Match Group Inc (MTCH) 2016 Q3 法說會逐字稿

Good day and welcome to the IAC reports Q3 2016 results conference call. At this time I would like to turn the conference over to Glenn Schiffman, Chief Financial Officer. Please go ahead, sir.

Thank you, operator. Good morning, everyone. Glenn Schiffman here, and welcome to our third-quarter earnings call. Joining me today is Joey Levin, our CEO. Match Group held their third-quarter earnings call yesterday morning. The focus of this call will be IAC ex-Match.

Similar to last quarter, supplemental to our quarterly earnings release, we've also published our quarterly shareholder letter. 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 do 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 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 third-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?

Thanks, Glenn. Forgive me, I've lost my voice a little bit last night cheering for the Cubs, so I may be talking a little bit less than usual. Also I'm on very little sleep, given how late the game went. But, Match delivered a great quarter this quarter. The rest of IAC delivered a great quarter this quarter.

I feel really happy with the performance across those businesses, and our outlook is bright right now. Profit growth across the businesses, profit growth looking forward, plenty of investment opportunities and we have the ability to fund those, one in particular we covered in the letter is Vimeo.

It is -- I think its really amazing what we have there, and we're going after a big opportunity there. So I look forward to your questions.

Operator, we are ready to take questions.

John Blackledge, Cowen and Company.

Great, two questions? First, is despite the fact that since the Angie bid last 3Q, HomeAdvisor, is that a service professional's equivalent to the size of Angie's entire network? With Angie putting itself up for sale earlier this week, wondering what IAC's interest is now and kind of what has changed, if there isn't interest?

The second question is the 2017 HomeAdvisor EBITDA guide of +50% to 100% year-over-year growth looked great, particularly given we are sitting at the lower end of the range right now -- can you just bring the factors that drive the outcome to the low end and-or the high end of the range? Thank you.

John, on Angie's List, of course we will take a look if they will let us. Right now we're in a great position with HomeAdvisor. The business is doing truly phenomenally well and its a very clear execution path. It will take a lot to distract us from that, to knock us off that course.

We had a thesis a year ago, I think a lot has changed over the course of that year, but we will certainly take a look if we have the opportunity. A lot of people use us and them. On HomeAdvisor guidance, we've told the story a little bit before, but I think as each quarter passes we provide a little more.

For a few years our top-down are held up as we were investing in the business -- we're investing in sales, we were investing in marketing, we were investing in product, we were investing in technology, we are investing in all those things -- would yield dividends over time. And a lot of that investment goes into the service professionals, that investment goes into the LPV of a customer and that value comes in, not instantly in that moment, but that value comes in over time.

So we saw that prove out as we said we would over the course of 2016 and that continues over the course of 2017 and I think into eternity if we continue to execute. Lots of things that contribute to that -- its the investments we've made into the sales force. You don't need to grow the sales force by the same amount every year because you start to get efficiencies there.

Its investments we've made into marketing, and the benefit that delivers to efficiency on that marketing. Its the relationship with the service professionals, and their willingness and ability to spend more with us over time. All those things come into that and that gets you the numbers.

Where we end up within that range, I think a lot of that will be decisions that we make over the course of the year in terms of opportunities to invest. There's other factors that go into that, but I think some of that will be within our control in terms of investment opportunities.

Thank you.

Brian Fitzgerald, Jefferies.

Thanks guys. In your letter on Vimeo, you mentioned that purely ad-supported models can't support high quality content at current rates? You reference YouTube as an example of a platform that is moving towards an ad-free model, or subscription model?

I guess our question is, do feel like it's a one-size-fits-all model? Would a hybrid model work for you guys, or for the industry? Where you have some subscription, maybe it's subsidised by some ad? Would you consider putting a 30-second pre-roll ahead of great 45-minute content? I think I would palate that type of advertising for that amount and quality of content.

I absolutely think a hybrid model works in the industry. I think a hybrid model looks, from what we can tell from a distance from YouTube, phenomenally well. I think the comment on YouTube is, the stuff that works very well with advertising for them and for the creators is an different sort of budget content.

It's individuals in front of the camera who have relatively low production cost to deliver that content. It's not bad content, its just lower production budget content. And I think that stuff can work well with advertising.

I think a hybrid model will work well for them and has worked well in many media. But I don't think that's right for Vimeo right now. I think Vimeo has always stood out as a platform that doesn't use ads and doesn't -- and our creators don't value-add and our consumers don't value-add.

And a model that works better for them is paying for content. So we're going to lean into that, that it's not crazy to pursue a hybrid its just, I don't think, the right model for us right now.

Great, thanks.

Jason Helfstein, Oppenheimer.

Thanks. I'll ask you two questions?

Given you're clearly showing enthusiasm for Vimeo and what you can do, are you willing to talk about the potential amount of investment you're willing to put behind Vimeo? Are you going to let that become effectively a drag while you invest?

Then secondly, the applications business -- looks like that has turned, so that is obviously positive -- are you excited enough yet to invest behind that business? Or do you still run that very conservatively and look at it as a source of cash? Lastly, any comment on M&A opportunities, outside of Angie, you see in the market out there in general? Thanks.

Sure. In terms of Vimeo investment number -- we haven't put precision around that. It is, I think, not material to IAC when we think about the numbers. We've said tens of millions, not hundreds of millions.

I think we can deliver a great product in that range. I don't think we're going to tighten it relative to that. But its certainly worthy of investment. On applications, I agree with the preamble comments -- it has stabilized and I think we're in a good place there.

I don't think it's likely that we therefore accelerate or resume investment in that. We can fund investment in that business through ongoing cash flow, and I think that business is doing well and is capable of that. But I wouldn't say that we changed the outlook on how we think about that business.

We feel good about that business, we like that business, that business is stable, but it is not a likely priority in terms of investment cash flow. Also that doesn't preclude our ability to do something there. We will always be opportunistic, but in terms of the relative priority, I don't think it has changed.

And then M&A in general -- the answer is the same as it's been. Which is -- in the areas where we said we have prioritized, which is HomeAdvisor, and video, we are certainly looking, or consistently looking at new areas. You saw we made the international acquisition for HomeAdvisor.

We will continue to look internationally for HomeAdvisor. That's the way we're thinking about M&A, but nothing else meaningful to report.

Jason just a couple things -- as you think about level investment in Vimeo, the thesis and the thought process is very much investing into success. So we will continue to get a great rate on the return on our dollars. Around applications, we can continue to believe that $25 million to $30 million of adjusted EBITDA for the foreseeable future is right.

We are seeing some great opportunities in our subscription, in our mobile business there in terms of growth. But $25 million to $30 million is right for the foreseeable. You saw us, vis a vie M&A, you saw us acquire MyHammer.

That's in a process we think is closing today. As we've talked about before, we will evaluate M&A opportunities versus buying an asset that we know and we love and is cheap, which is our stock.

Thank you.

Peter Stabler, Wells Fargo.

Good morning, thanks much. On Vimeo, a couple questions. One, Joey, can you give us a sense of how you look at the current state of consumer awareness of Vimeo? What's the current state of consumer perception?

Are consumers fully aware of the premium quality of video there? The traffic is doing well, and it seems like a bunch of that is syndicated traffic? I just want you overall thoughts on the status of the brand?

Secondly, can you give us a sense, on the content side, you licensed some Lionsgate content. You also talked in your letter about funding the development of content. Two pretty different paths that can have different implications in terms of timelines for payout. Just any rough thoughts around content. Thank you.

Sure. In terms of consumer awareness, I think we have a great start, and a lot more to do, a lot more opportunity. Meaning, the users who use Vimeo, which is a significant number, very much use the brand consciously. I think we shared some numbers in the letter.

There's the total number of viewers, and then there's the viewers on site, and there's the viewers who are watching local videos. So there's a huge number of viewers with significant brand awareness and significant engagement. And that core group has, as you imagine, great awareness. I think the -- expanding that group is an opportunity.

I think its well understood within a very large group, and not that well understood outside of that group -- I look at that as the opportunity for us. In terms of developing content, and how we are spending against content -- first of all, in terms of the Lionsgate deal, that's not really a licensing deal. They are like other creators on Vimeo, and they're a very large creator and a very talented, successful creator, they're selling their content through our platform.

They're selling their content through our platform globally. The development side, the licensing side, you're right those pay different amounts of capital and different amounts of payout and we are very conscious of that difference. We are thinking about how we want to spend that and where we are going to spend it. We've got, I think, we've done the entire range of that.

We've experimented a bit in the entire range of that, producing something from scratch and we've done that at very reasonable budgets. I think when we were doing High Maintenance, we were creating a very high quality product. You look at relative to what we were putting out for High Maintenance versus what HBO is now putting out for High Maintenance -- I think they're comparable products, but at dramatically different budgets.

So I think we can create content at reasonable budgets. And you'll do a mix between that and licensing. And we spent a lot of time analyzing this, but I don't want to share significant details on that.

Thanks for the color, Joey.

Dan Salmon, BMO Capital.

One on HomeAdvisor, and one more on Vimeo. So the MyHammer acquisition -- I want to spend a little more time fleshing out the international opportunity? Joey and Glenn, if you have a direction you are leaning, in terms of continued organic buildout versus acquisition? You've obviously got a nice anchor in Western Europe now?

And then second, just a little more on Vimeo. You spoke in the second half of the letter a little bit more about the consumer opportunity and the potential for -- I don't know if we want to call it a skinny bundle, or -- some type of product that you're offering yourself?

You've also put up a nice model for your creators to create their own SVOD channels. Curious how you think about the positioning of a Vimeo product versus those that your creators are launching on top of the platform?

Sure. Let's do HomeAdvisor International first. I didn't really understand the question. I think we are definitely very much growing organically domestically. We're definitely very much growing organically in Europe now, and we'll look at acquisitions in both places. And we'll also look at acquisitions to open new markets.

We will also look organically to open new markets. I think we opened Italy organically, that was this year, I think it was earlier this year or was late last year. And so I think we will do a mix of both of those things. Acquisition certainly gives you a bad start. The hard part about these business always has been the chicken and egg problem of building supply both supply and demand at the same time.

So if you can start with either some significant supply or some significant demand that helps launch a new market -- but we will launch both organically and through acquisitions. Does that answer your first question?

Glenn, do you want to add to that?

Absolutely.

Getting back to John's question, in terms of where we live within that range of 50% to 100% growth on HomeAdvisor EBITDA, and we'll go through our guidance as we always do in our year-end letter. But investment into international will impact that. You saw that impact our numbers this quarter, we called out a $1.1 million transaction-related cost that hit EBITDA in the quarter.

But for that obviously, our margin would have been higher, or performance at HomeAdvisor would've been higher. And then in the fourth quarter we expect additional transaction-related costs and a deferred revenue impact from the acquisition of MyHammer. Probably another $1 million to $1.1 million EBITDA hit.

So absent that, HomeAdvisor would have reported an even higher number. So I think that's one of the drivers, as we think about the guidance for next year, is the investment in International.

And then on Vimeo, it's going to be critically important for us to continue to deliver on our core, which is enabling creators to use our tools and enabling creators to get audience. Anything that we do on Vimeo will enhance that, rather than get in the way of that. The reality is that creators today drive their own traffic, their own transactions, their own audience, significantly through their own promotion.

Whether it's through their social platforms or whether it's just through media or marketing, they drive that. What we want to do is add to that. I think it's an enormous asset for us that we have tens of thousands, or hundreds of thousands of people, out there creating content and marketing that content and driving audiences to the platform.

We need to help them by adding more audience to that. In the context of the skinny bundle -- and a lot of people are offering skinny bundles right now -- I definitely don't think about us as offering that kind of skinny bundle. Meaning, we don't bring any advantage to putting together a collection of ESPN and broadcast channels and all those things into one price.

I think that there's plenty of people offering great products there, and I think many of those products will do well but that's not going to be our business. Our content will be different. It will come from our creators and it will come from new concepts and its not going to be that traditional skinny bundle.

Now, putting things together and what that bundle looks like in terms of how it's bundled to consumers, you can use perhaps that word skinny bundle, but not in the way it's been used lately, which is to talk about the linear channels and the linear channels at a different collection and a different price point.

Good, that's very helpful, thanks.

Chris Merwin, Barclays.

A couple questions: beyond the SaaS product, you talked at length about an SVOD product and I think you're hoping to create that at a much lower cost than obviously what some of the other rivals have like Netflix and Amazon? So just curious, how that exactly is going to work? If you have content that's available for free on Vimeo, then you can create another tier for SVOD content?

Just curious how you're going to be able to attract a similar SVOD audience, as is rivals, if you're spending perhaps a lot less on professionally produced content? Second question, on the SaaS side of it, can you talk about how big your sales force there is? And how big that can scale to, to further grow the SaaS business over time? Thank you.

Sure. How we compete and how we compete at lower budget -- I don't think that the research that we've done, the surveying, interacting with our customers that we've done, it doesn't look to us like consumers are making a decision, especially the significant amount consumers who are cord cutters or cord shavers, or cord nevers, who have tremendous room to spend on this content, relative to what audiences have spent historically on this content in terms of paid TV.

I don't think that they're making a decision which says, do we choose this or Netflix? Do we choose this or Hulu, or Amazon or whoever. What we have to do is create a compelling entertainment experience.

And we can create that compelling entertainment experience at a price point, and then the question for the consumer will be, is this price point worth this compelling entertainment experience? And we of course need to make that worthwhile. I think we can make that worthwhile in the budgets that we've talked about.

I know that we can make that worthwhile in the budgets that we've talked about. I don't look at it as the consumer saying, can we spend X on Netflix, do we spend Y on Vimeo? On a relative basis, the question is -- is Y worth the purchase price for Vimeo?

And like I said, I'm pretty confident that we can deliver something that makes sense there. In terms of this the other question of sales force for the SaaS business?

How big can the SaaS business be?

I think we have tremendous opportunity for growth in this. It could be a multiple of what it is right now. We talked numbers in terms of what we think the market size is there, but we have plenty of room to grow. I think on the sort of traditional Vimeo tool side -- before I get to the OTT streaming tools -- the traditional tools on the Vimeo side have been self-enroll. We don't use a sales force there, we don't need a sales force there.

I think maybe mega clients we start to have to hold hands a little bit more, but we don't have a big sales force for that, we have a handful of people for that. On OTT streaming SVOD services, that does require a sales force. That's also a handful of people, and that is longer sales cycles, but that's not like HomeAdvisor-type sales force growth, where you're calling on small businesses. This is going to be a -- it is already -- a self-enroll product done through kind of broad marketing or pointed marketing, but not through hand-to-hand combat sales.

You see where we are right now. We disclosed $75 million of trailing revenue on our core tools business. 750,000 creators, that's profitable, that business alone. And yes we think that TAM is billions -- plural -- of dollars, well in excess of $5 billion in terms of what people are spending against this.

We think that grows. there is a very long tail in that business. The aspiring creator, the casual user -- and where we're seeing, and we articulated this in the letter, where we're seeing most of our growth and our profit and revenue pull through, is the pro users, which comprised greater than 25% of our users and are contributing 50% of our revenue.

So we think there's a ton of running room in that aspect of the business alone.

(Operator Instructions)

Robert Peck, SunTrust.

This is [Assad Geron] on for Bob. Is there any impact, positive or negative, on HomeAdvisor with the increased competition from Yelp, and your product, the new Angie's List, [hands payable], and the increased home services efforts by others? Any thoughts on the competitive landscape in general?

We definitely monitor that very closely. We looked at Angie's List around the payroll drop, we looked at Yelp around the request a quote feature. And the short and very clear answer is no, we haven't seen it. I think we'll continue to monitor that, but I think in all cases, we haven't seen any demonstrable impact as hard as we've looked.

What we've built at HomeAdvisor is meaningfully different than either of those products, or what other people are offering. We have a meaningful and direct relationship with the service professionals in our network. That means they're not just listing, that means we have relationship where they understand that we're bringing them customers.

They understand how to deal with the customers that we're bringing them, how to interact with those customers, how to deliver those customers a great experience. And how to close a deal and ultimately get a job done right.

That is different than a lot of these platforms, and I think that is why you see people like Facebook turning to us for partnership. And you'll start to see others turning to us for partnerships, because we can make that instant connection with the service professional, we can make that instant booking with a service professional because our relationship with that service professional is more profound.

We would invite you to go compare our product with theirs. As you know, HomeAdvisor has a very structured experience, they ask you four to five questions and then you're matched to a service professional based on geography, based on ability, based on skills, based on the job, and based on their ranking, and you have reviews against that.

So you're matched with a couple, and you pick, and then when the job is done and the job is completed we have a big operation center that calls back in excess of 25% of all jobs. There's been a lot of capital that we've put in over the years to make that a very structured and very positive experience for both sides of the marketplace.

That's just different than some of our competitors, or so-called competitors. Remember, we've shared a lot on the total addressable market here and our market share, and you can measure our market share at depending on the way you look at it, anywhere from 2% to 6% or 7%. We're the biggest in the space.

By definition any so-called competitor would be less than that. And what we're really fighting for at the end of the day is that 90%+ of the market that served through word-of-mouth and through off-line. You can go back to last quarter's letter, we spent a lot of time articulating what we think is a very defensible and very exciting edge in competitive mode we have in HomeAdvisor.

Next question?

Douglas Anmuth, JPMorgan.

Thank you, it's Cory Carpenter on for Doug. Question for you on the publishing segment? I'm hoping you can walk through some of the trends you saw at each of the brands within the premium brands bucket? And maybe highlight how any of that under- or over-performed versus your expectations this quarter? Also maybe any update on the progress in the verticalization strategy at About.com?

Sure. I think I will start with About -- in terms of their quarter, I think it was good. I think the verticalization strategy happens in two phases. I'll say one is the traffic and two is the monetization. So we've now verticalized three new sites from About -- the first was VeryWell, which is health.

Second is TheBalance, which is personal finance, and the third is Lifewire, which is computers and technology. We are now close to half of About has moved into these new verticals. And VeryWell being the first one, has fully recovered and is now absolutely growing traffic.

TheBalance is fully recovered and it took a less steep drop in the first place, growing traffic fully. Lifewire, I think we are like a week into it. Even the first seven days into the curve looks less steep than it did for TheBalance, which looked lest steep than it did for VeryWell. So on the traffic side, feeling great about that decision and that strategy.

On the monetization side, I think that's earlier but again, we go back to VeryWell. VeryWell is going phenomenally well. The monetization is working, we're seeing huge demand, more demand than we have supply in terms of advertisers. And then TheBalance and Lifewire are new in that regard so they are still unproven. We will see how they go.

There are no more over the next quarter, I think. I'm very bullish on the strategy in terms of verticalization. About has been hit, and we've talked about this in terms of paid marketing, that paid marketing portion of the business, where we are driving significant marketing and delivering frequently in excess of ROI.

That business has meaningfully shrunk, and that's been a drag on the business. In terms of the other one, The Dictionary, still stable business. Its not a barn burner in terms of growth, but it is a stable cash flow, profitable business. Investopedia is growing incredibly well, I think it was up 60% year on year in the quarter.

We're still running that business right around breakeven, really focused on revenue growth right now, and audience growth. Daily Beast, also doing well but like we said we don't have a profitable model right now yet in Daily Beast. We know we have a phenomenal product, we know that product is breaking through in the category, but we've got to get the model working there.

As we make progress around the turnaround, you saw the costs that we've taken out of the business: $50 million on a run rate basis versus 2015. So making progress on that, as well.

Thank you.

Kerry Rice, Needham & Company.

Thanks a lot, a couple questions on HomeAdvisor, particularly on the domestic side? Solidly profitable these days, and I don't think you've disclosed what you think what the EBITDA margins can get on that? If you have any color or a framework to think about where that can ultimately get to? I know you're investing internationally, and still investing somewhat domestically. But any thoughts on maybe long-term EBITDA margins?

And I was hoping you could also speak about the direct marketing strategy in HomeAdvisor? Either explicitly on a dollar value, but also kind of the key channels that you look at and where you plan to grow your investment in marketing? Then could you give us a little bit of your early learnings from the Facebook partnership with the launch of their more transactional-oriented business pages? Thanks.

I will go in reverse order, and then I'll get to the margins question. Facebook, I didn't get very early so I can't share anything, I don't actually know off the top of my head what's happening there. On marketing in the key channels of marketing, for HomeAdvisor it's always been a mix, and it needs to be a mix. Meaning that channels reinforce each other.

Television is something we've talked about a lot, we've grown television a lot this year. I think we will continue to grow television. Online of course is a huge component, and online would be the mix of all the places you expect -- its going to be, of course heavily weighted toward Google and Facebook but beyond there, too.

The way you think about scaling the marketing is, you have to be in, always, really, in lock step with sales growth and the service professional growth because you need to be able to make sure that you've got a great experience on the other side to absorb that demand and deliver the consumer-fulfilling session.

And that is what limits our ability to grow the marketing spend by multiples every year, so you keep those things in check with each other. But it goes across all channels and I think all channels individually will grow over the course of 2017. Do you want to do margins?

Yes, one ties marketing into margins. You saw our TV spend this quarter. We had our highest TV spend ever. I think we're up 50%-odd in TV marketing; 48% to be precise, and was our highest EBITDA margin ever. So look, in terms of long-term margins, I think Chris Terrill on the last call said he'd be disappointed if we don't significantly beat our historical high-margin range, which was 20%.

You've seen us in the last two quarters, and if you look at our guidance for the year, our pull-through EBITDA on incremental revenue was in the mid-20%. But look, we're still investing against the opportunity, we're still excited about that and going after that $1 billion sales in 3 to 5 years that Chris articulated. And Joey suggested he may have been sandbagging around that number.

So we are going to continue to invest in the topline for sure, but we're seeing some great margin pull through here and will continue to see some great margin pull through. You know another fun factoid is our domestic EBITDA this quarter at HomeAdvisor was greater than the domestic EBITDA for the entire year 2015, so exciting days.

Thank you.

Operator, I think we have time for one more.

We will take a follow-up from John Blackledge from Cowen and Company.

Great, thanks. Just wondering if you could provide some further details on the new voting class stock? Maybe the rationale and how it helps both IAC and shareholders? And the second question would be on Vimeo.

If we were to look three to five years out, all goes well, Vimeo executes on a strategy, what does the business look like? For instance, would the consumer subscription side be a larger contributor than SaaS-and-or the software businesses? Thank you.

Sure. The no vote -- first I encourage you to look at our proxy, I think we are limited on what we can say here, based on the proxy solicitation rules. But what it does is, its a currency for us. Its a currency for us in employee competition, its a currency for us in M&A, theoretically -- there are no plans right now to issue it in terms of transaction or an acquisition.

The other thing it does is, it doesn't compromise the voting structure that I think has been very helpful to IAC over the course of history, and still enables us to do all those other things. And that's been important to the way that we think about the world in terms of long-term, and this is a continuation of that. Vimeo, long-term -- it's a great question, John.

I think the consumer business long-term could be bigger than the SaaS business. Or they could be maybe equally sized. I think both are in very large markets, probably the consumer business is in a much, much larger market, but both are large markets. And I think we've got a nice potential, SaaS being proven already and consumer being more opportunistic, but I think both have great potential.

But just based on the definition of consumer being in a much larger market, I think that you look very long-term that could, should, ought, to be bigger.

John, take a look at the paragraph in the letter which talks about the attributes and assets we bring to bear. A billion monthly video views, 115 million videos available, 240 million monthly viewers, 100 million of which are on our properties, 24 million watched three videos or more a month. You could play with some fun penetration rates against that at a price point.

And you could build a very attractive, very interesting, and very big business. We think for controlled dollars. And in the SaaS business, we think we're in a very strong competitive position there in an exciting market as well. Smaller TAM for sure, but less competition, as well.

All right thank you.

Thanks everybody, see you next quarter.

We would like to thank everybody for their participation on today's conference call. Please feel free to disconnect your line at any time.