People Incorporated (IAC) Earnings Call Transcript & Summary

Excellent. I think we're on. Good morning, everyone, and welcome to the Truist Securities Technology, Internet & Services Conference 2021. My name is Youssef Squali. I'm the lead Internet analyst at Truist Securities. And it is a pleasure to have Glenn Schiffman, Chief Financial Officer of InterActiveCorp. And I think Mark Schneider, Head of IR, is somewhere there. So before we begin, I just need to read the following disclaimer. This call is arranged by Truist Securities Research for use by institutional investors and issuer clients as defined by FINRA. If you are not an institutional investor or issuer, please disconnect at this time. For required disclosures, please see our website at truistsecurities.com or our equity research library. So -- all right. Glenn, with that out of the way, good morning to you, and thank you so much for being with us today.

Thanks for having me. Great to see you and look forward to speaking with everyone here this morning.

Excellent. So let's just start at a high level. As a portfolio company, IAC has really proven itself to be a great shepherd of shareholder capital for the last 3 decades already. As you look at your current portfolio, maybe can you speak to opportunities that still excite you the most today? And do you feel you have the right assets to kind of capitalize on the most exciting opportunities you see out there?

Yes. Look, we do. I mean we're excited with the portfolio now. We're obviously also excited that we have $2.8 billion of cash in case we want to adjust that portfolio and alter that portfolio. The -- we can go asset by asset and I will in a second. But to pause on that $2.8 billion of cash, that gives us real flexibility and real optionality. As you know, we do 3 things with our cash. One, we invest in our own businesses. Two, we do M&A. That's M&A in our existing businesses and new verticals, which we'd like to do both. And then third, retire securities when, as and if we deem it to make sense. You look at our cash for a second, and I always marvel at this, the SPAC mania that's going on. I think there's nearly 400 publicly listed SPACs. And on average, 81% of those SPACs, their -- they traded at a premium to their cash, yet most analysts put a discount on our cash in the sum of the parts. So I think that cash is a real asset. And I'll go back to 2 points in time when the markets were less forgiving. That's the dot-com crash in 2000 and the great financial crisis. Both of those times, we were cash rich. Both of those times, we did -- made some pretty interesting and strategic investments with our cash. Way back in the dot-com collapse, we effectively, through M&A, created the IAC that we know today and the spin-offs and the quad spins with billions of billions of dollars of M&A on the acquisition side. And then with the great financial crisis, we bought back half our company. Now I'm not here to say that we're about to go into a crisis and the happiness will shortly end, but the portfolio is incredibly well diversified with that cash as an anchor to windward and then great opportunities, we think, within our existing portfolio. And probably the only business that faces headwinds that we have is the desktop -- is our desktop applications business. And unfortunately, those headwinds are a gale-force in nature, and we're going to continue to have some pretty disappointing performance over the next 12 to 24 months there. But to go through, at ANGI, I'm sure we'll talk about that a lot here. We have a new management team. We probably have a slight tilt in the strategy that we'll talk about. Most importantly, we have an energy, we have an excitement and we have an entrepreneurial vigor that I haven't seen in ANGI probably since 2016 and '17. And that's -- that may -- we'll talk about tailwinds and headwinds over the next short order. So that may not manifest itself this month, this quarter, and it may take a little bit of time to pull through, but we're obviously really excited about ANGI and do believe we have the tools and product and strategy to accomplish our goals. Vimeo, another month you saw greater than 50% revenue growth. If you look at our position in that market, the TAM in that market, the market opportunity there, we're also excited about Vimeo. And you'll hear from them directly. They have their Investor Day on March 24. So Anjali and Narayan will go through and articulate the reasons for our collective optimism there.

Let me -- so before we dig into each segment separately, let me maybe just close the loop on capital allocation. As we look at your financial position, as we look at the opportunities out there, as we look at the potential M&A, et cetera, just how do you look at it from a size standpoint, from a timing standpoint, from a kind of a segment standpoint? For instance, fixed price -- and again, we'll talk to ANGI because that seems to be a major, major -- not a pivot but reorientation of the business towards that. Is that some -- an area that you feel you need to double down in terms of assets? Because really there, you only have Handy. It's a nice business, 100 and plus -- $160 million business last year and growing really fast. But out of -- it's only 6% or so of your total revenues, right? So speak to us about capital allocation as far as that's concerned and your willingness to want to move fast or take it slow in anticipation of maybe something happening with all these SPACs.

Well, you're talking about 2 things. Let's divide that into M&A and to investment through our P&L, which are very important distinctions here. Look, we'd love to do more M&A in all of our businesses, but it's got to -- the bid has to meet ask. It's got to be at a right price where it works for our shareholders day 1. As you know, all of us are owners of our business, so we're manager owners here. So we spend money like it's our own. That's in investments in our businesses. That's obviously in M&A. So we'd love to do M&A in ANGI to accelerate fixed price, to accelerate demand and to accelerate supply. And we have a track record of doing said action. We don't need to, but we are excited and actively looking. And I don't know if you meant the question for all of our businesses, but yes, with the exception of…

Just for one.

Oh, just for ANGI. Okay. And then as it relates to investing through our P&L, we're actively thinking about that. I think we will be investing more this year in the context of the new management and the new management structure than maybe we thought earlier. And I think that is fixed price. So I think for the first quarter, you'll see EBITDA a little lower than I think some people expect or most people expect. And then we're debating the EBITDA investment we'll make for the year, but I think we'll probably invest more than we expected. And yes, that is fixed price. That also is investment in our brand and marketing, and that's also investment in our product because our product investments are not just at fixed price. We think we can make the traditional matching marketplace business even better for our consumers and even better for our SPs, and we think there's a product solution to help SP engagement. So yes, I think we will allocate more capital through our P&L in ANGI this year than we expected and likely a lot of the investors and The Street expects.

Okay. All right. No, that's super helpful, and it's a nice segue into the conversation in and around ANGI. And by the way, I've met Oisin many, many years ago when he was still only CEO of Handy before you guys acquired it, and he was really impressive in the way he kind of spoke to the opportunity at a very big -- or a high level. So switching gears to marketplace. So February numbers came out yesterday after the close. It looks like there's still a pretty clear imbalance between SRs and SPs. And I think the last time we talked or maybe on your earnings call, you had talked about having grown your sales force materially, something like 30% up from the trough. So maybe just help us understand why is it so hard to fix the marketplace. Why is it -- because you seem to be growing your SPs, your SRs are very -- are growing double digits, but it seems like there is just some mismatch there.

Yes. So let me start with the opportunity, and I'll come back to the problem. The opportunity -- we did 32 million SRs last year, let's call it 8 million a quarter. Our 0 accepts of which you're -- is embedded in your question, has gone from on average 40% to on average 50%. Now in the fourth quarter, I think it was 47% because there's seasonality there. But that 10 points -- if we could get back to our 40%, right, that 10 points is 800,000 SRs, and we monetize those SRs. Monetize -- revenue per monetized transaction is at $70. So that's over $50 million of high-margin revenue. So that's what we're going after. Now the problem is very straightforward. Our aggregate number of SPs, what I call a top-of-the-funnel type metric, that's actually okay. This month was 9%. I think it was -- it's been 10%, 9%, 11%. That's okay. It's SP engagement that's our issue, and these SPs are busy. The supply chain, as you're reading about every single day, copper, gutters, lumber, whatnot, the supply chain is broken. I think there's a New York Times article over the weekend on some of the issues on shipping supplies all over the world, and that persists. And then SPs are having problems hiring their own employees. So we think that's going to persist for a while. Yes, we're attacking it through the sales force, of which you spoke. But remember, that -- a salesperson takes 6 to 9 months to fully get profitable and to fully get tenured. So that is a long-term solution to the problem. But the COVID-induced supply constraint, I think, will be with us for a little while, which is why we have more -- we've articulated more muted revenue growth for the ensuing quarters. We think fixed price is a really, really important element of that SP engagement issue, of which we're laboring through right now. Very simply, we're giving an SP a job versus -- and giving the SP money versus asking the SP for money. So not like an -- not unlike an Uber driver who can kind of say, "Okay, I want to make a little more money. I'm going to go drive for a couple of hours or a couple of days," our SPs between jobs or when they're waiting in another job for supplies to come or whatnot, they could turn to our platform and we could supplement their income. So I think -- we think that's really interesting. That helps us through this. It's one of the reasons why, again, I said, especially in the context of Oisin becoming CEO, we're going to invest more in fixed price here. But it's going to take a while for us to work through that imbalance. We've talked probably not till the end of the year. We'll see where we end up. But that's the nature of the problem. It's…

And so you seem to be basically saying that the problem has more to do with the macro environment and the fact that, effectively, these guys are either too busy or price of raw material is too high, et cetera, than an issue with the algo to match, SPs with SRs or maybe your ability to have the right SPs for the right SRs in the right regions.

No. We do believe that, that it's more macro. It's labor issues and -- but we're not stopping. We're not a victim of this, and we're not allowing ourselves to be a victim of this. So we're doing a lot on product. We talked about deaveraging the business. The SP that has a sales force and 100 technicians in the field needs a different solution than the SP who's the sole proprietor. And we're doing that, and we're approaching that slightly differently more than we ever have. It's 400 categories -- sorry, 400 geos, 500 categories, so we're running 200,000 mini marketplaces here and mini businesses. And that's what we're trying to do, is deaverage to make sure we have the best solution for people. So if the macro environment never changes, and there are major macro headwinds here, we want to -- through product, through operations, through marketing, through deaveraging and through this new org structure, which I think gets our business leaders a little closer to the business, we're going to try and muscle through that and try and still maintain our growth rates. But there are some headwinds there, for sure.

Got it. Okay. So last question on ANGI. So something you've often talked about, which is this -- the Holy Grail, being getting people to move from being episodic users to recurring users or recurring business, which obviously makes a ton of sense to us. How are you -- I mean you're very early in that process, but how are you going about it? And what kind of gives you confidence that yours is the right platform to be able to do that?

The scale, right? If -- for the back end of your question, are we the right platform? Look, our scale is unprecedented, 18 million homes last year, 32 million service requests. So there's -- as I said earlier, 400 categories -- sorry, 500 categories, 400 geos. No one approaches it with our scale, $1.5 billion of revenue or so. And we're marching down that path, and fixed price is the gateway into that. So we do a fixed-price job for you. And you've seen our repeat rates. They're obviously significantly better on repeat rate -- sorry, significantly better on fixed price. And our -- we have a real basic subscription product where if you do a fixed-price job, you get a discount. And you be a subscriber, you get a discount on future fixed-price jobs. So that's the start, right? If we do a fixed-price job for your gutters, that's not hard to say, "Hey, can we blow out your sprinklers?" "Hey, can we do your snowplowing?" "Hey, can we do your spring cleanup, your fall cleanup, your lawn?" And all of a sudden, we're in a direct relationship with you. We don't have to chase you around the Internet and spend hundreds of millions of dollars to acquire you back. We already have you, right? Maybe you engage with us on our app, right, which we have a more intimate relationship with someone on our app. And then we get them maybe into a more robust subscription. That's recurring revenue. That's subscription. We could pace out demand. We can aggregate demand and make it better for supply. So instead of going to an SP and saying, "Hey, how about going to Youssef' house and doing this?" "How about going to Youssef's house and 5 other people geographically contiguous to Youssef, and that's your Thursday?" And the SP goes, "Okay." Now we're having a conversation. So that's how we're hopefully going to migrate the subscription part of the business over time, continuing to go from just discounts to packages to service bundles. And gosh, maybe in 10 years, we manage someone's home, like people have a second home and they have their house manager. And maybe all that's done by this little device here. And you order -- your home services, your annual checkup on your heater and your air conditioner, you order it like you order a blue shirt on Amazon and we fulfill it. And if you need a little money, we can have financing. And if the SPs need a payments platform, we're your payments platform. So all of a sudden, you see we're getting really sticky here in this. And there's -- and I'll come back again to the metrics -- to the monthly metrics. And a lot of storm and angst around 1% and 9% to 10%. And what I've asked you and I've asked the world is, look, if we hit the 8% for the quarter or we hit the 9% or 11%, don't put us in the dungeon or a pedestal. And by the fourth quarter, we've said our target is 20%. Don't put us on a pedestal if we hit 21% or don't put us in the dungeon if we hit 18% by the fourth quarter. Measure us against the progress we're making on a better customer experience for the consumer and a better customer experience for the SP. And that's ultimately how this category will be won and lost. And I bet on us and I bet on our leadership position and I bet on our management team.

And just to be clear here and then we'll move on. The subscription products would be for the fixed price, right? So if I have a relationship, if I want an electrician, a plumber, et cetera, I'm going to -- you're going to be the merchant of record? Or are you going to be sending 4 different plumbers to bid on my job?

As of now, we're thinking about it through our fixed-price offering, but there's no reason we can't apply something similar. Because, again, we -- as you know, we have multiple business models here. We have the Angie's List directory business, which we're putting marketplace elements into it, but by and large, it's a directory. We have the marketplace business, and we have the ANGI Services business, which we're now -- sorry, the fixed-price business, which we're renaming ANGI Services. And different people like to interact with us differently. Different consumers like to interact with us differently, different SPs. And our job and our opportunity is to have a solution that works for everyone. I mean, again, our scale, our leadership position and knock on wood, our ability to execute, we think, gets us there.

Yes, yes. Okay. Moving on to Vimeo. Again, the numbers last night were super, super strong. Maybe can you speak to the main drivers there? And just -- the question we get over and over again is just the sustainability of that business. Because we -- 1 year ago, we were talking about that business being a 30% grower plus. Right now, we're at 50% plus, and it seems to be sustaining that. What's driving that and the sustainability?

Yes. Look, I -- this is a great example of what's driving it. You and I are connecting on video, right? We -- but for technology solutions such as Vimeo and Zoom, we would be doing this audio. And there's what? There's 800 million small and medium-sized businesses in the world, and there's 1 million enterprises with revenue greater than $10 million. That's our TAM. Vimeo has -- of that over 800 million, Vimeo has 1.5 million. So the TAM is massive. The tailwind is significant. And this is not just COVID that's causing us to use video. We will use video over the next -- forever, just like we use e-mail, Slack and text to communicate in the workplace. It's -- we're going to -- there will be the use of what we call -- what I call everyday video and the Vimeo team calls it, that is everyday video. And it's just a more effective medium to communicate. So we have those massive tailwinds behind us. And there's no one similar that does what we do in terms of a full panoply of solutions around video, from creation to hosting to editing to collaboration to distribution to measurement to monetization and storage of the work product and the end product. So everything from the idea of a video to the success of a view, that's what we do. So again, I don't exactly -- we don't exactly know where this levels out post COVID. But video is clearly going to be a part -- a significant part of business communication, we think, forever. We used to say 20% to 30% revenue growth with 10% to 15% ARPU growth, 10% to 15% sub growth. We now think, post COVID, we will be -- our floor will be that ceiling. So it will be at that 30%. I think again, that's probably comprised of 15% subscriber growth or mid-teens percent subscriber growth, mid-teens percent ARPU growth. I've said on the last earnings call that given the revenue recognition dynamics, we will start to decelerate. Obviously, greater than 50% in February. March should be strong, maybe not as strong as 50%, but strong. And then as we lap COVID, we will decel. And I said, the fourth quarter, we may pierce under 30% for revenue growth, but I think we will accelerate then into '22 -- 2022. We're investing a lot here this year in Vimeo. We've talked about that's sales, we talked about -- that's product, that's engineering. And just think about what happened over the last year -- last 2 years with Vimeo. 2019 was about create. We bought this business and started and put forth a great creation product. And then 2020 was about keeping up with the pandemic and growing with the pandemic. And now we're kind of reloading, so to speak, from a sales perspective, from an engineering perspective to have the product and the features and the reach to customers to reaccelerate that post-pandemic growth. So again, we stand by that 30%. You'll hear more from Narayan and Anjali at the upcoming call. And while it will be another investment year for Vimeo, probably equal to, maybe even greater than the EBITDA loss that we had in 2020, 2021 will be an investment year. Maybe even the second quarter will be the most pronounced in terms of investment. Those investments will provide real exciting dividends given the TAM and given our leadership position.

Is there a bias to your customer focus? The enterprise business within Vimeo has been growing really fast, and in fact, it will be doubling. As you think about products, as you think about sales focus, is it -- do you see a greater opportunity on the SMB side, on the enterprise side? I know you're going to say yes to both. But if there is a bias, where would it be, just looking at your product…

Yes. I think probably the enterprise side. I think the TAM is bigger there. The ARPU there is, what, greater than $20,000 there, and our overall ARPU is, what, $200, in and around. So definitely a bias for sales because we don't use a salesperson on the Self-Serve business, hence the name Self-Serve. And so yes, we'll hopefully double our sales force this year from 12/31/2020 to 12/31/2021. Hopefully, we'll hit those numbers. So on sales, sure, there's a bias. In product, yes, we're tilting towards a lot of product development on the enterprise side because businesses have different needs and we're crawling through, hopefully on our way to sprinting through an organization and covering that organization's needs. I think we put up, for the stat, 2/3 of the Fortune 500 have a Vimeo account, and those 2/3 of the Fortune 500 aren't paying enough. And we're migrating through -- maybe that's from the IR and the PR to the HR department, to the marketing department, to the operations department when Starbucks or a retailer is using Vimeo to do their weekly sales check-ins or weekly operational check-ins. So yes, there's a bias for enterprise. Now also, inside our Self-Serve and our fastest growing elements of our Self-Serve, as I think I've talked about, are premium in business. So it's -- we still have some great opportunity and large TAM even within Self-Serve there. But what I'm clearly saying is we're well moving beyond the creator universe that started and founded Vimeo and gave us that panache and that brand and that quality that a demanding creator community needed.