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Q4 2012 Earnings Conference Call
February 6, 2013 04:30 p.m. ET
Jeffrey W. Kip – EVP & CEO
Barry Diller – Chairman & Senior Executive
Gregory R. Blatt – CEO
Ross Sandler – Deutsche Bank
Neil Doshi – Citi
Mark Mahaney – RBC
Peter Stabler – Wells Fargo Securities
Jason Helfstein – Oppenheimer
John Blackledge – Cowen & Company
Mark May – Barclays
Brian Fitzgerald – Jeffries
Previous Statements by IACI
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Thanks operator for the help. Thank you to everyone who has joined us this afternoon for our fourth quarter 2012 earnings call. Barry and Greg will make several remarks, after which I’ll come back and offer some comments on our fourth quarter financial results and financial outlook for full year and first quarter 2013 and we’ll go to Q&A.
For your convenience, the notes for our remarks will be posted in the Investor Relations section of our website shortly after the call.
Let me first remind you that, during this call, we may discuss our outlook for future performance. These forward-looking statements typically are proceeded by words such as we expect, we believe, we anticipate or similar statements. These forward-looking statements are subject to risks and uncertainties and our actual results could differ materially from the views expressed today. Some of these risks have been set forth in our fourth quarter 2012 press release and our periodic reports filed with the SEC. We will also discuss certain non-GAAP measures. I refer you to our press release in the Investor Relations section of our website for all comparable GAAP measures and full reconciliations for all material non-GAAP measures.
Thank you. As I think many of you know, I’ve always thought it was kind of poor form to take up most of the time on these calls with formal remarks. And the fact that you all know, we’ve consistently shortened that portion to give more time to your questions. However, there are times when we want take time to more fully explain ourselves. And after our last call, when we reported excellent results and a positive future outlook, our stock went into what I thought was an inexplicable tail spin.
So today, we’re going to give another positive financial report, but we’ll be taking some additional time to talk fully about the outlook for each of our key businesses. We hope that it’ll give you a real and substantive foundation for why we’re so optimistic about our future. And, if we go into an inexplicable tailspin again, you can then blame the messenger.
So, with that, Mr. Blatt.
Thanks, Barry. Hey everybody
We just finished our third consecutive year of outstanding growth. And we expect outstanding growth again in 2013. We’re excited about the business and we’ve been looking forward to talking to you all about it. It feels like a longer stretch than usual between calls that we have a lot to talk about. I’m going to walk through near and long-term outlook for Match and Search & Applications and touch briefly on the other segments, then Jeff will get a little more granular on the associated financial information, Barry will talk about capital, and then if anyone’s still out there we’ll take your questions.
Let’s start with Search & Applications. We had a great quarter, with Q4 OIBA and revenue up 63% and 30%. Pro forma for the About acquisition, OIBA and revenue were up 40% and 20% and for 2013 we’re expecting solid double-digit revenue and strong double digit OIBA growth, in each case pro forma for About, which is seriously exceeding expectations.
On an as reported basis, obviously, the numbers will be even stronger. To paraphrase Mark Twain, the rumors of this business’ death have been greatly exaggerated. Search & Applications has a solid foundation and is looking ahead to strong growth for the foreseeable future.
Now let’s look at some of the granular issues that people have been talking about this quarter, and then I’ll talk a little about long-term outlook.
As all of you know, at the beginning of Q4, Google changed its advertising policies. The primary impact to our business relates to the marketing of our Ask.com product on Google. The policy changes reduced both click-through rates from our marketing and our revenue per query. As we tried to digest the impact of these changes, we pulled back on marketing, which had a larger effect on revenues and OIBA as the online spend cuts hit the least profitable marketing dollars, and because offline spend tends to have a delayed payback.
We’ve now reconfigured our marketing program around the policy changes, and we’re confident we can begin to build back up our spend and revenue levels at increasingly efficient margins through 2013, with the negative impact most heavily felt in Q1. I think it’s important to point out that this area only represents around 12% of the total contribution to the segment. So our marketing Ask on Google is important to the business, and these policy changes do affect us, it’s certainly not determinative.
Additionally, we’ve recently agreed with Google on a new set of guidelines for our applications business. We actually reached out to Google this past summer to proactively try to deal with a number of practices that had arisen in the industry that we weren’t engaging in. While I wouldn’t say the new policies are the exact ones we would have implemented on our own, we worked hard with Google on crafting them and we’re supportive of the efforts to make sure that practices are pro-consumer and benefit everyone long term.
Given our strong relationship with Google and the comparatively high resources we put into product development, engineering, partnerships, marketing systems, and our Ask brand, we feel even better about our competitive position following the changes than we did before.
Overall, these policy changes are going to dent our 2013 results a little as against what they would have been, but those results will still be strong, and we think overall they strengthen the long-term prospects of the business, laying foundation for even higher growth in 2014.
Let me also touch quickly on what we think are a few misconceptions that have been causing some noise this quarter.