Match Group Inc (MTCH) 2015 Q2 法說會逐字稿

Good day, and welcome to the IAC reports Q2 2015 results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jeff Kip, Executive Vice President. Please go ahead.

Thanks very much, operator. Good morning, everybody. Welcome to our second-quarter earnings call. With me today is Joey Levin, CEO of IAC; and Greg Blatt, Chairman of the Match Group. As a reminder, we will not be reading our prepared remarks on this call. They are currently available on the investor relations section of our website.

Before we get to Q&A however, I would like to remind you that during this call we may discuss our outlook and future performance. These forward-looking statements typically may be preceded by words such as we expect, we believe, we anticipate, or similar statements. These forward-looking views 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 the second-quarter press release and our periodic reports filed with the SEC.

We will also discuss certain non-GAAP measures, which as a reminder include adjusted EBITDA, which we will refer to today as EBITDA for simplicity during the call. I will also refer you to our press release, and again to the investor relations section of our website for all comparable GAAP measures and full reconciliations for all material non-GAAP measures.

With that, we will go right to Q&A. Operator?

(Operator instructions)

John Blackledge, Cowen and Company.

Great, thanks. Two questions on Match, one on HomeAdvisor. So, Match, North America Match total page sales growth was 12%. Just wondering what the core North America Match, or ex-Tinder user growth was roughly? And then similarly, what was the international page sub growth ex-Tinder?

And then in the 2015 guide you mentioned ramping marketing spend at Match. But then in your prepared remarks you mentioned that marketing spend was actually lower. So just wondering what drove the lower marketing spend. And Jeff, maybe on HomeAdvisor, top-line growth was really strong again, $5 billion in EBITDA was better than we had. That implied I think mid-single-digit EBITDA margins. Just can you talk about how we should think about the ramp in HomeAdvisor's EBITDA through the rest of the year and then over the next couple of years? Thank you.

All right, John. On the sub growth reach, Tinder was a major contributor to both. I think I said last quarter that in general we don't break apart our businesses. And I told you last quarter that our Tinder breakout was a one-time only deal, given its launch. I can tell you that Tinder is a significant part of the growth in both North America and international.

In North America for some perspective, Tinder had more paying subscribers outside of North America than inside of North America. At the same time, ex-Tinder our North American subscriber base is much bigger than our international. So those two things combined to have Tinder's growth be much more impactful on overall sub growth rate in international than North America, Growing great in both.

On the North America side ex-Tinder, as I said we pulled back on marketing a bit. In international we spiked marketing a bit, and so that is a driver as well. When you talk about the marketing, I don't recall specifically that we were planning on ramping marketing in Q2 over Q1. If I did say that, we didn't do that. Really what we did is we followed a much more historical pattern, which is, and maybe it makes sense to go back and talk about marketing a little bit in depth because I know it is a matter of interest on this particular call.

In general, first half our marketing spend is up about 10% year over year for the first half, all FX adjusted. It's up 13% in Q1. It was up 5% in Q2. Sequential decline of about 25% in marketing spend this year between Q1 and Q2 versus a 19% sequential decline last year. So in general there is always a sequential decline in our marketing spend between Q2 and Q1. It's just the marketing environment. Rates are cheapest in Q1. And for our category, receptivity happens to be the greatest.

In North America this year we spiked hard in Q1, up 18%, and are flat in Q2. International again sort of the opposite. We were up 7% in Q1 and up 20% in Q2. All that is a way of saying that we are increasing marketing throughout the portfolio in a way consistent with historical trends, even higher, frankly.

But we take a very disciplined approach to marketing overall. We build the plan on a product-by-product basis at the beginning of the year, trying to optimize for both sub growth and profit growth. Then as we go through, we stack rank throughout the year and we spend where the spending is most profitable. And those collection of things led to a big spike in Q1, opened up some good mobile channels, wanted to make sure we got the spend in. And then we pulled back because we got good user growth, wanted to take some profits.

So I think the lesson here is don't read too much into quarter-to-quarter marketing trends in this business, ever. We have said that before, and we will say it again. I think overall marketing spend is increasing. It is driving growth. And I could go into a lot more detail here on our marketing dynamics, if anyone is interested. But just in answer to that question, I wouldn't want you to get too bogged down in the fact that North America marketing in Q2 was flat. That's just the output of a complicated algorithm, if you will, that determines how much we spend, where and when.

On HomeAdvisor -- this is Joey, and I will let Jeff chime in here as I get it wrong. But (technical difficulties) HomeAdvisor performance. It's been growing nicely. We expect it to continue to grow. We expect EBITDA to continue to grow. We're not going to optimize for near-term profits on this business, but we're -- because we see huge opportunity for investment, both in sales and in marketing. And that is starting to yield results. So where you see the EBITDA coming, that is the leverage in the model starting to come to fruition.

We have got more service professionals in the network, better service professionals in the network. And that leads to more efficiency on our marketing. So that all starts to drop down to the bottom line. Now, we will continue to spend into that by growing sales and marketing. But I do expect for the rest of the year we will grow profits a little and into next year. You want to add to that?

Yes. I just think that the only thing I would add is you have to realize that this year we tripled our TV spend and we have grown our SP base 30% at the same time that we have grown the quality of the service provider. Which means they cost more to acquire, but their profit tail is larger and longer. So with the big ramp in marketing and the big ramp in quality SP, you have a bigger profit tail and you get natural leverage coming after a year of significant ramp.

That's great, thank you. Thanks.

Jason Helfstein, Oppenheimer & Co.

Thanks, a few questions. Just to dig a little bit more deeper. In the press release when you said North American PMC growth was a step behind fourth-quarter's growth rate. Can you go a little more deeper? Did it grow ex-Tinder in the US? Can you maybe give us that? We can tell you what we were guessing it grew in the first quarter. Just a little more color behind just that.

Secondly, have you seen any changes in the competitive environment around dating? And then thirdly, as you guys are thinking about what this Company looks like post the IPO of Match, can you talk about the desire to perhaps reorganize or gives additional disclosure, perhaps making HomeAdvisor or Vimeo separate segments? Thank you.

All right. I didn't get the first part of your question about Q4 versus Q2.

Just the comment in the release you said that the quote was, second-quarter North American PMC growth was a step behind first quarter's growth rate. Can you just go (multiple speakers).

Oh, first quarter, sorry.

Was it positive, was it --

Yes, yes, yes. Sorry. I thought you said fourth quarter. First quarter. Yes, we had positive sub growth in North America ex-Tinder. There were a number of things. One, we pulled back marketing spend. We bought HowAboutWe in Q2 last year, and that was basically a run-off. So we had a negative impact there where we bought some subs, basically at a very low price, and basically ran them off, which [tamped] things down. Definitely ex-Tinder, it was lower than it was last year but it was positive and mostly reflective of a pullback in marketing once you normalized for the noise.

Lower than it was in the first quarter.

Sorry. Lower than it was in the first quarter, yes, once you normalized for those things. In terms of competitive environment, I mean, competitive environment is remarkably stable. I mean, if you look at the top five dating products in the US, four of them are well over 10 years old, and the fifth is Tinder. The gap between usage in the fifth biggest and the sixth biggest is dramatic.

There have always been small numbers of small players. Over time some of those have gotten big. I mean, OkCupid once was a small player that got big. It happened over 10 years. Same with PlentyOfFish. eHarmony and Match have spent a lot of money to get there. There's no one else out there really spending to grow the way Match and eHarmony were before.

So I think you have this incredible outlier in Tinder that racked this code that grew in two years into the biggest dating product in the world. Nothing before or after has been able to replicate that DNA at all. So, to me it is very stable. Could one of the small things that exists today someday be big? Absolutely.

But given that nothing came up like a rocketship like Tinder, you wouldn't expect some dramatic acceleration. So I think it is an incredibly stable competitive environment. And frankly, no different than it has been in the seven or eight years I have been involved in this category.

On segments, I am taking a look at that now and we will make a change if it makes sense. There's certainly some arguments for a different look at the segments. And we are considering all of those now.

Thank you.

Ross Sandler, Deutsche Bank.

Hey, guys. I got two for Greg and one for Joey. Greg, the prepared remarks mentioned that you want to expand Tinder's use case beyond that of a typical dating product. Elaborate a little bit what you meant there.

And then second is the PlentyOfFish acquisition looks like a great deal for you guys. But what, I guess, core competencies or capabilities do they bring to the family that maybe you didn't have already? And then are you guys going to disclose specific metrics around Tinder? I know you're not giving forward guidance, but metrics around Tinder in the upcoming filing?

And then Joey, on search it looks you guided to sequential increases from here. Any update on the Google renewal? And we noticed that the Java deal went away from you guys. So any materiality in that agreement, or any color there would be helpful. Thanks

Thanks, Ross. On the [Tin] use case, I guess the point I was making is, there are always -- when you think about product development, there's sort of always have -- I think about product development in four different buckets, at least in our kinds of products. There is the kind of development you do that is sort of invisible to the world but very important, which is making sure you can scale, making sure that -- we just fixed a bug where literally swipes per user went up double digits just by fixing a bug. So there are a lot of opportunities in that bucket.

Then you have the bucket that are visible but not game-changing. It is changing algorithms, improving filters, matching and all of that. We have tons of opportunity there. There is monetization, where we have done one thing so far, which is the Tinder-plus features that we launched in February. It's had amazing growth there. There is no question that we can monetize this product really well.

And then there's the fourth bucket, which is, I call, things that users see and they say; wow, that is really different and cool, and drives user growth, excitement, et cetera. We have things in that bucket as well that we are working on.

Typical dating products really do three things. They provided a community, they provide filters by which you can search that community, and they provide the ability to message with other members of that community. That's what they all do. We think Tinder has the potential within dating to do more than that. And we think it is one of the only products that has that potential, and we have resources dedicated to that. We are very excited about it. No timetable. It's just -- it's these are the things that we are allocating our resources to. And we think it's got big potential. I could say more, but I would have to kill everybody on the call. So I will leave it at that.

Sorry, there were other things as well. PlentyOfFish, great acquisition. We're paying a low double-digit multiple on trailing EBITDA. Can't get into the future on it, but -- sorry, about a 13 multiple on trailing EBITDA. We will be disclosing the historical financials for PlentyOfFish, I guess, within the next 90 days, or whatever the timetable is.

It's growing well. It's a business that has solid user growth, but even better on that monetization ramp that we watched OkCupid go through for several years. So that's really exciting. We think we will get good growth out of it.

In terms of competencies, in general I think we bring certain competencies to the table which I just think we're good at running these things. We've got a system of analytics. We can deploy wins and losses -- wins across the portfolio quickly and prevent mistakes from being duplicated. So operationally we think we've got abilities there.

And then I think when you think about our portfolio and the way we go about building it, you buy or launch products that have special resonance with particular groups. What that does is effectively brings down -- or brings up the net lifetime value of a user, meaning it is the relationship between the ability to monetize a user and the cost to acquire that user. When that is the greatest, you have the most profitability. And it varies dramatically from population to population and from site to site.

So PlentyOfFish is a big product. It has a lot of overlap with a lot of our products, but it also has a real hold on what I would call a less metropolitan geographic base in the US and an older base in the US then do, say, certainly OkCupid and Tinder. It from an age demography it sort of matches Match more, but from a sensibility perspective in terms of the intent levels and how heavily it is monetized, it mimics Tinder and OkCupid more. And that really creates this big patchwork where you have the older population, and again, PlentyOfFish has plenty of younger people too, but it has an older group also which OkCupid and Tinder don't. We think it is highly protectable. It's a lucrative group. And if I were looking at it from a stray sort of, what part of the landscape does this fill in that you don't already have? That would be it.

In terms of Tinder metrics disclosure, look, we're going through that process, evaluating metrics to disclose now. I would reiterate what I have said before, which is we are in this weird position where Tinder is still a very early start-up company. We are trying to protect it from the burdens of being a public company as much as we can while recognizing the fact that it is part of a public company. I go there. I am the mean corporate overlord who wants this number and that number and they look at me like I am from Mars because they are focused on growing the business. And I try and balance those two things out. So I know that there's lots of metrics you'd like to get. We're looking at disclosing as much as we can without impacting the growth of the business and its rhythms. And that will come out in the wash when we file.

On Google, nothing to report right now. We're, as I have said before, we are in active discussions right now, as you would imagine. There's multiple people interested in the business. When we have something to report, we will certainly, obviously report something. But nothing to say right now on that.

On Java, it was a -- the nature of these details, especially with a partner like Java, which is a relatively stagnant user base, large but stagnant user base, is they do turn over every few years. So if you look at the history, they were with Google for a few years, then they were with Microsoft for a few years, then they were with us for a few years, and now they've transitioned that to Yahoo. What happens with a relatively stagnant user base is that the offer becomes somewhat saturated. It's just less attractive for both the partner and the incumbent in there. So I wouldn't read too much into that in terms of competitive implications.

In terms of scale for us, that business for a lot of the same reasons I just said, it probably peaked in year three of the relationship. We had, I think, four one-year deals with them. I think it peaked in year three of the relationship. It's not -- we are not happy to ever lose a commercial deal, but it certainly, it's survivable, the loss, and the B2B business is still profitable, notwithstanding the loss of that particular partner.

Great. Thanks, guys.

Brian Fitzgerald, Jefferies.

Thanks, guys. Maybe related to the Ross' question on the job in search. Overall gross margins surprised on the upside. How would you guys rank the leverage driving that? And then on the PlentyOfFish acquisition, I think you mentioned raising debt. Have you mentioned how much you are looking to raise or the timing around that? Thanks.

I will take the second one first. I think, look, PlentyOfFish got $575 million. We are going to raise that. I think it is probably likely that -- Match is a business, given its characteristics, that I think ought to be a net debt company. It has high margins, lots of cash flow, positive working capital and is growing nicely. So I think that we'll borrow for PlentyOfFish probably and then some. And the amounts that we borrow will be very manageable and supportable by the business. Joey?

I didn't understand the question. Can you say it again?

Yes. So it was around search and the job [deal] going away. Can you walk through how that impacts the gross margins? It felt like gross margins surprised nicely. So kind of thinking about was search a major driver there, how would you rank the levers for the upside in gross margin this quarter?

I am not thinking about -- I would have to look at the gross margin actually and focused on the difference in the gross margin. I don't know, Jeff, if you've got that.

On the EBITDA margin, I can speak to that more familiarly. Some of the revenue that we lost sequentially quarter on quarter was lower-margin revenue. So the loss there is less impactful. But the -- we would have to get back to you on the gross margin. I hadn't focused on that.

Thanks, guys.

Peter Stabler, Wells Fargo Securities.

Good morning, Thanks. Two for me. Jeff, you talked about it being an investor year for HomeAdvisor. I think your prepared remarks, or Joey your prepared remarks note that you expect margin improvement. Wonder if you guys could frame kind of a three-year margin expectation for us? Can you put a bracket around it? Is this a 15%, 20%, north of 20%, or what kind of expectations do you have there?

And then secondly for Greg, any color on Tinder monetization comparing US revenue per user to international, realizing you are not going to give us exact numbers. But any directional color would be appreciated.

Final one for Jeff. Balance sheet question on the debt side. With the IPO of Match, would you expect Match to be classified as an unrestricted subsidiary as defined in your bond indentures? And if so, would that require debt repayment? Thanks.

On Tinder monetization, first I will say that it is going great. The way these things work is that when you launch a monetization feature, you get your biggest bump at the beginning because your feature is exposed to the entire population for the first time. After some period of time, it starts to be -- additional monetization tends to be generated predominantly by new users coming in who haven't seen it yet. So you have a bump and then you have a steady build until you launch the next monetization feature, which then has the same impact again on users to whom that appeals.

So we had a nice bump at the beginning. And what we've been pleased about since last we spoke is that the build has continued to be quite solid. So we feel very good about Tinder's ability to monetize, as I said. Renewal rates, all that going great. Penetration rates are at or ahead of schedule. So we feel good about that. In terms of monetization or rate, basically US and Europe, Western Europe, are pretty comparable. And than the rest of the world is a fraction of that. I don't want to give out an exact number, but certainly the blended international rate versus the blended -- versus the North American rate is, I would -- I'm going to hazard a guess, it's in the 50% range. And what has been great is that the penetration, or the subscribers, is actually much more balanced than I would've expected between North America, Western Europe and rest of the world.

The ability, as I said on an earlier question, prior to Tinder so much of our base was -- two-thirds of our paid user base was North America. Tinder has effectively inverted that. So over time, we think that bring things into balance. And we are really excited about the -- we knew it would do great in the US and Western Europe. And we're very pleased with how it's done rest of world.

In terms of HomeAdvisor long-term margins, it's a tough question to answer. I don't want to frame it specifically as 15% to 20% or north of that in the cards? I think yes, absolutely. In terms of what time frame? I don't know. I don't want to frame it specifically.

I think if you look at a consumer marketplace business like this, margins like that, north of that are certainly potentially achievable. But the things that'll drive that are the metrics that we are seeing and the metrics that are moving that in the right direction. So you look at consumer repeat rate, that is moving up. You look at a service provider retention that's moving up. That's moving up very nicely. Those things can deliver real leverage in the model, and can start to drop margin down to the bottom line.

I don't want to put a time frame on it. I don't want to put a specific number on it. But I do think that healthy margins is something that we could see over time in this business, for sure. You want to add to that?

I just think the other two factors I would add to this is we think that online -- the leading online players are probably high single-digit penetrated in the overall home services advertising market. So there is a lot of room to run and grow here and to invest against. And our goal is to the leading player, not to grow to margin X within three years. And then I think that secondly, this is a business that has a lot of pricing power, but we would use that very carefully because our goal is to be the leader. So that's a factor in there, too.

And then finally Jeff, do you expect to be forced to repay debt?

Look. The comment I would make there is that there is a debt raise we could do that would require some repurchasing of some debt. However, we haven't made any final decisions around what we are doing. When we know what the scenarios are, we will have a clear communication on that.

Thanks.

Brian Nowak, Morgan Stanley,

Thanks for taking my questions. I have two. The first one is on Tinder monetization. In the press release, you talk about how strong the monetization is. Renewal, the conversions, the re-subscription rates, and there's no discernible negative correlation between monetization and growth. It sounds like it is coming along well. With that as the backdrop, why make the decision (technical difficulties) back the Tinder revenue curve a bit, and what are you changing that is going to push back the Tinder revenue curve versus what you previously anticipated?

And then the second one on the Match Group, it sounds like some of the technological and organizational projects are a little bit behind. Can you give us an update on the $500 million of Match EBITDA in 2016? Thanks.

Sure. On the Tinder monetization, it goes back to an answer I gave to an earlier question, which is we've got a bunch of different products -- a bunch of different buckets that we look at product development in. And we have extremely limited although growing resources in which to tackle all of those buckets. I think if you look back, really over the last, however many quarters we've been talking about it, I've said that monetization is going to end up being much more uneven than whatever modeling anyone would do on it. And that 2015 will be choppy because of it.

I've made that point repeatedly. And I think that -- and we brought new management in, as we looked at all the opportunity, we are going to roll out some monetization features, additional monetization features, but there are so many other things that we feel we need to do, or should do because the opportunity is so great, that it's just not -- it's just we don't have the resources to do all these things at the same time. And it's a start-up and you're constantly looking at opportunity and gaining new information and insights. Again, I mentioned something we did two or three weeks ago where we devoted some resources and we increased swipes per user by 10%, or double digits. That's a huge lift to the business.

I'm not saying that -- I'm not making a prediction about what revenue will or will not be because a whole lot of things factor into it. I'm just saying that when we talked about -- a few quarters ago we laid out that OkCupid analogy and made the point that they had 14 significant product initiatives and countless other smaller ones to drive their monetization. They were at a later stage of development and had focused a lot on their product before then, and so could more heavily concentrate their monetization.

As we get into this and we dig deep, there are so many opportunities here, that we need to spread our resources across these various things. We've nailed monetization. We're confident that the product monetizes, and really it's just a question of resources and where they are hitting, when.

In terms of the $500 million, I really can't -- I think that we said -- I said in the prepared remarks, I've got a barricade full of lawyers who are saying that given that we have an offering announced, I really can't give any kind of forward-looking information than that. We've sort of laid out a lot of things here. But I can't comment on that specifically. Sorry about that.

I just want to come back to the question raised by Jefferies earlier on gross margin. I think you are looking at the overall IAC GAAP P&L, not a search gross margin number. And to your point, you have B2B business being a little lighter and the B2B rev share shows up above gross margin, whereas the costs in the consumer business are below gross margin. And so that's where the expansion is coming. So I think that is where you are going with that, if you want to get back on the line and correct me. But I think you're looking at the overall IAC P&L rather than some specific search thing, which is where we were trying to figure out what you were asking. We can go to the next question.

Dan Kurnos, Benchmark Company.

Greg, just to maybe get into some more specifics on Ross' earlier question on the PlentyOfFish acquisition. Can you talk about some of the mobile learnings or successful opportunities or functionality that might translate directly to Tinder? And conversely, it seems like PlentyOfFish has a decent amount of room for, I guess call it, technical improvement. So from a high-level perspective, how aggressively do you think you will need to spend to modernize the overall platform?

And then Joey, could you comment or update us on the general trends in the B2B market? Are they still continuing to get less worse generically, understanding that you've lapped most of the historical issues? And this is of course outside of the ridiculous Yahoo/Java deal which they overpaid for. Or are you guys getting the sense that Google is trying to enter into an elongated exit of the affiliate search market? And since it looks like you've mostly stopped buying from Google with Ask, can you talk about any organic content-driven traction you're seeing there, understanding that we are still really early in the reset? Thanks.

Okay. First, I think that PlentyOfFish is a great business. It's a great product. It's, I think, the number two in terms of usage. And it's doing a great job on mobile. It is one of those things where you add it to the portfolio, it brings things to the portfolio, we bring things to it. They've probably nailed the Android better than we have. And that's a big learning opportunity coming back the other way. We've nailed a couple of other things a lot better than they have, and that's learning going that way. So I think it goes both ways. I don't think of it as being especially relevant to Tinder or vice-a-versa.

It comes into this blender, and OkCupid has done a bunch of things that we are doing on Tinder. They've done some things that wouldn't make sense on Tinder. And there some things that would make sense on Tinder that wouldn't make sense on the others. Our job is to pull all these things and deploy them effectively. But I certainly think that there will be learnings back and forth.

In terms of modernizing, I think there's some work we have to do behind the scenes on shoring up some scalabality issues and some data center issues, but it is small money. I don't expect there to be some major modernization or technological rebuild at PlentyOfFish. They are actually quite sound and works quite well. The product as they have it has great appeal to the group, to their user base. And I think that is one of the things that you always have to remember. The reason we have multiple products is because different things appeal to different people. And we try and -- our strategy is generally to keep the individuality of the products while deploying common features that should simply enhance but not reduce to commonality across product.

I will try to get these in order. So on the B2B business, it is -- I am not going to call the bottom right now, because I've just been -- well, frankly I have been wrong on that before. There's volatility in that market. I think very recently we have seen some small signs of strength there. But I am not prepared to call the bottom on that B2B market. I think there's a lot of things shifting in that marketplace and continuing to shift.

As far as Google's view on the network and network partners, they are absolutely still interested in that business. They are absolutely pursuing partnerships in that business. And I think some of the changes that have happened in the marketplace all have unique components to them. I am not going to speculate on others, what mattered to others in other details but the AOL deal with Microsoft had a component of display, which I know is important to both of those players. The Mozilla going to Yahoo went to the one player in the market that didn't have their own browser. So there are other factors that are in there, but I don't think you can read into that that Google is not interested in the market, because they are still interested in it.

And I think the last question was content at Ask and organic growth. We usually are sequentially the last quarter starting to see some growth in the organic content. It's still small, but we are investing in the content. We're investing in the quality of the content, the production. And we are optimistic about what can happen there. But it's still early and small.

Great. Thanks, guys.

Heath Terry, Goldman Sachs.

Great. Just a few questions. On the B2B side of the search business, can you give us an idea who the biggest partners are there? Where you are seeing the most traction in the business at the moment, given the way that we've seen so much evolution in that business over the last couple of years? And then on the Match side, just a couple of numbers that would be useful. Can you give us a sense of the contribution level from Princeton Review, just so we can try to get some sense of the organic growth rate? With the Match spin coming, any interest in being more specific about your ownership level at Tinder? And then given the comments around the challenges of Tinder being part of a public company and the fact that we've got a very friendly private market valuation environment out there, why not take advantage of what seems to be that fit to allow them to grow as a private company as opposed to continuing to have to deal with the pressures of being part of a public company?

I will go first and then turn it to Greg. On B2B partners, we're not going to disclose who our biggest partners are. We've talked about areas that have been and are important to us. Antivirus is a big one and likely will continue to be a big one. In terms of specific partners, we are not going to get into that.

On contribution level, PPR this year is flattish in terms of overall contribution. Ownership level of Tinder. Look, again, we own 100% of Tinder. There is then management equity as well, which gets reflected in our IAC fully diluted share number. So effectively, it's not unlike IAC stock options. It gets reflected in there when we file with Match there will be whatever disclosure is attendant upon that. It will then be in the -- presumably in the Match fully diluted share number, and we will give whatever disclosure is necessary there. But we own 100%, and then the rest is compensatory equity.

In terms of the private company markets, look, we think there are big advantages of being part of the Match Group. I think that from the monetization we've done and the speed and efficacy with which we've been able to do it, I think there are big advantage that flow both ways. Could we raise some money in those markets? Sure, but to what end? To actually de-consolidate the business and alleviate it of the pressures you're talking about would be to effectively sell Tinder, and we just don't think that makes any sense.

Again, I manage whatever public company pressures there are. Over time those will dissipate. And we think the trade-off is a no-brainer. That keeping those assets together, at least at this stage of development, makes a lot of sense.

Okay, great. Thanks.

Chris Merwin, Barclays Capital.

Thank you. In the prepared remarks you mentioned how as online dating increasingly moves to mobile it is changing the way that you acquire customers and the efficiency of certain channels, like TV. Do you think the unit economics of customer acquisition on mobile can still be as good or better as those of more traditional channels, and has the competitive environment changed those unit economics in any way? And secondly for Vimeo, I think you called out some investments that you made during the quarter. Can you maybe just provide some clarity on what those investments are and what the impact of those could be to either user growth or monetization?

Sure. On the marketing side, there's a bunch of dynamics at play here that go into our marketing. The first is the cost at which we can acquire new users and the second is our ability to monetize those users. And what's happening here is on both sides of that. Our opportunities to get volume new users from the traditional channels of desktop advertising and television advertising is definitely being constrained at the kind of rates that we've seen before. At the same time, new channels are opening up, particularly on mobile. We have not yet really cracked the code in digital video, although we are certainly starting to look at it.

The net effect of that so far has been that we are actually able to acquire more users at a lower cost than we've been able to in the past, because we're getting pretty good on the mobile side. The challenge is that mobile users that we are acquiring tend to be younger, and younger tends to monetize less well. As well as the fact that our mobile products are so nascent still in terms of development, they just don't have the conversion to monetization capacity that our desktop products have had. And while we are improving that as we go, we haven't been able to keep up with the mix shift to mobile.

The net effect of that is effectively neutral, meaning we're acquiring more customers cheaper but they convert lower, and the net effect is basically even. So we are used to historically increasing the effectiveness of our marketing every year. That allows us to market more and still grow profit. For the last year or so we've been sort of in neutral. We've still been increasing our marketing spend, but increasing our marketing spend without incremental yields. That's been the case. But as I've talked about before, I think it's transitional, which is the migration to mobile is more behind us than in front of us. We already -- this quarter Match acquired 65% of its new users on mobile.

It's not going to go to 100% anytime soon. It may some day, but desktop continues. So the room it has to go versus where it's been is smaller. Once that comps and that mix shift slows, and as we continue to improve the conversion feature to mobile, this whole thing reverses. And we feel that over time we should be able to start increasing the profitability of our marketing again, which then starts that flywheel.

We've been able to grow despite (inaudible) our contributions from non-paid channels on products like OkCupid and Tinder, which have allowed us to grow and continue to increase our marketing spend, even though we are not increasing the market efficiency. But we are not losing overall marketing efficiency. And we do think that that will rebound. So I have used the word, transitional period, for three or four quarters now. I am not going to predict exactly when that is. We are at 65% mobile on Match now. You guys can guess as well as I can where that's going to go and over what period of time. But certainly with 65% behind us, it's more behind us than in front of us. So we feel good long term about that dynamic.

On Vimeo, we are really investing in three things. Marketing is one, for sure. Content is the other, and creator tools is the third. Creator tools is really the backbone to the business, because that is what drives the creators into the business which gets them to upload their content, which gets the subscribers and users, et cetera. So that's investment in the product fundamentally.

Content, we've been dabbling in content investments. We are not investing massively there. But it is something where we have been filling out the suite of content on Vimeo with some investments there in terms of backing creators.

And then marketing. So we've done a bit of marketing. We have grown our marketing this year as against last year. Probably all three of those things continue.

Just one -- someone in an earlier question, I had said that I thought international rate on Tinder was about 50% of North America. It's actually a little better than that. I wasn't far off, but it's a little better.

I think we can go to the next question.

Eric Sheridan, UBS.

Thanks for taking the questions. Two following up with Greg. Greg, when you look at the portfolio of assets you now have inside the Match Group, do you feel you own that whole stack through the demographics of niches that you want to own for the long term in Match? Or how should we think strategically about some of the areas you might still want to address? And then you have also talked on and off over the last year about the potential or worries about cannibalization as some of the niches sort of creeped into other areas, and maybe properties like Tinder became mainstream. What are you seeing in terms of spending on dating and whether grows in one area is stymieing growth in another, or have you not seen any signs of cannibalization? Thanks.

I think I've said for a while now that there is nothing that we need to own strategically. PlentyOfFish is a business that we've looked at for a long time. It's a great business. It became available. We were able to get it at a good price in a good process, and we feel really good about the acquisition. But if we hadn't gotten it, it wouldn't have -- it wasn't missing in some fundamental way.

I think that continues to be true in North America. Internationally there are certain geographies that we could get into where we are not. We recently bought a small business in Japan that really, we think has the potential to crack the code there for the first time. So that's exciting. And there are other opportunities like that.

In Europe, generally I would say our portfolio is not as fleshed out as it is in North America. So there are probably more opportunities there as well. But I think they all fall into the, is it a good deal? Does it solve some fundamental -- does it allow us to acquire a new group of customers at a more profitable basis than our existing products? You do the math, and all of those things filter in. It's either something that is worth doing or not.

So do I expect there to be more acquisitions? Yes. Is there anything that we need or that I feel there is a risk we might overpay for or pay aggressively for? I think that is unlikely. We feel pretty good about our ability to grow what we've got. I think that's unlikely.

In terms of cannibalism. I guess we think about it the following way. I've said this earlier. When we're looking at acquisitions, we look at, does this acquisition or new product launch give us the opportunity to acquire a meaningful group of customers on a more profitable basis than what we've got? And to the extent the answer is yes and that size is big enough and the cost of getting in either acquisition or launch, makes sense in relation to the opportunity, we will go in there.

And what that does is that allows us with some new property to acquire a group of users that would have cost us more on another property to acquire. The net result of that is a more profitable consolidated company. But it is inevitably that any given one of our products is probably smaller than it would otherwise have been. By buying OurTime and launching that product in the over-50 crowd, there is no question that we pulled back marketing spend on Match for that crowd because it is easier to acquire some group of that crowd on OurTime. So in that way does OurTime cannibalize Match? Yes.

Same with Tinder, lower cohort. Invariably our approach leads to certain of our products being smaller than they would be as standalone businesses, but overall larger and more profitable. I guess that is the best way I can answer that question.

I think we can go to the next question.

Kerry Rice, Needham and Company.

Thanks a lot. One question on HomeAdvisor. More of a high-level question, is have you seen any changes in the competitive dynamics in the home services market, particularly as you see companies like Amazon enter the market? And then maybe what are your thoughts about consolidation in the home services market?

Yes. It's obviously something we're watching very closely and there's been another bunch of announcements over the last few months in terms of new players entering the market or speculated to enter the market. Look, one thing we know from being in this business for 10-plus years is this is a very hard business. You have to build a real, high-quality service professional network. You have to deliver real high-quality value to those service professionals. And you have to deliver a comprehensive experience to the consumer.

That's not an easy thing to do, even for really massive companies. Companies whose business model is built on getting their providers high volume and low margin, that doesn't work for a service professional. A service professional has to make margin on every job. You have to give them a service that enables them to do that.

Service professionals don't want to compete with a fly-by-night random person who may be able to fix your sink, but won't deliver that sort of quality job because they will do a poor job at a low price. So being able to evaluate the quality and ensure the quality of a service professional network is a hugely valuable thing. And again, not just something that shows up when you have a huge source of traffic. I don't want to underestimate any of the competitors, and I think that having a huge source of traffic is certainly valuable, but there is a lot more to it than that.

A lot of the people -- some of the news lately is there are players who are learning this. Some people have gotten into the business, raised a ton of money, and gotten out or gotten rescued at deals that look like rescues. So we are taking the competitive marketplace very seriously, but we are also very confident in our product and the uniqueness of our product, and the value of the network that we've built over time. We have also probably invested over time, I am making up the number, but $1 billion of infrastructure or something like that, hundreds of millions of dollars in infrastructure on that, which is real money and real time we've invested in that.

In terms of consolidation, there are arguments for consolidation in terms of the value of growing an SP network. But all of those things really have to be evaluated on an individual basis. And they have to have business models that work or assets that work. And we will always be looking at those things, for sure.

Okay. Thank you very much.

Mark Mahaney, RBC Capital.

Thanks. Two questions. Could you talk about what sort of pricing power you think you may have in the dating space? Any evidence of pricing power? And then secondly, could you just talk about the timing of the close of the PlentyOfFish acquisition versus the Match IPO and the logic for having one precede the other? Thank you.

On pricing power, we've got -- most of our product experience is free. And that will continue to be so forever. So we don't think about it in terms of pricing power. I think our businesses, frankly compete with each other. And they are each trying to optimize their own LTVs and everything else. I actually don't think -- it's not a situation where we have a single product that has our market. Our market position is an aggregation of multiple products that compete with each other and outsiders with different price points and features. And again, I think in a world where there are multiple products that have a complete and viable free option and will continue to, I don't really think about the world in that way. I don't think that sort of logic really applies.

In terms of the sequencing of PlentyOfFish, it totally -- PlentyOfFish became available. We wanted to buy it. We bought it. That takes the amount of time that it takes. We wanted to go public. That takes the amount of time it takes. We expect PlentyOfFish to be done prior to the IPO. If it had gone the other way, it would have gone the other way. I think there's no strategy there. I think it's irrelevant, basically. And we are just doing each of them as quickly as we can. And that's the way it lays out.

Thanks, Greg.

Victor Anthony, Axiom.

Thanks. Maybe I could prod you about the media segment a bit. There's some assets in there (inaudible) films. Unsure about the rationale for continuing to own these assets. Maybe you could enlighten us on that. And second, just on the decision to float less than 20% of the shares on Match. What went behind that decision versus ultimately doing a full spinoff?

I got the first question, which is I think what are we doing in [electives] in the media segment? I did not get the second question.

Second question was why float less than 20% of Match instead of a spinoff?

Got it. On electives, it's something that we have some history in. It's something that we have some expertise in. And it's something that we seem to be doing a decent job at. You look at independent television producers that have the volume of shows that we have on television, is a pretty remarkable accomplishment. We can do that. We've done that relatively efficiently on capital.

The game that we are in there, is you need some of those shows to really break out as hits. And if or when they do, you make real money. And if they don't, it doesn't cost you a lot of money to stay in there. So we're making some bets there based on a good team and a good history in that business.

On the second question, which is why less than 20%? I think less than 20% is pretty typical to create an active trading market -- oh sorry. The question was versus a spinoff. At any given point when a business reaches a certain level of scale, it's actually drowned out the dialogue at the rest of IAC. We look at how to give investors access to that business directly, unlock some value, et cetera. There was a range of things on the table. And when we look at how to optimize that decision across all the assets at IAC, an IPO was the one that made the most sense.

We think It's a good time to raise capital. We think we can unlock some shareholder value there. We think Match gets an independent currency which is going to be useful for them. And IAC retains the heft of Match in that. So that's really the thinking. Of course, we preserve the ability to spin at some point in the future. And that's the way we are thinking about it.

Thank you.

I think, operator, we will take one last question.

Ignatius Njoku, JMP Securities

Thank you for taking my question. Can you talk about the advertising platform for Tinder? How is that ramping? Can you give us some feedback in terms of advertiser fee? How that's going? And how should we expect the ad platform develop throughout the year?

And next is, can you talk about the technology overhaul for the dating business? I know you mentioned delays, but can you give a sense of where you are? Thanks.

On the advertising question, this is one of the things that we have sort of pushed back. There is some ad revenue this year. We have done a few deals. But again, in a world of scarce resources we opted not to devote meaningful time this year to developing the road map necessary to really maximize that ad business. I think that will come, unquestionably come. There is huge demand from advertisers. And again, if we had 1000 engineers, even 100 engineers we would be able to do a lot more things at once than we are.

We are scaling our resource capacity, but it is not there. And just in the ranking of things, we know the ad demand is there, our capitalization on it this year is limited. It will grow next year, I am sure. But am not prepared to lay out any quantification of that at this time. Things are moving too quickly.

In terms of technology project, there's a lot going on. We have consolidated a bunch of offices in Europe. We went from seven, I think now we are at four, but we will soon be at three. Huge reorganization involved in that. We have restructured a lot of the tech teams, are overhauling sort of the basic infrastructures of the mass technology, the [Me-Tick] technology. We will consolidate that on the US side. And I think that it's going well. It's just you predict -- it's going great. It's just you predict over a multi-quarter period how long it will take. And as you get into it, you realize it will take you a few more months. And that's basically where we are.

Thanks.

Thanks very much everybody. As always, if you have follow-on questions, we're here for you.

Free Tom Brady. Have a good one, guys.

This concludes today's program. You may disconnect at this time. Thank you, and have a great day.