share of it for some time, we don't think of this as an offset to near-term cannibalization.

We really think of it as an additive income stream to help drive growth for Mindspark going forward.

Turning to the rest of the segment, Ask was flattish this quarter due to absorbing the ad policy changes that we talked about so much last quarter, and due to the low Q1 CPCs we saw from Google.

We expect Ask to grow over the remainder of the year.

Its fundamentals are solid.

We have adapted to the policy changes on the ad side.

We have revamped and restarted our marketing in Q2, and we see plenty of runway ahead.

Additionally, and I think really importantly, the About acquisition is really proving to be a grand slam.

It is our first big leap into pure content, and it has beaten our most ambitious expectations.

We think about what we do and who we are, a lot of it is about leveraging competencies -- developing competencies and leveraging them across a broader asset base.

We have been doing it on the Match side with acquisitions like Meetic, OkCupid, et cetera.

About is really the first time we've done it on the search side.

I think we're seeing huge runway.

The techniques that we used to take Ask's OIBA and OIBA margin to 7 times and 3 times their 2009 levels, are highly transferable to this area.

It is clear that this represents a real strategic growth area for us, both within the About business and beyond.

I think it is worth reiterating that point.

In four years, we drove 600% OIBA growth at Ask.

And in our first year with About, we are going to drive well over 50%.

This isn't an accident.

We believe it can be replicated in other properties, both internally developed and potentially newly acquired.

There aren't meaningful headwinds in this area.

So, this area of generating and distributing and organizing content for distribution over desktop and mobile is going to be a real part of our growth story going forward, as well as a significant basis for diversification of revenue streams and products within the segment.

Summing up the segment, it's worth reminding, like Match, this segment is a tremendous cash flow business, very limited CapEx and increasingly diversified revenue stream.

We feel really good about it -- confident that it's going to continue to grow nicely for years to come.

It's diversified enough and solid enough to grow through whatever changes will take place in this landscape.

Barry hit on our other segments, but I thought I would just hit on them real quick.

We really do believe that something -- I believe in each of them, that's why we do this.

But you take the odds -- they won't all hit.

We see each of these things as having the potential to be of huge value.

Vimeo right now is crushing it for us.

Subscriber growth up meaningfully.

Ad revenue just starting to come online.

A really exciting product roadmap.

We think this can be a huge business.

HomeAdvisor had some technical stumbles in the rebrand, but the brand results themselves are strong.

So, don't confuse the two.

The strong brand change has led to SEO and other technical issues that are returning, but the results on the brand, the advertising, et cetera, is really strong.

We think it's going to grow nicely again by the end of the year.

Electus continues to turn out show after show, and I think as these shows anniversary, is when the revenue and the profits start to come.

So, we feel really good about that.

Tutor.com, an asset we recently acquired, is something we really believe in.

So much so that we moved Mandy Ginsberg, the CEO of Match, and Shar Dubey, the Head of Products at Match, to head up that business, along with the founder, George Cigale.

While I was at Match, I worked with Mandy and Shar more closely than anyone else.

I really don't know anyone with better chops for building a consumer internet service.

Pairing them with the education expertise that already exists there, gets us really excited about what this business can be -- not today, probably not tomorrow, but soon after.

We are not going to spend much time talking about the numbers, as Barry said, until they pop out, but there is a ton of scale here.

I am very confident that there is going to be real contribution down the road.

In all, we're excited about the growth ahead.

Each of our big segments, the core areas of it are growing really nicely.

We've also built up earlier-stage, higher-growth projects and products around them.

We're confident they'll generate strong profit growth well into the future.

We like our early-stage businesses.

Coupled with disciplined M&A, and continued repatriation of cash to our shareholders, we're very confident and excited about the road ahead.

So with that, we will open it up for questions.

It was a good report.

(Operator Instructions) John Blackledge, Cowen and Company.

A couple of questions.

On Search, it looks like the Website segment, ex About and Pronto, declined about 3% sequentially, which was worse than we thought.

Could you just talk about the drivers there in 1Q?

And also discuss the revamped marketing in the second quarter, and how that could drive the Website segment the rest of the year?

Then, also, just it looks like the revenue for query declined in both segments.

Can you just provide some color there and in terms for the rest of the year?

Thanks.

Sure, John.

A couple of things.

One is, as I noted, we restructured the Pronto business.

We took a bunch of unprofitable revenue out of that.

If you strip that restructuring out, you are probably pretty close to flat in Websites.

Then, when you look at the fact that Google announced its CPCs were down 4%, that led us to probably pull back a little bit of marketing and reduce a little bit of volume.

We are really right on top of where we thought we would be.

We are continuing to ramp the marketing spend.

We do expect queries to accelerate through the year.

We actually also expect our RPQ to accelerate throughout the year sequentially.

I think that in terms of your RPU question, there is really three factors.

One is, there has been a modest impact from the policy change in both Websites and Applications.

Secondly, you do have the CPC issue.

Then thirdly, our international growth where RPQ is probably 60% of domestic, ish, our growth has been a little built faster, year over year, over the last quarter.

So, we have seen a little bit of a mix shift, which is the last piece of the RPQ shift.

Again, we think those will go up sequentially throughout the course of the year.

Let me just add on that.

It is important, on the policy side, that is not a trend, that is a one-time hit that we absorb in the quarter and now we grow from it.

CPCs have already rebounded.

As we said, we expect the RPQs to increase across both areas throughout the year.

Next question.

Peter Stabler, Wells Fargo.

A question on Match if I could.

The mix of the Core and Developing was a bit different than we expected.

As you look out over the remainder of the year, would you expect those growth profiles to kind of remain in proportional balance that we saw in this quarter?

Or I think that you touched on core PMCs to drive a better growth profile for Core match.

If you could just clarify that a bit for me?

Thank you.

I'm not sure I got the entire question, but let me try and then if I missed it, if I don't answer it, you can ask again.

If you exclude the acquisitions that we did in Developing this quarter, growth rates for Core, Meetic and Developing were all roughly comparable within a couple percentage points of each other.

When you add in the acquisitions, that led to an 11% growth rate for PMC overall.

By the end of the year, I think I said, we are going to be up in the high teens overall.

There is going to be growth in all three of those buckets.

The growth rates will increase in all three of those buckets on the way to the high teens number.

In other words, we're expecting to get double digits in all of them.

I think Developing, just given the dynamics of Developing, which is it has been declined for a long time because you had runoff of businesses that were in decline and you had growing business of earlier stage businesses.

I expect Developing growth to exceed growth in the Others, for some time, which is why they're called Developing.

It is the small, high-growth products, high-growth geographies, and so over time, we expect Core and Meetic to be very strong growth, but we think the Developing will be higher growth.

That's just the nature of it.

Does that answer your question?

That did.

One quick follow up, Greg, could you comment on the new product initiative in Match and any update on the success you're seeing there?

Thank you.

Sure.

I mean again Events, we have multiple different types of product initiatives, as I've said.

We do lots of stuff that you would never notice, which drives real results, and that has been our bread and butter for a long time.

On the Events business, it is actually really exciting.

We've gotten to the point now where, literally, the average event has about 50% returning members.

You've got -- the people who use them, like them a lot and keep going.

What that means is that over time, as the people who go, keep coming back, and new people come, the penetration in our business is going to get very high.

We think that is a real huge differentiator that over time, leads to higher retention rates, the higher conversion, we see in some markets and not others, but overall, the metrics are good.

I prefer to think of it as sort of a core attribute of the business that continues to make it stand out and drive what are going to be real double digit, PMC growth rates for the remainder of the year.

Thank you very much.

Next question.

Ross Sandler, Deutsche Bank.

Congrats on Tinder, the New York City dating scene will never be the same.

A couple questions, though.

Barry, first a little clarification on your initial comments.

Was that just meant to highlight some of the emerging opportunities in those other areas or is there some larger, legal separation in the works?

No.

Sorry.

I will just quickly deal with that.

No.

It signals nothing other than I just think it is a more interesting way for me, for my colleagues, and I think for you too, to look at our businesses.

Two businesses, plus essentially a stub of optionality for new businesses to become significant.

That's all.

Got it.

Okay.

Then second, Greg, can you talk about the relationship between Core PMC's growth of call it 8%, and accelerating in the next couple of quarters, and then the revenue growth, does that reflect the mix between sites or is that longer duration subs?

What is driving that?

And then the last question, for Jeff, Search Application revenue was up modestly, quarter on quarter, in the first quarter.

Do you expect that growth to continue in 2Q?

Will there be any impact from Google policy changes beyond what you saw in the first quarter?

Thanks.

On the digression between PMC growth and revenue growth, I think at any given time, you've got a number of different mix issues going on.

You've got -- there is always pricing optimization going on at Match, so we geo price.

There's different prices in different markets.

There is different prices for different packages.

They're constantly changing all of that.

At any given time you can see the RPU from that going up or down.

Our intent is always, frankly, to trade longer packages for lower price, because that is much better on a long-term basis, but that does have the impact of driving RPU down.

Then you've got the mix shift between Match and People Media.

As I said last year, the Match business and its focus on Events, lost a step on growth.

People Media didn't.

So during that period, People Media was growing really well.

It has got 30 brands all of which have different pricing but all of which pricing is lower than Match's.

Plus, they were shifting people out to longer package mix as well.

So, there has been this digression.

I think what I would expect over the rest of the year, is for, as I said, Core PMC growth rates to increase.

I think the distinction between PMC growth and revenue growth, there will continue to be gap, but I expect that gap to narrow, even as both rates rise.

I think you've seen a period of that mix shift, now with Match growing, sort of very steadily, Match's growth sort of mimicking People Media's growth, that dynamic will reverse itself.

Because of the subscription nature of these things, there is a lag time in how the revenue and PMC growth rates match up, so I think the easiest answer is that it will narrow meaningfully over the course of the rest of the year as the number increases.

And then in terms of your last question, we expect sequential growth in the Applications business, with everything we know factored in.

We expect query growth to continue at or above the level it has been at.

We expect RPQ expansion, Q2 over Q1.

Next question.

Great, thanks.

Jason Helfstein, Oppenheimer.

Thanks, a few questions.

Just on the last part, can you expand just a little more?

I mean is it fair to say we're seeing now whatever the Mindspark and the Application products look like, that that won't change?

Or the way that consumers use it effectively, we're seeing that business, we'll call run rating right now.

Second question, CapEx was a little high, or I guess was high, relative to historic levels.

Can you comment why?

Then on stock repurchases, should we expect repurchases to have a seasonal pattern that looks something more like the Company's ability to generate free cash?

I guess lastly, did you guys pay Martha Stewart for her plug of Match.com?

Thanks.

On the last point, I worked for Martha for a long time, so call it deferred executive compensation, 10 years down the road.

But, we're very happy that she has chosen to use our product.

That is amount of an uplift --

She does generate it.

She does generate it.

It might be also, too, it will get you some male subscribers who want to date a middle-aged woman.

I don't even know what that means.

Now, I've actually lost the question that was directed at me.

Could you repeat the question for me?

More detail just about the application.

You answered the last question, but --?

Oh, yes, look --

Is that product running --?

I remember.

Look, I think the answer is we don't discuss our policies outwardly.

We have contract with Google, that Google requires our confidentiality.

We don't disclose it.

What I will say is that, the outlook we've given incorporates everything that is going to happen.

For reference, in Q1 of this year, we actually implemented a policy change that we had agreed to Google on a year and one-half ago.

So things -- but there were offsetting changes that happened at the same time.

I'm not going to say that there are no new changes to come.

There will be some changes, but those changes are fully factored into the outlook that we've given.

These are things that we've been able to test, quantify.

We understand pretty well, and so I think that they're fully incorporated.

Stock buybacks, and then Jeff will do CapEx.

No, there is nothing to be read in this whatsoever.

We're not seasonal.

We are always opportunistic and you shouldn't, although I know you do and will, take each quarter and say, oh, that was a nice amount or that was not a good enough amount, et cetera.

To us, we bought back nearly half the capitalization of the Company.

So --

We spent $300 million on buybacks in Q4 and then -- so it is --

It is not going to be regular, nor do I believe it should be.

Our general thrust has been, if you look at the past and the past is a prologue, has been to shrink the capitalization.

Jeff?

In terms of CapEx, you saw the biggest bump you're going to see all year, this quarter year over year.

That is non operating stuff in the sense that you have to realize we own some of our own real estate.

We own pieces of planes with Expedia, and so we are going to basically be at our normal run rate for the year, plus a little bit of extra expense on the real estate side.

But it is not like we've suddenly invested in servers or we're pursuing some high CapEx business plan in one of our small businesses.

These are sort of one time bumps in another sort of non operating bucket.

We are, generally, a low CapEx business.

That's right.

So, we intend to remain that way.

Thank you.

Next question, please.

Brian Fitzgerald, Jefferies.

A couple of questions.

You mentioned some technical issues around HomeAdvisor.

Did those center around largely SEM or SEO?

We're seeing a bit of a deceleration in the domestic requests and accepts, is there any macro pressure or was it largely kind of search traffic related, I.E it will go away soon?

Question one.

Two was, in terms of the tool bar business, can you give us some color around to what degree have you implemented Google policy changes around opt out?

Can you remain opt out for a while?

Or is there any type of special agreement there with Google?

Thanks.

On question one, the answer, if I remember how you framed it, is yes, which is that the issues we're talking about are largely technical.

When you switch brands with different search engines the amount of time it takes you to rebound on SEO, to get credit for your past activities in your SEM prioritization, everything else can differ.

There are certain techniques you use.

The gap was wider and longer than we expected it to be, but it is narrowing.

While it is real cash out of our pocket in Q1 and Q2, it is not indicative, we don't believe, of any long term effect.

The brand stuff we've done, in terms of television and everything else, has been powerful.

It is an unfortunate glitch but it is not any macro pressure.

In terms of the second question, I refer to my prior answer, which is we don't and can't discuss those issues.

I know that may be frustrating for you.

We have given you what our outlook is, incorporating all the things that are going to happen.

I guess you will see them happen over time, but we are just not at liberty to discuss the differences.

I will say this --

We're not at liberty because we have confidentiality agreements that are imbedded in our relationship with Google, as everybody would expect we would have.

And I think it is not -- we actually, you use the word policy and I know Google uses that word generally, but like we have an agreement with Google, it is part of an agreement.

It is not part of some general policy thing that they do.

I actually don't even know, necessarily, what other people are subject to.

I know what we are subject to.

We negotiated it with Google.

That plays out over the course of the year.

Next question, please.

Heath Terry, Goldman Sachs.

Greg, on the issue of weak CPCs, the 4% decline that Google reported in Q1 was actually the lowest that they have reported since Q3 of 2011.

Can you help us understand why that was an issue this quarter, when it hasn't really been one that you guys have cited in the past?

And then if you could also help us by walking through the decision to shut down SmileyCentral?

You guys talked about it on your last earnings call, as being something that had generated $120 million in revenue.

So, just want to understand how you're thinking about the individual properties within Mindspark and whether you might see more reduction in the number of apps that you guys are offering in the future?

I will take the last part first, which is -- I will be honest with you.

I didn't even know we shut down SmileyCentral.

We have a whole bunch of products, a lot of them have natural life cycles, so if we're not offering that anymore, we're not offering it.

We have a portfolio of --

We have not gone out of Smileys, I can promise you that.

I shouldn't say I can promise you.

I would be shocked if we don't offer Smileys -- I mean, we have been offering them for 100 years.

I actually -- I wouldn't be shocked, but I will certainly tell you to the extend that we're not offering them, it's simply because that product has lived out its life cycle and new products have taken over.

I guarantee you there is no macro issues surrounding the shutdown to the extent it happened of SmileyCentral.

We actually have an increasing product's pipe line.

We're offering more products and applications than we've ever offered before.

If we have, we have.

But I guarantee, you it is not meaningful to our business, or indicative of anything whatsoever.

In terms of the Google CPC issues, I will turn it over to Jeff, and then I will add on to the extent that anything comes to mind.

I don't think we comment on Google's CPC issues, meaning that they are what they are and we are subject to them.

I don't know, Jeff, if you have any comment on why Google CPCs were lower in Q1 and have rebounded?

I assume Google explains that to some extent on their own call.

Look, I think that they stayed down longer and more than were anticipated, and that's I think what is different that is in the past.

It was coupled with, and we did say at the beginning of last quarter, that we did on the ad policy changes that took place back in Q4, that the biggest impact of those were to reduce our revenue per query and that we would then build from there.

So, it may be that just a double whammy of those two things happening at the same time made us call this out where previously we have grown through it.

We're subject to Google CPCs, and I guess that's a burden of our business, but I would say overall it has been a huge benefit of it.

This quarter, it went against us.

We're trying to reverse itself.

If we're trying to understand the mix between the impact of CPCs versus the policy changes on the deceleration of OIBA growth in Search from 40% down to 7%, how would you break up, Jeff or Greg, kind of what is driving that deceleration?

Which one is having the bigger impact or quantify for us in some way the numbers around that?

Again, the business is relatively diverse.

I think that on the -- I certainly can't quantify the two.

What I can say is that the impact of the policy side has been absorbed and we are now growing out of it.

Meaning that is a new baseline, it is reflected in these numbers and now we are growing.

On the CPC side, they have also reversed themselves.

Jeff, are you able to quantify what the relative contribution was between the CPCs and the policy changes?

Again, it is actually -- here is the other reason --

Thinking about it, it is a third, a third, a third, with the international mix, the CPC and the policy --

The other thing, to recognize, is that it is not linear, meaning when the CPCs and the revenue per query come down, we cut marketing, which leads to meaningful decreases in revenue.

They are not linear.

The biggest impact on revenue was the fact that we cut marketing.

The reasons we cut marketing were because in this particular quarter, the CPCs and the revenue from the policy changes were lower.

Again, we're building through it.

We're going to have growth throughout the rest of the year on the RPQ side, and I think it is hard to quantify given the marketing piece of the mix.

And then, just the only thing I would say on SmileyCentral, we shut down the desktop version of it because it wasn't ROI positive anymore.

We do have a live version of it on mobile right now, that we're testing a few features with.

It is the product cycle.

We've got a lot of products that have rammed through and circled up and then circled down.

That's the nature of the business.

Okay.

Next question, please.

Mark Mahaney, RBC.

Two questions, please.

Greg, I know you talked earlier about these kind of nontraditional personals businesses, OkCupid, Tinder.

You have tracked and been involved with the personals business for a long time and brewing Match previously, do you think there is a scenario under which 3 to 5 years from now, those kind of business models could actually become bigger than the traditional subscription models that we've all known over the last 5 to 10 years?

Then secondly, on About.com, are you doing anything different in terms of the way that business is being run?

Is there a change to the About.com strategy?

Or are you just letting it run completely independently, largely independently, as it was done in the past?

Do you see room for strategy improvement in addition to just operational efficiencies?

Thanks a lot.

On the Match question, I think I would say the following.

In terms of users, as I said earlier, I think we are already seeing that the users in the nontraditional products being bigger than the traditional products.

I think in terms of revenue and contribution, I think it is a long way off.

To the extent it happens, I believe it will be driven far more internationally than domestically.

Although, nothing would make me happier.

I mean this actually is, it is very high margin, because you don't have any costs associated with it.

Look, Match and Meetic, which are sort of the core subscription businesses, are growing great.

They are going to grow this year double-digit PMCs and I think what you're seeing is just expanding growth around.

It and if that ever laps it and overtakes it, great.

That's pure upside for us.

I don't see and we haven't seen, even in this area of 500% user growth on these nontraditional product, it is not impacting the core subscription businesses.

We think it is upside and we think it will be great.

On the About side, we're very much running it differently.

That is sort of the point, which is we bought this business.

We recently brought in a new CEO who is going to execute our plan.

We took people from Ask.

We moved them over to About.

They brought to bear a lot of things that we understand about website advertising, distribution, et cetera, and that has led to a meaningful increase in the business.

As I stated, I think we can leverage that in multiple places and we're really excited about it.

Thanks, Greg.

Next question.

Nat Schindler, Banc of America Merrill Lynch.

Two quick questions.

One for Barry.

This is going to go a little bit on what Ross allude to and I will apologize for that.

You very strongly said that you weren't looking to do something corporate with the concept of when you split Match and Ask in your discussion.

Could you go just, instead of talking about what you could do, talk about why it benefits you to have Match and Ask under one banner?

A second question, for all of last year, you guys were generating quite a bit more revenue growth than query growth in your Applications business.

That switched this quarter.

Could you help me understand why last year, it was growing that much faster in revenue?

Then this year, what could happen, other than google policy changes?

I'm not quite sure how I understand how they would affect that directly?

You go first.

With the second question.

With the first question.

(laughter)

Try the second one.

Okay.

Look, I think we've said before, that at any given time, it is one of the reasons that we've said we can grow at different rates than certain other search providers.

At any given time we are doing things to our Business that impact a variety of factors.

Sometimes it is distribution, meaning we are tapping into new distribution partnerships, new marketing channels, et cetera.

Other times it's modernization, we are optimizing pages et cetera.

Last year was a period of heavy RPQ optimization.

We are doing lots of things that were driving up revenue per query on our own products, coupled with the CPC increases, was leading to really great growth on that side.

We said that that was a period of specific bump and that we didn't expect that to continue.

Although, we do think over the year we will continue to have RPQ growth through both our own efforts and other.

I think at any given time, the mix of whether our revenue growth is coming from modernization improvements or from query improvements, is going to change around.

It also has to do with mix of partners.

There are some distribution partners that monetize much better than others.

As those partnerships grow and the others decline, you have you mix changes.

I know it is a little complex, but you have got a lot of different drivers driving these things.

Those trends can turn relatively quickly.

Barry, on the --

On the reasoning, rationale, for why we operate multi businesses under the same house, we have been doing this for a very long time.

It has produced -- it does produce some complexity.

But it has also produced a pretty large pile of valuable assets.

There is no absolute here.

At a certain point, least my experience with this, at a certain point, some businesses push themselves out because they are fully developed.

They have essentially have a need for independence and it makes sense for us to do so.

We certainly demonstrated our willingness to do it.

The current configuration of two businesses, two, really we're in two businesses.

Then as I've said, we've got a lot of other, that doesn't really generate, shouldn't generate, to me, too much interest or whatever.

Because t is not -- I'm talking about the specifics of them and queries about them, because, as I say, they produce some revenue, but they produce no net revenue.

When they do, God knows we will talk about them.

Otherwise, I'm comfortable right now with the mix of the businesses.

I would be disappointed if, and again, this is very long term, I would be disappointed if our larger businesses didn't essentially force themselves out.

I would also just add on the question of why they're in the same thing, which is when we -- we've done our other spinoffs.

We've done it because we actually thought they would operate better outside.

Of course, they pushed themselves out.

That's right.

These businesses have been operating great.

The performance of these businesses has been great.

It is actually a pretty integrated process.

Meaning Barry and I and the rest of the team here are pretty involved in what is going on in those businesses.

There is a continuum of operations.

I think the access to capital, you look just in the last year alone, the ability to go out and buy Meetic.

The ability to go out and by About.

Both on a dime, we're really -- neither of those things would have been able to be done in the absence of this ownership structure.

While there absolutely could come a time where we think they are more valuable outside of us than within it, now is not that time.

They are running great.

We frankly wouldn't shake it up.

Great.

Thank you.

Kerry Rice, Needham.

Just a couple of questions about Meetic and the personals in general.

I think you guys have been spending a little bit more on marketing for Meetic and that obviously showed up in some acceleration in the subscriber growth.

This may be a clarification from what you said earlier, but when do you expect revenue to speed up to match some of that subscriber growth for Meetic?

Then the second question is, just in general, do you think there is opportunities for additional consolidation within the personals market?

Yes, on Meetic, I think if you go back and look at historically and you see whenever you're doing a PMC turn around, you are going to see a meaningful lag in revenue growth behind PMC growth.

If you go back and look at Match in 2009, I think you will see that in the PMC growth.

The waterfall effect of old subscribers running off has a real impact.

I think that -- what we said, which is we think we are going to get into double-digit PMC growth in the business this year, in Meetic.

We think we are probably going to be mid to high single-digit revenue growth.

Then next year, that revenue growth will reflect this year's PMC growth.

So, that is just the accounting physics of that business.

In terms of consolidation, yes, there is always room for consolidation in this business, especially internationally.

I think domestically, there is nothing that we need to own, meaning we have got sort of everything checked off.

That doesn't mean there is not continuing opportunity.

Internationally, I think there is a lot of room for consolidation.

We're looking at it all the time.

I think our pace of M&A has been actually a pretty steady drum beat over the last four years in the personals business.

All right.

We will take one last question.

It is getting on the hour and so we don't want to overly keep you all.

So, one more question.

Michael Graham, Canaccord.

Just a question on buybacks just getting a little more granular.

Can you just comment on what, in the short term, is going to drive how much stock you buy back?

Is it stock price mostly?

Is it how much cash you're currently generating?

Second, just a quick update on, it looks like you ended the quarter with $670 million or so in cash and you've talked about $500 million as a comfortable level to be at.

Could you just give any updated thinking on that?

Then finally, if you could comment on what we should expect from new share issuances?

It looks like you bought back 1.4 million shares, the share count went down by about 600,000.

Just comment on that new share issuance pace, should that be steady and predictable or how to think about that?

Thank you.

The share issuances for us are solely out of executive compensation in terms of options.

We have been on a relatively steady state on that, God, over a very, very long period of time.

I don't think it is going to rise or fall in the future.

As far as buybacks themselves are concerned, look, what we do with our cash is -- First, we look as to whether or not there are things we want to invest in, either businesses that are growing or businesses that we want to acquire.

After that, it is based upon, of course, how much gross cash do we have and how do we repatriate it to shareholders.

We instituted the dividend a while ago.

We have certainly been active in purchasing stock.

We will continue to be, but we will be opportunistic.

We don't think that -- there is no road map here.

I understand the desire for investors is more than often to say, just buy back stock and look for any signs or indications.

Our overall signs are so overwhelming in that we, as I say, we bought back almost half our capitalization.

You know where our bearing is, and other than that, it is going to be opportunistic.

I think that summarizes your questions.

I would say, on behalf of my colleagues, thank you.

We will be back with you in three months.

Have a nice day.

Thanks, everybody.

Thank you.

That concludes today's presentation.

Thank you for your participation.