People Incorporated (IAC) Earnings Call Transcript & Summary

All right. Thank you very much for joining us this afternoon. I'm Justin Patterson, Internet analyst at KeyBanc. Really excited to have Glenn Schiffman, the CFO of IAC, with us today. Glenn, thanks so much for joining us.

Thank you, and thank you for your initiation report last night, well-timed on ANGI and IAC. So look forward to discussing that and a lot of other topics.

Yes, absolutely. And we'll definitely hit that shortly. But maybe to level set, just at the start, it's been an exciting year for IAC with the Match spin. Talk about the vision for the new IAC and how you envision the business over the next several years.

Great. It's a great question. I'm thrilled, you didn't start with our monthly metrics. And I love the long-term question because that is how we think about things. Well, obviously, the Match transaction was a terrific accomplishment for IAC and then, therefore, our shareholders. And now it's about rebirth and growing again and being small enough and agile enough to grow. We obviously have a handful of terrific assets and a long growth trajectory, we think, inside of each of these assets. And we also have a pretty large cash balance here to once again reinvent ourselves. The analogy -- we've made the analogy many times to the quad spins in 2008. And coming out of that, I think our market cap was $1 billion -- was under $2 billion. I think it was $1.6 billion, and we had a fledging little business in there called Match that I think was under competitive pressures from maybe Yahoo! at the time or AOL or Facebook -- or sorry, pre-Facebook, of course. And we invested a lot in that business, and there's a ton of terrific organic growth. So I think we have a couple of different assets inside of new IAC that hopefully will compete to be the next Match. We'll talk about ANGI, but a terrific transformation is going on there. Vimeo is having an absolute breakout moment now that looks like it's going to sustain for a long while, which we're excited about. Dotdash is doing -- is also doing incredibly well this year, continued strong double-digit growth, if not this past -- these last couple of months, greater than 20%. And we also have a couple of other emerging stars, we think, in the portfolio with Care.com and the list goes on. And then, again, we have about $2.9 billion of cash. We're looking forward to putting that to work. So -- and I'm sure we'll talk about the MGM asset, which we think is a really, really interesting opportunity one -- opportunity for us. The form and nature of structure of that investment is a little different. But a lot of the themes are the same, off-line to online conversion that we've done and have done well in and have a history in. So the vision is to compound capital like we always have. We will look at it and do it creatively. We will look at a lot of different opportunities. The easiest area, we think, is obviously with our existing assets given they have such low penetration in such large addressable markets and sit fortunately in such a leadership position. That's, in some respects, easy insofar as we have a knowledge advantage, we have an asset advantage. But equally, the story of IAC from 2020 to 2030 will also be determined by how we use that cash, and that's an important component, important focus of ours.

Got it. So let's stick with that theme at the start before going into the monthly metrics, uses of cash. You mentioned MGM. It's a bit of a different investment, I mean, traditionally made. So talk about just what was attractive about MGM to you and then how you think about the types of businesses IAC invests in going forward, since I imagine this one is a bit more of a unique situation for you.

MGM is a unique situation for us, for sure. First, we've done a lot of work on different categories that are right for off-line to online conversion. And we felt the iGaming and the sports betting opportunity was a really, really interesting one, very large, hundreds of billions of dollars large, similar to some of our large marketplace businesses that we operate in right now and very early days, less than 10% online penetration. So from a macro perspective, that lined up really, really well and really, really interesting. Second, natural tailwinds in the business. And then we tried to figure out what's the best way of playing in the space was. Of course, in this area with iGaming and sports betting, you do have to be tethered to a land-based operation. So the incumbent actually has an advantage we feel and we felt. So that led us towards something more incumbent-like. And then we looked at MGM, which is an iconic brand. And based on some of the math we did and we're very familiar, as you know, with the sum-of-the-parts story, and we have a history of and ability to unlock value in sum-of-the-parts as we've done throughout our history, we found that sum-of-the-parts valuation framework where we were not only getting this online business for free, we thought, but also getting the domestic business for free. Vegas will come back. MGM, we think, will come roaring back. And we think there'll be an opportunity obviously when regression to the mean and that will be accretive for sure. And MGM as the leader in Las Vegas, I think, will lead out of that -- out of the COVID resurgence. And they also have some really interesting growth engines inside their business as well as the online. So if you look at the whole package from an upside opportunity, from a valuation perspective and what you're seeing play out right now is they're very receptive to our involvement. Our CEO, Joey Levin, and Chairman, Mr. Diller, will -- or have taken 2 seats on the Board. And that's exciting to have MGM receptive to us, our involvement and giving us the opportunity to take a shot at adding value. There's a lot we don't know. It's early days, but we're looking forward to learning. And yes, we think there's more to do in this space. And there is more capital, hopefully, to invest. As you know from our history, we like to invest into strength. And hopefully, as with Match, as with ANGI Homeservices, the first step was the smallest step. And that as we see success and as we get invested to that strength, we put more and more capital to work, and we hope that happens here. More broadly, we do like marketplace businesses. We've talked about businesses where scale makes the product better, not just price, businesses in large addressable markets, businesses with natural tailwinds, businesses that benefit from off-line to online conversion, businesses that benefit from the expertise we bring to bear, not only in the off-line to online but in consumer marketing, in subscription acquisition and conversion, in having to navigate the Internet's large platforms, which includes partnerships and at times competing with those platforms. So those are the categories that we'll look to invest. We're not -- money is not burning a hole in our pocket. We'll be judicious because as we've talked about many, many times, we behave -- this management team behaves as owners because we are owners.

Got it. So effectively, more of the same at IAC, which brings us to the current business today and your monthly metrics update that I am obliged to ask you about. So I'd love to hear just any particular call-outs on the strength of ANGI, Vimeo, Dotdash. So it was pretty remarkable that you got accelerations across the board this past month.

Yes. Look, we did -- so it was the third question. We made it to the third question until the monthly metrics, but that's all good. Obviously, we published them last night, giving you and I the opportunity to talk about them in this forum. We were strong across the board. We saw acceleration. Look, we're not going to harp on and overly pat ourselves on the back on any one month that's strong, just like we don't take any one month that could be a little off is -- portend a tale of woe because these are monthly figures, so a lot of exogenous factors can impact them. We'll start with ANGI Homeservices. Obviously, some nice acceleration there from July. Remember, I said July was the tough comp. Obviously, August was an easier comp. Labor Day was late this year versus last year, so that contributed to a stronger August on a relative basis. We grew ANGI Homeservices 9% in the second quarter. We said at the time, we think it's going to accelerate into the third quarter. And we'll see what September brings, but we're clearly in the hunch for that 9% to accelerate to 10% for the quarter. But again, it will depend on what September brings. But August, again, we had I think an extra Monday in August. We had Labor Day being late, so that helped us. Vimeo, it's hard to be anything but really positive on what's going on at Vimeo. That was pure acceleration month over month. We're still waiting for the deceleration, and we're still waiting for the COVID-induced high to wear off, and it hasn't yet. So I think we're seeing a step-change in people's use of and the importance of video for businesses, the importance of video across the board. Live is doing particularly well. Obviously, you and I are doing this live, and that is replacing in-person. And I think this -- that our Vimeo and our video solution will be an end solution, not an or solution, in the future. And that will portend well for continued growth at Vimeo. We've talked about COVID. Even when COVID -- we anniversary COVID, that we think Vimeo will be north of a 30% top line grower, and our challenge is to see if we can get even higher than that. We'll see. But the trends are really exciting at Vimeo, and bookings continue to grow faster than revenue. So at least we got another little bit of time where these elevated growth rates should remain. Dotdash on the back of the performance-based marketing, another great quarter -- sorry, another great month. The fourth quarter is so important for Dotdash and so important for the advertising business. So its last fourth quarter was incredibly strong. So that'll be a really difficult comp coming off. But it's nice to see the display business really recovering there. And then in Search, Search continues to be challenged, and it will be challenged. We talked -- we hoped in the category, the second quarter was the bottom, unclear if it will be the bottom. We talked about on the call and in our public disclosure that there's another change to the ecosystem that just happened at the end of August. And I think that'll create -- I think the headwinds in that business will continue to be stiff. Our team is obviously no stranger to those headwinds and are navigating through that. Emerging and Other, hard to kind of unpack that. But the gem inside of Emerging and Other is the Care business, which we continue to make real, real progress. I guess the only thing I'd -- the only other thing I'd add to the takeaways around all this is in the third quarter, we talked about this on the call, we talked about this in the last letter, because we've really been investing in these businesses. So second quarter EBITDA was artificially high. Third quarter EBITDA will be a little lower. Across the board, we're investing in marketing and depending on the business sales. So ANGI, in particular, we're leaning into the third quarter from an investment perspective and all of our businesses, we are. So don't be surprised when obviously we report EBITDA in the third quarter, it will be an investment quarter for sure as we begin to think about what's the best competitive position for each of our businesses rolling into 2021, and that's kind of what we're planning for right now, 2021 and beyond.

Of course. Really appreciate that level of detail, Glenn. You mentioned ANGI with investment right now. Obviously, there are supply constraints in the market. Supplier capacity varies from city to city, depending on reopening. How do you balance that investment on demand-generating activities versus building supply right now?

Yes. I think we have to continue to balance it because the great opportunity that we have and the great challenge we have opportunity because it builds an incredible competitive moat is, we talked about this, we're in 500 different categories, 400 different geos. So that's 200,000 mini marketplaces. And really, you can crack that up even more in terms of micro locations. So we're running more than hundreds of thousands of mini marketplaces. So you don't -- we're getting smarter about all this, but you don't know exactly -- when you're pushing demand, you can't perfectly target it, and you can't perfectly target the supply. So it's investing in both sides. We've leaned into marketing more in the third quarter than we did in the second. A lot of our investment also was in supply. We are aggressively investing into sales. Brandon's talked about how strong it's been on the gross sales basis. We still have SPs that aren't there. So the COVID-induced supply constraint still does exist. That's SPs that can't hire workers. That's SPs whose workers may not want to go into homes. And that's the supply chain that for some products, and we read about it a lot, is kind of broken lumber and timber, in particular, there's a backlog on that -- a lot there. But our main investment is in the fixed price offering, where we're scaling very nicely there, making real progress, and we absolutely are leaning into that, and we'll continue. We think that's the future of the category. And you can only do it at our scale with our footprint. And it's early days, but we're excited about that. Fixed price is a gateway into payments, is a gateway into subscription offerings, is a gateway into maintenance and packages and really embedding us in the home. And then most importantly, we think it drives repeat usage. And repeat usage, we think, is really interesting. That has obviously revenue implications but margin implications. So the investment is, yes, it's sales, yes, it's marketing to drive supply and demand. But more, it's about trying to frankly revolutionize this category.

For sure. And in fact, we got a lot of great information in there, fixed price, repeat usage. I guess how do we think about the duration of investment in those categories and when we start to see kind of some of the benefits flowing into the model? And I know from the investors side, one of the questions that always comes through is, how do you handle that mix shift from net revenue to gross revenue, what that means for the margin trajectory? And talk about just how you envision those financials evolving over time.