IAC InterActive Corp.
Q4 2012 Earnings Call Transcript
Published:
- Operator:
- Welcome to the IAC Reports Q4 2012 Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Jeff Kip, CFO for opening remarks and introduction. Please go ahead sir. Jeffrey Kip Thanks operator for the help. Thank you to everyone who has joined us this afternoon for our fourth quarter 2012 earnings call. Barry and Greg will make several remarks, after which I’ll come back and offer some comments on our fourth quarter financial results and financial outlook for full year and first quarter 2013 and we’ll go to Q&A. For your convenience, the notes for our remarks will be posted in the Investor Relations section of our website shortly after the call. Let me first remind you that, during this call, we may discuss our outlook for future performance. These forward-looking statements typically are proceeded by words such as we expect, we believe, we anticipate or similar statements. These forward-looking statements are subject to risks and uncertainties and our actual results could differ materially from the views expressed today. Some of these risks have been set forth in our fourth quarter 2012 press release and our periodic reports filed with the SEC. We will also discuss certain non-GAAP measures. I refer you to our press release in the Investor Relations section of our website for all comparable GAAP measures and full reconciliations for all material non-GAAP measures. Barry? Barry Diller Thank you. As I think many of you know, I’ve always thought it was kind of poor form to take up most of the time on these calls with formal remarks. And the fact that you all know, we’ve consistently shortened that portion to give more time to your questions. However, there are times when we want take time to more fully explain ourselves. And after our last call, when we reported excellent results and a positive future outlook, our stock went into what I thought was an inexplicable tail spin. So today, we’re going to give another positive financial report, but we’ll be taking some additional time to talk fully about the outlook for each of our key businesses. We hope that it’ll give you a real and substantive foundation for why we’re so optimistic about our future. And, if we go into an inexplicable tailspin again, you can then blame the messenger. So, with that, Mr. Blatt. Gregory Blatt Thanks, Barry. Hey everybody We just finished our third consecutive year of outstanding growth. And we expect outstanding growth again in 2013. We’re excited about the business and we’ve been looking forward to talking to you all about it. It feels like a longer stretch than usual between calls that we have a lot to talk about. I’m going to walk through near and long-term outlook for Match and Search & Applications and touch briefly on the other segments, then Jeff will get a little more granular on the associated financial information, Barry will talk about capital, and then if anyone’s still out there we’ll take your questions. Let’s start with Search & Applications. We had a great quarter, with Q4 OIBA and revenue up 63% and 30%. Pro forma for the About acquisition, OIBA and revenue were up 40% and 20% and for 2013 we’re expecting solid double-digit revenue and strong double digit OIBA growth, in each case pro forma for About, which is seriously exceeding expectations. On an as reported basis, obviously, the numbers will be even stronger. To paraphrase Mark Twain, the rumors of this business’ death have been greatly exaggerated. Search & Applications has a solid foundation and is looking ahead to strong growth for the foreseeable future. Now let’s look at some of the granular issues that people have been talking about this quarter, and then I’ll talk a little about long-term outlook. As all of you know, at the beginning of Q4, Google changed its advertising policies. The primary impact to our business relates to the marketing of our Ask.com product on Google. The policy changes reduced both click-through rates from our marketing and our revenue per query. As we tried to digest the impact of these changes, we pulled back on marketing, which had a larger effect on revenues and OIBA as the online spend cuts hit the least profitable marketing dollars, and because offline spend tends to have a delayed payback. We’ve now reconfigured our marketing program around the policy changes, and we’re confident we can begin to build back up our spend and revenue levels at increasingly efficient margins through 2013, with the negative impact most heavily felt in Q1. I think it’s important to point out that this area only represents around 12% of the total contribution to the segment. So our marketing Ask on Google is important to the business, and these policy changes do affect us, it’s certainly not determinative. Additionally, we’ve recently agreed with Google on a new set of guidelines for our applications business. We actually reached out to Google this past summer to proactively try to deal with a number of practices that had arisen in the industry that we weren’t engaging in. While I wouldn’t say the new policies are the exact ones we would have implemented on our own, we worked hard with Google on crafting them and we’re supportive of the efforts to make sure that practices are pro-consumer and benefit everyone long term. Given our strong relationship with Google and the comparatively high resources we put into product development, engineering, partnerships, marketing systems, and our Ask brand, we feel even better about our competitive position following the changes than we did before. Overall, these policy changes are going to dent our 2013 results a little as against what they would have been, but those results will still be strong, and we think overall they strengthen the long-term prospects of the business, laying foundation for even higher growth in 2014. Let me also touch quickly on what we think are a few misconceptions that have been causing some noise this quarter. First, there have been allegations that we’re engaged in arbitrage. But the reality is, we market our Search & Applications businesses in the exact same way we market every other business we have, both online and offline. Frankly, in the same way every business does. If we can make more revenue from marketing our products than it costs to do so, we market them. It’s the same as for Match, HomeAdvisor and everything else. And it’s the same on Google as it is on Bing and on television. There is absolutely nothing unique about our marketing approach to Search & Applications. And, I think most determinatively, Google has a policy that clearly defines arbitrage and clearly prohibits it, we’re in complete compliance with that policy, and we continue to be a big advertiser on Google. So under the only definition that matters, Google’s, we’re not engaged in arbitrage. Questions have also been raised about the impact of increased competition in marketing our search products, mostly because of potential new entrants into the market. Again, we think this reflects a misunderstanding of our business. We market our products on a vertical-by-vertical basis. When we’re buying keywords for health-related page we compete with advertisers in the medical category. We buy keywords for a car-related product. We compete with car advertisers. When we buy marketing for a scrapbooking application, we compete with scrapbooking marketers. There is heavy competition in all our verticals, and that competition is among different groups from vertical to vertical. New advertisers are coming onto Google and Bing every day in all these verticals. That’s generally what drives up CPCs over time. It would be very difficult, if not impossible, for any single entrant or even a series of entrants, to meaningfully impact that general trajectory of more and more ad dollars coming into the system, especially across multiple verticals. We’ve been seeing this trajectory since the inception of search marketing, we of course benefit from the rising CPCs on the other side. Specifically, we’ve seen no meaningful impact on our business from any particular entrant into this area, either recently or at any other time. Another concern that has been raised is that browser changes are making life difficult for our Applications businesses. On the one hand, that’s true. On the other hand, it’s no more true today than it’s ever been. Over the eight years we’ve operated this business, we’ve tackled every browser change as its come. This has meant adapting to deal with multiple platforms, the rise of Firefox, of Chrome, their rapid release schedules, as well as major updates to Internet Explorer, each of which have presented multiple challenges to our business. Typically, there is an initial impact from a given set of changes, and then we adapt our products and services accordingly and the adaptations help us claw back the impact we saw at the beginning. This is why we’ve always said this has the potential to be a little choppy quarter-to-quarter. Despite all this, we’ve grown this business fourfold since we acquired it in 2005. Frankly, it’s an area where we really do think past tends to be prologue, and believe our ability to navigate the dynamic landscape in which we operate is a competitive advantage. We have teams of engineers, who spend all their time adapting our products to the latest browsers, the latest operating systems, etc. And despite the continuing complexity and challenges of these landscapes, we continue to grow our distribution meaningfully. Next, we heard that our applications are of questionable value to users, and they therefore face an existential threat. But value in this context is, of course, subjective. This business was built on the back of a product that let you put smiley faces into your instant messaging. From some perspectives, that product might be of questionable value. But the millions of people who downloaded it obviously felt differently, and that product alone generated over $120 million of revenue. There is a reason we refer to these products as digital snacks. An application that allows you to play video games from the ‘80s is highly engaging to some, and of lesser value to others. But while these products may not change the world, they cost our tens of millions of users nothing and yet provide them some enjoyment and convenience, and as long as that continues to be the case, we think they’ll continue to flourish. Lastly, there is what, to us, is a somewhat new phenomenon called trading the SEMrush data. For those of you who don’t know, SEMrush tracks various keyword activities, and some people have started using that as a proxy for the performance of our Search & Applications business. Anyone who did that in Q4 would have concluded that our Search & Applications business was going to be down meaningfully. But it wasn’t. We had a great Q4. This is principally for two reasons. First, as we said, the activity it tracks makes up a relatively small part of the overall contribution to the segment. And second, it doesn’t take into account the fact that volatility in keyword volume tends to happen in the test and low ROI keywords. So that even with respect to the activity it does track, it doesn’t highly correlate to profit growth. The reality is, the SEMrush data is a pretty poor proxy for the business. Stepping back for a second and looking at the segment longer term, we think the market for our products and services is robust. Though there is data that would indicate desktop search will continue to grow, desktop sales still predicted to increase for a while, hours spent on desktops expected to increase over the next few years, we conservatively expect a flattening desktop search market. We believe that still provides us with a lot of runway. We grow primarily through new product development, new distribution partnerships, and marketing efforts. In other words, our growth isn’t highly correlated to that of the industry. From 2010 to 2012, our queries grew 80%, dramatically higher than the overall market. And because our global share is still estimated at well under 5%, there is no reason to believe that our growth should be meaningfully impacted by slowdowns in desktop search growth overall in the foreseeable future. Moreover, we see big opportunities in mobile and tablets over time, where our efforts are really just beginning. Mobile is now making up more than 7% of Ask queries, up meaningfully over last year. That’s under penetration versus the market, but the core Ask customer tends to be a later adopter of new technologies, so it’s not very surprising. Moreover, our growth tends to be driven by marketing and distribution efforts, which to date have been minimal in this area. But while the mobile economics are still subpar, they are improving, and we’re seeing opportunities opening up for distribution, and we’re jumping in. In addition, About’s mobile page views now represent approximately 20% of total and Dictionary’s about 40% of total. We know that the more content-rich our pages, the better their opportunities for mobile distribution, and that’s already the direction we’re heading in strategically. Finally, Dictionary is making real progress in monetizing its applications on a direct-pay basis, and while the numbers are small in absolute terms, the learning is important in terms of our broader applications business. To wrap up, as I mentioned at the outset, we’re expecting strong 2013 results, and we feel confident long-term. Let me recap the main reasons why
- Barry Diller:
- Thank you. We generally talk about capital allocation in using terms like returning cash to shareholders, being over or under capitalized, but today I’d like to expand that because we’re in a very different capital position today than we’ve been in years past. After years of having $2 billion plus of net cash, we started 2009 with approximately $1.8 billion. We ended 2012 with net cash of approximately $175 million. Several years ago, we committed we would not be over-capitalized indefinitely, now we can say we’re there. During that period, we generated approximately $2 billion of cash from a combination of free cash flow, asset dispositions, derivative exercises and other activities, not including our recent debt issuance. So when you do the math, we’ve spent approximately $3.5 billion on non-operating activities over the last four years. There’s a considerable amount of activity, and here’s what we’ve done with it. The biggest piece is stock buybacks. Over the last four years, we’ve repurchased 97.1 million shares of stock, for a total consideration of $2.7 billion, and at an average price of $27.37. This includes the repurchase of 6.4 million shares during this last quarter for a total consideration of almost $300 million. In addition, we paid out about $75 million in dividends, and based on yesterday’s stock price, our dividend yield is currently 2.3%. To put it in perspective, during this period we returned to our shareholders 250% of our free cash flow. Over the same amount of time, we spent $800 million on a series of acquisitions, all of which, most all of which, fell within our core areas of business. These have returned approximately $70 million of after-tax cash since acquisition. And we expect they’ll generate over $165 million of earnings this year. After taking into account the return of cash, that means we acquired those businesses at an adjusted multiple of 4.3 times. This is not an accident. We’ve developed a competency for identifying businesses in our core areas where we believe we can make meaningful improvements to operations through a transfer of know-how. We’ve demonstrated it repeatedly in the personals segment, most prominently and recently with Meetic, and the early returns make pretty clear we’re going to be able to do it in Search & Applications. Our most recent acquisition, Tutor.com, represents another candidate for the same kind of activity. That’s our capital allocation story over the last four years. We’ve struck a solid balance between returning capital to shareholders and making sound acquisitions. We’ve done more than lip service to the classic mantra of capital allocation that of making solid acquisitions and returning capital. The net result of these activities is that our capital situation is now clearly different than it has been. We expect to generate over $400 million of free cash flow in 2013. We also have an undrawn revolver and plenty of remaining debt capacity without pushing up against our comfort zone. Going forward, we plan to continue paying a dividend that’s consistent with our earnings growth and we’ll continue to follow our current acquisitions policy. And, as we said for many years now, and I think we’ve overfilled anyone’s expectations, we’ll continue to buy stock back opportunistically. So that’s the long, detailed and we hope well understood report, formal report. And now we’ll take your questions.
- Operator:
- Yes, thank you. (Operator Instructions) And we’ll go first to Ross Sandler with Deutsche Bank.
- Ross Sandler:
- Great guys. I just have one question, but first off, thanks for all the color and thanks for posting the comments on the website so we can go back and read them. The question is, since you guys are literally taking the gloves, why don’t we all the way. Shares are trading now 2% to 3% in the aftermarket, I don’t know if that’s real or not, but despite your many helpful clarifications what if we hypothetically envision a scenario where you go into another tailspin as Barry called it after this call. What other measures would you consider taking, are there any things that you would consider doing to create additional shareholder value like more leverage, more buyback or even a spin? Thanks.
- Barry Diller:
- Well we’ll continue to operate our businesses. We’ll continue to follow the capital allocation policy that I just kind of went on about. And we’ll trust that the markets will react appropriately. That may take a quarter, may take two, we can’t really do anything manipulatively to it. Obviously if we have bought back stock back opportunistically continue to do so. The lower stock goes, the more I would say hungrier we will probably get for doing so consisted with how much cash we’ve got. So I don’t think we should struggle too much. Look, we’ve told you why we feel optimistic about our key businesses. We can’t prove it because the future of the course is the only proof. But as you know, we’ve had our short interest move up in direct relationship to reports and rumors that our growth is more than challenged. And we know of this kind of activity is more and more the way of the world in momentum and manipulated trading. So I just advice that I’d be vary of taking this lumps kind of locked step rumor mongering and shorting as any kind of gospel and just try and remember that while we really are confident, softly hard to disprove the negative where there is money involved.
- Ross Sandler:
- I mean if I can follow-up Barry. So you created north of 100% return on the Expedia TripAdvisor spin. I know this is a different scenario but would you consider separating the businesses either search separate from the rest of it or personal separate from the rest of IAC?
- Barry Diller:
- Look, we talked about everything here. But our conclusion now and I think the reason why we change notwithstanding I think any condition, or I shouldn’t say any condition that’s not real. But I think that this consolidation of businesses is we think good for us. We think that there are relationships between all of our businesses. So I think we’d be reluctant. You want to add anything?
- Gregory Blatt:
- Yeah, I just think look at some point math takes over and comes compelling and we think it’s at that point now. But maybe it’s tomorrow. We’re going to generate huge cash flow this year, our earnings are going to be great and our growth is going to be great. And at some point sort of that’s going to be reflective. So I think as Barry says while spins are always possible at some point in the future as they’re not going to be because some short-term dislocation in the stock price driven by sort of god knows what.
- Barry Diller:
- Fair, thank you. Next question please.
- Ross Sandler:
- Okay thanks guys.
- Operator:
- We’ll go next to Neil Doshi with Citi.
- Neil Doshi:
- Great. Thanks guys. Greg, could you provide a little more detail as to what are some of the changes that you’ve implemented on the Search and toolbar sites to become more compliant with Google? And then as we think about mobile, it seems like on the search site you guys have grown the business a lot through the application and toolbars, if it’s more to the challenging to use toolbars on the mobile side. How can we think about IAC growing mobile without being able to implement lot of those toolbars? Gregory Blatt Sure. I think, look on the policy side, I’m not going to get to the details, that’s part of our contract. We’ve got a contract with Google this was a negotiated process. As Jeff said, in certain areas we’re going to show fewer ads. There are certain things about installing across multiple browsers and…
- Jeffrey Kip:
- Purely fewer ads. Gregory Blatt No on some of them are fewer, there is a whole bunch of stuff I think in general the fact that we distribute a branded search engine which is Ask.com I think it gives us a whole lot of advantage with respect to Google with respect to the policies that are applicable and so I think that without getting the details I’ll say a lot of the noise that we know out there about these polices generally probably don’t apply to a large part of our business. In terms of mobile, look, I think toolbar is a thing right. In Internet Explorer we use toolbars, on Chrome we use something called an Extension it’s not a toolbar. I think mobile and tablets are just opening. And at the end of day what we’re doing is distributing search, now we do that because we have good monetization, good technology and the ability to develop great applications. And we’re seeing lots of opportunity open up as there as the modernization on those steel sub-par get better and better. I’m not going to tell you exactly what sort of technological feature exactly where the distribution is going to happen, obviously it’s very nascent and we’ll show it to you over time. But I think the point there again is just mobile represents sort of long-term incremental growth for us. We’ve got tons of growth sort of in the near term on desktop and frankly with the medium term. And the growth in mobile is really going to start happening this year and you’ll see as it comes, but its actually a very wide open in terms of both the technologies available and the abilities to monetize these applications both through and otherwise. So we’re going doing quite optimistic about it.
- Barry Diller:
- Next question please.
- Operator:
- We’ll go next to Mark Mahaney with RBC.
- Mark Mahaney:
- Great, thanks. Two questions, you made just a very brief reference to Google CPC trends in January. Anymore color on that? Does that seem strike you as anything other than seasonal? And in terms of mobile monetization, Greg, I think you made some comments that you’re relatively optimistic about mobile monetization rising up to desktop levels. Can you expand on that a little bit that seems like a very reasonable insight the finance markets may have viewed that differently in middle for the last year, but are there particular data points you’re looking that give you confidence in that? Thanks. Gregory Blatt I’ll let Jeff take the CPC comment next, but I don’t think I said what you think I said. I think that if I did, I didn’t necessarily mean it. Yeah I think that mobile monetization is going to improve meaningfully from where it is today. I don’t know that given in the form factor, look, people use the word mobile to mean a lot of things. When I talk about mobile I’m talking about a device that you hold in your hand and operate with one hand. I’m not talking about larger tablets and all that where the form factor allows for much more comparable modernization to desktop. I think mobile will get better, but I think my instinct is and has been that it’ll be a long way before mobile, true mobile device this handheld smartphones are comparable to desktop in terms of modernization, but the hope is you make up for it in volume and because as we all know with regards to what you want you want to say about desktop and mobile, the combination of the two is growing rapidly. And clearly desktop is clearly here, its still going and its going to be here for a long, long time and so the mobile build keeps coming on top of that. And so I think that in aggregate you’re going to have lots of revenue growth opportunity.
- Jeffrey Kip:
- Mark, can you just repeat the CPC question, I apologize. Gregory Blatt Just want to know seasonal or foreseeing anything else.
- Jeffrey Kip:
- No, I don’t think it’s particularly seasonally. I think we actually look at it across the system as part of the general ad policy changes where because CPC is a product of supply and demand as you have people shuffling to adjust just as we have. We think there is a temporary shift exiting at something we’ve seen start to rebound a little bit and we’re not terribly worried about it. Gregory Blatt But I do think that Q1 tends to be a little lower.
- Jeffrey Kip:
- It is. Gregory Blatt Q1 is lower seasonally and then there is audit added delayed effect of the policy changes.
- Mark Mahaney:
- That’s quite great. Thank you, Jeff.
- Operator:
- We’ll go next to Peter Stabler with Wells Fargo Securities.
- Peter Stabler:
- Thanks. Greg, earlier in your remarks you referred to mobile counting for 7% of Ask queries and you attributed that to the fact that Ask users are later adopters I think to user your terms. Would it be safe to say that the profile of the toolbar installer, user fan in similar in terms of being let’s say a laagered in terms of adoption technology and new form factors? Gregory Blatt I would not use the word laagered, but yes I think in general the people who use our products are not the advanced adopters. And I think the 7% figure also needs to be thought of in the following way, which is, we’re making – we’ve made virtually no effort to distribution on mobile. So 7% absolutely mostly organic and exigent organic traffic, it’s actually more representative of the market generally. And as we start to do distribution, that number will tick up as well. So I think the answer to your question, yes, 7% exaggerated at.
- Barry Diller:
- Next question please.
- Operator:
- We’ll go next to Jason Helfstein with Oppenheimer.
- Jason Helfstein:
- Thanks, two questions. Can you go into a little bit more on Match specifically so we saw core revenues 5% but Core softs were better than that? Was that just a function of adding the kind of subscribers later in the quarter or just talk about any kind of pricing trends we’re seeing or is it a function of kind of the weaker results we saw from the developing assets. And then secondly, to the extent that you’re having of course you’ve had detailed discussions with Google on the applications and the rule changes. And Google continues to think about had a push its Google Play platform out there. Is this causing more discussions that perhaps are catalyst toward how your applications work in a more mobile environment? Thanks. Gregory Blatt Okay. On the Match side, I think it’s a combination of things. I think there are some mix there which People Media it’s an increase in People Media which tends to be lower priced. There is a big effect in Q4 when you get a big push at the very end of the quarter. So to your point, you’re not getting the revenue reflected throughout the whole quarter. I’m not sure if I understood the third point, but its really mix of those first two and I think that we’re going to see over the course of the year, as we talked about is, we’re going to be driving revenue per user up through the various things that I talked about in my opening remarks, which is taking margin on events keeping add-ons sort of be doing a drive up the price of Match while still pushing people into longer term packages which tend to bring revenue per user down. So this is balancing of the two components and I would say by second quarter the gap between revenue and PMC on the core side ought to narrow substantially. On the Google side, sorry I’m not sure what the places issue has to do with our application. So I didn’t understand what you’re…
- Jason Helfstein:
- So I think it’s come up in numerous calls and you got to ask how are you transitioning applications to mobile because there are no toolbars in mobile, but there is apps. Google is clearly thinking about all of its partners on the application side in meeting with all of you guys as we’ve heard. Has there, I think, about the new policies, do you think this is a catalyst toward working with Google to let’s say work on distribution of your applications into mobile? Gregory Blatt No, look I think our applications policies are, they cover mobile or good with mobile. I do think people get really bogged down in the assumption of toolbar and people need to think about toolbar is something that is simply the way we formatted our applications on desktop. That is not a form factor that works on desktop we will, on mobile, so we will configure our applications in different ways and distribute them in different ways. And that way it’s going to be different on an iPhone on a Windows tablet etc. So the whole verities like…
- Barry Diller:
- Word to use for that is application. Gregory Blatt Yes. They’re all applications. That’s right. And search will be good monetization I don’t think we haven’t had discussions with them with any note about driving our applications into their places product or anything like that.
- Jason Helfstein:
- Well I said Google Play, sorry, it’s the payment platform as far as that’s working out. Gregory Blatt The platform, look I think we’re always looking at ways to directly monetize our applications clearly as I said on mobile. There are more and more opportunities to do that than they were on desktop. In Android that sure will be a part of it over time.
- Jason Helfstein:
- Just last one quick one, Barry, I mean you said no to effectively know in the medium term to a Match spinoff. I mean what about attracting stocks effectively people could invest in the assets they want to invest in without actually separating from the business.
- Barry Diller:
- Look, as I said before, we think the best configuration is a consolidated number of businesses that we think relate to each other and that we also think are very good, sorry the ability to manage through them is really enhanced often by the relationship of one to the other best practices in terms of being able to populate these businesses with effective leaders etc. So I’m not much for tracking stock, so I just I think it actually look. I am much for spinoffs that’s already been rather clearly demonstrated. As I say I don’t think it is time yet, they never be time to spinoff assets, but that is always a possibility, but I don’t think I would substitute a tracking stock for a spinoff. Gregory Blatt I’ll say again. We’re expecting great growth in both fees businesses here and beyond and so we are – we see both good double-digit growers for as far as we can see and we’re excited about both of them and again this current sort of fog that sort of come out of nowhere besides we feel really good about them.
- Barry Diller:
- We know the fog was created because people thought that our Match businesses we’re going to have much slower growth that the universe was not really bit etc. You spent 10 solid minutes explaining why you feel otherwise. Now I think you’re right, but time will tell. I have enormous confidence. And the other part of it obviously was, and I refer to it when I talked about this whole short, but I consider, no it’s inappropriate to call it anything, but this short process which was based up on literally some leaks and other things that ended up in Newsletters and other reports saying that our Search & Applications business was over. Now we spent another 10 or 15 minutes telling you all why we felt otherwise, I don’t want to be defensive, I know there is no productivity in that. So the only thing I would just say is that we’re going to do our best. We’ve tried to explain our businesses to you today in-depth. We’re optimistic about the year and we’re optimistic beyond the year.
- Jason Helfstein:
- Thank you very much.
- Barry Diller:
- Next question please.
- Operator:
- We’ll go next to John Blackledge with Cowen & Company.
- John Blackledge:
- Great, thanks. Thanks for the all the data on the call. Couple of questions, did you guys consider raising the share buyback authorization heading into with the print that’s one. And then two, on Match, on the offline initiatives, are you going to have a bigger impact on (indiscernible) or ARPU or both? And then if you could give mobile search ad revenue as a percent of total that’d be great. Thank you.
- Barry Diller:
- What are we now then authorized shares now? Yeah I mean look, the issue for us is never going to be how many shares are authorized because whenever we want to buy stock if we want to, we’ll increase the authorization. So that’s not a material issue. Now some people use it to a big authorization, but don’t have to necessarily have to implement because they think it kind of sounds good. I mean we’re, I’m sure we’ll be optimizing more shares, just the question when. Gregory Blatt On Match side, look, I think events as I said certainly launched and we thought that the potential to a whole bunch of things. One is to improve the efficiency of acquisition as I said that didn’t happen as quickly and as dramatically as we thought, but we’ve got new marketing out that we see really good about and it’s performing well. In terms of revenue we’re starting to drive direct revenue this year for them which will increase ARPU and then it also helps drive conversion. So it really is across and retention, so its really across all of those various areas in a different state as it has different levels of impact. The other question was…
- John Blackledge:
- The mobile advertising and search as a percent of total. Gregory Blatt Yeah, look, we gave you sort of sense of the page views that we were seeing across the products and revenue per query is substantially less. So it you consider to do the math, we don’t disclose it but it’s still small and we’ll be growing.
- Barry Diller:
- Next question please.
- John Blackledge:
- Thank you.
- Operator:
- We’ll go next to Mark May with Barclays.
- Mark May:
- Hi, thanks for taking them, two on search please. You said in your prepared remarks, Greg, that the AdWords policy changes that took effect in the quarter I think your wording had impact roughly 12% of the search segment. Do you mind just clarifying that in how you get to that figure? That might be helpful. And then secondly regarding the new guidelines around apps, I think you mentioned that it will have an impact, it will impact I think you said, quote a bit. Would you mind kind of quantifying what that is and why are comfortable you can after this initial depth impact in Q1? Thanks. Gregory Blatt Sure. On the first question…
- Barry Diller:
- Sorry I was going to say, the last question is really gee. I take it first. Gregory Blatt Okay, sure. The first question – the second question is, we do all these things on an LTV basis, okay. So we literally we can look at virtually any change that a policy has and we can calculate its impact on the LTV of a toolbar and in application. And we can then calculate the marketing cost of that application and then forecast it out. So we know within, tending just from testing all these things, it frankly as we’re negotiating with Google we can quantify the impact. We were going to have unbent for these. We were going to having off the chart year, I mean it was going to be another year of 40%, 50% growth. So there are real impacts, but even when you calculate them out, we’re going to beat the levels that Jeff laid out; it’s pretty clear in front of us. Look, if its Google’s CPCs are bad or anything else of course you start, but assuming the world as we know it, we understand the impact of the policy changes pretty well. I think and I think this is an important point we really are in a strengthened competitive position. So we look at this as a one-time hit which we’ll feel this year, but the hit is going to be on us much less hard than it is on many other people out there because of the existence of our Ask business. And the benefits inherently…
- Barry Diller:
- Inherently this we think almost all of it is a healthy development. Gregory Blatt That’s right.
- Mark May:
- Meaning – is it meaning this enables you to more competitively go after distribution. Gregory Blatt We will have a more attractive LTV to offer to distribution partners on a comparative basis than we had before. It maybe a little less than it was on an absolute basis, but it will be comparatively much stronger, especially since one of the things that as I said we reached out to Google proactively in the summer because there were a lot of people doing things that we weren’t knowing to do and we were starting to lose business with those people and we wanted clarification. And those people are not going to be doing those things anymore, which again puts us on a much more advantageous perspective with respect to distribution partners. So we feel really good about that, the hits on LTV are one-time hit. We really – our app’s – our relationship with Google has never been better, really harmonious process didn’t agree with them on everything, but we’re participants in it, because we really are in it for the long-term and to that respect we really do think that overall we think the strengthen the segment long-term.
- Barry Diller:
- It’s important to underline. We set this off. Google may have for their own wisdom cover up on the same thing. We sent a 30 page how long was that? Gregory Blatt We reached out to them with a comprehensive analysis of the market and sort of ideas about how to cleanse it.
- Barry Diller:
- How to cleanse it? But it was a very long was involved with little mischiefs in fact. Gregory Blatt Yeah, again to your point I’m sure Google was thinking about the same think, but we’re not blindsided by this and again not exactly where we would have ended up ourselves, but overall we feel really good about it. On the first point, I think basically what we said was that we make of the segment’s OIBA we make about 12% of it off of marketing as gone to Google. So you can think about the ways one would calculate that. I’m not going to walk through the whole derivation, but you’ve got contribution margin from the key words that you buy and again the thing and then you calculate in sort of your repeat customers and you allocate some costs and you do other sort of stuff. And that’s, you get to, you can do it three or four ways and you get to around 12% no matter which way you choose.
- Barry Diller:
- We’ll take one more question.
- Operator:
- We’ll take or final question from Brian Fitzgerald with Jeffries.
- Brian Fitzgerald:
- Thanks guys. Greg, you mentioned about Mobile pays at 40% and Dictionary at 40% where can those get longer term and does the inherent nature of that nature debt or that service drive that or are there things related to the interfaces or apps I can kind of move that needle quicker. Gregory Blatt Well I think what I would say is that we’ve seen in the growth of Mobile reference actually tends to be a larger part of mobile search than a desktop search, because a lot of mobile search tends to be sort of, you can imagine you’re somewhere and you want to know the answer to X. Dictionary is a prime example of that and that is where Ask, About and Dictionary all play. So we are very well positioned from a Q&A reference perspective for that area. I think that Dictionary frankly put more effort into it earlier and really saw that as an area that they were going to go after, About a little more and Ask has just had so much runway but it’s just starting a little bit later in terms of really putting it into it. So in terms of where they can end up and that depends on a lot of macro assumptions what’s going to happen to Mobile and Desktop search, I’ve laid out sort of what our view is at least over the next four or five years which is desktop search is going to be flattish and we don’t expect to decline in that area. We expect to be able to continue to get growth in that area and we expect to continue to increase our penetration in mobile and table device
- Brian Fitzgerald:
- And then a quick follow-up. Could you just give some color on mobile ad versus ad traffic? Do you differentiate between those two? Gregory Blatt We differentiate in terms of the way one gets distribution for one versus the other can be different, but at the end of the day all the circs in the circs get served up on the web. So there won’t be questions where you’re getting the query and obviously we’re in different, we’ll go wherever we can get the query the cheapest and the most widespread and we’re seeing lots of opportunity in both areas. Barry Diller Thank you for staying with us all this time. We appreciate that you seem to all have paid attention and we look forward to talking with you next quarter. Good day to everyone. Gregory Blatt Bye-bye everybody.
- Jeffrey Kip:
- Thanks
- Operator:
- Thank you. That does conclude our conference. You may now disconnect.
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