People Incorporated (IAC) Earnings Call Transcript & Summary

We're almost at the end here. Thanks, everyone, for joining and [ lasting ] through to Friday, last day of Citi's Global TMT Conference. Ygal Arounian, on the Citi Internet team and really thrilled to have Neil Vogel, CEO; Dotdash Meredith, part of IAC.

Thanks for having me. Cheers. Oddly swallowing things or sort of its looks [indiscernible]

And -- yes, yes, I've gotten used to it, but -- all right, it ends up being comfortable. All right, great to have you here.

A lot's happened with Dotdash Meredith over the last few years. We've kind of worked our way through the integration, where -- it's been a little while now. There was a little bit of a process out the other end and things are starting to get much better. So maybe just before we dig into it, just to kind of level set, where you are now, where you are post-integration.

Yes. Look we were -- it's around right now, the 3-year anniversary of the announcement of us buying Meredith. And when we bought it, we had a thesis, and that thesis was proved correct. The difficulty out of the gate was, I mean, we bought a late pandemic business. And like everybody else, we misjudged. What -- how that would impact markets coming out. But once we work away through that and work through the integration, which had all the bumps that were fairly expected, we're in very good shape now. And the thesis has always been for us a different thesis than you'll hear from other people that do our sort of media. And it was -- we always believe that if you have iconic brands, which we now have, and scope, and you have scale that is not duplicable scale, and you build incredibly high-quality audiences, you have a chance of being successful. And we've done that, but we've done that really differently. It's important to note like what we don't do as an indicator of like what we do do, what we don't do news, we don't do sports, we don't do politics, we only do content that has a real signal attached to it, content where we know what someone is doing. The old days they call it service content. So home, food, tech, travel, beauty, health, finance, where when someone is visiting one of our sites or using [indiscernible] or whatever they're doing, we generally know exactly what they're doing. They're trying to live with skin cancer, trying to roll over their 401(k), they're trying to make an apple pie, they're trying to decorate their bedroom. And when you know that, you have down funnel traffic. And when you have down funnel traffic, you have very valuable traffic because people are very close to decisions, and it makes it perform for advertisers. So again, go back to the formula. We're in an environment where it's totally safe where we make all of our own content on the brands or premium brands. Scale, like we're way bigger than any publisher now. We have platform level scale, plus really performing audiences and we're math people and we focused a lot on the different levers you pull and how to monetize people while not annoying them and keep them coming back. The formula works. And we've been doing this. The seeds of this were planted a long time ago when we were breaking up about [indiscernible] brands. And we've been very consistent in what we've always said, like intent-driven traffic, intent-driven traffic, intent-driven traffic. We could build a really durable nice media business. Now unfortunately, in our part of media, we're publishing or whatever you want to call it. And people got very confused and people confused what they thought was a bad market with what were actually horrible business models. And we've never done any of those things. We've always been very disciplined and we've done nothing but grow fairly consistently other than a little bump coming out of the pandemic for basically the last decade. And we -- now we're in the last couple of quarters, double-digit growth, we think we can do double-digit growth going forward, really nice EBITDA margins. And we feel really good about where we are, and we feel like very, very optimistic about the future.

Okay. Great. So you are seeing a nice acceleration in revenue guide to 15% on the Digital side in 3Q. It's up nicely from 2Q. Is that just the nature of these things finally starting to hit at the right time. I mean, to talk about the macro, but also outperformed in other Digital...

Macro is, I said this at a prior meeting, if you're ranking things 1 to 10, you can't get above a 7, macro is 6, maybe even like a strong 6, but it's not great. It's good. It's not great. It's fine. But it's good enough that if you have good assets and a good plan, you should be fine. And that's where we are. And our growth is a combination of really understanding the brands and assets we have and understanding the right mix of monetization for each asset, whether it's premium advertising, programmatic advertising or some form of commerce or other business. So if you look at people, which is one of our biggest properties, probably our biggest property, that is primarily like -- that is programmatic advertising over premium advertising. If you look at our Health brands, that is all premium advertising. If you look at some of our home brands that's purely heavily weighted towards commerce. And if you get that mix right, it's really helpful. But the whole key to any of that working is aggregating a very, very responsive, loyal, down funnel audience that will come, surrounding them with the right amount of monetization, so it will still perform, and then putting that monetization out in the universe in a way that it works, that premium guys are happy that it performs programmatically or that those people will buy things from you because they trust your recommendation on a blender. And there's some nuance to what we're doing, and we can talk about D/Cipher and some of the other stuff, why we have real advantages, we think, in the world. But it's basically that -- and it's also like getting our hand -- look, we were 800 people that bought 3,600 people. So it was getting our arms around and our culture around this. But now we feel really, really good. And like we're People, Food & Wine, Travel + Leisure, InStyle, anything that we could -- like we're 40 brands, we're 20 major, major brands, and we feel really good about where we are.

Great. We'll get to the D/Cipher. I want to talk about traffic compliance thing first a little bit. Joey publishes that -- you guys published in IAC's investor letter, traffic trends. And traffic has been really positive growth back there. What's happened there? What are the factors that are kind of driving to the outperformance in traffic?

What I would say again is there's no trick. There's no secret formula. We make really good content, importantly on brands that really resonate with people. And one thing we learned when we bought Meredith is, we had brands at Dotdash, small brands that we bought and brands that we created out of the old About.com, if you remember that part of the story. And then we bought these Meredith brands with Better Homes & Gardens has been around 100 years. When you do what we did on our brands to help them grow, they grew. When you do that same thing on real brands, it grows with an accelerator [ mag ], I don't know what the right term is, but like way better because they're brands. So stronger brands, a playbook that we really understand, the ability to really invest in content, and I give this example. This kind of makes you understand what the investing in content is. Investing in content doesn't mean making new things. It also means updating old things, and we probably spend -- we win half our money updating old things. Take a recipe. In the old days, a blueberry pie recipe on the Internet, you need a picture of blueberry pie you needed a recipe. And you could win. You could get distribution on Google, you could get distribution on Apple News. Now for that recipe to win, you need a video, you need the full recipe. You need to be able to scale it up, scale it down, you need a vegan option, you need health information, you need a cultural history, even someone who have cooked it, you need a series of ratings and comments. You need all of these things that makes it increasingly difficult for other people to do what we do. We have 52 test kitchens in Birmingham, Alabama. We test every single recipe that we publish on any of our food sites. Other people can't do that. And in many ways, we joke the content business is turning into like the banking business. Whenever there is new banking regulation or new financial regulation, that only accrues to the benefit of the incumbents who can deal with it. It never helps an upstart, almost always. That's what's happening in our businesses, right? The competition is so intense that if you can't do all of the things, you just can't win continuously. And by win, I mean, win on the distribution points you need to get traffic. They'll come direct, they'll come through e-mails, but you need to win on Google, you need to win on Apple News, you need to win on social, you need to win on YouTube, you need to win lots of secondary sources. And the only way to do that is through the best stuff on the best brands, and that's what we're doing. And like there's no like we did this one thing and it worked. It's just like blocking and tackling and just work, [indiscernible] it's working.

Your answer is making me kind of want to jump into the Gen AI discussion, but I am going to be patient, and we're going to get to it. Your pricing has also been improving on ad rates. Is it a similar answer on what's happened there or is it separate?

The audience quality is really good, which helps on ad rates. But we are -- this is relevant. None of us were publishers before we got here, and many of us weren't even media people, we were math people. I was a former investor banker. What we realized about rates and about ad rates is particularly programmatic rates, which is, I'm sorry [indiscernible] like when the machines buy the Ads based on parameters set by the ad buyer. If your Ads are more performant, they will simply price better. And what we're really good at is optimizing, you can't optimize to greatness, but if you have great stuff, you can definitely optimize it. And so we optimize each of our pages to understand that Ads are in the right place, appear at the right time, serving the right way that we maximize our possible return from programmatic markets, which means they're more performant. And I think in the letter, it was like 35%, 36% better than market, which is market is probably up 10% or 15%, we're up 30%. That's because we're really good at this. And it goes back to what we said we know what sites monetize programmatically. So we build them as such. And we know how different things monetize so we build them for that. And that's like a key differentiator why our rate is going up and why I think we have something like -- there's some room in there to go, I think.

Okay. There's a lot of things to talk about it. And one just before we move on, just talk about the margin profile as the growth is returning, the incremental margins, they were 35%, 40% in 3Q, but how do we think about that?

Yes, I think, 30s EBITDA margin is what we can do for the business. Incremental margins are obviously better. In many ways, we are a fixed cost business. The incremental margin doesn't come in at 100. It's going to be dependent greatly upon how we invest and how we use incremental -- margin incremental dollars to invest. Currently, we're investing, but incremental margins are definitely like -- I forget what we said in the shareholder letter, but they're definitely better than our core margins for sure.

Okay. And we...

There's a good leverage to the upside.

Okay. Great. And as we think about the business where it's at post-integration and integration is complete. You finally kind of starting to run on that. A lot of debate at the parent company level about M&A. And then there's discussion about new channels and then investing in the ones that IAC currently has most notably Dotdash Meredith. So how do you think about where you are with the portfolio, what else might be needed, just M&A in general for Dotdash.

In terms of M&A, there are -- I'm not so sure we're interested in buying any more like scaled publishing type assets. I don't think we need them. I think we'll be very opportunistic. There's a couple of things we'd like. I think you're more likely to see us explore things that connect us more directly to audiences and connect us more directly to advertisers, right? The risk in our business, which we've talked about, you've talked about is being disintermediated somehow, being disintermediated from the supply side, or being disintermediated on the demand side, right? People between us and our advertisers with dollars between us and our audiences who want to keep the audience for some reason. Different businesses that allow us to connect more directly on both of those things are probably of greater interest than buying another publisher at this point. And the next thing is, when are you guys going to buy ad tech? Like we would never buy ad tech for ad tech's sake, to be in the ad tech business. But we're very interested in relationships and being able to serve our advertisers in a way that right now, if you're an advertiser and you spend $1 in the programmatic market, you get like $0.50 of buying power, maybe. And I think there's a big arbitrage to play there. There's a big arbitrage to play in, like, targeting without cookies, which we'll talk about, right? Like there's some interesting ways that people directly interact with audiences that isn't direct traffic or social traffic and doesn't require Google in between that we're interested. So it's a longer answer saying that's more appealing to us more like than this. That's for the rest of the ad tech's journey.

Yes, we'll say that. But that makes a lot of sense and great segue into D/Cipher. So maybe just for people that aren't familiar, just talk about what D/Cipher is. What it does for you and why it's so important?

Sure. I'll do a very quick background on D/Cipher. So what the D/Cipher is, a way to extremely effectively target audiences without cookies. And we always knew when we were building this business that we wanted intent-driven traffic, traffic of people that are doing something. Well, again, why no news, why no sports, why no politics, that's why? Because you don't know what people are really doing. When you're searching on how we set the table for dinner party or what color to paint in my newborn's room, we know a lot about you. So what we've been able to do is, we have 30 million user sessions a day. We have billions of interactions. This goes back really long time. We're able to map every URL and kind of almost like segments of pages on all of our sites to each other and understand how they relate. So if you're using a cookie, a cookie is definitionally backward looking. You are trying to extrapolate something about somebody based on what they just did. When you land on one of our websites like you land on Better Homes & Gardens, what color to paint in newborn boy's bedroom that will be the most calming, right? We know everything about you, we need to know at that moment of time. And because we have so much first-party data. And again, first-party data is about behaviors, not individuals that we know that everybody who in the past has looked at this, we know what else they've looked at. So in terms of targeting advertising, we know that, obviously, if you're looking at this, you very, very likely just had a baby. So it's going to correlate with like a bunch of baby stuff like you find in the showroom. It also very highly correlates with needing a new car, needing new credit card, needing a new house, needing a whole new class of OTC and DTC pharmaceuticals, like all kinds of stuff. So what this allows us to do, is to go to a client and say, "Hey, we don't need cookies to target. We can target based on this." So when we have a home equity loan lender that wants the market, we can put them on this content, and it will perform extremely well as opposed to trying to chase somebody who you think needs a home equity loan. This does better. The second thing it does that is probably the most important thing is like, how many of you guys have Android phones? 1, 2. Okay, 2 out of 20, so call it 10%, right? In real life, it's probably closer to 50%, right? Who has the Android phones. If you were targeting based on cookies or individual identifiers, those are the only people you can reach. So everybody in this room who didn't raise their hand cannot be reached by cookie-based advertising on their iPhone will stop, no exceptions. So what happens is the value of these Ads gets overbid. They're too expensive. They don't work for advertisers because they're -- and the entire iOS audience goes unaddressed. So there's an arbitrage there. Like this is way too cheap. This is way too expensive. If you target with D/Cipher, it doesn't matter if -- because you got individual identifiers, you buy based on contextual targeting, not based on cookies, it opens up the whole world and really, really helps with efficiency. So in a world where cookies are going away one way or another, and they are -- what Google just did when they said, they're not deprecating cookies. Actually, they said, we're totally deprecating cookies. We just no longer responsible for what happens on the other side. We'll let people opt out. If you -- for those of you who followed Google was trying to propose a post-cookie targeting world, they eventually throw up their hands, said we can't make everybody happy. So all we're going to do is get people on opt out for cookies. So cookies are going to go away with no responsibility on the other side of this. As cookies go away, that pool gets narrow and narrow. The cookie pool gets less and less effective, and there's no solution for the rest of it. We're the solution for the rest of it. And the next step of this, which is the logical next question I'll ask for you is, well, why can't you do this more broadly? And right, I read you that question or anyone has asked that question. And the answer is, we think we can. So what we think we can do and what we're doing now, and I think we're going to be able to do this in the next 6 months, is we can go out and if we understand the domain is quality, like premium quality like you are a really respected food blogger. We can go out and we can crawl your site, and we can take all of your pages and we can match them to our pages and know exactly where they would fit into our graph. So we can now go to Campbell Soup who's giving us $15 CPMs to buy across our sites. Well, we have another $2 million to spend more on reach, we'd like to spend $7. We can say, "Okay, great. We'll take your $7 CPM stuff. We're not going to place on our sites because we're too expensive. But let us use our D/Cipher targeting that you like that's working and let us do it around the Internet for you. We'll hit your $7 target. And then we can go out based on our targeting, buy up and package this and sell to them for $7, which is something that people do to us right now, like -- and this is a -- I mean it's not capable of doing this yet. We have a road map to do it. it may work, it may not work. But intuitively, we have the relationship with Campbell Soup. They're already doing the reach advertising, like let's do that, too. And that opens up a whole post-cookie situation for us that is really, really interesting if we get it right.

That sounds like a DSP business.

It is effectively a DSP business, like we would become effectively a DSP that uses D/Cipher targeting to target the rest of the Internet. Now whether we build our own DSP, whether we white label someone else's DSP, that's all in process. But it goes back to -- this helps us connect more with our advertisers, right? Like now that the agency gives us their money. They got 100% buying power on our thing. They got 100% buying power D/Cipher on the Internet. They don't have to use whatever DSP -- we cut layers and layers and layers out of this. So instead of going from $1 buying power down to $0.50, it's going $1 down to $0.80 or $1 down to $0.90, or $1 down to $0.70, which is way better, and it performs better. So that's the hook. It tells us a great story. And -- but the world is very wedded to its cookies. And the challenge we've had is you can't walk in to name the ad tech vendor, name the agency, name the client and say, your baby is terribly ugly. And Mr. CMO, you've been telling your CEO about this cookie pool you spent $20 million building and how great with all this data it is, you want to go back and tell them, I was wrong. So the way that we address this is we are doing a lot of -- you're spending $1 million with us, spend $900,000 your way, give us $100,000 our away, let's see what happens. And we win every time. And that's really driving adoption of this and will lead us down the path to be able to do the second thing.

Okay. This was ad tech that was built in-house. Can you talk about that for a little bit...

Here is the thing about ad tech in general. People don't like it when I say this, but the more complex it is, the less it works, right? Like you just need the ability to use our signals to target. That's it. Like you could go for $1 million today and build your own DSP. It wouldn't take much, right? And you can be in DSP business, like -- the SSP is harder because you got to sign up. But like the -- I am not a -- if you're Trade Desk that's one thing because they've got client relationships and some -- they do all kinds of things, and they've done a remarkable job over there. But for someone like us, who's -- we don't need to be Trade Desk for this to work. We need this capability. It is a capability we have to have that we can just go get.

Okay. So just a 2-part question on...

You're the first person that's realized, it's just like a DSP, and it is.

Yes. Great, thanks. You explained it pretty well. Okay. So just talk about the current scale of D/Cipher, the off-platform stuff, obviously, isn't live yet. How big can that be as a portion? And what -- how big is it now within the...