People Incorporated (PPLI) Earnings Call Transcript

All right. We're going to get started. Thanks, everybody, for joining. My name is Ross Sandler. I head up the U.S. Internet research team. Very excited to have the team from IAC back again this year. Chris and Mark, thank you for attending.

Maybe, Chris, to start things off. Just a high-level question. We struggled with this admittedly ourselves, and we get this from investors quite a bit. But like, I've covered IAC for a long time. We've had different eras of the IAC kind of equity ownership story from splitting the company up into 5 pieces in 2008, then it was like a big capital return period, then there was the period of like the Match IPO and the spins and that led us into kind of the pandemic and now we're in this new era. So I guess, how would you describe the era that we're in right now relative to those prior eras where in one sense, we're returning lots of capital to shareholders, in the other sense we were spinning and IPO-ing things? How would you compare this era?

Sure, and thanks for having us. I think the core themes of capital allocation long-term commitment to creating value through digital and flexibility in terms of transaction-types, sectors, et cetera, are still in place. If you go back 2 years, when I joined, there was the base of portfolio companies. And the question was really where are we going to allocate capital going forward and as well as growing. Clearly, we've had a challenging 1.5 years with Angi and with Dotdash Meredith. We feel -- we will talk about both of those. We feel good about where we are in their respective paths and very different reasons that it's been a major endeavor operationally over the last, say, 2 years. Coming out of it, we've got a strong portfolio. We are interested in allocating capital and taking advantage of trends. And we think we trade at a value that doesn't reflect what the representative value of our assets. When you look at our 2 public holdings in Angi and MGM plus our cash, we're really not trading for much more of that. And when you think about our private companies of Dotdash Meredith, Care, Vivian, our stake in Turo and our Search business, there's just tremendous value embedded. So for us, it's perform, prove the value out and then allocate capital wisely.

And on the last point, you guys have done a nice job of allocating capital. MGM, in particular, very well-timed and your influence there is notable. I guess, given the situation with Entain, they've now got a few more of these active investors around it. you guys have limited control in that sense. But how do you see all this playing out? And how do you kind of maximize what you have with MGM?

Yes. So the -- obviously, the BetMGM partnership has been fluid for years since it was founded. There have been a number of different moments during that period where potential M&A or also different strategies with our partner at Entain. What we're focused on is working with the BetMGM team who had their Investor Day this week to maximize their opportunity in the United States. Clearly, big product opportunity. The product has lagged at different times some of the competitors, great marketing opportunity and the omnichannel strategy is one we're big believers in given the size of MGM's loyalty database and how strong that brand is. And it's hard for us to weigh in on the shareholder situation at Entain. I know they're heads down, focused on their business and working through it. But we believe BetMGM is a singular asset in the U.S. market.

Another smart investment you guys have made well-timed was Turo, and we get this one from the investment community often. But with the kind of peer group of gig economy companies, DoorDash, Uber, we had Lyft here yesterday, all effectively kind of doubling in 2023, it seems like there is appetite for that kind of asset as a public company. So you're obviously kind of at an arm's length, but could you talk about prospects for an IPO in the planet Turo?

Sure. We are long-term holders of Turo. We've been very clear and Joey has been clear that we want to own more, not less. So for us, an IPO is -- would be a step in the progression of the company if they want to do it and in their approach to raising capital, et cetera. Having -- Being a public company versus a private company, we're supportive if that's what the board and management want to do, and there's pros and cons to that. Relative to the -- to an IPO, obviously, there were 3 or 4 depending on how you define it, that got public post Labor Day, sort of mixed performance there. And I was at breakfast hearing your colleagues at Barclays talk about when the IPO market might come back, sounds hard to predict and a bit choppy. So we're supporters. We think Turo has a tremendous market opportunity. But one of the things about going public is you wake up the next day and you've gone from X investors to multiples of that, you still have to execute yourself to put your head down. So hard to weigh in on timing and the value in front of them of just taking share in their space and growing the brand is far more important.

Yes. Okay. Shifting gears to the operating companies, on Dotdash Meredith to start. So at the time of the earnings call, there was a fair amount of noise, not really from you guys, but from some of the digital advertising peers around trends in October, around the Middle East conflict. Here we are 6 weeks on with most of the kind of holiday visibility in sight. How have things progressed? And there were questions around whether we would get a budget flush in digital in 2023, given the October hiccup, but what are you guys seeing there?

Yes. It was a good November. October was an odd dynamic because it happened so quickly. And it clearly was correlated, probably precipitated by the Israeli/Gaza conflict. But it also really ended November 1. And I don't know if that's a monthly construct at agencies or something, but we said in the earnings call, surprisingly large slowdown in October and then really starting November 1, it bounced back. I'm talking direct and programmatic on the advertising side. Direct is fine. I don't know if I'd call it a budget flush, as you said. More, they're doing what we think brands would do and agencies would do. That -- we hope that continues throughout December. There's some -- still some key weeks to go, but direct is fine. Programmatic definitely firmed up in November, on pricing, we think we're -- we definitely feel like we're outperforming the market in terms of programmatic CPM increases. We should be because we're executing and improving our platforms, et cetera. But it was a good month there. E-commerce, the cadence of when consumers are spending, we've talked about this a couple of times, it's definitely different year-to-year. This year, some things were pulled forward by Amazon and others with the Prime Deals Day, but it was a solid holiday period. We felt great about our performance, and I've heard that from our retail partners. And so we're optimistic. Last year, this time, everyone got whipsawed by the market. So we're definitely gun-shy about mission accomplished, and there's some key months to go, but it was a good holiday period.

And then last quarter, you guys talked about there was some new disclosure around DDM core versus noncore. I guess how do we think about this new disclosure? How do we think about monetization potential within those 2? And is there some cleanup happening in noncore that might be weighing down growth rates that would otherwise be higher currently and in '24?

Yes, definitely. So we put that disclosure out, which essentially a new traffic metric, which we call sessions. And we bifurcated it between core, which are 19 major sites that we are investing behind and then total, which includes noncore. Talking to investors and analysts, there's a couple of different pools in noncore. One are fine owned and operated sites that just don't get any benefit from investment. They're kind of every day working hard, doing their best, but if you put $1 or $10 in them, you're not going to get that much difference. So those should be steady, continue to operate fine. The second are long tail sites that we are -- owned and operated that we are winding down that was part of the original strategy in the merger with Meredith and both properties had sites that -- complementary strengths, really need these to go forward. And then the third bucket are third-party sites where Meredith handled the ad sales for. And those sites have gotten really hit hard. It's interesting for us because it probably highlights what's going on in the broader Open Web and publishing to sites that don't have the strength of the brands we have and the quality of the content we have, but that's been a major drag on sessions and a smaller drag on revenue. But that -- longer term, we expect that noncore to continue to diminish. And so core/noncore growth rates will be sort of over time, asymptotically will be the same. Traffic growth, we feel great about. We feel very good about where our brands are, our core brands are, and the ability to keep growing them in terms of traffic, engagement and market share.

You touched on this earlier, but performance marketing has had a huge reacceleration this year at DDM, brand lagging a little bit, but also picking up of late. So I guess it sounds like those trends continue in 4Q, what is the outlook look like for '24 on those sides? And we were talking earlier about Chrome cookie deprecation potentially being a catalyst for the IAC properties or DDM properties. Can you just talk a little bit about that?

Sure. Taking the first part, we feel good about how our sites -- I mean, at the end of the day, it's price times quantity on the advertising side. So quantity is traffic. We talked about that. That should be a tailwind. On price, it's the combination of direct premium sales and programmatic sales. So direct premium is about 2/3 of our advertising revenue. If you look at our digital P&L, about 2/3 of that is advertising. About 1/4 is -- a little less than 1/4 is performance marketing, e-commerce and then the rest is licensing. Within that 2/3, that is advertising, 2/3 is premium, 1/3 is programmatic, we get much higher CPMs on premium, although we feel like we do well in programmatic. On the pricing side, both premium and programmatic should be solid in Q1, Q2 and be tailwinds. They were tough last year. I think we -- you and I have talked about this a bunch. It was just a tough ad market starting from mid-November last year through the spring, barring some exogenous shock, the comp should be pretty attractive. And we hope to see some firming. That's on the advertising side. And also on the programmatic side, we keep improving our ad tech stack. We keep improving our execution and longer term, we think D/Cipher can be an engineer. On the performance marketing side, we've had the first -- second derivative positive momentum throughout the year of 0, 12, 22 -- up 22 and expect to be a very strong quarter. We think it should continue. There's definitely always the question of how will the consumer spend and what will that look like. This holiday has been as good or better than expected, I'd say, in terms of consumer activity. But that would be the main overhang I think about for next year in performance marketing.

Okay. And then on the cookies?

Yes, sorry. So we get asked about this a lot. You can see the experience with what Apple did on eliminating cookies and the performance, the winners, the losers and what happens to pricing performance therein. When Google does something similar on their properties, first-party platforms will benefit. Those with first-party data and direct ad relationships will benefit, heavily reliant third-party retargeting, generic, et cetera, will all struggle. We feel -- it's actually a core thesis of the Dotdash Meredith combination and also their DDM strategy is the power of intent. And that underpins D/Cipher, which is this is our campaign management platform that's essentially a productization of the strengths of Dotdash Meredith. So if you are a brand or advertiser or agency looking to reach certain segments or demos, because of the scale of our footprint in a number of categories, home, food, travel, investment, et cetera, entertainment, we can give you major reach targeting and we have intent. We know if you're a paint company that -- because we've mapped it and done all the data science behind most likely correlations behind what they're searching for, what they're reading and where they can be monetized. So D/Cipher has been a -- was a major step for us. We are confident in its outperformance against cookie-based solutions. And then in non-cookie platforms like iOS it blows away any alternative. So we view it as a tailwind, but it's going to be choppy for the broader digital ad allocation market when cookies go away on Google just because you're going to have to work harder to figure out performance, but we feel good about it for DDM.

Last one on DDM. The incremental margins are ticking up nicely in the fourth quarter. I guess just -- how do we think about that on a go-forward basis? It seems like we're through a lot of the heavy lifting at DDM. What's the outlook for '24 and beyond?

Sure. So near term, we've said roughly 80% incremental EBITDA -- adjusted EBITDA margins. That's a reflection of the actions that were taken to combine the businesses, optimize the cost structure and then also further improve the cost structure in the context of the ad recession. Secondly, we're operating on a depressed digital ad level. So the team can bring on revenues with almost no incremental cost. I mean, basically, that 20% marginal expense is related to sales execution, maybe some small campaign COGS, those types of things. But the cost structure, besides the sales elements are really content, product, tech platform and G&A. Near term, none of those need to scale while we add revenue. Longer term, we've said 55% to 60% incremental adjusted EBITDA margins. And where the investment lies is content. So that's continued optimization of content, creation of new and engaging content in forms of consumer engagement related to e-commerce, expansions in sort of sub-brands that we see high ROI, there'll be small incremental step function investments in product and technology as revenue grows, but that's pretty controllable. So for us, it's about as we see ROI from content when we choose to invest in that.