People Incorporated (IAC) Earnings Call Transcript & Summary

Hi, everyone. Thank you for joining today's fireside chat with IAC's CEO, Joey Levin. Joey has been CEO of IAC since June of 2015 and is responsible for the strategic leadership of IAC and its operating businesses. In addition, he serves as Chairman of Angi and Vimeo and serves on the Board of Directors at Match, MGM, IAC and Turo. Under Joey's leadership, IAC and its spincos have driven a 36% compound annual return to equity shareholders relative to the S&P at 15%, resulting in a combined equity market cap of nearly $100 billion. My name is Mike Ng. I cover IAC here at Goldman Sachs, and I have the privilege of moderating this discussion with Joey. We have 40 minutes today inclusive of audience Q&A. If you'd like to ask a question, you can submit your questions through the webcast or e-mail me at michael.ng, that's M-I-C-H-A-E-L dot N-G @ gs.com, and I'll ask them on your behalf. First, Joey, thank you so much for the time today and for participating in our conference.

To start things off, IAC is incredibly well capitalized and back to building back up after the spin-off of Vimeo earlier in May in this year. Would you talk a little bit about IAC's current strategic objectives and what we should expect from IAC to execute against over the next few years?

Yes, absolutely. First, Mike, thanks for having me, and Goldman Sachs, thanks for having me. This is a -- this is the best question and the most important question and the one that we, of course, play with every day. We are -- in a nutshell, it's the same thing we always do, which is building businesses. We're in the business of building businesses. And I think when I think about my time and my -- the media team that works with me, a huge amount of that time is on what to do with our capital and how to reinvest our capital, both in our existing businesses and into new businesses. And so that always has been and always will be very central to the way we operate and our strategic objectives. And so I want to say that because that's critically important. And then shift to our existing businesses where each one has their own priorities, and we have a few kind of large priorities among them. So biggest, Angi. Angi is a large business in a large category where we're making a very large bet right now. And I guess as you know, right, many folks here are listening now, we're making a huge reinvestment in that business, most significantly around the Services business where we're taking the next step, which has been -- a long-term plan of ours is to just get closer and closer to the transaction to help the homeowner complete jobs in their home. And now we're going really almost all the way to the transaction where the homeowner comes onto our app or onto our website and actually gets a job done, meaning they pay for it and we figure out how to fulfill it on our end. That works really well for the homeowners, and we see that in customer satisfaction. And that works in repeat rates, and we see that works really well for the service professionals because we pay them instead of them paying us. And so that's a big one. Angi is, as we've said, a $400 billion category in the U.S. We're now planning for all of that $400 billion. And I think that if we're successful in executing against that opportunity, Angi can be an enormous business. Next one after that is Dotdash, where we have a publisher in the intent-driven content. And we have a business with a very significant audience and a recurring base of advertisers. Because that audience that they're trying to reach there on our content, where we're generally investing more in our contents in our categories more than anybody else by an order of magnitude, that business is -- I think, also has huge potential. When you look at each of the verticals that we operate in, each one, I think, has a big potential, and we're pretty excited about that there. And that's an area where we're definitely looking to deploy more dollars in terms of M&A because we've done well on a small scale in M&A there. We'd like to get bigger or have bigger ambition in M&A. Next is Care.com. And Care is a business in our Emerging and Other segment. Because it's still pretty new to IAC, we haven't owned it very long, but another #1 player in a very large category where we think there's a big macro tailwind in terms of the way that enterprises in particular, but where society generally is taking on more responsibility for Care and bringing Care from kind of the quiet dark thing to a front-and-center component of people's lifestyles. And employers taking a big role in that. I think government taking an increasing role, this concept of Care's infrastructure. And we think that's going to matter a lot. We're seeing a lot of those tailwinds in the business. And then 2 other kind of big bets for IAC, before we get into the small Emerging businesses, 2 other big bets for IAC is, one, we have a very large position now in a business called MGM, MGM Resorts, where we've done very well on that so far. We think there's a huge still opportunity ahead there. A lot's happening in that space. And Turo, which is a little-known business, that actually brand awareness has come up meaningfully in the last few months, but peer-to-peer car sharing, which is just a better way to get a short-term car than anything that exists in the market by an order of magnitude. And we're the largest shareholder there and hope, expect to be bigger shareholders over time. And it's a really exciting business. And then we've got some smaller things, too, but those are the bigger ones right now.

Well, that's a fantastic overview. And I think it's clear, there are a lot of opportunities here. I do want to dive into several of those points that you mentioned in turn. Maybe just starting out with Angi. Clearly, a leading digital marketplace addressing the U.S. home services opportunity. There's been some great traction there, but you've also described it as a work in progress in the past. To start, could you just help frame the current state of Angi today? Could you just talk a little bit about some of the recent challenges due to things like rebranding as well as the strategic shift towards Angi Services and why that makes sense to do?

Yes, absolutely. So we are -- think of it as 3 big pieces of the businesses, but really 2. The 3 historically were marketplaces, which is the Marketplace, which is delivering customers to service professionals on a sort of per customer basis. Then there's the Advertising business, which is delivering customers to service professionals, but basically at a flat rate, fixed rate or a fixed amount of spend. And then now the latest business is the Services business. And I'd say that's the 3 pieces. I really say 2, but it's either we bring customers to service professionals in ways where they pay us for those customers, whether fixed or floating. And then there is where we bring them customers and we pay them kind of to get them. And the second part, the Services business where we pay the service professionals, is by far the fastest growing part of the business. And I do believe the future of the category, it's not to say that the majority of our business today, which is the Advertising essentially business, it's not to say that that's going away. I think that business exists forever, and I think it is a meaningful part of the puzzle. But I think long term, when you speak to homeowners, especially younger homeowners, their expectation is that you will -- they'll trust the platform to deliver the service. And an older generation feels differently about that. The older generation says, "I want to negotiate this. I want to find a service professional on my own. I like getting the list, but I want to go through it on my own," whereas I think most people who are more comfortable with platforms and can trust platforms and technology say, "I just want it there. I just want it done. I want you to do all the work. I just want to know that I'm going to get a significant selection and a fair price there." And that's what we're trying to deliver to those homeowners. That is -- both of those pieces -- as I say, both of the business -- pieces of the business are going to be very important. But the Services business is the fastest growing part of the business, and all of them will be part of the picture of what a homeowner sees and what a service professional can get on our platform. Part of the reason that we're so confident in the Services business is because we see incremental -- much better Net Promoter Scores, frequency return rate, meaning the rate that the users come back. And it's a very challenging business to scale, but it is, I think, the product that homeowners want, and we're seeing that in the numbers today. Some of the things you referenced, challenges right now, definitely not unfair to call it a challenge. Also, I'd like to call it an opportunity as we did this proactively, which is we rebranded the business. We had 2 businesses, really more than 2 businesses, but 2 large brands, Angie's List and HomeAdvisor. And Angie's List always had better brand recognition. And no matter what we did, you go to the cocktail party and you'd say, "I work with this business where we -- it's called HomeAdvisor, and we connect homeowners with service professionals, and it's what we do." And they tell you, "Angie's List." And you say, "Well, yes, okay, that's -- yes." No matter how much money we spend, we spend $1 billion on HomeAdvisor. We were running into that wall repeatedly. And that was a motivator for the acquisition, but it took us a long while -- too long to do that integration of the brand. We said, "It's no longer a list anymore. So Angie's List is inaccurate. We need a brand that's punchy and quick and memorable and unique." And we changed all of it to Angi and integrated all of it as Angi so that homeowners and service professionals can understand that. And we believe now we have the winning and memorable brand in the category, and we're seeing that in the staff, the measurements we're doing around brand awareness, both aided and unaided. The momentum we've got there is really tremendous on good spend, but not a huge amount of spend relative to our history. And so that was, though, when we make that change, that is a -- expensive move to make for businesses that depend on Search to a significant extent, not the only channel, but an important channel. When you make changes in Search, you -- there's a dip before a recovery. That's both in SEO and in SEM and -- that's Search Engine Optimization, Search Engine Marketing, meaning the free part of the search page and the paid part of the search page. And both of those take a dip before they recover, but we are now on the path to recovery, which is really encouraging. And we think although the pain there is short term, we expected short-term pain, it always ends up being a little worse and longer than you think, but it is -- we're on the path back there.

And just on Angi Services, I wanted to dig in a little bit deeper there. As you mentioned, it's the faster growing part of the business. It more than doubled year-over-year in the most recent quarter and grew 33% sequentially. Can you just talk a little bit more about what excites you most about the product? And you also mentioned some of the challenges in scaling a type of business like this. What are some of those barriers to operating something like that at scale, whether it's figuring out pricing or getting the appropriate service professional supply liquidity? Could you just talk a little bit about some of those things and what Angi is doing to overcome those challenges?

Yes. I think that you've hit on a few of them. I think pricing worries me the least really. It is a complicated problem to solve, but we solved it now in multiple categories, and it's just a matter of getting data. And when you have an update, you can solve the pricing. And it's also a matter of liquidity. And you have enough liquidity, you can solve the pricing. So just kind of a very clear path on that. Some of the more -- the harder problems, which are also solvable, and I can give you some examples, are just fundamental user behavior, and that's on both sides of the marketplace. So what an added challenge for us is there's a lot of businesses that are matching 2 sides of a marketplace for us. We have to get the service professional there to the right location at the right time. We also actually have to have the homeowner there frequently at that time. For outdoor jobs, it's easy because we don't need them there. But for indoor jobs, we do need the homeowner there. So now we've got 2 people to keep track of to make sure they're doing what they're supposed to be doing and showing up on time. There are solves for that because some of these things are statistically predictable, meaning you can figure out how often service professionals in general are late or how often a particular service professional might be late or might be not showing up. We can also, through our mobile app, presuming users have enabled this, we can figure out where people are and know whether people are on time or not and use calculations, the technology to say how much traffic there is or how much time there is a way from making that happen. And so we can solve those things, but also statistically knowing the fail rates as we can solve for the fail rates in advance. So what do we know, we need to have on standby if we have this many jobs so that we can make sure we fulfill within a reasonable amount of time. And we get better at those things every day, but they're all kind of operational, executional challenges that we continue to get better at. The reason -- that's part of the reason -- scary part of this, but it's part of the reason we like it is we think that it requires real investment. It's not just having the biggest platform or having the biggest search engine or whatever -- where your front door is. The logistical challenge in here, we think, builds a meaningfully better homeowner experience. And that's what we're optimizing for. With a meaningfully better homeowner experience, it starts to make sense at some point to go direct to our platform, which many users do return to our platform or go direct to our platform. It makes more sense to do that than it does to go through an intermediary who isn't going to take on the logistical challenge that we are and solve it at scale as we have.

On the last earnings call, IAC mentioned that Angi EBITDA is expected to be breakeven for at least the remainder of 2021. As you mentioned, rebuilding a brand takes time. Things may be -- there might be a little bit of a dip before there's a more meaningful recovery. And you've talked about managing the business for market penetration rather than margins, at least in the near term. So can you talk a little bit about some of the key areas in Angi that you're investing in? And then could you also talk a little bit about some of the KPIs and business results that you're looking at to give you confidence in these investments, whether they're repeat rates, lifetime revenue per service professional, LTV to CAC? Anything you could share there would be great.

Yes. Look, all of those ones you mentioned are important to probably -- 2 of the most important to us on the homeowner side is frequency and customer satisfaction on the -- I think one is definitely an indicator of the other. On the service professional side, definitely lifetime value and just general growth in service professionals. So we're building out our store. And the key in building out our stores, having -- making sure that the shelves are full, which means there's enough service professionals in there to do any job with real depth. So those are key. But then in the middle of that, the combination of those 2 are -- well, lots of other things, too. But in the middle of all that is also making sure that the model works, that the contribution margin is -- in contribution margin, there's a lot of different ways we measure it, but think about it as just the cost of the revenue we get from a job minus the cost of fulfilling that job and making sure that that's profitable. When we start a new category, it's not -- we -- for -- part of the reason is, as you mentioned earlier, pricing, for example. We might say that we'll do the yard to start for $100. And it turns out we're paying the landscapers $150. And it takes us some time to where they'll pay, in this geography, the price should be $200. In that geography, the price should be $80 and getting those things right so that we're not upside down. And in each of the categories we've been, and we haven't had a problem getting the contribution, but it does take time and capital to get to that contribution margin. So we're looking at that pretty regularly, both on a job basis and a geography basis. And those are the indicators, but the biggest is, again, just making sure that the homeowner is happy. When we have happy homeowners, the rest of the ecosystem generally works.

And let's talk a little bit about the current environment for Angi, if we could. Angi revenue growth accelerated in July and again in August. So it's been really encouraging to see the improvement in trends. Could you talk a little bit about the environment in the last 12 months? How has stay-at-home measures and the tremendous amount of demand for home services at the industry level affected Angi? And then what does the broader home services environment look like today? And where do you think it will go from here? And what are the implications of that?

Yes. So I actually meant to mention this earlier in one of your earlier questions, but the -- in America right now, actually, in Europe, too, the amount of demand for services significantly exceeds the amount of supply of service professionals. That's also part of the reason, by the way, right now, the Services business does so much better than the Advertising business is because people aren't -- many service professionals are fully booked. If you've tried to get -- if any of you have tried to get any work done in your home recently, it's -- there's a bit of a wait and prices are up. And so that's a challenging environment to work in, and then the volatility is made even worse, which is there's a period where demand went to 0, then immediately went greater than anybody has ever seen. And the supply is -- gets understandably confused by that. Some people went out of business early. Some people couldn't get back into business fast enough. And that volatility has just been a challenge for the category generally. I think we've managed overall well through that, but that -- when we -- that volatility didn't pass us over either. Like we've had to deal with that. And I think we've made some mistakes in the past in dealing with that, and it's certainly a challenge. We are -- I think like when you look at our growth, we've been pretty steady on an organic basis. We did an acquisition, which we talked about, which improved the growth rates. And we've talked about that kind of mid- to high teens growth rate through the rest of the year. And I think something like that is reasonable in terms of how we're thinking about it. I'd want to start to accelerate as we get into next year. But that's kind of the way I'm thinking about it, that we're all thinking about it right now.

That's tremendously helpful. Let's switch gears and talk a little bit about Dotdash. So Dotdash, vertical-focused publisher that's delivering really strong top line growth at scaled EBITDA margins, strong advertiser retention and a primary reliance on organic traffic. So could you talk a little bit more about some of the drivers of growth in Dotdash and how we should think about that growth over the long term? And how does the vertical-focused strategy help deliver impressions from advertisers to consumers in a privacy-safe way?