Angi (NASDAQ:ANGI) Q4 2018 Earnings Call

0:00 Good day and welcome to the NG Home Services fourth quarter 2018 results call. I would now like to turn the conference over to Mr. Glenn Schiffman. Please go ahead, sir.

0:11 Thank you, operator. Good morning, everyone. Glenn Shipman here, and welcome to the Angie Home Services fourth quarter earnings call. Joining me today is Joey Levin, chairman of Angie Home Services and CEO of IAC, and Brandon Ridenour, CEO of Angie Home Services. Joey and I will also address any questions you may have on IAC's fourth quarter results. Similar to last quarter, supplemental to our quarterly earnings releases, IAC has also published its quarterly shareholder letter. We will not be reading the shareholder letter Thank you very much. We anticipate or similar such statements. These forward-looking views are subject to risks and uncertainties and our actual results could differ materially from the views expressed today. Some of the risks have been set forth in both IAC and Angie Home Services' fourth quarter press releases and our reports filed with the SEC.

1:24 We will also discuss certain non-GAAP measures which, as a reminder, include adjusted EBITDA, which we'll refer to today as EBITDA for simplicity during the call. I'll also refer you to again to our press releases and the investor relations section of our websites for all comparable gap measures and full reconciliations for all material non-gap measures. Now let's jump right into it. Joe?

1:50 Thanks Glenn. We're now up to almost 8,000 employees at IAC and I just want to Thanks all of them for another great quarter which kept I think the best year in IAC's history and it's fun to be a part of it and fun to have everyone among those 8,000 a part of it. We have lots to look forward to at IAC right now and so I want to get to questions quickly so we can answer on what that looks like and With that, I'll turn it over to questions. Operator.

2:35 Ladies and gentlemen, if you wish to ask a question, please signal by pressing star 1 on your telephone keypad. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, that's star 1 to ask a question. We will now take our first question from Dan Salmon from BMO Capital. Please go ahead, sir.

2:58 All right, good morning, everyone. Julie, a couple for you. First, there's a really interesting line in the letter here with regard to anti-home services where you talk about wanting to become the one-stop hub for managing your home. I think of a lot of different businesses from utilities to ISPs to smart home technology that could use that type of phrase. Obviously, anti-home services focus on your physical home traditionally. You've also added a business here with warranties. Could you talk a little bit more about that vision that you have for a one-stop hub for managing the home? And then just a second one, I think next year your ad partnership with Google is coming up for renewal. We'd love to hear maybe just some precision on the timing of that and what you think is important for investors to focus on with that. Thank you.

3:51 Sure. The first question, Dan, is probably best for Brandon to answer, but I'll give it a second and then turn it to Brandon. When you think about the home, it's this massive investment by a consumer, usually significantly more than their net worth, and it's something that the vast majority of people have no experience doing, whether it's the financial components, certainly the repair components, maintenance, things like that. and we think that given our position in the market in terms of being able to help them with repair, help them understand the products that are in their home, the products that comprise their home, that we can add a lot of value to the consumer. I do think that will tie in, I'm being a little bit vague here, but I do think that will tie in with the acquisition we just made on the warranty side and offering consumers warranties, but there will be a time, we believe in our future, where a consumer can come to us through our apps and manage the significant components of their home through their relationship with us and that's what we're trying to build in kind of one piece at a time. Let me answer the second question and then turn to Brandon.

5:08 The current Google search

5:11 deal expires in March of 2020, so about a year from now. But as we have typically done, we start that process much earlier, and we are now in a position where I think actually, coincidentally, we just sent a signature page over to Google on an extension today or this morning or yesterday or something. So we'll make a filing as soon as that becomes official, I would guess within the next week or so, and that's a three-year extension on that deal. That's been a great partnership for us. That's been a great partnership for Google, I think. It's probably generated well over $10 billion of revenue between the companies. over a probably close to 20 year history now.

5:57 And that is an important piece of revenue for some of the businesses within our emerging and other segment, specifically Ask Media, and our desktop applications business. So I think that's a good sign. Obviously the extension is important as a sign of our relationship with Google and how that works, and that's on substantially the same terms as our previous agreements. But the thing I'll remind you, which I always remind when we talk about, in particular, the applications business is, you know, policy changes can happen. Those can happen outside the agreement. And so that's a risk that continues in that business. Let me turn it to Brandon at HomeHub, who's really the architect here.

6:39 Yeah, I mean, Joey did a nice job describing it. I think if you look at our North American properties, in the U.S. in particular, we're reaching almost an unprecedented population of homeowners through Angela's HomeAdvisor and Handy. and fundamentally we believe that we have the opportunity to productize home services in new and innovative ways that just have never existed before. And through that really transform how people maintain and care for their home. The way HomeAdvisor and Angelus and Handy work today is helping people, is taking friction out of the process, makes caring for your home easier. But it's still episodic. People have something go wrong. They react to that, decide they need to go find a specialist to come fix that project. And we think there's an opportunity to really change the way this works in a more complete way and take a lot of the pain and difficulty and friction out of just caring for your home.

7:35 And so home warranty is, you can think of it as maybe our first foray into dealing with unexpected repairs. That's one segment of the type of work people need to deal with. There are many others, as you know, and that's how we're thinking about it.

7:48 Yeah, Dan, just to maybe frame the opportunity a little bit, you know, the average homeowner in the United States does about six to eight jobs a year. And between periodic maintenance and episodic repair, the average homeowner probably should do a dozen or so jobs a year. Right now, we do about 1.8 jobs for each of our customers, you may recall from a letter yesterday. About two years ago, we said that was 1.6. So we're making progress there. But as Brandon said, as we take friction out of the process, we can drive closer to that 6 to 8 and then help homeowners drive closer to the dozen jobs that they actually should do. Getting back to the Google deal versus when we renewed it a couple years back, we're a very different company.

8:34 Our partnership with Google now is – comprises less than 20% of our revenue as we have a lot of other engines of growth in the business.

8:46 Great. Thank you, guys. Next question. We will now take our next question from Jack Blackledge from Cohen. Please go ahead, sir.

8:58 Great. Thanks for the questions, and quick thanks to Glenn and Mark and the team for the segment receiving before earnings. That was really helpful. Joey, in the letter, you kind of set the table for investments across the platforms this year, given the respective opportunities. On Angie, maybe could you discuss the share gain opportunity in more detail and also provide kind of the key puts and takes to getting to and or exceeding the 25% revenue growth? And then just one question on Vimeo. How should we think about sub-growth, in particular, kind of driving higher enterprise adoption this year and Who are Vimeo's kind of key competitive threats, if at all? Thanks.

9:41 Sure. On the AMG share gain and 25% growth, I think the overall home services market in the U.S. grows like low single digits. So 25% growth, obviously, is by definition going to take share. I think that will take share from Vimeo. by and large are by far our biggest competitor, which is word of mouth. We think that's still 90% of the market. So that's the goal there. We have, there's a number of things that are gonna drive the growth. It's the typical things that we've been investing in sales and marketing, being huge ones, adding more salespeople, which will add more service professionals onto the platform, or help service professionals who are already on the platform understand the opportunities there to spend more money and find more customers through us.

10:33 Separate from that, we are doing two things that get towards what we were talking about before and what Brandon was talking about before. The warranty business, that's going to be an investment. the pre-priced transactions we talked about I think a quarter or so ago with the acquisition of Handy getting into pre-priced transactions allows us to evolve our relationship with the consumer and will be an investment over the course of this year and can push revenue growth but the biggest ones to get to that 25% growth is really pushing more to sales and marketing and you'll recall that Last year, we pulled back, and I mentioned this in the letter, we pulled back on marketing. We've now reaccelerated that marketing because we're ready to be able to absorb all that demand. We're also ready to be able to absorb all that demand because the service professionals on our platform are now different than the service professionals last year in the sense that they're capable of spending more money and they're capable of using more of our products. So all those things come together in the revenue growth and the share gain. Brandon will probably want to add to that, but I'll hit the video question too.

11:51 Vimeo sub-growth, enterprise is definitely a component of that. That's a relatively small component of total revenues in 2018 that continues to grow as a component. Still will be a relatively small component, but a noteworthy component of revenue by the end of 2019. That business I think is, enterprise is probably doubling year over year right now, and I think that that pace is likely to continue. When we think about the competitive landscape, we don't have a competitor who does the full suite. We do have competitors who in any individual thing we're doing does compete. So take storage or hosting, I think Dropbox is there in storage. Take some of the Editing tools or review tools, and I think Adobe and Apple have products there, but really the end-to-end turnkey product for somebody who is not a video professional, by the way, we have plenty of video professionals on our platform, but that product for, think about a small business, somebody who's not in the media business, but somebody who's in a different business, that we have, I think, the only product for that customer end-to-end.

13:12 One thing to note is that the lion's share of revenue acceleration next year at Angie is still coming from the marketplace business. The advertising business is still shrinking. Angie's list is still shrinking when you look at the entire year. We do expect that to turn around by the end of the year, but still is a net drag for the entirety of 2019. Joey said this, but sales and marketing are really the engines that are going to drive the marketplace business growth. We start the year with our service provider network in a stronger position than I've seen in a very long time, and it's monetizing very efficiently. This led us in late Q4 to really lean back into marketing, which we are seeing returns on as we get into Q1. and that's really the formula that drove growth prior and up to the point of the merger with Angie's List and it's what we've been eager to get back to now that the integration there is complete and behind us.

14:03 And so that's the main engine.

14:05 Yeah, and look, just to throw some numbers around fourth quarter to highlight it, this fourth quarter we really set the stage for the acceleration going into 2019. Our capacity was up 36%. We've talked about that all year. I think last quarter was 34%. We continue to make progress and roll out our opt-in product. You heard me on the last call, but the numbers continue around lifetime value for our service professionals. Our 2018 cohort of service professionals are the highest lifetime value That we've had, so that obviously flows through. And then in terms of investments, to put a fine point on what Joey said, between Handy Home Warranty and the investment in Home Hub, of which Joey and Brandon spoke, we're looking at about $25 million of discrete investments in that.

14:59 And buffer that $25 million and our increased spend on Thank you for having me. talk about how we pulled a lot of margin improvement that we otherwise thought was going to occur in 2019. We pulled it into 2018, particularly on marketing. And maybe one more little factoid to frame marketing, marketing still will be as a percentage of revenue lower in 2019 than it was in 2017, again, evidencing real scale economics in this marketplace.

15:47 Thank you. Our next question from Brento from Jeffrey. Please go ahead.

15:59 Good morning.

16:00 Julie, last night you had mentioned that Angie is counter-cyclical, and I'm just curious if you could walk through if the consumer starts to soften, why you have such confidence. You did see a little weakness in Q4, and I'm just curious if you could parse out perhaps what you saw in the fourth quarter. Okay.

16:18 This is Brandon. We are mindful of and obviously aware of the slowdown in the home industry, but we have not seen any impact on our business. Our performance this year was largely driven by our pullback in marketing early in the year and then our re-acceleration back into marketing late in Q4. That's a far bigger factor for us than any macro impact. In terms of how subject we are to those types of macro impacts, the reality is There are offsetting factors when and if that does occur that benefit us. So if consumers soften a little bit, that tends to mean that providers actually have a greater need for our service in terms of finding new customers. Providers are where we obviously make the majority of our revenue.

17:04 and so in general we think we're pretty I won't go so far as to say immune but we think we're pretty resistant to that effect. Clearly if there was some sort of major collapse in consumer demand that would be a different story but I don't think what we're seeing which is which is largely probably driven by interest rate effect on home buyers is really affecting our business at the moment.

17:25 And we just looked at what happened in 2008 in the business. It was a very different business then. But one thing that I think was consistent and we expect would be consistent is activity among service professionals You could also argue our opt-in product is tailor-made potentially for an economic slowdown, but as you know, an SP can react to a job and a potential opportunity

17:59 based on his up-to-the-minute or her up-to-the-minute schedule as against the month or year-old budget that they negotiated with a member of our sales force. So, again, as we move more and more to an on-demand opt-in type model, that, of course, helps us in terms of being more recession-resistant. We will now take our next question from Robert Kuhlbreth from Wells Fargo Securities. Please go ahead.

18:32 Good morning. Thanks for taking our questions. On Angie, I just wanted to ask on the 2019 EBITDA guide, does that reflect a more aggressive investment stance versus what you've been contemplating around the time of the 3Q call? Any changes in your thinking around the investments that you'll be making over the course of the year? And then also on fixed, curious if we could get a little more detail on the business, how they go to market today in terms of a mix of customer acquisition channels, you know, direct-to-consumer versus broker. Anything you might be able to tell us about retention in the business would be interesting as well. Thank you.

19:09 All right, let's see, I'll take the 2019 guide, and then Brandon will take fixed. You know, one big thing, obviously, that happened was fixed, and that's losing money, of course, and that's part of that $25 million discrete investment that I just mentioned earlier, and that wasn't in our contemplation when we talked about when we talked about the potential guys. But recall, you know, in the letter, in the third quarter letter and on the call, we said revenue will grow faster than EBITDA and then therefore margins will go down. So fixed is clearly one. And then, you know, as we finished our year-end planning and we saw some of the real momentum inside the business, some of the unit economics inside of the business, some of the metrics inside of the business in Q4, you know, almost across the board, the investments that Joey mentioned earlier, we...

19:56 We wanted to lean in. Mostly it's marketing, but again, it's across the board to drive the revenue growth that we expect. We mentioned the 25% target, and that is absolutely our goal for the year.

20:14 With regard to Fixed, what we really like about Fixed is that they're delivering a product that meets customers' expectations and makes people happy with regard to the warranty service. Obviously, our plan and our thought around this is that we have this amazing reach to millions and millions of U.S. homeowners through Andrews List Home Advisor and Handy. And so our intent is to offer this product to the homeowners we're already in contact with from a direct-to-consumer standpoint. We have both a unique ability here to offer this at amazing acquisition economics companies and also some interesting promotional opportunities. When you think about all the homeowners that are coming, let's say, to HomeAdvisor telling us very specifically the type of project they need, we might be able to identify a subset of projects that we could promotionally offer as being included in a warranty if somebody were to sign up today. That's really unique to us and is something I think that can't be replicated elsewhere. So that's kind of how we're thinking about it.

21:11 It's small. It's in a few markets in Texas. There's a long way to go to get this to full scale, but we think we have some natural synergies there in terms of how we can bring it to market. Great. Thank you. If you find your question has been answered, you may remove yourself from the queue by pressing star 2. We will now take our next question from Jason Hausstein from Oppenheimer. Thanks. Just a two-parter on Angie and then an IC question. So can you guys talk about how Angie performed in the quarter, at least in EBITDA, relative to her expectations? I think there was some confusion, perhaps, relative to street numbers, just given the moving parts. And then, you know, again, related to Angie, the logic behind the buyback, that would be a pretty high percent of the float for a stock that already doesn't have a lot of float. So maybe talk about the timing and the logic behind that.

22:08 And then Joey, as far as on kind of M&A and allocation of capital, it does look like there will be some movement with Yelp. As far as an activist shareholder, wouldn't be surprised if they get pushed to have a formal process. Clear that their legacy business of having local sales people doesn't work. You guys have a lot of experience around local. It looks like that business would have, at least if you move more to a lead type of business, i.e. Angie or a Grubhub, i.e. 24, there would be a lot of synergies with your business. Maybe just talk broadly about how you're thinking now about local and that platform. Thanks.

22:49 Sure. So on 2.4 and I think we said our most recent number was 260 to 270 for the year. We came in at 260, so we're happy with that outcome. We can go further back. We said two years ago we were going to do 270, and so coming in where we came in, I think we're thrilled with. The one thing I would have liked to see is Some faster revenue acceleration. I think we were probably off by maybe a month there, meaning we knew we pulled back on marketing. We pulled back on marketing after Q1 of last year. We then started to, as Brandon mentioned, accelerate that marketing late in Q4 of also last year. And I think we're seeing the benefit of that in our numbers now as we've started the year.

23:47 I maybe would have liked to see that a month earlier, but we're now... you know, debating days. So overall I think we're quite happy with where we are in that business and our outlook for that business. As it relates to the buyback, that is just something we like to have for good housekeeping. We have one in place at MASH, we have one in place at IAC. I think we always want to have all tools available for capital allocation and buyback is one that you need to obviously lay out in advance. and with the board and so that's what we did in this case and it's just something we want to have on the shelf as a tool that's available for us. There's nothing I think more to read into that in the sense it doesn't mean we're on the verge of something or not on the verge of something.

24:34 It just means we like to have access to that tool as a mechanism. As it relates to Yelp, I think we've said for A long time, I don't know, publicly or privately, we'd love to have a commercial deal with Yelp. We think we can do a great job for them as a partner on the segment that we're in with Antioch Services. and we're totally open to that. We'd love to do that. That would certainly be our first choice in how to do something as it relates to M&A. To the extent something becomes available, we always take a look at everything in every category, where we're in, when there's an opportunity to do that, but we wouldn't comment beyond that.

25:25 We'll now take our next question from Anthony DiClemente from Evercore. Thank you very much and good morning. Just a couple just on Vimeo trends. So the subscriber growth for Vimeo has trended closer to around 10% the last, I think, three quarters. There's such a deep elevation in sub-growth there. As we think about the forward outlook, just talk a little bit about expectations around revenue growth from here for Vimeo and should we Expecting a reacceleration in that subscriber growth, or will more of the growth come from pricing going forward? And then more broadly on Vimeo, just the investment strategy to drive growth. How would you sort of rank your priorities for it between new products, marketing, international? I do imagine it's all of the above, but any more color on the investment for growth strategy would be great on Vimeo.

26:17 Thank you.

26:20 I'll start with the second part and then I'll turn it to Glenn for some of the specifics on the numbers, but it certainly is, as he said, all of the above when we're thinking about growth. Maybe taking a step back, the thing that's happening at Vimeo, which is our design, is we are transitioning that business to A higher value, higher type of customer, not necessarily away from the basic customers who use only the most basic features, but certainly emphasizing our energy around leveling up. So that's video professionals, that's all small, medium-sized businesses, and that's certainly enterprises. Each one of those segments is very important to us.

27:13 Casual Video Maker uploading for their iPhone is not really an emphasis. We can serve that customer. That's a lovely customer. It doesn't cost us anything to bring that customer in, but that's not where we're emphasizing our product roadmap and our vision. It's really around the pros, the small, medium-sized businesses, and the enterprises. And all of those segments are growing, and all of those segments will continue to grow. Now, the math of an enterprise customer is worth $20,000, and a basic customer was worth $60. So I think that's probably 300 and something to one to match one to the other. But that's the path there. And the bigger point is we think that's a roughly $20 billion market.

27:58 But just to give you an example, which I found helpful, is take a customer like Warby Parker, who's a phenomenal company. They're in the eyeglass business, the retail business. They're not in the video business. But they're making five videos a day. And they're publishing those videos on social media to talk to their customers because that's what they do. Thank you for joining us. All businesses need to be doing that, whether they need to or not, will be doing that over the next 10 years. And when we look at that tailwind, that's kind of how we think about it and that's how we're emphasizing it.

28:53 And there is some math in there that relates to the subs when the higher value subs grow and the lower value subs decrease. Don't grow, that's the math that gets to the numbers that we've been seeing.

29:07 Yeah, to give you specifics around that math, business and premium tiers are the fastest growing from a sub-perspective. That's obviously logical based on what Joey said in terms of our mix shift. And enterprise is the fastest growing from a revenue perspective, but business and premium are not that far behind. Joey, earlier in the call mentioned the enterprise revenue doubled year over year. Thank you for joining us. Thank you for joining us. and that ARPU strength this quarter was 22% and we guided ARPU at 10 to 15% and I would think we'd skew to the high end for sure of that range on a go forward basis. More broadly, the way those factors interplay is we've talked about 20 to 30% growth for Vimeo for a while now given the tailwinds in the marketplace and given the strength of our solution.

30:30 Makes sense. Nice job on Kramer, Joey. Thank you. As a reminder, press star 1 to ask a question. We will now take our next question from Doug and Ruth from J.P. Morgan.

30:45 Thanks for taking the questions. Joey, in the letter you noted that a bit more than 10 years later you've replaced the profits from the spins in 2008. So now that you have a big base of EBITDA and free cash flow, once again, how are you thinking about your ability to create more shareholder value by potentially shifting the structure, and how do you think about your positioning now versus 10 years ago? And then if I could also ask, you talk about Blue Crew a little bit in the letter as well, and I think this is probably a business people don't know much about. Can you just explain more of your thesis around that business, and how do you view it kind of relative to your other marketplace businesses? Thanks.

31:25 Sure. So on profitability and how that relates to capital structure, I wasn't trying to portend some big change on the horizon. I think it's an interesting stat. It's something that we're proud of. But it doesn't mean that we sort of hit the trigger where we start to take things apart again. As we always say and always will, those are things that we consider regularly. Those are things that a lot of factors go into how we consider whether or when to spend something. And we continue to evaluate the costs and benefits of transactions like those and always will.

32:17 On the second one, oh, Blue Crew. On Blue Crew, look, I'll start by saying Blue Crew is tiny, less than tiny as it relates to IAC. I think the opportunity there is massive but it is tiny and we probably won't talk about Blue Crew again for a little while. I really put that in the letter to illustrate just this sort of interesting dichotomy which we fall victim to, I think others fall victim to as well. You size the investment in something like Blue Crew based on the opportunity ahead and so we are going to invest in that and I'll explain Why in a minute, but I think that the right framework for all future investments is not just the small companies that are losing money. I also think it should be the big companies that are making money and that are, in fact, the strongest with the most certain return.

33:07 But going into blue crew, this tech labor market is a multi-hundred billion dollar category. And the amazing thing is it is still basically entirely offline. People are getting labor onto a factory floor or into a venue or whatever the case may be Based on phone trees today and totally inefficient information, this is the kind of problem that can be solved with software and can be meaningfully enhanced by a marketplace. You have liquidity and jobs on the one side, you have liquidity and employees on the other side, and if that whole thing is working, people can choose exactly when and where to work for what pay. and employers can choose exactly when and who to hire quickly with the click of a button.

33:56 I do think that more hiring will happen with the click of a button than it will with the labored process around interviews, et cetera, once software is in there and can help inform hiring decisions meaningfully. And that's what we're going after there with, I think, both Investment capital, M&A capital, whatever we can, we see a big opportunity, and it's very, very early stages there. But, again, impact on IAC immaterial for quite some time, I would say. Thank you. Thanks, Doug. We will now take our next question from Eric Sheridan from UBS.

34:37 Thanks so much for taking the questions. Maybe two, one on the revenue side. Now that we have the breakout of Vimeo and DotDash, is there anything we should be aware of that traditionally from a seasonality standpoint tends to have how those businesses are through the year that we should just be aware of in terms of setting those things up in our model on a going forward basis? and then with respect to DocDash, I wonder if we could get a little bit more color there on what are some of the key investments or how you're thinking about the drivers there going forward that could continue to compound that from a growth standpoint. Thanks so much.

35:11 So DocDash is definitely seasonal. Q4 is going to be by far the biggest quarter and I would think in that business forever just because of the ad rates in the fourth quarter with retail Much higher. Vimeo, I think, much less seasonal. I don't know. I mean, I know we're spending a lot in Q1 this year, which is not a seasonal thing. It's just a timing, a choice of ours in terms of marketing.

35:36 But I don't think it's naturally seasonal. That's correct. Just one thing to watch there. We broke out the hardware business. So, you know, we got the SaaS slash platform. Thank you. Thank you. is fourth quarter weighted, as Julie said. You see in our guide, the first quarter dot dash is a little lower. It's about 10% is our guide. It's lower than kind of the baseline that we've talked about for that business because we're transitioning the Investopedia business onto the dot dash business.

36:22 Dot Dash platform and program, and just as when we verticalized all the other businesses, you know, traffic gets hit, revenue gets hit, and then we come out stronger the other end. But other than the fourth quarter and this first quarter of 19, that's the seasonality you need to kind of think through.

36:39 And then the Dot Dash growth opportunity, I think, is inside their existing verticals, of course, and then entering new verticals. So inside their existing verticals, it's creating more valuable content that they know works, where it works, where there's demand for that content, and they've done a very nice job of growing that, I think, in almost all of their verticals. and it sticks with those same three simple principles. It's the freshest content, it's the lowest ads and it's the fastest site and they keep doing that putting in good high quality material. I think that grows. Entering new verticals, we just entered a new one a few weeks ago which is the beauty vertical. It's one that we had our eye on for a while.

37:26 We found a little acquisition, I mean really tiny acquisition to do there and we'll see how that one goes. We did our first experimental acquisition, we'll say, by acquiring an internal company, meaning moving Investopedia internally onto the .dash platform. Now we've got the external one in the beauty vertical. And then the last piece, and we talked about this in the priorities for DotDash, is building the brands. We have a lot more traffic to those properties than we do brand, and we've got big ideas and big concepts around how to build up those brands. And as you build the brand, you build that brand recognition, you do that through marketing, A lot of different means, primarily just delivering a great experience, but we've got some tricks up our sleeves there. And I think you start to get more repeat business, and that's how that business grows. Of course, getting better at advertising and ad sales helps that.

38:25 I think I said this on the last call, but these are very large categories here that we're in, so don't underestimate the amount of blue ocean we have here. Each of our categories has subcategories within it, and each of our categories compete with much larger players where we're actively taking share.

38:45 That's the goal, and that's what everybody at .NET knows and understands and is aiming for right now. In our health vertical, we're going after WebMD, and we think we can. We'll be disappointed if we don't. That's a huge, ambitious goal, but that's what we're going after. In our beauty vertical, we're going after Vogue and Glamour and all these big traditional brands. In our home vertical, we're going after Martha Stewart or whatever, the Elle Decor or things like that. We don't see a reason why we can't. If we keep doing what we're doing and we keep doing it well, go after those. And, you know, those are big businesses and big markets, and that's the goal there. Thanks so much.

39:31 We will now take our next question from Ross Sandler from Barclays.

39:38 Hey, guys. Two questions. First, an area that doesn't really get that much air time, your mobile apps business. So I think you've got a bunch of different brands and strategies in there, and we saw recently that Colm raised a bunch of money and is actually profitable. So any call you can provide on, is that a subscriber, SAC LTV business, is it more advertising, arbitrage, any brands that you're excited about within the mobile apps business, the portfolio that you have there? Any color there. And then 4Q buybacks were a little bit lower than the prior quarters. How do you think about the buyback cadence relative to the value of the core stub? Can you just talk about that?

40:27 Thank you.

40:29 Sure. I'm glad, Ross, you asked about the mobile products because it is a fun little area that doesn't get a lot of attention. That's very much a subscriber business, about 90% subscription revenue, and it is very much driven by subscriber acquisition costs relative to LTV, and we think we've got those systems that back up that spend and that LTV measurement pretty well nailed right now. And products in there like RoboKiller is a fantastic product. Thank you very much. and record that for everybody's entertainment.

41:24 That's a fun one. That one's growing really nicely right now. Just one fun stat, but when the government was shut down for a little while, the Do Not Call registry was also shut down. And so that was a great moment for RoboKiller in that they were, a lot of things were happening in terms of Leap in RoboCalls, and RoboKiller was able to prevent that for their customers, which is fun. We've got another business called iTranslate, which does real-time translation, a similar one in that vein, called Converse, which makes it really easy for customers Two people speaking two different languages to use their phone to speak out loud back and forth. We have Daily Burn in the fitness category, which we've moved from elsewhere and really totally revamped that business inside our mobile applications around subscriber acquisition costs and LTVs. We have weather apps.

42:19 We have an airplane tracking app. One thing we did miss, to your point, is this meditation category, and based on that fundraising evaluation, I think that was a big mistake, and that's probably something we should look at. But these businesses, by the way, are also profitable. They're comfortably profitable, and they're fun to build. I think we're going to keep launching products, keep digging in in the existing verticals that we're in, whether that's translation or call blocking, things like that. And we're optimistic for the future here, which is the first time in a while inside of applications where we've said we really see a bright future, a multi-year future, beyond just kind of doing what we're doing. There was another question. Oh, yeah, buybacks.

43:04 Oh, look, it's the same answer we always give. We're regularly considering buybacks in addition to M&A, in addition to investment through the P&L, and that's something that we'll continue to do. I don't have a specific view on buybacks in the last 90 days nor in the next 90 days, but it's something that we'll continue to consider.

43:29 Yeah, and getting back to the mobile business, it may be clouded given the acquisitions, but that business organically grew 136% in the fourth in the fourth quarter. That doubled from the third quarter when it grew organically 77%, and then the second quarter it grew organically 44%. So that has become a gem of a business here.

43:52 I hope we can do more M&A there because we seem to have, again, a system that works where we can plug things in. As a reminder, please press star 1 to ask a question. We will now take our next question from Ben Schachter from McQuarrie.

44:09 Can you talk a bit more about your appetite for acquisitions and how it's evolving into 19? Our read of the letter looks like you're getting a bit more aggressive, and if that's true, how should we expect that to manifest itself? Are you going to be doing bigger deals, more tuck-ins, specific platforms, et cetera? And then separately, we expect platform fees on app stores could come under pressure in some time. Yesterday we asked your colleagues at Match about how that would impact their business, Just wondering your thoughts on it and how it might impact some other businesses you have. Thanks.

44:43 On the second question, I hope you're right. We would definitely be a beneficiary if you are, and matches be by far and away the biggest beneficiary inside the family. But the mobile applications business, which we were just talking about, would also benefit for sure. I can't think of anywhere else that it would matter. The other question was M&A. I don't think we're getting more aggressive in M&A. I think that we are, perhaps we have just more opportunities today than we did 12 or 24 months ago. Again, mobile applications, which we were just talking about, I certainly would not have said M&A is available in the applications business some time ago, and now that we've got a system there that is available.

45:34 I don't think, again, maybe perhaps taking on the word, I don't think that's more aggressive. It's just that now that fits within our acquisition criteria. I think in the last 12 months, we've been integrating HomeAdvisor and Angie's List, which is a massive project, which I think the team there did phenomenally well. And so now that we've digested that, I think, again, back to the same criteria that M&A is now available again there. And maybe that applies in more places. And I guess that starts to answer the other part of your question. We certainly do favor tuck-ins and we certainly do favor smaller. I think that just because those have a higher chance of success and we have a greater embedded competitive advantage when we do acquisitions like that. I say this a lot, but I know I'll repeat myself.

46:27 by saying when we do acquisitions in our existing categories, we believe we can be the smartest people in the room because we know that category well because we've seen every business model in that category because we know what metrics look like in that category. I think that means we can be smarter than other buyers. Sometimes that means we can know the business or the potential better than the seller. And so that's where we'd like to emphasize our capital. But that doesn't mean we won't. All we have and always will look at things outside of our businesses, and we'll look for opportunities big and small there where we can put capital for. We will now take our next question from Yusuf Squally from SunTrust.

47:08 Great. Thank you very much. Two questions, please. One is a follow-up to the M&A question. Can you comment on your thoughts in the current situation? Public, private valuations relative to where they've been in the last couple of years and relative to where you see opportunities. And then secondly, at a high level, at the IAC level, can you just again help us rank order maybe your investment priorities by categories beyond, even beyond 2019? I think the guidance you guys gave for 2019 is very helpful, but I was just curious as to how you look at that beyond, how we should look at it beyond 2019. and 19. Just where you see the need for the most investment, least investment, biggest opportunities, least opportunities. Thank you.

47:53 Sure. I still think private valuations are pretty rich, more so than public valuations. I'm not sure. We have a bunch of theories as to why that's the case, but I do still think risk-adjusted, they're generally pretty rich. Just comparing The businesses that have a lot left to prove, they're in big categories and they've got a little momentum, but they have a lot left to prove relative to businesses that have most they've built over 20 years and incredible cash flow and the dichotomy in price to risk there is, I think, odd. But that doesn't mean there aren't gems and opportunities in the private market, and those are certainly things that we look at.

48:45 What was the second question?

48:47 Investment priorities, yeah. Investment priorities over the next several years.

48:50 Yeah, look, I think, I hope we're in a position where we'll have investment opportunities in all of the business over the next many years. I think, you know, anti-home services is in a, I think, Special and unique position in that that market is so big. It is so, our penetration relative to that market is so small and there are so many adjacencies to that business based on the core of what we've built so far. I think it's very easy to articulate a range of investments, big and small, over the next decade in that area. And so I do think that'll get, I do think, hope that we can put a lot of capital there.

49:44 But you saw the chart that we put at the end of the letter. In all of these markets, they're multi-billion or tens of billions or in some cases hundreds of billions of dollar markets. Our share is single digits in all of them. And if we're executing, then we ought to be able to invest into each of them. The good news is we're also generating real cash flow along the way, so we've got a lot more that we should be able to invest, and that's something that we think a lot about.

50:14 Yeah, look, taking a step back, 2018 was a real proving ground for a lot of our businesses and for us in total. EBITDA grew about 70-odd percent to about a billion dollars across the entire family, and importantly, that was done whilst the underlying metrics We're getting more solid and stronger, which is what underlies and underpins our confidence for the future. And I just want to harp on the last point Joey made. Our margin profile allows us to continue to grow profits as we invest. And other companies may not have that luxury who have to shout out an investment year, and that investment year would come at great peril to the P&L market.

51:01 I think we are fortunate given the underlying power of our businesses, the diversity of our businesses. You know, we have fixed growth engines Sorry, we have six growth engines in the portfolio right now. Every single one of them grew revenue greater than 20% in the fourth quarter. That's, of course, Match, Angie, Dot Dash, Vimeo, the mobile business inside of applications, which we've renamed Mosaic, and our small business, BluePro. And as Joey said, against the TAM, that sets us up for an interesting couple years. Well said.

51:37 Thank you. We'll now take our next question from Brad Erickson from Needham and Company.

51:46 Thanks. Just had two follow-ups on Angie. First, where do you think your SPs are capacity-wise at the moment? Meaning while they may be paying SPs on HomeAdvisor, they obviously can pause their SRs if their backlogs are full. Where do you think that we are in the cycle at the moment? Sort of what expectations around that are you assuming in your guide for 2019? And then I have a follow-up.

52:08 This is Brandon. As I mentioned earlier, SP capacity and the ability to monetize a consumer or homeowner request is the most important factor in driving growth for the business. And we ended the year in a stronger position than I've seen in a very long time, and there are a couple of factors that went into that. One of them was the implementation of the opt-in platform last year, which essentially created a significant expansion of capacity from just the existing SP base. Secondly, we made other optimizations to our algorithms that actually resulted in us seeing our SPs take on more consumer requests than they had been previously. And this all really came to fruition. The Optin platform was a little earlier in the year, and then in Q4, in late Q3, we made some further advancements. And so that's put us in a really strong position at the end of the year. It led to, as we talked about at the end of the Q3 and I've talked about today, led us to really lean in starting in December on the consumer marketing front, and that continues apace now. Our assumptions for the year are based on what we see currently in terms of what's in the guide here.

53:14 Got it. And then just conceptually, Angie, it basically sounds like you're spending more to sort of seemingly arrive at kind of the same point you've talked about historically in terms of top-line growth. Am I stating that right, or is the message here today more that you're seeing opportunities for maybe bigger growth potentially, and so that's what the spending is really geared towards doing? Which of those would you say is kind of more accurate? Thanks.

53:36 Yeah, it's the latter, unequivocally so. When we announced the transaction, we said 20% to 25% go forward revenue growth. And as we realized the synergies, it may take us time to get to the top end of that range of 25. And last quarter, and reiterating this quarter, we're going to be at 25% for 2019. And look, recall in the first quarter that this combined enterprise grew 15%. and our marketplace business grew 28% and we closed the year at 37% and 21% respectively on our scale. So we are definitely investing to beat our previous expectations, our previous cases.

54:26 That's very helpful, thanks.

54:29 And Brad, great report on the ROI. I think that was some real good original work, so thank you. Our next question comes from Kunal Madhukar from Deutsche Bank. Please go ahead. Hi, thanks. A couple, if I could. One on Angie and the other one on the app side. On Angie, Thank you for joining us. One of the things that you mentioned in your letter was e-commerce as a potential opportunity.

55:26 I wanted to get a sense of what you're thinking there.

55:31 Yeah, this is Brandon. I'll take the first question. In Q1, we saw as we ingested the big jump in demand for managers list, we saw that we didn't have enough capacity and we pulled back on some of our marketing channels and optimized margins and did that both optimize margins and serve our customers better. We made tons of progress throughout the year on building up capacity. At the end of Q3, we saw strength in revenue growth, and we said, you know what? We've made a huge amount of headway on the capacity front in terms of expanding our network. We're going to lean back into consumer marketing, which obviously drives revenue. We did that in Q4. We got to it, as Joey said, a little later than we probably would have liked and really kind of hit it running in December. and that's kind of the story. As we get into Q1, we're obviously seeing that accelerate and flow through, but from the time you start marketing, particularly TV, there's some time necessary to build momentum and to see that flow through to consumer demand. That's really the entire story, and Glenn, you probably have a comment on revenue growth.

56:30 Yeah, no, revenue growth accelerated. For my answer to the last question, revenue growth accelerated all year. As I said, we started out in marketplace growth at 28%, and it was 36% this last quarter. And just like it takes time for marketing to kick in to unlock that capacity, that capacity stays with us, and that capacity will be with our SPs for 2019 if we continue to do a great job. and beyond for sure. On your second question, the e-commerce business, that's inside a dot dash. And we've talked about that on previous calls. That's our affiliate e-commerce business. Given the strength of our traffic and the intent-driven nature of our traffic, we think we can...

57:19 monetize that traffic through an affiliate e-commerce business. I think Joey gave the example of when you're searching for scooters or the best scooter on last call, you can serve it up a way to purchase said scooter.

57:35 And maybe I'm missing something, but capacity growth is translating to revenue growth. You see it directly in the acceleration marketplace

57:45 revenue. Yes, 100%. Operator, I think we have time for one more, and we'll let everyone get on with their day. We will now take our last question from Igor Arunian from Whitebush.

57:59 Hey, good morning, guys. So just a couple on Angie, maybe one more follow-up on the marketing and on the service request side. So I think there's a couple things going on over the last year or so. on service requests. You had the energy integration and volume coming in from placing the home advisor funnel there. I think that lifted the year-over-year growth for a little bit. You scaled back on marketing, and now you're scaling it back up. Any way you could help us kind of understand what the appropriate trajectory for growth is? Should we start to see it reaccelerate again from this 24% now that you're going and spending more on marketing? And with your marketing spend, We talked about the investment next year, both to go after service providers and to go after consumers.

58:51 Any way to help think about the split between the two? Is it kind of equal between both? Is there more of a focus on one over the other? Thanks.

59:00 Yeah, on the marketing side. On the marketing point, yeah, it's more going after consumers. We have a large sales force and we're growing the sales force. Now, there's collateral benefits when you go after consumers. Service professionals see that, but it's much more weighted towards consumers. towards consumers to drive service requests. And it's a good question on the cadence of service requests. The growth is 24%. You know, I think we're going to be in and around those levels. Joey mentioned this in the letter and Brandon talked about it. We got a lot more efficient with our spend and our ability, importantly, to monetize every one of those service requests. So the service requests are becoming more valuable to us. You saw that in one metric, revenue per service request. and that was actually the highest it's been since 2014.

59:49 And that speaks to the efficiency of our system in terms of taking advantage of the demand we have on the platform. So no, I don't think service requests are going to grow dramatically from here. You know, they could as we even get more efficient, the growth could go down, especially because you remember in the first quarter of last year, We hadn't dialed back the marketing. So the first quarter service requests grew 38% last year. So in the first quarter, we have a difficult comp. So I think this mid to low to maybe high 20% service request growth for the next couple quarters, that feels about right.

1:00:28 Okay. That's really helpful. And if I could squeeze in one more, just on how you think about building versus buying, you have two of your kind of things you're focusing on next year. You write in the letter building for repeat usage and then entering adjacent categories through M&A. It feels like sometimes those things could overlap. The warranties business isn't an adjacent business but also helps with repeat usage. Just if you could help us think about how you think about building versus buying. I'll leave it there.

1:01:01 Look, I think what you said is exactly right. There definitely is overlap and that definitely is The vision for where we think this category can go is very informative to how we prioritize M&A and putting those things together. and at any moment we're evaluating a build versus buy. In fact, anytime we're buying something, we are usually simultaneously building that. And then we figure out what's really hard to build and whether we want to continue building or we'd prefer to buy and we do that math and make a transaction. But that's how we prioritize those decisions. All right, I think we are out of time. Appreciate all the questions and everyone's support, and we will talk to you in next quarter. Thank you.

1:01:54 Ladies and gentlemen, this now concludes today's conference call. Thank you for participating. You may now disconnect.