People Incorporated (IAC) Earnings Call Transcript & Summary

Well let's move over to Angi. So 2 issues to turn this business around. So one, doing a better job matching consumers, NSPs; and two, growing efficiently through paid and organic channels. I mean, so just break down both, where are you? And I don't know if you want to use a baseball analogy, and then you get into new rules and old rules of baseball. But maybe like on a scale of 1 to 10, like 10 means we are all finished; 1 is -- 1 being we're at the bottom of the of this, perhaps a bit ago. Like how are we making progress with each of these initiatives?

Yes. I'll use more of a football analogy. No, I am just kidding. I'd say where we are, think about the 2 sides of the platform, consumers and pros and then the integration between them. On -- when Joey took over as CEO in October of '22, a key point of focus immediately is he dug deeper in from being Chairman but really got into the hood was, improving consumer experience through fewer direct marketing efforts, fewer calls, better product and more relevant pros being served to them based on the search or what they're looking for. That has been the longer of the 2 paths, but we're getting there. We've reduced outbounds and at the expense of marketing -- the expense of leads, we've reduced, e-mails, outbound calling, all those activities. We've also continued to improve the product. And Jeff talked about it on the call of predictive and using -- predictive analytics and AI to get the right questions to efficiently extract the most information and scope the job correctly. We're making progress on there. We're seeing improvements in NPS, which will be the leading indicator. But longer term, we're going to not need to drive repeat rate, which is a product of getting jobs done well, and we're going to need to drive overall demand through better application of marketing and better SEO, better repeat. On the pro side, that was the early actions, and there were a few elements there. One was we stopped recruiting low-quality pros who are either not going to succeed on the platform or higher propensity to churn and bad debt. We really focused about a year -- over a year ago on improving lead quality to pros. So the leads they were getting had better win rates and all the predictive indicators would give them better ROI. And we've continued to improve the onboarding of pros and the options for them between leads, ads and services of what best fits them. Where we see that relevant is -- where we see that manifest itself is better retention. And we've talked about the improvement in service pro retention data, improved bad debt and reduce churn. The middle is matching, that we're making progress on. We need to continue to improve the data and the tools there. Jeff talked about we need to get better information quickly through a better product out of consumers and drive that matching. There have been improvements. That's where we see increased monetized transactions per an SR, so more events occurring out of a given service request. We'll continue to drive that. So I'd say we're probably halfway through. More to do on the consumer side than the pro side and then continued progress in matching. And that consumer side will lead to reinvigorating demand, which is our biggest headwind. We've cut a lot of demand. We've proactively reduced marketing, cut out bad channels. We closed CraftJack, et cetera, et cetera. But consumer -- or sorry, investors appropriately are saying to us, when are you going to start growing again? When is there going to be SR growth, when is there going to be revenue growth? And that's what we need to deliver.

So how do you think about interest rates, lower interest rates being a tailwind? I think you said, is it 2/3 of jobs that tend to be nondiscretionary selling, rates you need to get fixed. But ultimately, you have 1/3 is consumers choosing to do something, whether it's they want to put a deck on -- whatever, it's by choice. And I would imagine a good chunk of that ties into people moving to new locations.

Yes. 60% of the business are nondiscretionary jobs, leaks, emergency fixes, appliance breaks, those types of things. We would think -- there's a natural hedge within the Angi business of when consumer -- when consumers need us smaller, pros may need us less because supply has been relatively fixed. And when demand goes down, propensity to spend increases. I think we've been in a depressed period of demand being low after the excesses of the pandemic where demand massively outstripped supply. Lower interest rates in a more -- even somewhat more dynamic housing market, we think would be neutral to positive. It could be better than that, but that's where we sit right now. Where you'd see is that 40% that are discretionary jobs, maybe it ticks up a few percent in share, but also ticket size will increase, and that goes to lead value and since they're tied to ROI to the pro. So we're thankful to have gotten through the last couple of years on the home side. And we feel good about getting our business lean and mean and with a clean revenue base and a better product for whatever the market brings, but we'd be mildly constructive on macro in that context.

And philosophically, and I've asked this in the past, I mean, with keeping Angi public as a stub, you obviously sound more confident in the business now than in a while for obvious reasons. And again, we may be going into some kind of cyclical tailwind potentially as well. You could tender for the public stock. I mean that being said, investors could just be incredibly patient if they choose to kind of do that. But just any thoughts on kind of why it makes sense to still have the public stub out there.

We -- it's something we discuss and think about. Pros are having fewer public stocks underlying IAC is helpful than having more, that the -- you'd save on some public company costs there. They would have the ability to free up time from being a public company. On the flip side, they're still a material sub of a public company. We still have SOX obligations, Jeff would still be talking to investors as a major CEO. So pros and cons, right now, the message we've put out is we're -- we don't want that distraction and having a minority squeeze out and dealing with that. We'd rather just focus on getting the business fully repositioned and go from there. But there are merits that we consider in a buyout.

And then are there any competitors in home services that you think you're doing a good job? And like I get that like they would be an interesting acquisition, but just how do you think about the competitive environment in home services outside of Google? But just are there companies that you pay attention to who you think do a good job in this?

Sure...

Without not naming names, I guess.

Yes, no, so we think the -- I'd say in the broader market in home services, there has been a rationalization from some of the overfunding during the pandemic and the amount of capital that flowed into flawed business plans. That would -- we went down the services path too hard and wasted some capital in that, but we had a poor business that's an industry leader that underpinned it that we've built around. So in terms of the venture funded competition, we've happily seen that decline. We track the other players. Yelp is doing a nice job, and we always viewed them as undermonetized relative to where they were, and they've driven that monetization better. They're also doing -- we're more in request to quote, but off a smaller base. But we respect what they're doing, keep track of Thumbtack and other players. But for us, it's really around Angi, and our performance are taking advantage of our strengths of liquidity on both sides of the marketplace, leading platform of service professionals and brand and reach on the consumer side. And we focus -- we don't look at any competitor impact as a major factor.

Last Angi question. Long-term margin target for Angi?

I believe it should be a 20% margin business, adjusted EBITDA margin business with getting revenue back growing. You can see where we've taken it in the last few quarters to 13%, 10%, 11% and higher. This last quarter, it was a little bit flatter by some period, some expense shifting into Q3 from Q2, but gives you the broad strokes. But with revenue growth, I definitely think this should be a 20% adjusted EBITDA marketplace.

Talking about Turo for a minute. How big is it today? How fast is it growing? Any impediments to faster growth? And I guess, do you agree that you get basically no value for it inside of IAC? You've tried to tell the market that you're the largest shareholder, I think it's like 33%.

Yes. I -- we definitely agree with the last point that we get no value. And we exercised our warrant on a net basis this past -- or this quarter, disclosed it in this past earnings and added 2% in the company. And also reported what we thought were excellent numbers at Dotdash and solid guidance. And our discount actually increased when you looked at the relative performance -- the performance of Angi and MGM relative to IAC on the day of earnings. So there's definitely no value for our Turo stake. It is a real business, and investors can see in the amended S-1 that they continue to keep on file size of the business. Growth has slowed down. But that -- part of that is working through normalization of the rental car market. We follow the comps closely at Hertz and Avis and they're reporting similar pressures in ADRs and in pricing. Volume growth has continued. We definitely think we're a share taker in the space, and we think we should be doing even better than we are through better marketing, growing the brand, growing awareness. It's pretty consistent. If you talk to people you know, it's roughly 1/5 of them are aware of Turo, and most of them have used Turo and would be proselytizers for it, great NPS and repeat rate. It's really getting more of that other 80% exposed to Turo and to realize the benefits of knowing exactly what car you're going to get, have it delivered, not be dealing with big rental as the company calls it. And we need to get more people exposed. That's improved brand, improved marketing. We think the product is in great shape. Andre and team have done a great job building that. And we just need to get more consumers exposed to it as they're in their rental car journey. But it's a good business, and we think it has great opportunities in front of it.

I mean no question from like a leisure travel standpoint, do you think though like ride sharing, I guess, Lyft, Uber, like have maybe been an impediment to what potentially would have otherwise been more growth in some of the urban areas for Turo and the ability to unlock like the car sitting on the sidewalk that somebody rarely drives in an urban area?

It could be. I mean, the growth was so strong through, obviously, pandemic tailwinds for '21, '22 and most of '23. I think that would be a factor in broader rental car and short-term car rental dynamics, but there's so much share to be taken by Turo that we don't lose sleep over that pressure. And we actually think there are opportunities -- or as understanding and usage of Turo increases, more use cases open up for both hosts and guests of how to use Turo and how to use them for a longer term.

Two more. So one, Care.com. So I think LTM revenue is about $370 million. So the business is kind of quite large, but I think growth was flat here over in the second quarter. What are you doing to reaccelerate growth? And how do you think about the long-term margin potential for Care?

Yes. We still feel very bullish about Care. As an industry leader, Joey talked about in the letter, given the scale of consumer traffic and positioning the brand, it's a good profitable business. Growth has slowed down. They got more of a boost out of COVID than we even realized, particularly on the consumer side. And it's been a -- or it was one of those situations where tailwinds obscured some real suboptimalities in product and in marketing. And so -- water goes out -- when the tide goes out, you realize some things that you don't like. We have leadership in there in Brad Wilson, the CEO, and he's been building out his team who are making the investments in product and marketing to reinvigorate growth. It's -- there are 2 main businesses within Care. The consumer side, which is any of us signing up and using it to find a nanny, babysitter; and then the new -- senior care as well as new categories like pet and out-of-home, that is where we saw the biggest slowdown recently. There's also the enterprise side where our employers provide access to Care and backup Care hours or days to employees as a benefit. That has been reinvigorated with that -- and we think is now really table stakes for most employers to offer. It's really around getting the consumer marketing sign-up and product to where we want it, but it's head down, and we feel optimistic about the future there.

So last part. And we can kind of do a 2-part question because there were a few questions online in the chat about the MGM stake. So -- and obviously, the question on the MGM stake is, why does it make sense to keep it? And you have talked about you think it is an undervalued asset. But work the logic of the MGM stake into potential M&A. You've talked about sweet spot being $300 million to $700 million. What's the likelihood something gets done in the next 6 to 12 months? And then how do you think about like using the MGM stake to fund acquisitions versus other sources, et cetera?

Okay. Well, across the whole IAC family, there's $1.7 billion of cash; at IAC parent, $1.1 billion. Obviously, that's a real capital source right there. And one, we look to put into investments, acquisitions. The MGM stake, we view the company is highly undervalued. The market reaction to their earnings 2 weeks ago, we think, was fully overdone in a reaction to one statement about F1 pre-bookings and $30 million of risk of a company with $4-plus billion of EBITDAR. So we thought it was undervalued before, and the implied value on incredible assets in Las Vegas, which has further cemented itself as the entertainment leisure center of the U.S., but also the world, it's an extraordinarily low value and one we see opportunity there. We have a variety of assets beyond our cash to fund future M&A and both -- we have sold assets like Mosaic that we consider noncore and are not meeting our capital return thresholds and then debt financing all those associated within that acquisition. So we've got firepower. We're really focused on finding, identifying and buying a company or companies that we think will create real value for IAC shareholders.

Okay. I think we're out of time there. Thanks, everybody, for joining us. Thank you, Chris. If anyone has any follow-up questions, feel free to e-mail us, and I appreciate the time, everybody, today.

Thanks, Jason.