Match Group, Inc. (MTCH) Earnings Call Transcript & Summary

All right. So welcome back, everyone. So we're running a couple of minutes late here. I'm Brad Erickson. I cover services at Needham & Company. Very pleased to have Glenn Schiffman, CFO of IAC, joining us on the line. Glenn, thanks for being here.

Brad, thank you. Thanks for having me.

We're in a virtual format, which we're all growing to love, I'm sure. Yes. So let's get right to it. I think as is consistent with all these formats, I think we're going to -- the discussion, I'm going to keep probably largely ANGI or primarily ANGI today, but if you want to ask a question, certainly around other parts of the business under IAC, feel free to do so, and I'll do my best as we move through here to triage those questions.

Glenn, I think to start off, I think the single biggest question or thing that was curious that you said on the recent earnings conference call was just around basically making the call, like, for the moment, it's uncertain. And I think you made a comment around demand probably not growing for the rest of the year despite the, I think, in some cases, metrics around the business. Marketplace revenue in April, for instance, was pretty good. It was only down maybe like 2% or something. So maybe it would be good just to start there. Maybe just clarify that comment a little bit. And then just kind of how much of that comment reflected an almost, I guess, certain recession in the back half that you kind of alluded to?

Yes. Look, I think I read some article where the use of uncertainty in earnings calls this quarter spiked up dramatically. And that's something...

In sell-side research, it does.

And appropriately so by CEOs, by CFOs, by research analysts and by investment managers who are trying to get a handle on the companies in which they invest. So there's a lot of things going on in our marketplace, a lot of them positive of course, in the context of the COVID crisis and some of them and potentially a lot of them negative. So I think as we look at the year, let me just lay out the puts and takes of it and view all and build and pick your poison here. First of all, we've seen -- and Brandon and Joey said on the call, we've seen a snapback in terms of demand for our services. And that's a snapback. I think we hit the low when the NBA was closed that week in March when we all realized, wow, this is really serious, and we are going to be sheltering in place for a while. So we've enjoyed a snapback from there. And then second, we're all in our homes a lot more. So the things in our homes that were mildly annoying or kind of not working when we were here half the time or 3/4 of the time or 1/4 of the time, now that we're here 100% of the time, are significantly annoying or not working, and we want to change that. So unclear how that -- how long all that lasts. Third, we're in our homes, so we're breaking things more. I think I read somewhere that dishwasher usage has spiked dramatically, including by some people who really don't know how to use a dishwasher and are stacking things that break dishwashers. We have that phenomenon. Also, as of now, discretionary income for people fortunate enough to have jobs is probably up because we're not spending on travel, we're not spending on entertainment, we're not spending on eating out. So credit card bills may find people with discretionary income. And some of that discretionary income is finding its way to home services. Now on those first couple of things I said, unclear how long they last and unclear how long shelter in place lasts and unclear what the consumer behavior will be coming out of that and further unclear what will happen during a recession that will no doubt follow this. I mean we're already -- people are saying GDP could be down 30%, 40% in the second quarter, and this may take a while to work through. So again, there's 4 or 5 factors clearly at play here. And unclear how that's all going to balance itself out for the rest of the year. What is clear is that we're going to continue to innovate. What is clear is we're going to continue to drive progress on fixed price, which is one of our key strategic initiatives. What is clear is our SPs are going to need us more in times of reduced demand. So we're going to work hard to be there for them, providing them demand. What is clear is we have the financial flexibility both from a balance sheet and an income statement to invest as necessary. So that's in marketing. That's in sales. And what is clear is we're going to come out stronger. But it could take a while, and it will be volatile. The only other thing I'd add, as I think Joey said it on the call, is in the span of, I think, 45 or 50 days, seasonally adjusted, we had one of our best days that we've had in years and one of our worst days that we've had in years. So with that framework, really hard to handicap all those crosswinds, where that will all shake out for the balance of the year.

Got it. And then [indiscernible], but just to clarify, a few weeks since the earnings call, we've seen, I would say, a pretty broad week-over-week improvements across most consumer categories, real estate, et cetera. Do you feel any better about the whole demand is down for the rest of the year comment relative to a few weeks [ ago ]? I know that's a tough question to answer, but what would you say?

Yes. No, we got a lot of weeks left in the year. So no, I'll stand by my comments on the earnings call. We got a long journey here. And I think I said in one of my answers, uncertainty reigns. And I think it still drives the day here and fosters any more degree of specificity improvement.

Yes. Great. And then just on -- obviously, you talked about you're adding -- you're trying to do as much as you can for those fees that has record ads recently. Maybe setting aside the new SPs, how about the existing ones, the ones you have full pandemic hit? And I guess just what change have you spend in activity? And I guess we'd lay out 2 scenarios. On the one hand, I guess you could argue that because of the slack demand, they had more capacity, maybe even cut off a more budget up for leads. On the other hand, demand softened somewhat. So maybe that just caused some of them to pull back and sort of pause or maybe even pause their lead gen spending overall to control their marketing costs. What have you seen from the existing SPs you have on the platform before this all hit?

It's -- we've seen all the above, all the above. As you know, we're in 400 different categories, and we're in 500 different geos. And different geos have geographies, that is, different geographies have been hit harder than others. The Northeast, the Pacific Northwest and some of the population centers in the Midwest have been hit harder than the South, the Southeast and some of the less dense place -- places. And then different categories are behaving differently. We talked about discretionary versus nondiscretionary, we talked about inside versus outside. All that is pretty logical. Outside work doing better than inside work, discretionary work doing not as well as nondiscretionary. As you know, the 2/3 of our business is nondiscretionary work. So it's really all over the map. What we find is our SPs who are on the platform, after an initial opportunity to turn off, tend to stay on the platform for a long time. And we've seen all the behavior you discussed. People turning off their leads because they're not sure if they're going to be able to go into someone's home. And you've seen SPs want us more when demand -- other sources of demand have gone down. I think Brandon's comments around how our sales have been strong over the last couple of weeks, I think that's because the ROI of our solution is quite high and in a demand-constrained environment, which we are, I think SPs will gravitate towards measurable solutions such as ours and solutions such as ours where we can deliver them demand. So I think that’s probably a common denominator that we're seeing. But again, it's everything you just said.

Got it. Relative to that point on ROIs, how would you characterize -- or have you adjusted the algorithm in terms of pricing with leads? And I guess is that -- I suppose that has to be a reflection of kind of the average order value or average job size you're seeing, whatever you call it internally. What are you seeing there? And have you made meaningful adjustments to the algorithm and ultimately to lead pricing here recently?

No, as a result of COVID, we've not changed pricing or raised prices at all. One of the things that we've been doing over time, and Brandon's talked about this as much, is moving more and more towards a path towards dynamic pricing. We're not at dynamic pricing yet. That's a really interesting end state. But more specific geo-based and zip code-based pricing. And then, of course, with our fixed price offering, we have the ability to use price as a lever to meet our supply and demand. But no, we aren't doing anything specific around that vis-à-vis COVID. Just our normal ongoing, trying to get pricing better and better and more reflective of the marketplace and continuing to tune our algorithms to match -- to more finely match supply and demand. And there's work to do there. As you know, we have way too many of our SRs that are not accepted. So we have work to do and we're doing that on the algorithm.

Yes. And I guess let's talk about that. What are the items? I think people who know your business have come to recognize there's a huge amount of fragmentation in lots of categories, certainly, lots of -- hundreds of micro markets across the country. When you think about, I guess, the 3 areas, I think, of our category, geography and then just general density, right, within maybe some of the larger urban markets, what are the points where you can really materially look to bring down that? I think it's 40% -- you've given in the past 40% of service requests to go unmonetized by your SP base. Like I think everyone can acknowledge that it's a huge issue to tackle broadly in the nation. But like what are some of the ways that you can maybe get critical mass to bring that number down materially more in the next few years?

Well, I think, yes, density is pretty important. I mean, as you know, the magic elixir in marketplace businesses is liquidity. And we see that in all of our businesses -- in all of our marketplace businesses. So it's density, density, density. And that you have to manage both sides of the marketplace and stair-step them up in lockstep, so to speak. Obviously, you want more service requests for marketing and whatnot and repeat usage. And then you want more SPs, of course, through this -- through sales force. We think to expand our sales force, that is. We think fixed price is a real differentiator and a means of major product improvement for us and a means to drive density and a means then, therefore, drive down those 0 accepts. And over the years, we've continued to innovate on product. We've added the Instant Booking product, the Instant Connecting product, Same Day Service product. We rolled out a different lead, a 1:1 lead product, that we call our [ Opportunity and Leads ] product that, again, gets people matched on a 1:1 basis. And then fixed price is the next manifestation of that. And we think that will help -- like all these have, that will help to drive down the 0 accepts because we changed the whole value proposition to the service professional where instead of we're asking them for money, obviously, we're giving them money and we're giving them jobs, not the opportunity to have a job. And then for the consumer, it's peace of mind. A couple of clicks, insert your credit card or intercredit card, swipes, clicks, descriptions, job's done. So we don't have the normal wrangle and the normal back and forth with a service professional that a lot of consumer -- consumers find very intimidating. So product in fixed price is our main avenue there, but that's not the only avenue. And fixed price is a start to a very, very interesting future for us, where with that direct relationship with the consumer -- we've talked about subscription bundles, and Brandon has shared some of those views on some of our earnings calls, where if we're doing one fixed price thing, we could turn it into a regular service for people. And then you get the repeat use. And then you get more 1:1 transactions, which then, therefore, will drive down those 0 accepts. So a lot of irons in the fire. It is a great, great, large opportunity for us. It's fraught with challenges, but we're on it.

Yes. No, that's good to hear. Talking about the sales pitch that you guys are delivering for prospective service providers right now. And I know the sales force is out in force, we'll say, given COVID and given there's probably clearly incremental capacity that's freed up in the service provider channel just over the last couple of months. But like talk about is it kind of a one -- or is it a single sales pitch whether to come on to fixed price or not? And just talk about how you're sort of allocating that sales process amongst your sales force as you go out to the market, both to try and bring SPs on during this period as well as add fixed price capacity.

I'll probably give you something more general than you want, as Craig Smith, who runs our sales force, who's outstanding, would be the best guy to give you this answer or even Brandon. But I want to split them into 2 pieces here, right? For our traditional matching product, we have a sales force that obviously goes out to the 2 million to 3 million SPs in this country and talks to them about being on our platform, talks to them historically about a membership, now increasingly less about a membership and more about a package, a budget for customer connections or leads. And that is a longer sale. That's a more expensive sale. That's an expensive sales force, although obviously well, well worth it, but a higher-priced sales force. On the fixed price, it's a different approach. A lot of our fixed price, particular Handy, is all auto-enrolled. So people go online, potential SPs and potential workers go online. And it's also more of a customer service sales force that reaches out to an SP or a worker with a very different value proposition. And that value proposition is simple. We have a specific job with a specific dollar amount at a specific location, can you do it at this specific time or they figure out a specific time. So it's a different sales force. It's a different approach, and we're fishing from 2 different ponds. If you want this to be -- when you have -- when you've been supply constrained, like we periodically have been as demand has grown faster than supply, we want to fish from different ponds and we want to expand the pool.

Got it. Okay. So it's fair to say within the 200-or-so thousand SPs you have today -- and I know you started out fixed price, but obviously, it's small still at this point. Is it fair to say that in the future, the capacity that we would think about allocated to fixed price would largely be incremental to what we see in the reported metrics today? Is that, kind of, am I stating that right?

Yes. Look, we think so. That's the goal. As you said, it's early days. But the absolute goal and the focus and the approach right now is incremental supply for the incremental demand that we hope to generate.

Yes. So I want to come back to incremental demand in a second, but just category wise, any sense of -- can you give us a flavor of just like where you've seen some successes or kind of the earliest of green shoots, we'll call them, in the fixed price offering thus far? I know you've mentioned that you're out -- you're live with 1/3 of the categories. I imagine the SP base that serves those is underbaked still. But what are some of the successes you've seen thus far?

Yes. We're in 135 categories, which, as you said, comprises 1/3. We've been in the fixed price business through Handy for years. And their 2 biggest categories are maid service/house cleaning and handyman. So that's the longest standard. That's the -- where we've refined most, if not all, the kinks, and where we have a very interesting business with a very attractive unit economics. And then we're starting to march that through on the more -- the higher -- the more sophisticated tasks, the higher-frequency task, but still low consideration. So as of now, we bucket that 135 in kind of a $500 average price point. We're substantially below that yet. So think the smaller consideration tag pass along that continuum. Our average order value in fixed price blended including with Handy is less than $200.

Okay. And then, I guess, 2 follow-ups to that. One, I think Handy has used some partnerships, different retailers. Think like furniture stores. I think they have a deal with Crate & Barrel, I want to say. Is that -- are those types of channels something that you guys could use to sort of organically or jump-start the demand side of the equation and give your salespeople a little bit more compelling of a pitch as you got to SPs? So start there and I have a follow-up to that.

I think that's really interesting. Now some of those -- some of our partners have suspended service given some of the shelter in place and not wanting to -- people not wanting them to be in their homes and vice versa. But we think that's really interesting. And that could be a really fun tailwind because I think one of the lasting impacts of COVID will be more of a comfortability or proclivity to transact online. And when something unassembled pops on your doorstep or the fan or the light fixture, very few of us know how to do it ourselves. So that could be a very fun tailwind for our Handy business. And we're nationwide. We've been in this for years and have a real attractive offering to potential future partners and our existing partners.

Got it. And then one of the other questions, and I think this comes up, not just with you guys, but with a lot of different transaction-oriented marketplaces. Clearly, in the case of like a housekeeping, for instance, right? You meet a house cleaner for the first time, they work out. You don't necessarily need the website after a while. When you mentioned subscription earlier, is that a way to sort of mitigate that off, taking the transaction off the site, so to speak? Or do you view those 2 as more mutually exclusive? And just talk about how you keep the transactions on the site for some of these more recurring type of homeownership service type opportunities.

We face that obviously on a lot of our platforms. I think first is make it more compelling to stay on the platform. Make it easier from a scheduling perspective, from a monitoring perspective, from a payment perspective to stay on the platform. If, in fact, they want to transact off-platform, then we now have satisfied a service professional, and we now have satisfied the customer, both have -- who have had a great experience on us. And then that customer will have hundreds of other tasks that they will have -- they will be a great ambassador and want to use us to find the next service professional that they work with for a long time. And then on the service professional side, they need more than one -- just one customer. So they hopefully will stay on our platform to get the next customer, and then they will be great, that word of mouth. And then also the volatility of the relationship between the 2 usually would call on either of those consumers or the service professionals to want to be back on our platform. People move, people change their needs, people evolve to different needs and different service professionals obviously who want to scale their business in potentially a different way. So that's not as big of a worry on our platform. Just like other platforms that connect, we've all been offered to pay cash for something that works better on an app. And we've all said, "let's just stay on the app." And that hasn't prevented us from going back to the app for more services.

Yes. That helpful. Cool. Let's talk about traffic. Obviously, it was kind of an issue after there were some testing execution error and some things happened competitively that I think some of us didn’t anticipate. How are you doing just from a brand perspective? Do you think -- HomeAdvisor to us seems like still a little bit of from a nascent -- from a understanding and awareness standpoint, how do you think you're doing overall on the brand front? And then maybe just related to margins and the deleverage we're going to see this year, talk about how much of that is related to just sort of planned ongoing investment to deepen the brand and try and find new customers versus somewhat related to maybe some of the downturn we're seeing right now.

You threw a lot out there. Last year's traffic issues, we -- you weren't alone. We didn't anticipate it either. Obviously, that was quite a blow to us and made for a real difficult second quarter and a real difficult back half of the year for us and our shareholders. As it relates to our brand, we've been investing, obviously, in the brand -- both brands sort of fair amount, the aided and unaided awareness of each of the brands. When I say each, Angie's List and HomeAdvisor continues to move smartly and continues to move in the right directions, and we're pleased with that. We're about to -- I believe the Google change in the algorithm last year was around Memorial Day, so we're about to comp over that difficult comp. If you recall SE -- more traffic went from SEO to SEM, organic to paid, that is, and the paid traffic was more expensive. So we're beginning to anniversary that. Recall, going into this year, I said that we're going to create -- given the revenue growth projections we had going into the year, we're going to create incremental margin on every line item, including market. So we're going to, for the first time in a while, create incremental marketing -- incremental margin, including marketing. For the last several years, we have not created -- we've created incremental margin and everything but marketing as invested. But we had a plan to invest -- sorry, into marketing. So we had a plan to get incremental margin. Given the demand environment and given the then therefore, revenue environment, we will not create incremental margin this year. So I think that's kind of the delta between the 2. And then remember, coming into this year, we said we were going to create incremental margin, but we're going to eat that up with our $30 million to $50 million investment in fixed price than our money losing to subsidiaries, mostly international. And now we're also going to spend -- we're undeterred and want to keep spending that $30 million to $50 million, but unfortunately, that's going to be after a mixed revenue, potentially down revenue or flat revenue, then they have a winds blow and they have incremental margin.

Okay. And then just in terms of, I guess, traffic partnerships. I think you may have a few in the real estate space. I think you started working with Nextdoor a little bit. Talk about just how those have gone. And is it fair to assume that you continue to explore additional other sort of adjacent, call it, affiliate channels?

Yes. They've done well as expected. I think the goal -- I put these in the category of driving proprietary demand. And that's a real strategic priority for us. Proprietary demand is the partnerships, proprietary demand is the app download -- sorry, the apps and getting people to download our app to engage on the platform. Proprietary demand is e-mails. And then obviously, people going directly to our sites without an intermediary. So that's -- that continues to be our goal and a key strategic priority, and we're making progress on that and acts around that and partnerships is one leg of that stool.

Got it. And then just on the marketing spending front. When you guys are -- now that you're -- you've laid out kind of the path [ hook ], there's a lot of smaller players in the space that depend some, call it, mixed data points out in the market, how some of those companies are faring at the moment. Was there a sense or have you gained a sense even in the last month or so that you're in this position to potentially gain shares just because of your scale and obviously strong balance sheet? Is there anything -- is it fair to assume that you're almost leaning in at this point from a marketing perspective, maybe even a bit more, just because of those opportunities? Or is that too sort of ambitious?

No. Look, I think we -- our marketing is always driven by ROI and does it make sense or does it not make sense. But we do want to lean into marketing, given our balance sheet and given our SP network. We do want to lean into sales. We do want to keep innovating. And we do want to then, therefore, start taking share, and we think we can here. We think we can come out stronger and marketing is a part of that. But always and forever, marketing will be ROI-driven. And it will only be spent if it makes sense, and it's beginning to make more and more sense every day. You probably saw some of our ads. We had some new creative running. I saw the first one on TV about a week, 1.5 weeks ago. So yes, we think we will begin to do that.

Got it. And then just on -- one more on the fixed price front, just from a modeling perspective. Can you just remind us just, obviously, that's going to be booked on a gross basis? So there's going to be a little bit of a hit to what used to be effectively a net revenue model, a very high gross margin. Just, is it going to be as simple as reading into the gross margin compression we see in the upcoming quarters? Is that a fair way to read into how the fixed price business is evolving?

Yes. There's a little more in that gross margin. There's a couple of other things. There's, of course, credit card expenses in there and there's other things. So the increase in expenses or decrease in the gross margin is not just a fixed price. So there's a couple of other things. That won't give you the purest read. We talked about the accretion from net to gross on the fixed price will be single digit, low single-digits accretion to growth. We have that in our outlook last quarter. And that continues to feel about right for the ensuing quarters. Maybe it will be higher if we can scale fixed price even more aggressively, maybe it will be less. But that kind of low single-digits accretion to revenue growth still feels about right. And that's -- to be clear, that's on a gross-to-gross basis.

Yes. Yes.

We really do it on a gross-to-net basis because there's some other factors at work.

Yes. And then just a last couple of questions, and we'll finish up here. This is something we get asked quite a bit, I think. Are there any -- or any teasers that we might be thinking about just posing a point related to price? Do you see any of that vicinity, any help there?

You got a little digitized. Can you repeat that again?

Sure. Sorry about that. So on fixed price, obviously, there could be a handful metrics that you might think about sharing at some point. First part of the question is, a, might you do that? And what might those be? And second, maybe when might it make sense to do that? Is it maybe -- is next year too to think about maybe some disclosure around price?

It's a good question. I'll give you a noncommittal answer, I apologize.

That's okay.

There's a lot that's embedded in that. And I think unclear if next year makes sense or when. At some point, for sure, it makes sense to give people little -- a little more color around it. What we give will depend. And hopefully, over time, it will be looked at by the outside world the way we look at it inside, which is, it's all part of our solution. Be it fixed price, be it Instant Book, be it Instant Connect, be it matching, we want this to be as seamless, and we want to -- even while we're getting better at fixed price, we want to get better at matching. We want our algorithms to work even sharper. And we want our NPS to grow strongly, all of our products. So it's an integrated solution to drive transactions and to delight our SPs and delight our consumers. So I know there's a lot of interest in that, and we'll take that on board, give us some thought and come back and share when we think it makes sense.

Great. I guess final question. Just back to the partnership opportunities. When you look at the -- as you look to obviously drive more traffic to the site, do you have moments like this potential recessionary moments as you have a really interesting data set, given all the feedback you've built around the services and the value of them and broker between consumers and service providers. Do you feel like your data set is -- becomes more compelling to a potential partner during this period? Or is that not something you think about?

I think we do have a treasure trove of data. I mean no one else -- yes, anywhere close to us, has done 27 million service requests on an LTM basis and has hundreds of thousands of SPs in the category and depth that we have. So yes, I think that's quite compelling. Some of the reasons why some of these partners want to work with us is our ability to fulfill nationwide at scale in multiple categories. So yes, it's the data, but also it's the capability. And in particular, Handy in working with some of their partners and us working with some of our ubiquitous partners, no one else can do and give that level of fulfillment at that scale in those geos, in all those tasks with our quality. So we think that is a differentiator.

Got it. Great. Well, Glenn, thanks so much for joining us. We're out of time. I'll leave it there. But thanks, everyone, for -- who is on the line, and we'll talk to you soon.

Outstanding. Thank you, Brad.

Thanks a lot. Have a good one.

You too.