IAC's CFO: We Benefit a Lot From How Consumer Behavior Is Changing

During a talk with TheStreet, CFO Glenn Schiffman highlighted the positive and negative trends seen by IAC businesses such as Dotdash and ANGI Homeservices over the last two months.
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Like many other internet companies right now, IAC/InterActiveCorp  (IAC) - Get Report is seeing a mixture of headwinds and tailwinds right now.

Among other things, Barry Diller’s internet conglomerate is the parent company of HomeAdvisor/Angie’s List parent ANGI Homeservices  (ANGI) - Get Report, website owner Dotdash, mobile app developer Mosaic Group, family care services marketplace Care.com (recently acquired for $500 million) and video creation, distribution and monetization platform Vimeo.

IAC also has a roughly 80% stake in online dating leader Match Group  (MTCH) - Get Report that’s set to be spun off (a shareholder vote on the spinoff is scheduled for June 25).

On Friday, shortly after the release of IAC’s May 6 Q1 report, I talked once again with CFO Glenn Schiffman (a November 2019 interview can be found here, and a June 2019 interview can be found here). Here are some of Schiffman’s comments on several topics of interest, slightly edited for clarity.

On IAC’s ability to hold up well in the current environment.

Schiffman: “We think IAC is built for moments like this. Our businesses are incredibly diverse....Our businesses are also diversified by our revenue type. We have majority-subscription businesses, then we have marketplace businesses, we have search businesses, and we have advertising businesses. There’s real diversity in our revenue streams, in our brands.

We have dozens upon dozens of customer-facing brands. Even in March...we grew revenue 8%. A lot of our businesses also are relatively recession-resistant...There’s a lot of natural hedging in our business, so to speak, with growth areas offsetting other areas.”

How IAC sees itself benefiting from the behavior changes caused by COVID-19.

Schiffman: “I think as we look back on the crisis of COVID-19 and social distancing, and the changing in consumer behavior, I think it will accelerate the shift to a digital world. And I think it will increase our [comfort] with doing everything online. And we stand to benefit a lot from that. [That's true] if you look at dating, if you look at video, if you look at home services, if you look at use of apps for consumer utility, if you look at sourcing jobs through our platforms.

All of our platforms are focused on doing something in the online world more efficiently and easier for our users than they did in the offline world. And with an acceleration to the online world, I think we’re going to be a beneficiary. We talk about that as natural tailwinds in all our businesses -- because of that offline to online conversion, because of the large addressable markets in which we compete and because of our...single-digit penetration of those markets.

And I think coming out of the crisis, that tailwind we enjoy will be more significant [of] a tailwind, and we will come out with each of our businesses taking share.

We feel confident in our position, obviously, but the environment is an uncertain one. The environment is a tough one.”

How Dotdash, which saw revenue grow 22% annually in April as a 115% increase in performance marketing revenue more than offset a 7% drop in display ad revenue, is currently faring, and how IAC sees performance marketing and brand ad spend trending.

Schiffman: “We think brand advertising did hit a low during the depth of the crisis, the end of March into April, and we have seen it stabilize.

And then it’s a tale of many cities. Obviously our brands that are more exposed to travel [continue to be under pressure]...But the beauty of our Dotdash business is that it’s very well-diversified. We’re in three categories: Healthcare, finance and lifestyle. Lifestyle’s gotten hit more, but finance and healthcare have held up a little better. And in those three categories, [there are] a dozen different brands.

Performance-based marketing, we think that is a growth business for us...That’s where instead of getting paid by advertisers per impression, we get paid by advertisers instead by action.

The whole fundamental premise of Dotdash is intent-driven content. So when someone’s on a Dotdash site, they’re asking for something or they’re trying to understand something...Because it’s intent-driven, and because we’re focused on consumer needs, and because the consumer is often very far down the purchase funnel or the decision funnel, the business has done well and it will continue to do well.

No, it won’t be growing at triple digits, but we think it will grow all year. And we think display [advertising] in general will be more challenged, with certain of our verticals doing better than others.”

On whether IAC could invest more in content for Dotdash websites that are currently seeing strong traffic growth.

Schiffman: “Like many businesses on the Internet, we’re seeing traffic spike somewhat significantly in that business. Our mantra at Dotdash is ‘freshest, fastest, fewest.’ The freshest content, rendered as fast as possible, with the fewest amount of advertisers on it.

And we put our content investments against that...When we’re in the health category, we’re not just in health, we’re in very many categories of health. So we can continue to deepen and widen the coverage we have in health, for example.”

On the recent performance of ANGI, which saw demand weaken in late March and early April before improving in subsequent weeks, and whether particular types of home services are more popular than others right now.

Schiffman: “One of the many reasons for the resilience of the Angie’s List business is [that] two-thirds of our business is non-discretionary. And obviously that’s doing very well, and outdoor [services are] doing very well. Indoor and discretionary projects obviously have gotten hit some more.

And in times like this...the SP [service provider] population needs our solution more. And we curate and send them demand. And that’s very valuable.”

We saw that in 2008 and 2009, [when service provider] engagement on our platform also increased. We think that’s logical, because we’re a very high ROI-driven solution for an SP. We estimate that for every dollar an SP spends on our platform, they get $25 to $30 of revenue. And we think in times of shrinking budgets, that SPs will cancel other solutions that don’t provide as high of an ROI as we do.”

On whether IAC thinks stimulus payments have been boosting demand for ANGI.

Schiffman: “It could be. Money is fungible, but it’s hard to figure out. I think another factor is, we’re all spending a lot more time in our home, and we’re all kind of walking around and seeing things in our home that maybe we want to improve, or maybe were less annoying [before].

Also, we’re not spending money on vacations right now. We’re not spending money on going out to dinner or the theater or movies, so people may be pushing more investment capital into their home.

I caveat the entire discussion of financial performance [with] one very important thing: The dispersion of possible outcomes for the rest of the year for all businesses are quite wide. Including our own. We don’t know how the consumer will continue to behave in this quarantine. We don’t know the length of the quarantine, we don’t know the path out and how quickly we can all go back to normal. And then we clearly don’t know...the impact of the recession that will likely follow.

Like never before, uncertainty reigns. But in all our businesses...what we’re certain of we’ll keep innovating, we’ll keep investing, and we’ll keep penetrating the large addressable markets in which we compete."

On how long IAC thinks it will take to roll out the product changes that it outlined for Care.com in its Q1 shareholder letter, and when the company sees these product changes meaningfully boosting revenue growth.

Schiffman: “All the initiatives are rolling out as we speak. We’ve already updated [Care.com’s] matching process and changed the algorithm. We’ve already rolled out video. And rapid bookings, we’re working on.

In terms of impacting revenue, that’s a subscription-based business. Revenue always trails innovation in general, and in subscription-based businesses, revenue trails even further. So we’re...at least a couple quarters out, maybe into 2021, before we see the numerical impact of all this.

But we’re really excited about [Care.com], and we think it’s right in our wheelhouse. We’ve analogized it before to ANGI Homeservices, and [there are] a lot of similarities, a lot of learnings from ANGI Homeservices that we’re applying there. It took us 18 years to really get ANGI Homeservices to where it is right now as an absolute category leader, and we’re excited to apply some of those same lessons there and avoid making some of the same mistakes we made along the way at ANGI.”

How IAC is thinking about marketing spend in an environment featuring macro headwinds but also lower ad prices, and whether it could take advantage of lower ad prices to invest more in marketing for some businesses.

Schiffman: “As the crisis hit in March, the prudent and natural reaction [was] to tap the brakes on marketing spend, and we did, virtually across the board, given the uncertain environment. And now...we’re beginning to put our foot on the pedal in terms of marketing. We’re doing so gingerly, but we are doing so.”

“Because as you said, [ad] rates are down dramatically. TV rates are down dramatically, as there’s so much inventory. We look at marketing [as] ROI-driven, and we have certain metrics and certain return criteria.

And as it relates to online spending, that’s what we focus on. We look at the lifetime revenue we can get from the online marketing, we compare that to the cost of online marketing. And as you said, cost has by and large gone down. TV has by and large gone down. So as long as we hold our lifetime value, if you will, we’re excited to lean into marketing."

And given our balance sheet, and given our long-term approach and the margin profile of our businesses, we do have the flexibility to invest in marketing, we do have the flexibility to invest in our people, and we do have the flexibility to invest in product.”

On whether IAC, which is set to receive $1.5 billion from a Match share sale that will coincide with the Match spinoff, sees the current environment and its impact on private valuations and funding creating more M&A opportunities.

Schiffman: “Yeah, I think so...In bull markets, asset prices tend to go up, values tend to go up. The one thing that’s undervalued in bull markets is cash...And then, in bear markets or in more challenging markets, asset prices tend to go down and the value and importance of cash tends to go up pretty significantly.

So we’re fortunate to have a strong balance sheet, we’re fortunate to...be cash-rich and well-capitalized. And yeah, we think there will be opportunities. The private market takes time to reset, the private market doesn’t correct as quickly as the public market. And the public market has turned around here.

But we would be disappointed if we couldn’t add more assets to our fold here, both synergistic to our existing businesses and potentially a new vertical or two, and we’re aggressively looking. Hopefully we’ll find something that makes sense, but I think that’s another reason...why IAC was built for times like this.”