People Incorporated (IAC) Earnings Call Transcript & Summary

All right. We're going to get started here. Thanks again, everybody, for joining us. For those who I haven't met yet, Ross Sandler. I run the Internet team here at Barclays and very excited to introduce Glenn Schiffman from IAC. Glenn has been a regular participant at the Barclays TMT Conference. We really appreciate it, guys.

Glenn, just to kick things off. So the November stats came out at the close, looked pretty good across the board. Anything that you would call out? And then with the Jamie Cohen moving on to greener pastures, any just comments on those 2 current events that happened overnight?

Yes. Thank you, Ross. Great to see you, and this has been fun, to do this with you over the years. I must admit it's more fun when we do this in person. So I hope we'll be able to do that next year. I hope I'll still be invited and look forward to sitting on the stage with you and looking at all our shareholders and supporters in person. November metrics. You'll hear me say this a lot. I think I've said this before. Please don't put us on a pedestal when the numbers look good and please don't put us in the dungeon when the numbers look bad. These are 1-month results. We don't run our business on a monthly basis. There's a lot of exogenous headwinds and tailwinds that affect us in the month. Let's see, maybe we'll start with ANGI, our biggest business. We've talked about the pacing of our business over time. We've talked about the importance of Mondays. Well, this November, there were 5 Mondays in the month. Last November, there were 4. This November, Thanksgiving, it was a little different for all of us in the country versus last year. So that may have impacted the business there. We still believe that 9% to 10% is kind of the right revenue cadence from a growth perspective, similar to the third quarter, for the next couple of quarters. We talked about on the last earnings call that we probably don't start migrating to our goals until the third and maybe the fourth quarter. And then also remember we have a slight headwind, and you'll see this in our monthly numbers. In January and February, we had a little headwind as we comp the accounting change, the gross-to-net revenue. So you could see January and February revenue being kind of mid-single-digits, yes, mid-single-digits when we comp that. And then over time, as our initiatives kick in, we hope to get back up to the 9% to 10% and then towards the back half of the year there. Also recall on ANGI, the first quarter is typically an investment quarter, both in the U.K. -- both in Europe, sorry, and in the U.S., and that will be our biggest investment in fixed price. So you can even see the margins come down a little bit in the first quarter. And recall, we said, the margins aren't going to -- we're not going to start creating real incremental margin until we lift the revenue. So I think the November month around ANGI is similar to what we talked about before. Moving down the list. Vimeo, same thing. We saw a slight acceleration. I'd emphasize the word slight versus acceleration. And trends continue to be the same there. The business is doing great. Enterprise, consistent with last month and in the quarter is up over 100%; and self-serve is still strong there. Maybe Dotdash is probably the one thing that really surprised to the upside here. 34% is pretty powerful. That's not going to continue in December, right? Last year was very strong. We talked about that. December is a big retail advertising blitz, if you will, in Dotdash and a big travel blitz in Dotdash, and that will not happen this year in December. So we'll see a decel in December. But knock on wood, we'll add another quarter of our string of 9 to 11 quarters of greater than 20% revenue growth. Search. I'm sure we'll talk about some of the back and forth with Google, but desktop continues to be pressured severely so. And we saw some stability in the Ask Media Group. And then Emerging and Other was strong, largely the acquisition, but -- the acquisition of Care coming in our numbers. But Care, the trends continue. So it was an as-expected quarter/solid quarter. But again, don't put us on a pedestal because in December. January and February and March, I'd ask you not to put us in the dungeon if there's exogenous factors that hit us. In terms of the CFO transition, it's a good question. There have been talented people, incredible people over the last decade who've taken the ANGI to where it is now. Jamie is one of them. Craig Smith is one of them as well. And I think it's only natural, as we evolve the business and as we start on what, as you know and as everyone knows, is a transformation, it's only natural that there's additional talent and there's a transition in talent as we build a team, as we build a business, as we build an infrastructure for the next decade of value creation. And under Brandon's leadership, we look forward to finding a fresh from class of leaders. We've done a really interesting thing as it relates to Craig Smith's replacement. He used to run sales and operations. And now we have someone, a very talented individual running sales, very talented individual running operations. This is something you're going to hear us talk about a lot, the averaging of ANGI Homeservices and really driving into each of the marketplaces, each of the geos, each of the categories and helping us drive liquidity, helping us drive consumer satisfaction and SP satisfaction. And the talent base will evolve to that. So we wish Jamie well. She's been an incredible partner of mine. I'm actually excited to dig in a little bit here, a little bit more here in ANGI, but equally excited when I get replaced.

Got it. No, that's a helpful overview. You mentioned the Google News. That's the other current event that's happened recently. So can you just, I guess, remind us where we stand with Google in terms of the contract duration? And it sounds like it's just Chrome extensions that are -- in the desktop business that are at risk here potentially. How much revenue and EBITDA come from the legacy toolbar business?

Yes. It's a multiyear extension every September. Either one of us can opt out after -- by giving someone 12 months' notice. In September of 2020, neither one of us opted out. So we'll have another opportunity in September of '21. But you're right, it's -- the stuff in the press is only in respect of the desktop business. As the press accurately pointed out, it's 5% of our business from a revenue perspective. And the EBITDA, that's revenue, the EBITDA is in our search category. You saw last quarter that was $12 million of EBITDA. The vast, vast, vast majority of that is the Ask Media business, so not part of these -- part of what's been going back and forth in the press. The desktop business is profitable, but a small bit of profitability. Bunch of analysts have talked about that being kind of 1% of our enterprise value and price targets. So I'll let the market figure out how they want to handicap that. That's been declining, as you know. It continues to decline, and every quarter will be a smaller portion of revenue, will be a smaller portion of EBITDA. I think the most important thing here in addition to it being a tiny piece of our business, there's nothing new here. You might see more in the news cycle as different publications try and put different angles on it. All of the products go through our safety and our screens. All of the products go through Google's process and oversight. And -- but people have speculated as to why this is becoming a new cycle, right? Why this is in the news right now and why all of a sudden this becomes a big deal. That's not constructive or not a good use of time. It's -- nothing is new here. It's not a material piece of our business, and it's getting less material.

Got it. And I guess stepping back kind of big picture. Over the years, owning IAC has been kind of -- there's been a whole host of different catalysts in terms of unlocking value, and it was Match for a while. And then that spin happened, and now you've isolated Vimeo and put a value on that from external. But if I just use the last night's closing price and kind of stamp ANGI, stamp Vimeo, you're basically getting Turo, Care, Dotdash, like kind of all the stuff that will be left at IAC ex Vimeo for free. So what is it about -- this has been 10 years in the making, unlocking the core stub, but where are people kind of missing the story? Which of those do you view as like the biggest kind of value unlock after Vimeo?

Look, it's a great question. I think maybe our structure in terms of being a multi-business business, maybe this discount, so to speak, will be part of something that we have to talk our way through over time. And then there are step functions when a Match gets spun out that create the realization of the sum of the parts. And if we decide to spin off Vimeo, maybe that's another catalyst because, yes, my math last night suggests ex ANGI, ex MGM that we're trading below the value that sophisticated third-party investors put on Vimeo. The unlock, look, I think it's all the above. With the exception of the desktop search business, every one of our other businesses are growing. Every one of our other businesses are taking share. Every one of our businesses enjoy natural tailwinds. And we are investing in these businesses to deepen and widen our competitive moat and to penetrate these large addressable markets in which we compete. That's the narrative. And value ultimately will get realized. I can go through asset by asset and give you why we're so confident in it. That would take, obviously, a lot of time. But look, I think Dotdash is something that hopefully the market will continue -- will spend more time on and understand. I hope Vimeo, even if we don't spin it, I think people will spend more time on. And it's hard to ignore these numbers, hard to ignore the fact that if you're looking for free cash flow they're generating, if you look at the revenue growth that they're squarely and firmly in their heralded Rule of 40, I think, over time, we'll give the market more and more about Care. But we have another really unique marketplace brewing in there. And that's really, really exciting. And ANGI, we got a lot still to do at ANGI. And we're hard at work there. This fixed-price investment is going extraordinarily well. As you -- as we talked about, we'll hit $150 million of revenue for the fixed price of the business, and we think that will continue up and to the right. And that, I think, transforms -- will transform the category, will transform our leadership position in the category and will put us in a real different spot. We go from marketplace matching there to marketplace transacting and owning the entire transaction, and revenue and market position and margin ultimately follow through.

Got it. That's helpful. I wanted to go into a few of these that you mentioned. The MGM deal is going to turn out to be a real home run. I mean it's already nearly doubled, and we haven't even gotten to the opening -- the reopening part. But I've seen -- one thing investors ask us and just inquire about vis-a-vis this passive stake is sports gambling. Mobile gaming is taking off. They already have a partnership with GVC. You guys bring a lot of digital chops to the relationship. But how do you -- I mean is the idea just to kind of get 10% of whatever comes out of that entire entity? Or is there a way to be more strategic and get more involved in the digital part of it?

Look, the honest answer is yes, no, maybe. We're excited about this investment. It's a great set of assets, an iconic set of assets, an iconic brand, a great management team. And we're increasingly looking at a lot of our businesses. We want to put capital where we can compound the capital by virtue of operating expertise, by virtue of natural tailwinds and by virtue of how businesses continue to penetrate the markets in which they compete. And then not only that, but then investing against what I'll call a warrant or an untapped upside opportunity. So worst case, we do well; best case, we do really well. And that's the MGM investment with the opportunity for untapped upside being in the digital side. And the digital side has 2 aspects, right? It's the digitization of their existing experience in the hotel and entertainment piece and it's the online gaming. So we hope to help them a lot. We think we can. They would like us to and they're receptive to that, which is right. And it's the early innings. In terms of putting capital to work here, as you know, with all of our businesses, we like investing into success. We like our first check not to be our last check. This is a little different, of course, in scope and the way we're doing it in terms of a minority. But thematically, it's the way IAC has built value over time. So we will see. And you're right, the early returns are good. The early returns, we think, are irrelevant to building -- helping MGM build this business, this opportunity over the next decade and beyond.