People Incorporated (IAC) Earnings Call Transcript & Summary

Thanks for joining. My name is Nick Jones. I'm an analyst here at Citi covering Internet stock. You can find my disclosures, I believe, on a link below this webcast. We're really excited to have Neil Vogel here, the CEO of Dotdash, which is one of IAC's key businesses. So Neil, thanks for being here. I think to kick this off, I guess I should disclose to anyone who has questions, you can ask to the text box in the window or you can e-mail me directly at nicolas.jones@citi.com. We'll be sure to make sure there's time at the end to ask any questions that come through. But Neil, thanks again for being here. Maybe to just kick this off, Dotdash is a unique collection of media brands. And for those who maybe are new to the Dotdash story, can you walk us through what Dotdash is, its high-level strategy and how it generates revenue?

Sure. I'll give you a 30-second outline of what we do. Hi. I'm Neil Vogel. I run Dotdash for IAC. We are an online publisher. 20 years ago, we would have been called a service publisher. We make content that helps people -- helps them diagnose things, treat things, cook things, buy things, save their money, spend their money. We create content across some of the most commercially viable verticals on the Internet. We are health, finance, home, food, beauty, style, tech. And we do everything from a point of view of attracting intent-based user, like all of our users in all of our various brands. We've about 10 brands in 21 different domains. They come because they want to do something, or they need to do something, or they need to learn something and that's really valuable. We don't deal in browsy traffic. So that means no news, no sports, no gossip, no politics, no style. We make 100% of our own content. We spend an awful lot of money making it, and we think it's some of the best content on the Internet. Our business is super simple. And in its simplicity, very differentiated versus other publishers. We have 3 tenets of what we do. And it's for every topic we cover, we want to make the best piece of content on the Internet on that topic, without exception. That's the first thing, we have the best content. The second thing is we want to deliver that content to you on the fastest sites with the best user experience. And speed is very, very important on the Internet because the performance goes up. It is a nonlinear relationship between speed and user performance and advertising performance, and it looks more like this than in any linear thing. And the third thing we do is we have fewer ads and much less monetization than our nearest competitors in any space, probably 30% or 35% less advertising or less monetization units in our nearest competitors, which gives us fewer ads. It means that as you have performed better, it means users are happier, it means they come back more, it means you can charge more for ads and you can get higher returns on other things that you do. And the business is working. And since we sort of took the old carcass of About.com and verticalized it 3 or 4 years ago, I think in 2017, we did $70 million of revenue. We lost almost $20 million. Last year, we did about $165 million, $170 million of revenue and made $40 million in EBITDA. This year, we've shown remarkable growth and resilience in the face of what is a crazy world. We have a real diversity of audience across a whole number of different things, from finance, to health, beauty as we talked about. And we have a real diversity of revenue. We make revenue in advertising 2 ways. We sell advertising, we're very good selling advertising electronically, programmatically. And we've gotten very good at transactions because our users trust us. They trust our content, and they come to us with a stated intent. We've gotten very good at connecting users with products and services, and that's now a 35% plus percent of our revenue and growing. We are not the #1 player in any space in which we compete. There's a lot of M&A opportunities out there for us because our model works, there's a lot of guys in publishing not doing so hot. There is sort of like this prevailing commentary on publishing that somehow publishing is broken or publishing doesn't work. We disagree with that vehemently. Publishing works great if you have a very good and disciplined model. And we do. And we're very excited about where we can take this thing. And now people like you guys want to talk to us, which is fun for us. So I'll go back to Nick if you want to start the Q&A.

Yes. Great. Great. Maybe a follow-up here. You touched on how much you spend on content. I think over the last few years, you spent around $100 million in content, and 2020 is expected to be bigger than 2019. How should we think about content over time? Are these levels, I guess, it would be like the $30 million, $35 million a year range kind of required long-term to kind of keep the content fresh. Maybe touch on how this compares to some of your competitors and how they spend? And also maybe a little bit on the content strategy because you have properties like Investopedia that, I guess, ostensibly don't need to be refreshed as often, and you just kind of evergreen-type content?

So I'll do the -- I'm not going to remember all that, but I'll remember most of it, and do the spend part first, which is our content spend is an opportunity. And we have a really good model. We can spend at these levels and still deliver very short EBITDA margins, right? So our content spend is essentially our customer acquisition cost. And the number one thing, the Internet doesn't need any more mediocre content, and it doesn't need mediocre content from a challenger brand, which is what we are. So if we're going to be the best challenger brands and we're going to really take share in these spaces, which we have. We are the largest scale new entrant in health in like a decade. We're the largest scale new entrant in the home and food in over a decade. Like, we're showing up because what we're doing is really working and that all triggers on this content spend. And what we do sensibly is we look at the Internet for every area that we think is viable to cover. We look at what everyone else is doing, what we think is the best, and we try and make something better. And that is how we spend money in. And I think the allocation part for us is interesting as well. You made the point before that we don't have to refresh content all the time. A big part of what we do is our library. So when you're a service publisher, if you have the best blueberry pie recipe or the best how to choose a robo brokerage article, you don't need a new one. You just have to constantly update that one and make sure it's the best. And I do -- recipes are a super simple part of our business, but it's a good way to explain how this works. Three years ago, our blueberry pie recipe was, like, a picture of a blueberry pie and a bunch of steps how to make it. Now it's a picture, a video, step-by-step pictures for every step. Nutrition information, alternative ingredients, how many dishes you're going to use. It has comments, we had 2 chefs make it, I mean, give their take on how to do it, different ways to modify it. And it's this incredibly gifts of the cooking and nice skills you need to make this. Like, so -- the more you have to invest in content, the better it is for us. The majority of our traffic comes from content that we have that's 2, 3, 4, 5, 6 years old that we invest and constantly invest. We probably spend a little less than half our money on things that are new, and a little less than half of our money updating our library. I think our real advantage in going back to what we said about Investopedia is things change much more quickly than one would suspect on financial information. And if you have a financial question, like, you're trying to learn anything. You're trying to learn about, like, well, how do I handle this thing with my mortgage? Or what do I do with the savings? Or how do I get a personal loan or what do I do? You can't be mostly right on that information. You have to be 100% right. And being 100% right means you have to vigilantly look at this content all the time on a schedule, even if you don't change it. It could be every day, if it's credit card rates. It could be every week. It could be every month. Or again, if it's a blueberry pie recipe, it probably doesn't need it, probably every 6 months is fine. But we try and look at almost everything, at most, every year. And on the more and more critical stuff, you'll see very recent date stamp. So for us, we don't have any hard data on what other people are spending. We have a lot of anecdotal data because we've seen a lot of resumes from all these places, and we know that they're not investing. There are maybe a few other publishers. And I think they'd be isolated in health and maybe finance are spending anywhere near what we're spending, and a few maybe spending more, I don't know. But we're not doing -- we're not spending money in trying to figure out a tic-tac strategy. We're not spending money in trying to figure out how to sell movie. We're not trying -- spending money doing things that are not core to what we do, which is help people. That allows us to spend money on what's working for us and has allowed us to build this real advantage and the sort of, like, flywheel, like, great content, fastest sites, fewer ads, and it's all working.

Great. That's really helpful. Maybe we'd touch on the various brands. You covered all the different categories that Dotdash kind of owns and operates. It's kind of home, how to, travel, bridal, liquor, education among others. Can you talk about how you decide which categories or verticals fit within the Dotdash strategy?

Let's -- the way we run the business, we bucket into 3 groups. We have health, which is our Verywell brands, there's 4 other brands in there. We have finance, which is Investopedia that most of you guys know, and something called The Balance, which is a personal finance site, very millennial-focused. And then we have lifestyle, which is home and food, beauty and style and tech and travel. And the reason we group them is because they have a lot of common features. We're roughly 1/3, 1/3, 1/3 in terms of revenue. And I think the opportunities in each one are distinctly different, but I think that they're sort of like of equal merit. Let's talk about first, in looking at health. Health, there's a series of old incumbents. We've been very much a disruptor in this space. Again, we're very -- we're 4 -- Verywell is 4 years old. That is a -- we're a baby in that space, considering the competitors are 20, 25 years old. Everyday Health, WebMD, Healthline, things you have heard of. The interesting thing in there is the monetization is very direct. It's direct selling to pharma advertisers. If you can collect patients and caregivers, you're going to have a very successful business. So that's one area. The second is finance, which is, again, it's helping people answer personal financial questions. And in the case of Investopedia, it's a macro stuff and some other, some learning stuff. That is also a premium advertising business, that's a very expensive premium advertising business, but it's also a performance marketing business. We help people now increasingly set up for life insurance and for credit card and for home warranties. And we do these things because we have the trust of users, because we have impeccable editorial integrity. No editor has -- ever has any idea of any economic deal we have behind the recommendations you were sort of like bullet-proof at that. So that's been interesting. And then on the more lifestyle businesses, that's more of a programmatic CPG -- programmatic direct, which is like programmatic with a person in between that had some guaranteed advertising for them. And it's also a big e-commerce opportunity, like, helping people decide what blender to buy, helping people decide what color to paint their kid's bedroom, helping people decide like what eyeliner to use. And that's a really interesting business in terms of transactions. And what I would say is the reason why our advertising business works is the same reason why our transactional business works is when we get people, we're already fairly down some sort of purchase or action funnel. In other words, if someone's like on Google or browsing Apple News in the category, you kind of know what they want, but where do you answer? Like when you land on can I eat this blank if I have diabetes article, we know you either have diabetes or you're a caregiver. If you're landing on like the best bunk beds article in The Spruce, we know that you've got kids and that you're furnishing your kid's bedroom. Like, we know these things and it allows us to connect advertisers in a really interesting way. And it allows us to deliver you value in transactions at a very interesting way because we know you need help and you trust us to help you.

Great. Great. I guess, maybe touching on something you talked about early on in your kind of brief intro is about essentially having fast load times and low ad loads. Can you kind of talk about the puts and takes of this dynamic? And are you open to changing this experience? And how does your thought around this dynamic evolve over time?

I'll answer the second thing first. And look, we're always open to change anything, but we're not changing this because this works for us. And look, I think on the Internet, and this is probably a little bit more insider, even you guys care about. It is very easy to build complicated things. It's very hard to build simple things. Simple things require you to make decisions, complicated things mean you do everything. So we've really focused on building simple things, which means 2 points -- 2 things: speed and advertising. Let's stay with speed first. What we've learned is when sites are super fast, which means you have to use less tracking and less third-party stuff and less crappy ad stuff, that's all related when sites are super fast, people's satisfaction goes way up, and the amount of time they stay goes way up, the amount of time they hang around for the answer goes way up. And it's related to ads. When you have fewer ads on a page, that's super fast, those ads perform materially better. Like our CFO likes to joke, like, human clicks can neither be created nor destroyed. But if you have 3 ads on a page instead of 6 ads on the page and the page is very performant and the ads are very respectful, those 3 ads will perform twice as well as the 6 ads. This is a finite number. So what happens is you get better performance on a site that people enjoy using more, so they come back. And people are sticking around longer, which isn't -- or is -- we're going to answer people's questions, but we're going to do it in the most efficient way. That all really works. And we made a bet when we set out to do these verticals that we talked before that, like, publishing is a mess. Publishing is a mess because publishers have made it really unfun for humans to use the Internet. So what if we make it fun. People are super cool with advertising that's respectful. People want fast sites, but they don't want pop-ups, they don't want pre-rolls. They don't want things in their face. They don't want anything that gets in the way of their reading of content. And we're not going to do that. Our bet is if we make people super happy and they trust us, they're going to hang around, and we're going to do fine in monetization. Further, the other bet was if people trust us, we'll be able to do other things other than advertising. And if you look at sort of the last couple of months, we're 35%, 40% transactional. And that is not an ad-based business. That's because people trust us and when they need help doing things. And turns out that if your router is too slow and you're reading content about like a router, you basically need a new router. We can help you do that, and we get paid a little bit of money for doing that, too. So these -- and these are also real differentiators, like, what we did when we reset this model, and it goes to the sort of the IAC model in patients is, 3 or 4 years ago, we lost $20 million in a year. The year before that we made some money because we went to IAC and said, we want to make this change, and we bet it's going to work. We bet it's going to work, we bet it's going to be long-term beneficial, but it's going to be hard. And they told us to do it, and we did it, and it's totally worked. And now we have this advantage, sort of like it's below-the-surface advantage versus other publishers, which is they can't do what we have done because they can't take the ads off the page. Because they can't deal with that, like, 1 year, 18-month transition of like redoing how they monetize. And because they're stuck. And their sites are slow and their pages are junky and they do horrible things for users. And that is our window. That's our opportunity. And that's what we've been doing. That's how we've been taking share, and that's why we've been growing. And we like what we're doing. That's a real, like, pillar for what we do.

Great. That was really helpful. Maybe we switch gears to COVID and the impact that's having on the bid. I think when COVID first began spreading, the outlook for advertising was pretty bleak. But then Dotdash showed some resiliency in performance marketing throughout the pandemic, better-than-expected trends in display advertising. Can you kind of walk through, I guess, the dynamic in mid COVID and kind of what you see from here?

Yes. I mean if you can -- you look at our numbers in the pandemic, I mean, we still got revenue plus 20%, plus or minus, every month so far this year. And it's because of 2 things. It's because of we have a diversity of audience and we have a diversity of monetization. And when COVID happened, the world got scrambled. Not everything was bad, and obviously, not everything was good. So our health content performed great, and health advertisers generally hung around. I mean stuff that was like based on doctor business was hard, but like that held tight and people are very curious about health-related things and COVID, so that did really well for us. Finance correlates a lot with volatility more than anything else. And everything has been bananas, as you know, so those businesses have done really well. Our consumer businesses, from a travel perspective, did great because everybody's stuck at home, everybody's fixing their house and everybody needs a new tech. And everybody needs to, like, find, like, some de-stress facial mask to wear at night on Byrdie. And those things all worked. What happened in that business was the advertising, the bottom fell out of typical consumer advertising for 3 or 4 months, nobody knew what to do. But when you blend it all together, our traffic look good and our revenue look good. Because on the traffic side, finance, health, lifestyle, right? Good, good, bad. And on the monetization side, advertising mix, right, down. And again, last year was rip roaringly good, so down but not horrible. And transactions, it turns out that there's been a real shift in consumer behavior to figuring out what to buy and how to do things online, partially COVID and partially permanent. And we're really good at it, and we have these relationships that people trust us for advice on these things. And our transactional business has been -- saw a remarkable bump. And look, in January and February before this all happened, our transactional business, I'm looking at the numbers, that was up, call it, ballpark, 70% year-over-year. Last month's July, we're up 70% year-over-year. So we are growing substantially. Now the bump in the middle looked like this, a lot of it was like, I got to get paper towel somewhere. But also, we have really hard comps from last summer because our business really started to kick in. So it's just a lot of resilience we built into our model. And it was done -- I would like to say it was done fully intentionally. Some of it was, like, the benefit of what we've had when we verticalized this. But we're really focused on diversity of audiences, which is complicated because you treat a health audience extremely different than you treat a food audience, it's a totally different business. And most importantly, diversity of revenue, which a little more detail is, it's selling ads premium, it's programmatic. And then it's performance marketing broadly, which is everything from e-commerce lead generation to some, like, more down funnel, helping somebody begin, like, set up for home marketing kind of thing. So it's been -- we've had -- I mean, I'm not going to lie. There's some terrifying moments, as there were for everybody, and no one likes being inside. And I was saying this is my first day of home schooling, that sucks too. But we're doing great. And look, I think we're talking to Mark and Glenn Schiffman, you guys know. We loved our business coming into this year. I love it more not only we've come through this and, like, our theory on what would happen in a bad market, like, it's not often you can say we were right and maybe we'll be wrong next month, but we were right. And we feel really good about where we are now. We're looking at a lot of our competitors in terms of M&A. And, like, a lot of those guys are down 20%, 30%, 40%, particularly in the COVID time. We're seeing some come back now, but it's been a little rough on some of them.

Great. Maybe switching gears a little bit to user acquisition. I think you commented earlier that your content spend kind of is the customer acquisition cost. Investors may not be aware that Dotdash essentially does not pay for traffic, do like paid search, which I think is pretty unique for almost any Internet business. Can you talk about how you've built the strategy on free traffic acquisition and whether there are instances you want to pay for traffic?

Yes. I mean I'll do the second question first about paying for traffic. We don't pay for traffic. We don't need to. It doesn't really work in our model. When you start paying for traffic, you lose control of a lot of your business, and that's essentially an arbitrage business, right? That being said, we do have some really valuable areas that we think we may be able to surgically buy a little bit of traffic. But I don't think it will ever be material to us. It might be just to drive some traffic into areas that we've found a bit of an anomaly because we can monetize better than sort of the Internet values that we can figure out how to buy traffic there, be it from Facebook or Google or from somewhere. We buy virtually no traffic now. We'll do a little bit if we like mess up an ad deal and need traffic somewhere because -- but we generally -- I mean it's got -- it's like 1%. In terms of your prior question, customer acquisition, is we have found that the best content on the fastest sites with the fewest ads really works. And when people come, they tend to come back, and we've seen that. And we, obviously, get a lot of traffic from Google, but pretty much in line with the percentages that other publishers get from Google. Like I think, in the past, we had this reputation like, "Oh, these guys are great at Google." We're not great at Google. I mean I think we're savvy around Google, and we're technically sound at Google. But Google, like all algorithms, Google, whether it's Google or whether it's Pinterest or whether it's Flipboard or whether it's Apple News, all they want to do is give you the best answer to your query or the best answer for the topic that you're trying to understand or that you're interested in. To the extent that we can do that, we are very aligned with these algorithms. And our, sort of, like, best content has really, really, really worked. Part of what marks our customer acquisition is what we don't do. Like, we don't care about Facebook. We don't care about Twitter. We're not trending content. We are very high-value content. Like, we don't care about TikTok. We care about YouTube only to the extent that we can get our how-to videos into an algorithm that gives people a good customer experience. We use social deeply, but we use it only for brand building and to give people an experience of, like, "Oh, what does The Spruce seats feel like or does Byrdie feel like." We don't have any P&L stuff around what we're doing socially. We have millions and millions of followers, and that helps us build the relationship, because our core model of people are coming to us when they need help, whether that's from our e-mails, whether that's from Google or whether that's an increasingly direct relationship we have with people, if we help them and give them a great experience, we will be fine. And that's what's happened.

Great. Great. So that -- this topic, I think, solicit this question so -- which I think we're probably going to get there. So I'll switch gears kind of to some upcoming or looming tech changes, I think, people are worried about, whether it's Google removing third-party cookies in the next couple of years or Apple's kind of looming deprecation of IDFA. Can you talk about how -- what the impact of that may be to Dotdash or other solutions you can adopt the deal?

Let's bucket all this into like privacy, right, and an inability to track users going forward. In the medium to long term, this is great for us because we don't need any tracking. When you land on, like, what is the best way to making grilled burgers on July 2, we know exactly what you're doing. When you land on Brides, like, bar and weddings, we know exactly what you're doing, right? And when you land on Lifewire, our tech site, and you're looking at like wireless earbuds, we know exactly what you're doing. We don't need a cookie. Other people need cookies because their content doesn't tell them what their audience does or wants, right? Your news, your sports, your random Facebook, your politics. That traffic isn't worth anything because you have no idea what those people are doing and they're not in an action mindset. Our people, we know exactly what they're doing, and they're in an action mindset. And that being said, we're really great at contextual data that we've created around ourselves and our offerings. And we have enough scale now that it really, really works, right? We got 100 million people average using us each month. So in the long term, cookies going out of the ecosystem highlights our value or IDFA is a little bit more mobile, but like any of those identifiers going away highlights us. Now in the interim, there's an entire ecosystem of advertising and other stuff based on being able to track people and being able to know these things. There is going to be some thrash in the interim. Like, is it good, is it bad? Prices go up, prices go down. That is probably going to be more bad than good. But in the medium to long term, we love how we're positioned here. Contextual targeting beats cookie-based targeting 100% of the time. It's why we can charge more money. It's why our ads perform better. It's why -- I think Joey has highlighted this on some of the quarterly calls. If you look at the top 25 advertisers that we have each quarter, it's like 90% retention quarter-over-quarter. That just doesn't happen for a publisher. That's because we are in a place now where we are getting in the door with performance, our stuff performed so well, and we're now staying with brand, and people really like us. So we like these changes. We don't like confusion in the market. That doesn't help anybody. But in the long term, we like where it's headed.

Great. I think that was really helpful. Maybe staying kind of on the same topic. With Google, they're always making changes to their search engine results page. How does Google's use to featured snippet or zero click search results impact Dotdash? Is it a potential longer-term threat?

So let's talk about Google, and you can insert other algorithm name in there for Google. So we've got 22 different domains across 10 different brands. We've been at this as a verticalized business for 4 years plus at this point. We've been through countless Google changes, and our traffic has just gone up because of what we do. Now we are obviously very cognizant of what Google is doing. As you know, by your question, about half of Google searches never leave Google, right, because they're either answering the question on the page themselves or they have some featured snippet they grab from us and then they link to us. Now do we want to be that featured snippet or not, you generally do more than you don't, but not always. It works. We probably have lost some traffic to this, but it's hard to say because we've grown -- we've really grown right through it that we haven't seen this. I mean we're fairly aligned with Google. Again, if we're the best answer, we're going to be in very good shape. If your business is, like, what is Michael Jordan's net worth? Or your business is, like, what day is Christmas? You're in big trouble because no one needs you. But if you're giving like really value-added detailed questions around health, finance, home, food, tech, travel, beauty, style, like, those are things that require much more than they're currently doing on the page. And again, they're gradually grabbing share all the time, right, if they're having search. I'll bet you it will take another 1% or 2% of searches each year don't need Google. And we're under no illusions to think that, like, Google owes us nothing. Just like Facebook owes us nothing, just like Pinterest owes us nothing. They're going to do what's right for Google and what they think is right for their users, but more what's right for Google. But we generally align with all of the algorithms that are trying to give you answers or give you inspiration or help you learn or discover something. And we're doing really well with all of them now. We don't see any reason for that to change. We all have a big diversity of -- like if something happens at 1 domain, we've got 21 more. So some go up, some go down. It looks like in the '80s, those old, like, equalizers, like, the lights go up and down. That's a little bit what it will look like when things move around. But we've been fairly consistent. I would say it's the same thing with all the other algorithms we interact with also. And again, our percentage of Google traffic is very comparable to other publishers of our size.

Great. Great. That's helpful. Maybe touching on your advertiser relationships. You commented on really strong retention. Can you talk about -- I guess, provide some more details on those relationships? Or most of arrangements, kind of direct deals. You mentioned programmatic direct. Just any additional color there would be great.