People Incorporated (PPLI) Earnings Call Transcript

All right. Pleased to have Joey Levin with us today, CEO of IAC and now, Angi, fresh out of the Boston traffic. So thanks for joining us.

Thanks for having me.

So we'll kick it off, Joey. Just to start, you took over as Angi's CEO about 6 months ago. What are the key changes you've made thus far? How would you characterize the state of the business today?

We've made a lot of changes. The -- probably easiest to explain and most obvious is on the cost side. We took out quite a bit of cost, which I think we're both healthy to take out in terms of we can operate better, but also have sped up the organization in a way that I think is very good. It's also removed some distractions from the business. So we moved out of some things, some businesses that we were pursuing that were money-losing, that we didn't like the long-term outlook of, like what we call the higher consideration tasks on the services side. We moved out of some deals that were losing money, partnerships, things like that, or renegotiated deals in ways that made them profitable. But the biggest changes that are a little bit harder to calculate but I think are really important is what we have been doing to the customer experience, both on the pro side and on the homeowner side. What that means is going out of our way to make sure that those customers are having a good experience and are more likely to stay with us and more likely to repeat. So on the pro side, that's a lot of things we've done in the offers that we're making to pros and enrolling them in the first place, and then what that onboarding experience looks like so that they're more likely to have success early on. We're less focused on generating revenue from them early on and more focused on generating a good experience from them early on. We still generate revenue but just not as much in the early periods. And similarly, on the homeowner side, it's how often we want to communicate with them, what kind of communications we want to make. You can do communications that are incremental -- that have incremental revenue in a period but probably aren't long-term incremental to the customer experience. And so we've started to mitigate those things. And in aggregate, what those things do or should do is drive frequency and retention, which is the lifeblood of that business. There's other things we've done in there like drive conversion and optimize the experience. But we're well into the work. We're making good progress on the work and I think we've still got work to do.

I think in terms of what's to come next, a big focus for you is SEO and SEM trends. Where are you in that process? And how big of an opportunity is that?

Yes. On SEM, we've made huge progress. So key for SEM is conversion. You have to convert better than yourself and better than the competition and you have to keep getting better on conversion. We went through a period where we were getting worse on conversion, and we have now reversed that and we are now getting meaningfully better on conversion. The things that drive that are things like page speed, which we've sped up. But there's other things, too, that we're doing. Our business is organized around what we call a service request. And the service request path, the SR path -- SR for service request, path, is something that leaves substantial room for improvement. And we've done this in other businesses over time where you figure out how you've done it for a long time and how you can do it better. And we figured out how to do it better, and we've got a lot on the road map to do it better. But right now, we're generating substantially more profit out of SEM. That is -- the next step for there on SEM is generating substantially more volume while we're generating more profit. And that we haven't started to do yet. But I suspect that with kind of the underlying metrics that we're seeing, we ought -- that ought to be possible. And we'll -- I'm pretty confident where we are there. SEO. It's a less straightforward game. We're doing the underlying things that are necessary. Again, things like page speed, things like making sure that you have the best customer experience on a page where you could potentially get customers, meaning you have great reliable information. You allow the homeowner to take action. We have those things but we also had too much clutter and too much -- too many pages in the index. And so we're doing that underlying cleanup work. And then you just have to wait for that to pay off. I think it will pay off. I think we've seen that pay off in many businesses we've run in the past but we're doing the underlying work right now. And then it's a little bit -- we got to wait and see and that's where we are right now in SEO.

I think one question we get a lot, so you've guided revenue to decline roughly 5% to 10% the rest of the year as you do this investing in revenue. Just kind of what gives you the confidence? Where are you seeing that shrinking to grow is the right decision longer term? And how do you think about the growth opportunity for Angi once you work through that?

Yes. So just know that if you do right by the customer, you do the right thing, over time, that will pay off. And there was revenue that we were generating that I think that was not the right revenue to be generating. And when we called -- again, I referred to this earlier, but think about a service professional that comes on to our platform. We were, as an example, sending them leads the -- essentially the second they hung up the phone and signed the agreement. That generates revenue the moment you do it. But if you want to make sure that pro is successful, you put that pro through an onboarding process to make sure that they have a better chance of success. That generates less revenue in that period but that does generate better revenue over time. I can give you dozens of examples in that area, things around pricing. But I'm confident that delivering a better experience. Not over monetizing the experience will benefit over time. In terms of long-term growth, this category is still meaningfully underpenetrated. While we're the biggest in the category by far, there is still a huge amount of the category left to penetrate. And so once we are at; what I think is a good sustainable revenue level; where we have a good sustainable customer experience; where we have churn under control; where we have frequency and retention in the way that we want them to be; this business, we'd like to be organizing this to be a 20% to 30% grower over time. But we got to get to the solid base and then grow from there. And that market is wide open for us, available. That share is wide open and available, and we ought to be able to take it with a good experience.

So one question we received a lot since earnings a few weeks ago. I guess to put it bluntly, is Angi fixed? And my question for you is, how would you answer that? And maybe if I could reword it a little, what gives you confidence that Angi's turned the corner for good?

Is Angi -- it's not really a yes/no question. I think we'll be -- first of all, I'll never be satisfied so we'll be getting better every year. And there will always be things that I think that we think we can improve over time. We've made enormous progress, and you've seen that show up on the profit side. I believe the profit we are generating right now is absolutely sustainable, and I believe that we can for a very long time. I think that the question that we still have to prove to ourselves and to shareholders is what is the revenue growth and what does the revenue growth look like? And when does it show up? And I would put that as a component of fixed for sure. And that one's still to be proven. When I look at -- the reason I'm confident in that is I look at some of the base level metrics and some of the base level metrics were headed in the wrong direction, and those have either been arrested or turned. Things like credit rates, that's when we home -- sorry, service professional comes to us and asks for money back or bad debt, which is another indicator of how they feel. Those things we've turned from the trough. Now we need to start growing that -- and sorry, retention also, another big one. We need those things to turn from the trough. Same thing on the frequency side. Now we need to start growing those -- on the homeowner side, rather.

Last one on Angi. Where does it fit into your IAC's broader portfolio longer term? Are you still CEO in 2 to 3 years? And has your view around kind of its strategic position in the portfolio changed at all in the last few quarters?

I'll start with the last question. No, my view has not changed. I believe in this business. I believe in this category. We messed some things up and so we had to fix some things, but I still believe it has great potential as a multi-tens of billions of dollar business, if it's done right. And I look at a lot of examples of why I think that's possible. But the biggest one to me is homeowners are not satisfied in this category. And we can't -- when we deliver a better digital experience, which we don't always do, but when we deliver a better digital experience, it is meaningfully better than the alternative. And if we can scale that, which we are getting better at doing, if we can scale that, then we can take a substantially larger portion of the market. We've talked about the statistics where homeowners do 8 jobs a year. We think we do 1.5 of those. I think both the 1.5 can go meaningfully higher and the 8 can go meaningfully higher. Why is the 8 restricted and why is the 1.5 restricted? It's because the experience is too hard right now. And businesses that have unlocked that experience, businesses that have opened up that market in areas where you thought frequency was lower but you can change it dramatically by having a great customer experience, have seen those markets grow substantially and penetration grow substantially. And I think we can do the same thing here with Angi.

Okay. So moving to Dotdash Meredith ad market. No secret it's been challenging. But how do you feel about where you're at with the Meredith integration and some of the variables under your control?

As far as the integration, we're -- that's in a fantastic place. Got from a rough place to a fantastic place. Ad market, you're right, is tough but we are -- I guess you'd look at the 2 pieces, price and volume. On price, that's the steps that we're taking in terms of adding the components of monetization that we thought we could add to Meredith is very real and working. Things around performance marketing and e-commerce, things like that. Ad rates overall, premium market ad rates. I've got no idea where that goes, but it's not a strong market probably for a little while. And then the other side is volume. So on traffic, we're doing well. Are we doing as well as we originally expected or as I think is possible? No, but I think we're on the right trajectory on traffic. And if we continue on that trajectory, we will be in a good place over time.

You announced last week or earlier this week, a major new advertising product, a cookie-free, intent-based targeting tool. Could you talk about what you've seen in testing this product and its potential impact?

Yes. So one -- it's called D/Cipher. And one, you hit on some of the key themes of the product. It's brand-safe, intent, targeted. We don't need a PII. That's -- those are really important themes right now generally in ad products, given everything that's going on with cookies, given everything that's going on with privacy, given everything that's going on with a lot of these platforms. And so I think it is positioned in a great place. And it sounds a little silly, but when you put a name on it and people can talk about it and people can -- you don't have to give all these words that you and I were just doing to explain it. You could brand it and people can know what it is. I think that will really help the product along. But one of the other components that you didn't mention that is important is it includes a guarantee of performance. And we can give a guarantee of performance because of what -- the way we've seen the product work for advertisers and the way we have a very sticky advertiser base of people who are on it. And one of the things that's changed for Dotdash Meredith since the integration, which is a really big deal, is we went from talking to the -- struggling to get the meeting or the second meeting with the VP of Marketing to getting basically a 100% hit rate on the meetings with the CMOs. And so we have a very relevant ad product right now, and we're meeting with the right people on that ad product right now. And the people who have bought our ad product are happy with the ad product and sticking with it. So right now, what we need and what we're getting is the entrance into new customers. And we now have a branded product and we have the meetings and we have the discussion, and I think that, that -- and we have the performance. And so I think that, that should work. I'm pretty optimistic on it. But we'll see. We're a few days into it so far.

Okay. AI, a topic that is coming up a little bit recently. Neil gives us examples so I thought it was a good one to use. When I typed in blueberry muffin recipe into Google, the first organic result was from Allrecipes, a Dotdash property. I think the biggest investor concern we hear is once generative AI is built-in to search, maybe instead I'll see an AI-made recipe that Allrecipes' data helped perform or inform but is no longer monetizing. How big of a risk do you think this is to Dotdash and how do you address it?

Yes. I don't really think that if you look at all these platforms over time and everything that's evolved technologically, what's been amazing is it's enabled more choice and more alternatives and more information to be processed by the consumer. And sometimes, that can be overwhelming but the trend has been clearly toward that direction. And I guess, I certainly -- the technology is absolutely capable of it. And I could imagine a world where everyone says, "Okay, let's all make the same blueberry recipe, blueberry pie recipe that the computer told us to make." But that's not a very exciting world or one, I think, that is highly likely. Again, I'm not underestimating the power of the technology because it is profound. But there's also human interest, desire, behavior. There we talk about things like trust. We talk about things like taste. We talk about things like brand and voice. Those things matter. People will want different blueberry pie recipes. Southern Living has a very informed point of view on pie and what to do with pie crusts, and why, and what kind of crazy ingredients to include in that. And people living in this out take a lot of pride in pie. And that matters. Again, will they all yield to one AI on that? I guess that's possible. It doesn't seem likely to me relative to human behavior. So now the question is, okay, if you need that brand and that voice and that taste, do we get compensated for that? Right now, if you listen to what Microsoft is saying or what Google is saying or what OpenAI is saying, their answer is yes. Has that been figured out yet? No. But that's what they're saying. Everyone acknowledges that you can't take copyrighted works and match it up and turn it into something else, and have that system still work where people will produce content for no compensation. So everyone acknowledges that you can't continue producing content for no compensation, the thing to be solved, which I think is solvable, is how does compensation work, and that will play out over the coming months and years, I think.

Okay. MGM, so you have an 18% stake now. I think by our math, that holdings accounts for over half of IAC's equity value. We initially thought this was an interesting way to get your foot in the door, maybe some exposure to iGaming or sports betting. But where is the right way to think about it or what's the longer-term strategy?

We love the digital business and the digital option that you point out, but we also love the fundamental business, which is, it is the entertainment capital of the world with substantial share in that market, and a great set of irreplaceable assets, which generate tremendous free cash flow. That combination was attractive, was unbelievably attractive then, and we think remains attractive right now. Not only does it have the sort of core benefits of cash flow and irreplaceable assets but it also had some option value. Macau, significant option value and the return of Macau has been exceptional. Japan, option value, digital huge option value. And you've seen the growth of BetMGM, which is MGM's play in the U.S., a joint venture, a 50-50 joint venture. So all those features still exist. All those features are attractive. It has a great implied free cash flow yield per share right now and so we like that. But as with anything in IAC, we think about the long-term opportunity and anything is possible. It's possible that we look at the MGM stake and say that at some point, maybe there's a better use of our cash. It's possible that we look at the MGM stake and say, we can get further in here and create more value. So I think we've said that kind of with respect to all IAC assets over time, and I think the same remains true for MGM.

My next question you kind of answered, which is why not sell your stake and given the significant financial gains, but I think you covered that. So we can move to Turo. IAC, you invested another $100 million roughly this quarter. You own about 31%, have an option for 10% more. What do you like about Turo? How do you feel like IAC is able to add value to them as a shareholder?

Yes. Everybody talks about or we talk a lot about and hear a lot about marketplace businesses and the benefits of marketplace businesses. And very few actually realize those benefits. And it takes a very long time to build the scale to realize those benefits. But Turo, in our opinion, has reached that point. And you see it on the host side and you see it on the guest side. Every incremental host makes the platform better for everybody on it, and every incremental guest makes the platform better for everybody on it. And getting that ecosystem working took a very long time. It was very hard. And the next question is, does the economic model that puts those things together work? And Turo's proven that by generating profit and free cash flow there and good marginal transactional economics. And so when those things come together, it is usually a recipe for a substantial ongoing growth potential. And it's not just in the rental car market, where the share they've taken and continue to take is very impressive. It's also in, I think, adjacent markets where the way that they've organized car ownership could change markets. I think that the lease market, for example, I think is ripe for disruption and would be really interesting, is an opportunity for Turo. And I think that very few companies can offer now what Turo offers, which is selection, price and convenience. The convenience part is the cars are spread all over the country in convenient locations. Selection is their unique cars. And price, they can usually be pretty competitive on price. And that combination of things where the network effect starts to work and you see it in the marketing, you see it in the word of mouth. The customers who are coming are staying. The customers who are coming are happy. The customers who are coming are telling their friends about the product. We got very lucky with COVID in terms of what that did to the rental car market and in terms of supply and demand being way out of balance, and people sort of being forced to discover Turo. But then we delivered a great customer experience and so that's winning. And I think that I'll just add one more thing on Turo. The customer experience is probably the most underrated feature of Turo. When you -- I've talked about this before in a bunch of places. But when you go to one of the competitors and you get to the rental car counter or you're interacting with customer service, you're getting whoever you get and you don't get to rate that person, and you don't get to say this person's a jerk and you don't want to deal with this person again or whatever. And so you end up with whatever you end up with. At Turo, the customer service is very different because every host is rated and every guest is rated. And so the people who are jerks don't stay in the customer service system. They are demoted essentially, and the people who give great customer service are not. So your next Turo experience is a good and better experience as you're going to hosts who are rated well and who care about their rating. And that's a huge factor to me in customer experience and repeat rate. To me and most of the people I talk to, once you go Turo, you don't go back.

So a few on capital allocation. We should have a few minutes to open it up to the audience after that. Wanted to start with buybacks. You recently bought back about $150 million of shares, the most since 2016, 13% of your cash. You talked about this a bit a few weeks ago, but maybe expand on the why now? How much of this was due to you simply feeling better about Angi and Dotdash versus being opportunistic at current valuation?

Certainly, there was the implied discount, which we think just all you have to believe is the present and if you do that math, you can capture that discount. That helps a lot. The second thing in terms of why now or what changed, yes, we do feel more comfortable when we're in a position of generating cash to buy back shares versus when we're in a position of consuming cash. And did we have confidence in our ability to do those things? Yes, but -- and do we still have confidence? Yes, but seeing it in evidence is sort of a nice -- not a requirement but a nice feature in considering share repurchases.

Okay. M&A, a few quarters ago, you laid out 3 categories of opportunities, unloved public companies, diamonds in the rough, smallest private companies. What's your latest thinking here? And does more stability in your existing businesses change how you think about M&A?

We -- M&A has been core to IAC for all of our history and remains so today. Maybe the only different -- not even necessarily different, but the only thing I'd highlight today is that the bar is higher on account of the discount and a bunch of things we already own, including IAC. And that's the bar against which we evaluate M&A and we'll continue to evaluate M&A. But if we see opportunities, we will certainly take them. I think that our sweet spot is probably in the $200 million to $600 million range, something like that. Could we go bigger? Yes. Could we go smaller? Yes. But those are -- that's probably where we'll focus and I think kind of has been successful for us in the past and can be in the future.

You've done, I don't know if pruning is the right word, maybe some divestments. You sold Bluecrew recently, took in outside capital for Vivian Health. Were those kind of both onetime opportunistic, just happened to be a similar time frame? Or are there more opportunities for divestments kind of within the portfolio to build your cash up?

Yes. I'd say, by definition, those were onetime and opportunistic. But the -- there are other things that we would consider and have considered. And generally, it's either a business is a great cash flow generator over time, which, for example, Ask Media Group has been for us, and probably there isn't really a liquid market for selling that business. Or we think it has great, great long-term potential. And there are businesses, though, that probably exist that don't make either one of those criteria. And so we think about what to do there.

I'll do one more then happy to open it up. So if anyone has a question, please raise your hand, and I think there's a microphone that they can send around. So land purchase, you mentioned a bigger reason was the financial optionality it provides. Could you just expand a bit on what kind of options this gives you, in terms of sale leasebacks or kind of what you're thinking about?

Yes. That is an example. It's just, we can access the value of the building in a bunch of different ways if we want to, and that's much easier when you have both the building and the land. Yes.