Match Group Inc (MTCH) 2016 Q1 法說會逐字稿

Good day and welcome to IAC reports Q1 2016 results conference call.

Today's conference is being recorded.

At this time, I'd like to turn the conference over to Glenn Shipman, Chief Financial Officer; please go ahead

Thank you, operator.

Good morning everyone.

Glenn Schiffman here and welcome to our first-quarter earnings call.

Joining me today is Joey Levin, our CEO.

As you know, in order to give more time to digest our respective results, Match Group held their first-quarter earnings call yesterday morning.

The focus of this call will be IAC ex Match.

We also slightly changed our format with the shareholders letter as well as an earnings release.

We will not be reading our shareholder letter on this call.

It is currently available on the Investor Relations section of our website.

I will shortly turn the call over to Joey to make a few brief introductory remarks and then we will open it up to Q&A.

Before we get to that, I'd 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 risk 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 press release and our periodic reports filed with the SEC.

We'll also discuss certain non-GAAP measures which, as a reminder, include adjusted EBITDA which we'll refer to today as EBITDA for simplicity during the call.

I'll 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.

Now let's jump right into it.

Joey.

Thank you.

Thanks, everybody, for joining.

Thanks especially to Glenn for joining.

This is his first call.

We are having fun so far, but take it easy on him; this is his first run at this.

I'll try to be brief.

I wrote a very long letter, which I hope you all read.

The letter was really driven by the fact that we bought back a lot of stock this quarter and we realized we need to do a better job of communicating, because I don't think it's healthy for our perception of value to be so far off from the market.

So we really tried to lay out our full thinking on capital allocation, the specific priorities in the businesses and clearly the dot figures for the year.

Anyway, I hope that's all helpful and more open to feedback; a lot of which we tried to reflect in the letter, but we're always open to more.

I'll summarize, so Match is on a great path in the quarter and in tender.

Home Advisor is awesome right now; they're really executing, and I think, can be one of the great big Internet businesses if we really execute flawlessly.

We love the option we have in Vimeo right now, but it's early.

And applications are solid and we have some work to do on publishing; but overall, it's pretty small in IEC's profit.

So let's get to your questions.

(Operator Instructions)

John Blackledge, with Cowen and Company.

Great, thank you, a couple of questions.

So, HomeAdvisor's off to a great start this year and at a $450 million annual revenue run rate.

Recently, HomeAdvisor's CEO mentioned the company could get to a billion in revenue in the next three to five years, which would be well above our current forecast.

Could you just discuss the path to $1 billion in revenue?

Can you get there on an organic basis or does their need be an acquisition?

And then also, on HomeAdvisor, there's been some noise about consumer traffic weakness, the past few months' per comps score.

Does that noise align with your internal consumer traffic data?

And then, just lastly, we're getting a lot of questions on what IAC does with its Match stake.

We're assuming it's actually spin at some point.

Could you give us an update on how you're thinking about it and also just potential timing for a spin?

Thank you.

Sure.

Thanks, John.

On HomeAdvisor getting to $1 billion in revenue, I don't think -- Chris was giving a hard and fast forecast, but I do think -- look, right now, from where we end this year, for us to grow at, call it, 15% to 20% for three to five years, which would be below our current growth rate, does not sound like a crazy assumption to me at all, relative to our addressable market, which by the way, I think gets bigger as the marketplace grows.

As we get into other things, I think, that, on an organic basis, is, I don't think, unreasonable.

It's a long way out, so it's hard to pin down a number; but I think if you just think about in that context, it's not crazy.

On HomeAdvisor traffic, it is -- I'm glad you asked the question, because that is -- those comp score numbers are just dead wrong.

Comp scores are always off for one reason or another, usually directionally helpful.

I think they had us down meaningfully in January and February, and up meaningfully in March, for net down.

That's not even close to right.

I think our traffic was up 45% in Q1.

And, it's a -- by the way, you can see it in our revenue.

When you -- traffic up that much translates to revenue for us.

We saw or heard competitors talking about how their traffic was up, but the revenue didn't move at all.

So I don't know how you rely on those figures.

But ours is up 45%.

We feel very good about the traffic and we feel very good about how that's converting for the business.

Your last question was on the Match space.

There's nothing to say on the Match space.

We talked about, in the letter, how we think about these things.

And, of course, if we -- if and/or when we have something to announce, we'd announce something; but there's nothing to discuss on it right now.

Thank you.

(Operator Instructions)

Ross Sandler, with Deutsche Bank.

Yes, thanks, guys.

Joey, I had two questions.

First, thanks for the new level transparency for both IAC and Match.

I think that's welcome by all.

So if we go back a year ago, the market value for Match inside of IAC was about $3 billion.

Today it is worth about $3.5 billion, and some would argue it could be worth more than that.

So, as you talk about the undervaluation that you are seeing at the other IAC brands, inside of IAC right now, based on your current market cap, why not get more aggressive and look to spin or IPO some of those businesses out at some point?

Any thoughts on just that strategy at a high level?

And then, the second question is, if we go back into history, the play-book at Match was kind of consolidate a cash generative space at fairly attractive multiples, and it seems like that opportunity is going to present itself in local given the carnage that you're seeing from some of your competitors.

So, even if you can't acquire Angie's list, why not go after the next few local aggregator businesses out?

Do you view the play-book in local differently or the same as what you guys did with personals?

Thanks.

Sure, on spinning and IPOing other assets, look, it's something that we think about all the time.

We constantly challenge ourselves on that question.

I don't think it's, near term, something we are doing for any of the other business.

In the sense of, it's still very early -- to really get to your second question, it's still very early in HomeAdvisor; it's still very early in Vimeo.

Those are things that we can do real investment in, real consolidation in, and I think that, that's our game plan there for the immediate near term.

So, in terms of opportunities, I think there are or will be opportunities in that space and we are looking closely.

I think the play-book for Match is right.

The play-book for Match, it was the play book for Expedia; it's something that we are spending a lot of time thinking about.

But you can't really control when the opportunities become available or how they become available.

So this is something we're watching very closely, but I do think we will have opportunity there.

Just to add one small thing, you saw in Joey's letter, the returns we are getting on our own capital investing in the HomeAdvisor business are pretty attractive and you saw that in our revenue for this quarter.

So, as you saw in his letter, we weigh M&A against, obviously, investing in our existing businesses, not to be mutually exclusive; but we're seeing great returns there.

It's a great point.

Jason Helfstein, with Oppenheimer.

Thanks, two questions.

Joey, how should we think about what you've learned since the new Google deal began?

Can you specifically address how it's impacted both publishing and application, each on their own?

And then, the issues then you are seeing potentially away from Google.

And then, separately, on an M&A front, historically you have been active in M&A in publishing and it has actually gone well for you; but in the wake of this new deal, does it make that vertical less appealing to you?

Thanks.

Sure.

On the impact of the Google deal, let's start with applications.

Since April 1, when we made the transition, that's been better than expected.

And what I mean there is, we talked a little bit about this when we were talking about the deal, how we've transitioned the business towards opt in as against opt out in some of our installs.

And the impact of that is, actually, you increase conversion because the friction on conversion is lower, and -- but you decrease the lifetime value of that install because you have less revenue potential in there.

And that dynamic has played out, but we've been better on conversion than we thought we would be.

So that has netted to a positive place.

In terms of other issues -- I'll come to publishing in a second.

In terms of other issues there, what has basically more than offset that is some weakness in RPQ.

And RPQ has been a great benefit to this business for a very long time; it's a consistent thing where we can grind out a little bit of growth in optimizing the page for RPQ.

And Google does the same on their side, which accrues to our benefit as their partner.

But it doesn't always go that way and lately it's gone the other direction.

I think some of that is things by our own design and, I think, by Google's design, which is you trade off increase queries for lower RPQ, but this has been more negative than we would hope.

So we're dealing with that RPQ thing.

I think it looks like it's stabilizing -- I said this last quarter, but it looks like it's stabilizing and I feel solid on it now.

But that's the other issue there.

If you go to the publishing side, publishing is also impacted by RPQ, to some extent.

But a number of other changes have happened in -- that have affected the publishing business over the course of the transition, that have impacted our ability to market.

One is I think we just -- to market our products on the publishing side.

And I think we were over-optimistic on what we could do under the new agreement in terms of how we could monetize, and that affects how much we can spend on marketing.

And also, there were changes -- like Google eliminating the right rail, for example, I think was a net negative for that publishing business, in terms of their ability to market, because some of the inventory they accessed was that right-rail inventory.

So I think that answers your question.

But, Glenn, you could add to that, or if I missed any of it, I'm happy to try more.

No, that's good.

And then just on --

Jason, does that answer --?

On the M&A --

And then, just on M&A.

Again, historically, you've generated really good returns on M&A, on the publishing side.

Does this make you less interested in that vertical from an M&A standpoint?

We talked about this in the letter.

I think it is not our top priority in terms of M&A, publishing.

We do not have a hard and fast rule that says we can't do anything there.

It's not a top priority, but we will look at opportunities; and if something makes sense, we'll do it.

Thank you.

Peter Stabler, with Wells Fargo.

Good morning, this is Blake on for Peter.

Thanks for taking the question.

I was hoping to jump back to HomeAdvisor.

Maybe you could provide us some color on HomeAdvisor's international opportunity and expansion plans.

And just discuss the investment required there to scale, and also maybe call any drivers for international growth in the quarter and whether you expect the continued momentum to appear.

Thanks.

Yes.

So, I think there's a big opportunity in international.

I think we have a company in France and a company in Netherlands; both are basically number one in their markets.

And I think that we can take the product that we have in at least one of those markets and expand it into other markets.

So there's a real organic path there that we're pretty excited about.

Kip, who you all know, is working on that full time now; and he's incredibly excited we're spending real time on this.

I think supplementing that with M&A is absolutely also in the cards -- something that we are thinking about and will continue to think about.

The market there is huge.

I mean each individual market is much -- I'm really talking about Europe now, Western Europe.

Each individual market obviously much smaller than the US, but in aggregate a very big market.

And we think that there's a way to attack that attractively.

That's where we are really spending time and thinking about Western Europe, because we already have a foothold there.

Was there a second question, Blake?

Yes, there was.

It looked like you had a solid quarter for international; I was wondering what your expectations were throughout the year.

Sure.

I'll turn it to Glenn in a second on that, but remember, it's true that we had a good quarter in international and that it's growing; it's still very small.

Also our comps got easier, so we had gotten out of the UK, I think, 1.5 years ago, and we had done some restructuring there.

That all was cleaned up over the course of last year.

So now the comps get easier and sort of clean; we can start growing again.

We grew in Q1.

I think we can continue to grow that business, and we're optimistic there.

Overall, international IAC ex-Match is about 20% to 25% of our business.

While we'll see growth there, we don't see that materially changing over time.

Great.

Thanks, guys.

(Operator Instructions)

Chris Merwin, with Barclays.

Great, thank you.

I just had a couple of questions.

The first is on Vimeo.

You acquired the OTT platform, VHX.

I was wondering if you could share some your plans about how you're planning to integrate in SVOD features into the Vimeo platform and also if you could give us some sense for pricing potential just because I'm trying to figure out what the revenue opportunity could be there.

And then, it's a second question on HomeAdvisor.

I think you mentioned that Instant Book and Instant Connect are 10% of the domestic business now.

And I imagine this is a game changer from the standpoint of the user experience.

So I'm wondering if you could talk about what the impact has been to conversion as these products have gained adoption, and what the long-term benefit could be as a mix more towards instant booking.

Thanks.

Sure.

So, VHX we're excited about.

It gives us the SVOD capability.

We sort of had a very light SVOD capability, but we looked at the market to see what was out there because we think that's a big opportunity.

And VHX was by far the best solution there, so we bought that.

It's a -- we've been looking at a lot of companies, talking to a lot of companies and the thing that has amazed me in some of these OTT subscription services is you will find tens of thousands, or hundreds of thousands, subscriptions to a very niche product that you're shocked to find 100,000 people paying $20 a month for.

And it's there because it's a loyal tribal audience on a very targeted product.

I think that's a real opportunity in this market, but all these people have had to basically build up their own solutions -- custom solution.

I think it makes a lot more sense to be able to do something like that on a platform like Vimeo where you can access built-in audience and it is a turnkey solution.

VHX provides that; now we have to integrate it into Vimeo, which will take some time, but VHX provides that turnkey solution.

And I think there's a world where there's many S5 channels out there.

Does all of that eventually come back to a bundle?

Maybe.

Probably.

But I think there is a period where people separate out into more niche subscription channels, and VHX provides that capability for Vimeo.

On pricing -- there's two different ways to think about pricing, but -- in terms of how we price it to the creator who is creating an S5 channel and how they price it to the consumer.

The price to the consumer will be in the hands of the creator.

That's how it is today; you want to sell a piece of content on Vimeo, you choose whatever price you want and we just take a small piece of that.

I think that's the model for now, but it can change and it can evolve, and it likely will evolve.

Right now, the priority is getting lots of creators onto the platform and lots of consumers onto the platform, and both of those things are going really well.

On your question on HomeAdvisor, and Instant Connect and Instant Book, there was a lot in there, so I might have to come back to everything you wanted to know there.

But, the long-term benefit to that -- there's a short-term benefit; there's a long-term benefit to that.

It's really phenomenal for the ecosystem and phenomenal for the consumers.

We see it in -- I mentioned this in the letter, the net promoter scores.

The net promoter scores are off-the-charts positive for us in our Instant Connect and Instant Book product.

And that's from the consumer perspective.

But it's great from the service-professional perspective too, which is, on that one-to-one connection, they don't have to compete for that lead.

So they appreciate that product and it's a -- ultimately it makes everybody in that ecosystem happier.

So we're going to continue to move towards that and I think that can be hugely valuable over time.

It will absolutely continue to grow as a percentage.

One of the things we talk about here is how this product works more for millennials or a younger audience.

If you talk to people over 35, they tell you -- 35 years old is not a hard line -- but if you talk to people over 35, they tell you, you give me a list of plumbers and I will be able to pick the right one.

I'll be able to negotiate with them to get the right price.

I will be able to know who is the most reliable or going to do the best job, et cetera, because they don't trust the platform.

You talk to a millennial, they say just give me the right guy or gal, and I'll trust you -- the platform -- to get that done.

We have to serve both those audience, so we do in those products, but I do think that this product works much more for an audience that grew up trusting platforms and technology to make certain decisions for them.

Let me add one thing.

There is a common thread in both your questions that I'd like to weave through.

The VHX thing provides our creators with better and more efficient and easier tools, making the marketplace easier for both the consumers and the creators.

And that's very similar to Instant Book and Instant Connect.

Again, we're removing friction, making it easier for all participants in the marketplace.

And, in so doing, in marketplace businesses, that should and will increase [TAM] and that should and will accelerate penetration.

Does that answer your questions, Chris?

Yes, definitely.

Thanks, guys.

Brian Fitzgerald, with Jefferies.

So, just another question on Vimeo.

In the letter, you mention the improvements you are making for the consumer experience.

And then, I believe that Joey just said that the model may evolve over time.

So I know that ads might be antithetical to the user experience, but I was just curious how you might think about the potential to layer in advertising revenue on Vimeo, over time.

From the advertiser perspective, we've seen some big brands migrating portions of those video ad budgets online, and Vimeo has that type of high-quality video content that those brands would seemingly be willing to advertise against.

And then, just a follow-on.

In the letter you also mention how you're financing some of the content for Vimeo.

I was just hoping you might elaborate a bit on that strategy; what kind of videos you are producing, how much is that spend?

And when we think about Vimeo's high-single-digit EBITDA loss for 2Q, is it possible to quantify how much of that might be driven by content creation?

Thanks.

Sure.

On ads, look, it is something that we think about; it's not something that we are prioritizing right now, in terms of blanketing Vimeo with ads.

I think it's not impossible for us to start participating in some of those ad dollars that you're talking about without putting the ads on Vimeo.

We have -- every major commercial director -- I may be exaggerating, but probably not by a lot -- is on Vimeo right now and has their content on Vimeo right now.

The people who are creating this native content, are using Vimeo right now.

So for us to think about different ways where we can connect advertisers and creators to make that kind of content, and somehow participate in the economics there, is not crazy, and we're spending some real time thinking about that.

But, the traditional just throwing ads up on the site is not something that we're prioritizing right now.

In terms of content and -- financing content, I'm not going to give numbers.

I'll just say, it's small right now.

And it's something that we're thinking about spending more time on, but it's not a big number in that Q2 number that you asked about.

We're spending small amounts of money.

Thank you.

Eric Sheridan, with UBS.

Thank you so much, maybe two questions.

One, back in November you announced a distribution agreement between Google HomeAdvisor.

Wanted to know if we could get an update about how that partnership is evolving, what impact that might have on the business longer term.

And then, going back to the application business, want to understand what your efforts there are on the mobile side, how you see that moving through 2016 and how that might move the business going forward as you pivot more to mobile.

Thank you.

On the HomeAdvisor/Google agreement, I'm trying to remember what you are referring to, but it would not be material to either business.

I'm just looking around the room thinking what exactly it is you're talking about, I'm not sure.

Google was integrating some of our connections to some of our service providers directly within their results, which was helpful for the business, but there's not a material thing there, for either business, that I can think of.

Your next question was HomeAdvisor mobile?

Application on the mobile side.

Yes, look, it is small there; it's early, but it's growing really nicely.

We are doing it profitably -- which maybe we shouldn't be doing it profitably, but we're doing it profitably, growing that business.

Having 100 million installs across mobile, it turns out -- as we've looked at a lot of other things, turns out it's a very big number.

And we're monetizing that with ads, we're monetizing that with paid.

And we're figuring out how to market it.

And I think if we can scale the marketing, then we can use all the infrastructure we have in the desktop business and apply that to the mobile business.

And marketing has been growing steadily and profitably in that business, where you're marketing -- of these 60 or some-odd products, you're marketing each project individually, with its own campaign -- multiple campaigns.

And we're managing thousands of campaigns across multiple platforms to market the products to the right audiences and make sure that, that marketing is profitable.

That has been a tremendous source of growth, and operational expertise and market advantage, on the desktop side.

We believe that, that can translate to the mobile side, and it's growing nicely.

But it's still small and relatively early.

Great.

Thank you.

(Operator Instructions)

Dan Kurnos, with Benchmark.

Great, thanks.

Good morning.

Joey, since you did bring it up, maybe if you would like you give us some updated metrics on how HomeAdvisor mobile is doing.

And then, you have also recently started testing it looks like a concierge service on the consumer side.

So I'd just like to see your thoughts on timing of rollout and potential benefit from that.

And then, shifting over to search, a lot has been made about the About verticalization.

So just curious about how you think about going into either already existing verticals that you have within your other businesses, or simply whether or not it's wherever you have the best content and how any of that impacts programmatic.

Thanks.

Sure.

On HomeAdvisor mobile, it's growing phenomenally well.

It's still small; it's still under-indexed as meaningfully relative to our other businesses in mobile.

And we think -- I think it was Google or somebody published some data that said that the home category has lagged other categories, in terms of migration to mobile.

And we are certainly seeing that in our businesses.

But it's growing triple digits very nicely.

And the experience continues to get better.

So it's a -- I don't know, have we shared the number before, in terms of percent?

I don't see any reason not to.

I think it's around 20%, I think, of service requests are coming in mobile, which is great, and growing really nicely.

And I think will continue to be a paid bigger portion.

I think the big opportunity there will be in mobile app over time, and I think we've got some very cool things we are working on there, which could be fun.

But that's early.

On the concierge service, we do have a test, a small test, that very recently rolled out on that.

So I don't really know on timing.

We've got the very first bit of a small test.

So we've got to look at data; we have got to learn; and then we have got to decide what we want to do from there.

But it's not a dramatic event right now; it's more a small thing.

Learn and then figure out if we want to go big in that.

There is a section of the market that we've done a bunch of surveys that says they would want that high-level concierge service, but we will see if these data as we test it matches what we learned in the surveys.

On About verticalization, the -- there was a bunch of questions in there, but we will definitely favor existing verticals for us.

In other words, where we have great content already, that's where we're going to prioritize verticalizing.

And that for sure, like Verywell, which is one of our biggest areas and best areas of content on About.

Your question on how that relates to programmatic is a great one, which is the other thing that drives the decision is where you have a category that lends itself to endemic advertisers, and health is a perfect one in that regard.

There are others that we think are great in that regard, too.

So you look at the combination of where we have great content already, where we have great experts already, and where we think it's a big enough market, and where we think there's real endemic advertisers.

And that adds up to the priority list of how we're going to go after the verticals one by one, but we have got to make Verywell work first.

And this ties into Jason's question earlier, around the impact on the publishing business, obviously you heard Joey talk about Verywell.

We disclosed some numbers in Joey's letter about Investopedia.

Our Investopedia business is also benefiting from [set trend].

Great.

Thanks, guys.

Kerry Rice, with Needham.

Thanks a lot.

Most of my questions have been answered.

But, maybe, you talked a lot about M&A and capital allocation in the shareholders' letter.

I was curious about maybe more investment.

You talked about the concierge service, but do you look at other opportunities, kind of beyond your core ones?

Because it seems like most of the investment is still going to be around core, whether it's publishing, apps, or HomeAdvisor and Vimeo.

And even, not necessarily spin, but you have an e-commerce business, do you think about -- is that -- doesn't seem core, do you think about selling that or investing around it?

Any comments around peripheral investments in other categories.

Thanks.

Sure, I'll start with the last one, which is the e-commerce business is not something where we are likely to invest or supplement there.

You're right, it's not very core.

The businesses is doing fine and it's a nice little business.

But it's not, I think, core or the basis upon which we are going to build something big.

On the other, just like in M&A, you start from a position of strength and then you can build things from there.

Vimeo came out of -- there was actually this business, College Humor, which was creating videos and naturally went into this thing of, well, let's have this place where other people can create videos and store and share their videos.

And then Vimeo became Vimeo.

You can imagine similar things in similar areas of investment which are sort of, initially, tangentially related to areas of strength for us and then blossom into their own thing.

And I'm just -- now I'm totally making this up, but one of the things we've talked about on HomeAdvisor is, as the business has evolved from connecting you to, let's say, multiple service professionals, multiple plumbers, to Instant Connecting you with one plumber, eventually, perhaps your toilet can connect with our plumber directly.

Now, all of a sudden, we are in the Internet Of Things business and that could be very interesting.

I'm not saying that we're deep investing in any of these things, in particular, but I am saying that you get into these tangential businesses where you have a real information advantage and you have some other kind of advantage, and that may evolve into entirely new businesses.

And I think that's how things are likely to happen.

But, again, there's no hard-and-fast rules here, so we will do these things opportunistically.

Yes.

Look, around M&A, please read Joey's letter, the first page.

We did make a big acquisition this quarter and that was our own stock; we bought back 6% of our own stock.

And Joey, in the letter, does a great job articulating that and the rationale behind it.

Operator, I think we have time for one more question if you can tee that up.

Robert Peck, with SunTrust.

Hi, this is Sagar on for Bob.

Just wanted to ask about the $10 million share authorization you have received for additional buybacks.

Is there a time frame on that authorization, or any schedule?

Or is it just -- are you just going to be opportunistic and flexible in case of M&A or investment opportunities?

And also, considering the lock-up for Match expires in a few weeks, do you look at those shares as a source of cash for any potential M&A in the short term?

On the share repurchase authorization, there is no time frame on that.

And the answer is the same as it's been for years now, which is we'll look at our shares opportunistically and buy back where it makes sense.

The second question -- oh, the lock-up with Match; we do not have plans to sell our shares in Match right now.

All right, thank you.

Sure.

Thank you all for joining.

And we, as always, welcome your feedback.

So, look forward to continuing the dialogue.

Thank you.

Nice job, Glenn.

Welcome.

That does conclude today's program.

You may disconnect at this time.

Thank you, and have a great day.