People Incorporated (PPLI) Earnings Call Transcript

Good morning, everyone, and thank you for joining us for the fireside chat with People Inc. Very excited to have Tim Quinn here, company's CFO. I've got a number of questions I'm going to answer Tim. To the extent I do not get your question, you can either put it in the chat below or feel free to e-mail me at jason.Helfstein@opco.com. So Tim, thanks for spending time with us today.

So before we get going, maybe just give us -- I think you may be new to some people who looked at the former IAC for a number of years, just give us some of your background and kind of how you kind of ended up in this role.

Yes. Thanks, Jason. It's great to be here with everybody. I've been with IAC, former IAC, Dotdash and Meredith, now People Inc., for going on 12 years now. So I've been partnering with Neil, operating this business for a good long while. So a lot of familiarity there, getting up to speed on the rest of the business, but obviously been very, very close with Chris and Mark and Barry and the team. Prior to that, I spent more than a decade at American Express doing corporate development, investing, M&A integrations. There's a whole host of things there and once upon a time as an investment banker with a guy named Neil Vogel back in the '90s. So that's actually how we know each other.

Got you. So let's start again just -- I think there are some newer investors to the story, just given some of the dynamics going on in particular. In MGM, but just a quick overview. What is People Inc. today. What assets you own? And how should people think about the portfolio broadly?

Yes. Great. So zooming out People Incorporated is the former IAC, right? We own a significant interest -- minority interest in MGM. People, the operating asset as we'll called today, that's the traditional sort of publisher media business and a handful of other assets, which we'll get into. Our goal right now in this incarnation of People Incorporated is to simplify the overall structure -- ownership structure, and we've taken a couple of steps to do that: One, identified MGM and People -- the publisher, People Media business as our core assets. That's where we're going to allocate our capital both through share buyback, opportunistic M&A on the People side. At the same time, we own 2 businesses, majority businesses called -- one called Vivian, one called The Daily Beast, both are performing well. We are looking for new homes for those. We won't -- we're not in any hurry to do something that's not economically rational, but we do think that they're probably a better home and a value play for us. And we own a minority interest in Turo, which is a ridesharing company that's also doing very well right now. So we feel pretty well positioned to continue to monetize non-core assets and redeploy those -- that money into the core.

Got you. So let's get the elephant out of the room before we get into the operating assets. So anybody just wants to hear it and then drop off, they're entitled to. So as far as like holding company catalysts from here. So I guess, number one would be MGM, which on the most recent earnings call, Barry intimated to reach a resolution roughly soon. I don't know if some folks interpreted that in like 60 days, 90 days, et cetera. But you've got that. There's -- let's start with that and I can get to some of the other catalysts after.

Yes. I think what Barry said 60 days, we expect resolution. We -- on June 1, we put in an offer to buy out the rest of the MGM stake. We, and along with some other equity investors, would do that. That's working its way through that process, there's a special committee and all. We can't say much more about that other than we've been shareholders in MGM for 6 years. We like the management team. I love the management team, like the assets, I think it's undervalued much like the People Incorporated story, the holding company story. And we saw an opportunity to take a bigger bite. Again, we'll see where that transaction goes. If it weren't to come to pass, then we'll go back to doing what we were doing, which is continuing to buy back stock in People Incorporated and opportunistically look to increase our position at MGM.

Right. Okay. And we will get back to People and catalysts later in the conversation. So let's get right on the main operating asset, People Inc., the former Dotdash. I could talk about what it was before Dotdash, but we're not going to do that to confuse people. So you guys have been trying to frame the discussion around how we grow the digital revenue faster than, kind of, like the mid-single digit to a breakdown of like sessions versus non-sessions revenue. So maybe just first start to explain what that means?

Yes. I'd say like everyone in media these days, we are contending with the changes that AI has brought to the world. I think we've been pretty forthright in talking about it as long back as 2-plus years ago saying that the new world is going to look a lot different than the old world, searches being dis-intermediated by AI, and that's going to have an impact on the downstream traffic to people like us. We even called it Google Zero almost 2 years ago. We don't think it's going to 0, but that was sort of the internal rallying.

We're at 21% today. 21% of that...

We're at 21% today, down from 65% back, not too long ago. And so what that forced us to do is really recalibrate and think about our brands and put our brands back where they belong in the forefront and develop new strategies to monetize those brands and those audiences that those brands are unique in this, kind of, modern AI world, where it's still a human connection and a brand-led connection between our users and again, our assets. And so what we told Wall Street and have been telling Wall Street for the last few quarters is we, kind of, think about our digital business in 2 parts. We have sort of this -- we call session-based, so that's visitors to the dot-com, the session-based revenue stream is incurring and absorbing the headwinds from Google or from the decline in Google Search and continue to maintain revenue at about flat. So that's about -- it was 57% this last quarter, and we were minus 1% in total revenue on that side of the house. The growth is coming from the other side of the house, what we call non-session-based revenue stream. So that includes everything from events to social series and social audiences to our licensing business. It includes decipher, our ad targeting capabilities, and that's where the vast majority of our investment is going. That -- I'm sorry, that 43% is growing about 20%. It grew 19% in the first half of the year. So the whole sort of recalibration around this audience disintermediation is, again, create direct relationships with consumers on that non-session-based category, that grouping of revenue streams and grow that, kind of, as fast as we can. As I said, that's where the vast majority of our investment is going.

So to the extent that, let's just say, the Google impact doesn't get worse relative to where it is today? Like does that give you enough line of sight to see how digital revenue can get back to double digit? Or that's still, like, unclear even though that is the long-term goal.

Well, that is our valiant cry, right? We've always been -- and we say around the business here, double-digits growth, everything else will take care of itself and double-digits growth. I always add with strong margins, we'll take care of everything else. Right now, we're in the mid- to high single digits range. That's what we've guided to this year. That's what that kind of 40%, growing 20% and the rest flat gets us. What our commitment and obligation to do is to continue to invest in that non-session-based revenue streams to bridge the gap. And I do think we can do that. I think that takes some time. No one is more impatient than me when it comes to that, but these things do take some time to build. And again, I think what Neil said on the most recent call, we've been saying pretty consistently as we, rolling out new initiatives every quarter, multiple new initiatives every quarter, that are meant to feed that sort of growth. So we think we can get there. I don't want to put a time frame on it yet, but definitely, everyone should hear that our goal is double-digits revenue growth on the digital side.

And like when I look at the model as far as like breaking down the components, like brand revenue is still the biggest revenue bucket there. I think you said in the earnings call that the ad market was like 6 out of 10 with pullbacks in food beverages and CPG. I mean, broadly this quarter pretty much outside of one company, Adtech, everyone saw -- seem like kind of healthy and kind of better-than-expected results. I mean, I guess like what do you need to like rate the end market like an 8 or 9 out of 10?

Yes. I like the framing on 6 out of 10 because we sit in, say, roughly, not exactly, but roughly 10 markets, right? We touch beauty and we touch media and streamers, and we touch auto and we touch health care and pharma, and we touch -- so we travel all these different categories. It's rare that everyone's growing in the same direction at the same time. That's what it take to get to 8, 9, 10 out of 10, like a ripping economy and, sort of, everyone is strong. As you said, there are pockets of real strength like genuine real strength, and there are pockets that are a little bit more lukewarm. And the lukewarm categories are tending to either have exposure to inflation-sensitive categories, maybe the lower-end consumer or structural headwinds. And so that's -- an example of that is the food and bev industry, right? Like in the "old days" of the magazine era, some of the biggest advertisers were industrial food. I don't want to name names because they are our valued clients.

Household names.

Yes. Household names. Yes, household names that we all ate their cereal every morning as kids. And those businesses are struggling right now. They're going through their own transition. And so as a result, that ad budgets are not as robust as they were plus inflation, plus, plus, plus. So that's, sort of, how we get to the 6 out of 10. It is more healthy than not. It is certainly strong enough for us to deliver on the year that we've, sort of, committed to the investors into The Street. Could be better, but we're happy with it.

I mean and then kind of maybe segue and maybe like we're seeing this because we've heard like CPG is healthy, let's say, out of companies that maybe have like a more performant type of like adding -- or it's not really brand, even though brand aligns on distinctions. But look, your performance marketing grew 13% in the quarter. I guess how much of this is also getting brands to think of you more on a performance basis in the way they just did in the past? In the past, it was like a -- page on a magazine then a page on a box on a web page, but the whole point of like you're bringing performance to the business and Decipher just getting these brands to look at you more the way they look at what are the kind of traditionally the performance digital platforms out there.

Yes, good question. We would consider ourselves, we're certainly upper funnel, mid-funnel for sure. We are highly performant for advertisers. I'm not suggesting that we are a Google search or something like that. That's true bottom of the funnel. But we offer a wide range of services to advertisers and we command a premium in the marketplace because our ads perform. And that's sort of like non-controversial and measurable, particularly in the programmatic ad markets where our inventory commands very significant premiums. As it relates to performance marketing as a category on the face of our P&L, that is primarily our affiliate commerce business, which is super low end of -- low funnel. And that's basically where we do -- we test, rate and review products, I think consumer reports or Wirecutter and make recommendations to our users across all of our brands or across all of our primary brands. That business has been a stalwart in terms of growth for years. It continues to perform really well. We've said publicly we sent over $1 billion at retail, well over $1 billion at retail to retailers, GMV. So we are valued partners to the Amazons of the world and the Nordstroms and the Wayfairs, and we partner with them now in new and kind of innovative ways even in the, sort of, face of what is declining search traffic to these -- to those content -- to that content to those assets. So strong growth, deep partnerships measurable -- like actually measurable, so the highest performance marketing. We do expect that piece of the business to moderate and grow some in the back half of the year. Again, just incredible growth in the back half of last year. So one, the comp's harder, two, there's some things with like Prime Day was in Q3 last year, it straddled Q2 and Q3 this year. So you should expect some moderation in growth there. But I would say that the relationships with retailers have never been stronger or I think, and we're very valued and we value them, but we're very valued by the retailers.

Right? It's almost like a way that -- and we talked about this kind of the way that you, kind of, formally, kind of, segment the revenue isn't necessarily representative of actually, like, how this is like evolving, right, which is, like, kind of, getting to the sessions versus non-sessions, right, where, kind of, what a lot of people think of performance today is not actually the way you describe performance, right? You really have -- there's performance in brand, but it's like getting those brand advertisers to, kind of, like, engaged with more performance-oriented type of ad units, right?

Exactly right. Exactly right. I mean, again, there's super low funnel, and that's what this performance marketing business is. It used to have a large mortgage origination element under invested media and all that, that business is not as dynamic as it once was, but the consumer side is very strong and it points to that, sort of, the value of these audiences and the brands that we have.

So then, let's say, on licensing, that was very fast growth in the quarter, it was up 22%. You've got Apple News in there, there's syndication. The Meta partnership was signed at the end of last year. We'll get into Google in a second, but just like what's, I guess, still in the hopper as far as like future licensing deals? And I guess, repricing old deals higher, et cetera. What can you say there?

Okay. Let's just -- let's start with licensing because it is the fastest-growing piece of the P&L and get into that and then talk a little bit about AI as a sort of part B of it. We're making more content today than we've ever made at a lower per unit cost than we've ever had in the past. And it's also human created and brand on brand. That's accruing to our benefit in a lot of different places, but particularly in the licensing line. And so licensing can include everything from our distributed content across platforms like Apple News or even Yahoo! or AOL or NewsBreak and all these guys. We're seeing strong, strong growth there because, again, I think there's a flight to quality content. We're making more of it. We have more brands than anyone else. And so we're seeing real growth there. The second part of the business is product licensing. We talked -- I mentioned some before, but -- and the product licensing side, the biggest one of which is our Walmart relationship with Better Homes & Gardens, which has been many, many years standing or one of the largest, sort of, "private label" brands within the Walmart ecosystem. That's an important valuable partnership for us. And then the third bucket, which is the newest bucket is the AI side of the licensing equation. For those who don't know the story, we have 2 deals with AI -- AI companies, AI foundational model companies, OpenAI and Meta at this point. We did not have deals with Google and Anthropic and the handful of the others, though we want them. We think that our content and content in general, not just our content, our valuable inputs to these LLMs, to the AI companies as valuable as the models themselves or the compute on which they run. Without inputs, quality inputs, then there's no quality to the model. We started blocking AI crawlers recently, not -- almost a year ago now, so not that recently. I really think that had a sea change in the industry a little bit. It starts to really get people to understand that point of view that I just laid out that, that content is critical. Without it, all of a sudden, the quality of the models deteriorate. And so we are optimistic. And so the way we see the world is that these AI deals will come in 2 parts. There's the foundational model guys, and increasingly, that is, sort of, already consolidating to a handful of players. And then there will be applications built on those LLMs on the AI. We think that the application layer will be more of a pay-as-you-go, pay-per-use model for content providers, content creators where the application needs to go get specific information and bring it back to the application in which it is residing. And so we did do a deal with Microsoft around that late last year, and we see others coming. And so we basically see the AI universe forking into these 2 models or a foundational model, application layer, pay it -- all-you-can-eat, we call it on the foundational model, pay-as-you-go on the application layer.

Let's unpack that a little bit. So far, Anthropic is not paying anyone as far as we can tell. You could sue them, you're not. You are suing Google, but that relates more to the ad tech kind of trial where they were ruled monopoly. And you're -- but you're also in discussion with Google for this goes. So maybe like, let's talk about the Google and then we can, kind of, talk about Anthropic. So just maybe remind everybody like what's going on with the Google lawsuit? And then like can you connect that at all to the comment that you've said, like, you could consider blocking Google, but the ramifications would be you lose out on the organic search, and they lose out on the AI because they have a consolidated scrape. So let's talk about Google and then we can go to after Anthropic.

Okay. So there's two totally distinct tracks on Google. There's an ad tech case. I just want to touch quickly on which is the government found that Google abused its market power to disadvantage the ad market over the last, call it, decade we and many others have sued or brought an action against Google. We expect that we were among the largest disadvantaged in the world because we had Time, Inc. We had -- we -- our predecessors, Time Inc., Meredith, Dotdash among the biggest. And so we think that, that's a very sizable claim that has already been proven by the government, and we're now talking like in 2027, we expect a sizable restitution for those damages. That's separate from the matter we're talking about now, which is AI and AI licenses and Google and Anthropic, but let's focus on Google have not cut deals, certainly with us. They've been sued by others, not us in this matter, including the New York Times. In the old world, search -- there's a benefit of the bargain. We allow you, Google, to crawl our content and index our content and show it on the search page, build a gigantic ad business off of at Google. And in return, reciprocity as we get traffic. In the AI world, that model is broken. Google and others are answering the question on the page, links are minimal, if ever, traffic back is de minimis. And so what we want and we have asked for is for Google to separate the search crawler from the AI crawler. Right now, they are co-mingled. In a co-mingled world, we have no choice but to allow Google to continue to do what it does because as you said, the search traffic remains a lucrative part of our business. I don't think we will -- we would block the two of them if we had to -- actually have the option of blocking AI, the AI crawler, that is definitely something that we would consider. That's not an option today. There is talk of that coming due to some U.K. regulations that have come out. But we'll see. I'm a little bit skeptical that you'll really be able to ever separate the two.

All right. And so do you think that once -- are these tied at all that is Google waiting to resolve the antitrust suit before like it's completely [ connected ]?

No, I don't think so. I don't think so. I think, again, Google has New York Times, Penske, others have gone either after Google or OpenAI on these matters depending. And so there will be some -- there'll be a legal avenue and then we think there's a business avenue, but they're separate.

Got it. And our sense is like some of this is like connected, like obviously, Google has an OpenAI paid relationship with Reddit, like that means that expires March and April of next year. Reddit has publicly talked about, right, like wanting a lot more money or changing the policies, but it does seem like, again, this is all like precedent setting. So like would you generally view that, like, we will somehow end up in some, kind of, system where publishers to the extent we're broadly thinking about this group as publishers, digital publishers, there will be some, kind of, standard monetization at some point, like not where there's, I don't know, like averages that people are paid based on the scale that they -- of the content they have.