Perion Network Ltd.
Q2 2011 Earnings Call Transcript

Published: 15 Aug 2011

[Operator:]

Ladies and gentlemen, at this time, we will begin the question-and-answer session. (Operator Instructions). The first question is from Nick Halen of Sidoti & Company. Please go ahead.

[Nick Halen:]

Hi, guys. How are you?

[Josef Mandelbaum:]

Hi Nick. How are you doing?

[Nick Halen:]

Good. First question I had was, I was just wondering if you can give us a little bit more details on what exactly Smilebox’s products are, and, I guess, are they kind of standalone products you guys are going to incorporate or something that can be used in conjunction with your existing email product?

[Josef Mandelbaum:]

It’s a standalone product. I mean, we may market it ultimately to our members and to our existing client base, but it’s a standalone product. Essentially what it does is, this allows you to take your photos, wherever they may be, and basically create a unique creation out of it that you can then – which helps you connect with family and friends in a really simple, easy to use fashion, as they like to say, it puts a smile on everybody’s heart. So basically it’s like a slideshow with really creative content with music in the background that you can share on Facebook, you can share via email, you can share via Smilebox, and essentially they have significant amount of people are using it today. As we mentioned, over 15 million installs to date and it really fits in the photo sharing/ photo personal expression bucket.

[Nick Halen:]

Okay. Now, like you said, that seems to have a very strong presence in the US; I believe you said about 80% of revenues within the US. I was just wondering what -- outside of the US, where do they currently have some operations, and I guess where do you expect to be able to market this and grow out these products internationally?

[Josef Mandelbaum:]

Yes, so – a great question. In the research – here is the good news, I mentioned it before. There’s like 220 million people who use photos in some fashion online every week or every month. I think today they have UK, Germany, and France, if I’m not mistaken, they just started some of that, so it’s really fledgling at this point in time. One of the things we think we can bring to the table with our expertise, I would expect to go into countries that have strong Internet presence, obviously a presence, a large portion of our audience is online. Again, Western Europe is a good example, where the demographics are such that it’s an aging population which fits into us very nicely. And a lot of people are getting online now faster, because broadband penetration in Europe has accelerated over the past couple of years. So we’ll try to make -- push that over time. I would say it’s not the first thing we’re going to be doing, because we do want to make sure that we do this right and we help Smilebox to accomplish their immediate goals and then we’ll look to plan with them, how we leverage IncrediMail’s footprint on one side and how we’re going to leverage their US presence for IncrediMail and search on the other side.

[Nick Halen:]

Okay. And then, just lastly, I was just – can you give us a little bit of an update on how your existing product lines have been performing? I mean, obviously, revenues are growing and everything like that, but I was wondering any products in particular, any of your existing portfolios that have shown from particular strength recently?

[Josef Mandelbaum:]

So, I mean, the only one we really launched in the past is really PhotoJoy. IncrediMail itself is still holding its own. The install base, overall install base went up a little bit; I think 6.8 million from the 6.6 million. To remind everybody, we stopped talking about HiYo, which is a previous product that we discounted. So that’s going okay. And on PhotoJoy, what we’re seeing so far is that the usage of PhotoJoy is actually exceeding our expectations. And as Yakov said earlier in the call, we’re still really monitoring the revenue generation on a ROI positive basis as we spent some media around PhotoJoy’s to help launch it and also measuring it. It’s really too early to tell from that standpoint. I mean we’re making money obviously – revenues on it, but really as it grows, well hopefully, by Q3, have more information. As Yakov said, it’s going to be really telling quarter for us in terms of how fast we can scale PhotoJoy with regards to getting a positive return on our marketing spending. Photojoy, today, although we’re making some additions is not viral like IncrediMail is or Smilebox is as a matter of fact as well. We’re adding some components in the next quarter to PhotoJoy to allow you to share via email, share via Facebook and other social networks, also we have a mobile and iPad version of PhotoJoy that will be coming out. So we’re really investing a little bit to how to get it to the next level and we hope that we’ll be able to leverage that. And ideally over time, the Smilebox audience and the Photojoy audience, since they are both photo-centric products, hopefully they will be able to cross-market over time. It’s not the immediate thing we’re going to be doing, but we’re certainly looking at that in the future.

[Nick Halen:]

Great, thank you.

[Josef Mandelbaum:]

Thanks, Nick.

[Operator:]

The next question is from Jay Kumar of Midsouth. Please go ahead.

[Jay Kumar:]

Hi guys. I’ve got a question about the customer acquisition cost. What’s that and how do you see that playing out in the next two quarters?

[Josef Mandelbaum:]

Well, so first of all, I’ll explain what it is. Basically the customer acquisition cost is, we would go to, let’s say, Google or Bing, and when someone is searching on a word with say for free email or for putting animations in email, we would look to buy, right, placement on Google or Bing like everybody else in the world is doing to get a high placement. So when someone clicks on it, it comes to our website and they download our product. We also would do that, for example, for display ads, could be on Facebook or could be in Yahoo! where we do display ad and hopefully someone clicks on it and then they download our product. We pay the media, right, so we pay for the advertising. And then we track all way back to when someone downloads it, who uses it, how much money we’re making from them and then we could basically see over time, right, these things take a while. How much revenue we’ve got, we’ve received from that customer versus how we’ve paid for them upfront. And I think as Yakov mentioned earlier and on the previous calls, the accounting for that is, you expense the marketing expense right away and the revenue you recognize as you get the revenue, which is why there is a lag as we discussed early – in previous phone calls. We said it in Q3 being similar to -- maybe slightly larger than the spend in Q2, and we hope if things go well, then Q4 will be slightly larger than we saw in Q3. We had discussed earlier and we said previously that we’re targeting in the $6 million or so range for the year to spend. At this point in time, I think we’re tracking towards that, but we’re being cautious, because as Yakov said, we’ve seen good results, but I can’t say we’ve seen good results from every campaign we’ve done, which we didn’t expect and frankly no one could expect, there’s no one in the world who does that. As we’ve learn, we’re learning which campaigns to focus on and grow, which campaigns to cut-off so we don’t lose lot of money from them. And as Q3 started rolling out, and we see it concluding, we’ll then see a much better feel for how some of those campaigns are doing that we started in Q2, and that will give us confidence to continue the spending or to pullback on some of the spending.

[Jay Kumar:]

Okay. All right, thank you.

[Josef Mandelbaum:]

You’re welcome.

[Operator:]

The next question is from Benny Deco [ph] of Union Bank. Please go ahead.

[Benny Deco:]

Hi. First, I want to just congratulate you on the results. I need to ask, how much money does it cost to get a customer?

[Josef Mandelbaum:]

We don’t disclose those numbers in terms of what we spend in general, but I can tell you geographically, basically the US, Canada, and the UK have to the highest customer acquisition cost. If you looked at other companies in the space, I think some of them may disclose it, I don’t know, but we’re similar because we’re fighting, Benny, in a market where I don’t care if someone’s email -- is downloading an email client or frankly a wig, right, a virtual wig, someone is still paying the money to somebody and we can deal with everybody from that perspective. If you go to third world countries like – well, not third world, to lower – to rest of the world countries like India or Brazil, for example your customer acquisition cost is probably a fifth to a sixth of what it is, maybe even less so than in the US and the UK. What we’re trying to do is balance out obviously. And consequently, Benny, the revenue you get from the UK – from Brazil and India is also much less than what you get from the US and the UK. So we’re trying to balance out where we spend the money and looking for the best return on an absolute basis, as well as looking for where the highest revenue growth potential is and we’ll try and keep a balance in there, so we get a really good mix of the spend.

[Yacov Kaufman:]

And if I may add to that, this is one of the reasons why the testing process is taking so much time. In other words, we have to be able to test multiple channels, in different words, different display ads, and we have to do that in multiple geographies. So we have to see in which countries can we spend as much and that we have to compare that to the revenues, and in each one of these specific cases find an ROI positive traffic. So that’s why the testing period is taking us of such a long time.

[Benny Deco:]

Okay. You don’t disclose the numbers, but you can get where you see [ph] the numbers?

[Yacov Kaufman:]

Well, frankly, the range is anywhere from $0.01 or $0.02 to $2 or $3. So the range is tremendous. Again our focus is constantly matching the course to what we believe would be the return on that investment. So in some countries and in some places, the numbers are extremely high like I said. In other places like Josef mentioned, they could be extremely low, and so the range is actually extremely growing.

[Benny Deco:]

So how many customers do you have today?

[Josef Mandelbaum:]

We have about 6.8 million install base today.

[Benny Deco:]

Okay, thank you.

[Josef Mandelbaum:]

You’re welcome. Thank you.

[Operator:]

(Operator Instructions). There are no further questions at this time. Before I ask Mr. Mandelbaum to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available in three hours on the company website at www.incredimail.com. Mr. Mandelbaum, would you like to make your concluding statement?

[Josef Mandelbaum:]

Sure. Thank you, Rachael. Thank you all once again for joining our conference call today. I hope you’ll agree these are really exciting times ahead of us as we look to close on our first acquisition and we look to continue the momentum we have that we built up over the past year. We look forward to speaking with you in the future quarters and updating you on our progress. Thank you and have a nice day.

[Operator:]

Thank you. This concludes the IncrediMail second quarter 2011 results conference call. Thank you for your participation. You may go ahead and disconnect.