IAC/InterActiveCorp Q3 2008 Earnings Call Transcript

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 |  About: IAC/InterActiveCorp (IAC)
by: SA Transcripts

IAC/InterActiveCorp (IACI) Q3 2008 Earnings Call Transcript November 5, 2008 11:00 AM ET

Executives

Tom McInerney – EVP and CFO

Barry Diller – Chairman and CEO

Analysts

Justin Post – Merrill Lynch

Jeetil Patel – Deutsche Bank Securities

Mark Mahaney – Citigroup

Jennifer Watson – Goldman Sachs

Kaizad Khushru Gotla – Banc of America Securities

Douglas Anmuth – Barclays Capital

Alan Gould – Natixis Bleichroeder

Ross Sandler – RBC Capital Markets

Jeffrey Lindsay – Sanford Bernstein

Lisa [ph] – JPMorgan

Scott Kessler – Standard & Poor's

Operator

Good morning. My name is Christie and I will be your conference operator today. At this time, I would like to welcome everyone to the IAC Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator instructions)

I’ll now turn the call over to Mr. Tom McInerney, Executive Vice President and Chief Financial Officer.

Tom McInerney

Thanks, operator, and everyone for joining us this morning for our Q3 earnings call. Barry will make some comments, after which I will come back to quickly take through some housekeeping issues.

But first, I'll remind you that during this call, we may discuss our outlook for future performance. These forward-looking statements typically are preceded by words such as ‘we expect,’ ‘we believe,’ ‘we anticipate,’ or similar statements. These forward-looking statements are subject to risks and uncertainties and our actual results could differ materially from the views expressed today. Some of these risks have been set forth in our Q3 2008 press release and our periodic reports filed with the SEC.

We will also discuss certain non-GAAP measures. I refer you to our press release and the ‘Investor Relations’ section of our website for all comparable GAAP measures and full reconciliations.

With that I will turn it over to Barry.

Barry Diller

Thank you, Tom. Good morning, everybody. Congratulations to those who supported the winner and condolences to those who didn’t. After a short pause, we’ll be onto Election 2012.

I want this call today to be mostly a dialog between us. I think that getting to the question and answers rather than going through canned scripted remarks is just a much better process. I’ve noticed lately that for us and for other companies that the scripted portion runs 20-25 minutes and I just don’t think that’s very productive. I also don’t think – and this will not surprise anybody, obviously – that we should concentrate on the (inaudible) of the numbers. We report, we put in our press release as much information as it’s possible for us to do. And of course, we will continue to do so. And there may be technical questions and other questions that come up from it, and which are fine – Investor Relations department or any of us here today.

With me is not only Mr. McInerney, but our Vice Chairman Victor Kaufman, and our General Counsel, Mr. Blatt. And we are always ready to answer any questions. But the quarterly call itself, obviously, is something that points up quarters, and there is no real way around that. At the same time, I kind of want to make a compromise with that. We really do run the Company long term. We run the Company not on a quarterly basis. We do not want to be in a position that because of these calls, because of the way kind of things are done, that we get into that habit. It just does not make sense for this Company, certainly not this Company at this time.

The other thing I really want to talk about before we go to questions, and hopefully this dialog we’ll have about where we’ll talk about trends, we’ll talk about any subject that any of you wish to talk about. But let me talk for a minute about capital.

We certainly have a lot of it, and that’s good, certainly at this time in our queezy [ph] economy. That capital is not burning a whole in our pockets. We do have a number of acquisitions that are in the Search and Local areas that we are in the process of thinking about, determining whether we’ll do some of them or not. None of them are very large. I don’t contemplate any of them of being by themselves large or even in aggregate I can't tell you with – all I can tell with absolute assurance that this process of our in acquisitions is going to be extremely disciplined as I believe it has been since the last couple of years. As I think the acquisitions that we’ve made and the reports that we’ve made to you, every one of them has been sensible and is going according to the internal plans that we had for them.

I would tell you also that we are probably not going to spend the greater percentage of our capital on acquisitions. And that of course leads obvious eventualities none of which I am going to go into because obviously we can't. We’ve always said that we are opportunistic about find back stock. That continues to be our policy. Our policy is also clearly not to talk about it until we’ve done it and then we report it on a quarterly basis.

So, with that, we’ll take questions now. Sorry, I am going to turn it back to Mr. McInerney, who has some items he wants to cover before we get into questions.

Tom McInerney

Thanks, and just while we are going to continue with our ‘no guidance’ philosophy, we do want to give you certain information about a couple of go-forward matters when we have it and it doesn’t really require speculation. So just let me tick through these really quick.

Corporate expense impacting OIBA excluding spin-off expenses was $20.4 million for the quarter just ended. Q4 should roughly mirror that and we don’t anticipate any further spin-off expenses. IAC is a smaller company; obviously, post the spin-offs and corporate expenses will decrease from historical levels over time to reflect that. So, in 2008, excluding the spin-off expenses, the number will end up roughly around $85 million for the full year, and in 2009, we’d look for at least a 15% reduction to that.

The tax rate in Q3 was skewed by a number of spin related factors. I won't go into it, described in the release. In 2009, we expect an adjusted net income tax rate kind of back to where our long-term average was in the very high 30s percent range.

Capital expenditure for our go forward businesses for the current year will end up totaling approximately $75 million to $80 million. In 2009, we preliminarily anticipate CapEx of approximately $50 million, so a meaningful reduction to this year.

And finally, just a word about cash flow. While obviously a function of the operating environment, about which we are not going to speculate at this point, as a result of planned CapEx less than depreciation, which is just mentioned, favorable working capital aspects of our businesses, and some unusual tax benefits we expect next year to realize related to the previously completed EPI sale, and certain of the internal restructuring steps in connection with the spin-offs, we expect cash flow next year to exceed OIBA.

Note, I am referring here to free cash flow as we’ve always defined it plus these unusual tax flows, so some of which may technically hit our free cash flow definition – may not technically hit our free cash flow definition, but obviously represent real or expected inflows, nonetheless. Obviously, our GAAP cash flow all-in will be affected by these items plus other items less forecastable at the current time, including, but not limited to, net M&A activity, any buybacks, et cetera.

With that, operator, please let’s go to questions.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from Justin Post with Merrill Lynch. Your line is open.

Justin Post – Merrill Lynch

Great, thank you. I guess the first thing is, as you – as we through the Media & Advertising disclosure that you gave, you said Ask U.S. queries were down and you are not getting the nice Google benefit this year, but just want to kind of understand how you are going to grow the Ask business next year, what’s your thoughts on marketing, tuck-in acquisitions, or just getting the core user base to search more. And then if you can give us any disclosure on how October has started relative to the third quarter given the economic uncertainty.

Barry Diller

Well, Tom, you want to talk about October and then I’ll talk about what the – our strategies are for ’09.

Tom McInerney

Sure, and Justin I am going to broaden it, you probably intended this anyway, but let me talk about the businesses just as best we at this time. In these types of businesses, early-stage Internet businesses with all of the dynamic changes going on, it’s a little bit hard to get a handle on kind of economic impact. Right now, so all we can do is kind of tell you what we see right now. Right now, I kind of break it down three ways. I think in the kind of the Citysearch and Match businesses roughly representing a third of our revenue, we are seeing no discernible impact. One would expect you might see in local advertising at some point. We are not seeing that so far, which is a good thing. In the ServiceMagic business, which is another 10% of our revenue, you need the higher percentage of our profits, there is some discernible impact, so the growth rates are off a little bit from what they’ve been and you see the strong numbers in Q3, but still very strong growth year-over-year. And I know we get the question and a lot of people are wondering can that business continue to grow. Obviously, again, anything in the future is speculative, but right now we are still getting very good growth, which is just a testament to the kind of secular forces underneath that.

On the Search side, roughly half our business we are seeing impact and the trends have not been good over the last 30 to 60 days. In some of properties it’s on the query side, particularly on commercially oriented queries. In general, there has been monetization weakness, usually manifesting itself in CPC declines, which have been a wind at our back all year, even aside from the impact of the Google contract. And it’s very hard right now to pin down the magnitude of it, what it means going forward, because obviously a lot of product change in lot of things we are doing. So how it all rolls up and what this means, it’s hard to know, but the trends have not been good, I’d say over the last, again, 30 to 60 days on some of the query pockets and then some of the monetization.

Barry Diller

Yes I think it’s – we don’t know. There is got – there are some effects we think so most of these effects we think are the general broad economy. Whether people are generally querying less in commercial areas, whether keywords are dropping in price to some degree, which is – certainly could be expected, certainly in the areas that have been particularly affected by the economy.

But let me talk a bit about what we are going to do next year. It’s a large group of efforts, it’s not one effort. We do not think that what we are going to do is to frontally, let’s say, attack Google, and spend a great deal of money marketing in that regard. We do not think that’s a sensible strategy. We do think that we – given that the new site that we have and given that we think we’ve now set a level playing field that where– we can more and more tell our audiences that we really are the best for getting specific answers to things, that we think that that will have, over a period of time, a natural effect in increasing retention and frequency. That’s for Ask.com itself. But what we are also doing, as you can see, with our acquisition of Dictionary.com, with our really foot-to-the-floor development of verticals of all kinds, the result of which we believe is they will create traffic of their own, that traffic of their own will inure to Ask.com in a couple of ways. Well, first of all, they of course will add queries to the pile. Second thing it will do is get people to experience the new Ask and get them to experience it without having to pay for it, without having to acquire those consumers either through general marketing or search engine marketing. We are also increasing the development of our toolbar businesses, increasing the development of anything in every place where we can, so to speak, indirectly meaning get queries for services that we offer, the natural result of which is that they add queries to Ask.com and they also get people into the Ask.com experience. We are going to hit that from as many different sides as we can. We’ve already proven in our Dictionary.com, which we bought rationally, and which from the first hour of the first day has not only exceeded every projection we had in terms of the number of queries that it would produce, but has also, in addition to that, because of what we’ve done to the site itself, it’s also brought in close to, I think, 700,000 or 800,000 specific additional queries a day to Ask.com’s network. And then it has the residual benefit of getting people experience of this site. So, for us it’s going to be, you can call it a thousand points of light, or hundred points of light or a hundred different ways to cut the skin. But that really is our strategy for growing Ask every month that we go.

Justin Post – Merrill Lynch

Right, thank you.

Operator

Our next question comes from the line of Jeetil Patel. Your line is open.

Jeetil Patel – Deutsche Bank Securities

Thanks. Hey guys, three questions. First of all, you highlighted Local, Search, and subscriptions, one of the things that you didn’t do on previous IAC was to integrate some of the acquisitions or businesses in closely. Are you looking at a more cohesive strategy this time around those three areas, especially since Local and Search have some overlap and obviously subscriptions and ad revenue have some overlap, and I would assume subscriptions and playing that off of Search would make a lot of sense.

And then second question, if you look at your Emerging Business segment, it’s getting to be fairly significant, just trying to understand what’s the plan for all these different smaller business lines there, when do you say, you want out of certain businesses because they are losing too much money. I guess, just some thoughts on the Emerging Businesses and then I have a last question follow-up.

Barry Diller

First question deals with the integration of our sites or the integration of our businesses. The truth is what we are doing is obviously given now we have so much more focus, given the nature of our business versus the nature of the business when we were in all of these other sectors, ticketing and home shopping, et cetera, so we have greater focus. That – what that does is make the integration within each of these areas much more fulsome. It makes the ability to follow best practices functionally much tighter. As it relates to relating Local and Search and Match, as I take it with the direction of your question, there are some touch points. But in effect, they are really separate worlds. Of course, our Citysearch business and our ServiceMagic business you could call broadly Search businesses, because they all deal with people wanting to find an activity, et cetera, but in terms of the way the function, the Local world, which is one we’ve been in probably longer than anyone else and we are – and everybody else has basically gone, we are still standing, and we are now standing in a place where linking advertisers, of which we have more I think than anyone else has other than the historical yellow books – yellow pages, but linking advertisers to audience has now become an absolutely efficient circle of commerce. Dealing with local advertisers is completely different than the AdWords business, Search business as we know it on a, let’s call, global search basis. So, I don’t think there is that much relationship between the two.

You have anything else to add on that, Tom, or anyone else in this room?

Tom McInerney

No, I think you addressed well, which is within Search, within Local, there is – they are very cohesive calls [ph] and across they are less so.

Barry Diller

And certainly Match doesn’t have anything to do with any of them in terms of business organization or efficiencies. As it relates to Emerging Businesses, we don’t have any specifically very large investments here and there are no businesses that we have in the emerging sector that are, let’s call it, big carry losses. We are – they are not very big investments there. Nevertheless, we do have a number of – all of them are startups of one kind or the other. It is an area that we are not going to particularly emphasize in the future as we did in the past. We think that’s a bit de-focusing. What we are going to do is we are certainly going to – when a really great idea comes in – we are certainly going to – we have the funds, obviously, and it doesn’t – they are particularly capital intensive – we will pursue it. But it’s not going to be an area where we are going to operate our business on the basis that emerging businesses are the tomorrow of the Company. We don’t really think that’s probably true. So, I think you’ll probably see somewhat less activity in emerging businesses or certainly less things that are added to it. Some of the things inside Emerging Businesses, we are going to shut down, close out, sell of, et cetera. We have already made that decision. We will be doing that in the next month. But other than that, that’s about I think all I could say, generically about Emerging Businesses. You said, you had a follow-up?

Jeetil Patel – Deutsche Bank Securities

Yes. You know I think there has been a lot of talk obviously of AOL, Yahoo combining and then spin out search to Microsoft, and Microsoft sitting here on the outside looking on search. I guess, would you ever look at parting with the Search business as broadly that’s under your control, to Microsoft given that you are a fairly interesting and strategic piece of the industry right now?

Barry Diller

Well, we are always open to anybody’s interest and anybody’s discussion. We have no desire, though, to sell off our Search business. We think that we’ve got a good position, a good strategy. It can take pretty good long time to develop it, but as you heard before, we are developing it from many different points of sale – and we think we can make progress. But, for sure nobody has made us an offer but as I say I really wouldn’t contemplate our being interesting in selling it. Next question please.

Operator

Our next question comes from the line of Mark Mahaney with Citi. Your line is open.

Mark Mahaney – Citigroup

Thank you. I wanted to ask two questions. First, in terms of just the margins at the different segments, is there anything one-time-ish in the margins, for example, a year ago I think you had talked about pushing some marketing expenses for Match out a quarter that contributed to high margins. Was there anything like that this quarter either dilutive to margins or I guess accretive to margins?

And secondly, could you help us think through little bit more the Search query growth and how to think about it going forwards? Marketing is one of the levers here but organically it seems like especially for your – just for Dictionary.com queries declined year-over-year for Ask. How much of that – if you look at the mix, the core user base and the non-core user base, is there anything in particular, that gives you confidence that you’ll get back to – that you could get to double digit – low double-digit growth in queries for Ask.com going forwards? Thank you.

Tom McInerney

Mark, let me start with the first. There was nothing unusual, so there were no big kind of call outs, benefits or the like, reversals, things like that in the margins. I do think Q3 is a pretty robust margin quarter for us given the natural timing of marketing spend. So, for example Match will spend more in Q4. A couple of our other businesses. So I think that the scale and nature of some of these businesses, I would not get into that the game of looking at kind of sequential margin improvement, we are not at that stage either in scale or anything else. We are looking for sequential margin improvement across all of these businesses, so I think – I take Q3 as it’s indicative of the margin potential of these businesses when conditions are right. That’s not to say that we grow ever more off of there.

Barry Diller

On – sorry, you are going on, Tom?

Tom McInerney

Either way.

Barry Diller

Well, then I am not going to interrupt you, so go.

Tom McInerney

You know, Mark, on the query trends, I mean, first of all, just one thing, which is one of the things we’ve learned being in this business across all of our Search properties over three years is it’s very easy to drive queries doing a variety of different things, distribution and otherwise. And the key thing is to get queries obviously from the right people at the right time that ultimately turn into revenue. So, in all of our Search businesses we’ve seen query trends all over the place. That doesn’t always equate directly to the kind of business results you want.

Within Ask, specifically, as we have completely pulled out of certain marketing activities, certainly we have been online, we’ve pulled back on other marketing activities and as we were focused over the course of this year on kind of rebuilding that product that launched in early October, we certainly did not – we are not as aggressive as I think we could in attracting those occasional infrequent users that are a big piece of the business or a big piece of any business. And so what we have seen when you kind of pull apart the data is the core group, the people that are using it multiple times per month are still with us, they are still growing, they like the product, et cetera. And we have seen some attrition in queries, which just look like the underlying usage patterns in that more occasional group. And what we need to do is build off of the – the product that we launched and build off of the marketing side and as we look at the growth of the business, we see the same statistics as everybody else does. So, we certainly believe in our long-term ability to grow that, but it’s not going to be a straight line and it’s not – you can't point to this quarter or that quarter or exactly when it’s going to happen.

Barry Diller

Yes, look, one year ago, we bought, we paid almost $100 million. We bought a ton of queries. As Tom said, it’s not hard to do. Our problem in doing it – in doing that was that we lost them soon after we bought them because we think we didn’t have the optimum product. Now, the strategy this year is not going to be – next year, it’s not going to be to quote by queries. It does not matter whether queries to us come from Dictionary.com, from our vertical – some of our vertical search sites like our embryonic new RushmoreDrive or through all the – or through two of ours, where queries have grown enormously or through distribution deals or through anything. Again, we are going to not approach Google – or anybody else, but let’s just say Google – in a frontal way. We are going to do it all around the sides where we think virility will help us in the key, key area, which is how many do we retain, how many users do we retain, and what their frequency of search is. Those are the two things that are important to us and we are going to go at it from all sorts of points of sales.

Mark Mahaney – Citigroup

Thank you, Barry. Thank you, Tom.

Barry Diller

Next question please.

Operator

Our next question comes from the line of Jennifer Watson with Goldman Sachs. Your line is open.

Jennifer Watson – Goldman Sachs

Great, thank you. We were surprised to see the sequential increase in the affiliate or the network revenue associated with Media & Advertising. Can you discuss a little bit the difference in your new network strategy versus the strategy you guys carried out previously and if we should expect this line to continue to be an increasing contributor to the overall Media & Ad segment?

Tom McInerney

First of all, Jennifer, it’s still – obviously, we’ve seen big shifts year-over-year and so we now have a business that’s substantially as you see from the release, substantially is tilted towards the proprietary side. I think the sequential movement you are pointing to is a couple of percentage points. That’s really just a kind of a few million dollars. So there is nothing dramatic going on here. The network business is – are in multiple directions. Certainly we are in our own sponsors listings product now Ask sponsored listings, which is doing quite well signing up third-party advertisers well over 100,000, as well as third-party publishers. As Barry said, we have a variety of distribution businesses on the toolbar side. And the business that we got out of was something that was less strategic to us longer term, which is why we are happy to do that as part of the revamped Google arrangement. So, we have good network businesses. They are growing and a mix shift sequentially as that of a couple of points is really again just a few million dollars. We have a big proprietary business now, which we like.

Barry Diller

You know, I do think it’s important for you all to realize that we are – again, and we are hitting this several different ways – but we are not just in the Ask.com business. Our Ask sponsored listings, which is – it’s standalone sponsored listing – which over the last couple of years has grown enormously. What are the statistics, shall we break the statistics out on that, Tom?

Tom McInerney

We don’t financially, but it’s a very nice profit driver to us with very, very strong double-digit profit growth. As I said, I think it’s 160,000 advertisers, a very, very large number of queries and publishers and it’s a very attractive business, as you–

Barry Diller

Yes, I mean look that is the entire, shall we say, revenue stream of Google, the Ask sponsored – the Google sponsored listing business. We think we are going to be – I think we are on the way to building up a significant business in this area without an enormous amount of capital that’s been applied against it, but simply because advertisers and publishers like the concept of other alternative systems where the service level is –- and the service requirements and the service level and the service benefits are pretty high. And when you think of – when you look at the IAC Company, you should think of us being in these multiple areas around Search, not just simply having a search engine.

Next question please.

Operator

Our next question comes from the line of Brian Pitz from Banc of America Securities. Your line is open.

Kaizad Khushru Gotla – Banc of America Securities

Hi, thank you. This is Kaizad Khushru Gotla in for Brian Pitz. Just one question please. Could you talk about the price sensitivity of a mass subscriber? I was wondering how much room do you have to raise prices in the current economic environment.

Tom McInerney

Yes, we–

Barry Diller

Go ahead, Tom.

Tom McInerney

Yes, I don’t think price increase are a big piece of the strategy at this point. It’s always a very tactical thing. Obviously, we can price differentially by market. We are 30% international business now. In certain international markets, prices are still under where they may have the potential to be. Domestically again we do it by region. We test everything. And so what we report and what you see is kind of the weighted average of all of that. Obviously, that was a nice driver of top line growth for the last couple of years. Certainly, in this economic climate, it’s not something we are counting on. We will focus on growing subs and profits.

Barry Diller

Thanks. Next question please.

Operator

Our next question comes from the line of Doug Anmuth from Barclays. Your line is open.

Douglas Anmuth – Barclays Capital

Thanks. A couple of different questions. First, I just wanted to follow-up on the network business. Should we be thinking about that business as having stabilized and sort of based out now in terms of removing some of the lower quality partners there and you are now going to be on a more normalized growth rate or trajectory, whatever that is. And can you help us break out a little bit better in the network between Ask sponsored listings, Google re-syndication and then also toolbar related revenues, if you could give us a sense of the sort of the ranges, percentage wise between those three.

And then on ServiceMagic, can you talk about the recent acquisition in Europe and what your view is there in terms of how attractive the market is over there for this type of business? And I have one more bigger picture question as well in advertising. Thanks

Tom McInerney

Okay. Let me see if I get all these, but first of all on the kind of the transition from – as a result of the contract, basically we have one more quarter, which will impact our results because obviously the new contract went into effect on Jan 1 and so in Q4 we will still see in our overall Media & Advertising reported unit the effect of phasing out of those businesses that we de-emphasized as part of the new contract. That said, most of that has taken effect already. So if you think about it sequentially or kind of as of now, as we got through June, most of what’s needed to phase out, there is still a little bit that will happen, but I hope and expect it will be offset by growth on the other side. As that goes away, I don’t – and we are not going to provide specifics, but I will say that Ask sponsored listings business and the toolbar distribution businesses are each very meaningful components of that network business. No one dominates the other.

Barry Diller

Did you say you had a follow-up?

Douglas Anmuth – Barclays Capital

I do.

Barry Diller

What is it?

Douglas Anmuth – Barclays Capital

Would you like that one. I was hoping that you could talk – give your opinion on whether the current downturn, whether you think it’s actually accelerating the share shift of ad dollars online as marketers are looking for more efficient measurable media or do you think it’s hampering it as they hold back on budgets and stick with what’s tried and true? Thanks.

Barry Diller

No, I don’t think there is anyway that you are going to stop the transition from let’s call it offline media to the much more trackable, much more performance based online media. I do think you probably have a lot of people somewhat frozen in their tracks right now. And I think that the – again, these issues of the economy and of what’s going to happen to advertising over the next year or so, are just unknown really. At this moment though, the only thing we can say is that if you all look at it and look at it either objectively or you look at it inside with the figures, it’s going to be affected. But I don’t think it’s in the relationship between the percentage that’s going online and offline.

Tom McInerney

Yes, just one fact I mean you probably all know this but just to hit it. At Pronto, for example, which I think is our biggest buyer of search engine marketing, they are adjusting their bidding multiple times a day. So this is a very automated, very dynamic situation. You couldn’t have something more different than setting offline ad budgets either in an upfront market or a sport market, three, six months out. And so the – a lot of this will – it’s not by – in a sense by conscious decision. It’s a bit by formula. And ultimately it’s going to be driven by consumer behavior. If consumers continue spending in certain categories the sponsored listings business and the display business will remain strong in those categories. In other cases, it may hit. And this will play out. And I think it’s going to be very fluid because again you can adjust these things pretty instantly and I think we are going to see that.

Barry Diller

Next question please.

Operator

Our next question comes from the line of Alan Gould with Natixis. Your line is open.

Alan Gould – Natixis Bleichroeder

Yes, thank you. A question for Mr. Diller on capital. You said that you are not going to spend a percentage of your cash on acquisitions, and you said you are going to be opportunistic. I just want to get your sense of opportunistic. The stock was recently under two times EBITDA. Dr. Malone [ph] called it one of the cheapest stocks he has ever seen. Is it just too tempting to have $1.5 billion of cash and declining valuations to pull the trigger and buy stock now? I am just wondering how you define opportunistic.

Barry Diller

Okay, well first of all what I said was not a great a percentage, I said if not a greater percentage. I don’t think it’s going to be more than 50%. I can really predict it. That’s what we think at the moment. Obviously, we are opportunistic in all of these areas relative to capital. We are very conservative, obviously. We’ve always been conservative. That’s why I think we are in an extremely good position we are in now given all of the external life that swirls around us and all of its unknowns. So the opportunistic part though is both opportunistic in terms of acquisitions and we do believe that acquisitions are going to be – that the purchase price of things is going to come down. That is obvious. It’s going to happen. It has happened to some degree. But we do not see any individual large things that are on the horizon. We do see fill-insurance. We do see opportunities in areas where we can, so to speak, purchase sites that have traffic and that can help our strategy relative to Ask, as I talked about earlier. So, that’s our attitude about acquisitions, and we are going to continue to be very disciplined in that.

As it relates to buyback of stock, there is nothing really we can say about it, specifically. The only thing we can do is say that we are certainly not going to sit on this cash, meaning just sit, so to speak, square (inaudible) on the cash, for some long period of time. We do think it’s more healthy now to have it than to not have it. But one way or the other, as I say, I don’t think it’s all going to be in acquisitions, we will repatriate it to our shareholders, one way or the other.

Alan Gould – Natixis Bleichroeder

I can follow-up. Last quarter you said that the Silicon Valley is still hasn’t adjusted to new valuations. You just said they are coming down a little, but do you still think there is a long way for them to come down as they adjust to the current realities?

Barry Diller

I think there is a very long way to come down and if I look all these valuations are made of in a room between like-minded people that have utterly nothing to do with the actual value of the business or anybody actually valuing it. It’s a closed room where one guy says to the other, okay, next time let’s step it up by 40% or 80%, let’ – we have no revenue but let’s say we are with $100 million. Why not, you can buy in for this amount. That’s what we’ll call it at. So, it’s all a made-up process and it’s going to face current reality and I think it is beginning to do it. I think it’s going to increasingly do it, which I do think is going to provide us particularly with opportunity.

Alan Gould – Natixis Bleichroeder

Thank you.

Tom McInerney

And let’s go back to – I think missed Doug’s question on ServiceMagic international which (inaudible) because that’s –

Barry Diller

I am sorry, go ahead, Tom.

Tom McInerney

– nice development. I just realized we skipped it. What we did there, Doug, was we bought a company as well as some other assets, ended up with the majority control of a company called Koenig [ph]. It operates in the France and the U.K. It’s got a great entrepreneurial founder, CEO who we are excited to align with. And the ServiceMagic co-founders will be working very closely with him to look to essentially replicate in Europe what we did in the U.S. We think all of the dynamics that has made this a great business in the U.S. are present there as well. The business had a little bit of revenue, not much, and it’s basically operating at break-even and the hope and goal is to expand it first in those markets as well obviously pan-Europe over time. Right now, we don’t expect it to be a net user of significant amounts of capital, but we’ll evaluate those plans as we go. So, it’s very early stages, but we like what we bought. We’ve go the right people that know how to build that business focused in terms of the U.S. team. And we think it should be a great international opportunity for us longer term.

Barry Diller

And let’s face it ServiceMagic is one of our great success stories. It was –it’s impossible thing to organize, but it was perfectly organized and executed over the last years. It’s now become a significant business. We are all of the belief it can become a very large business all over the world. We are certainly going to go after it. Next question.

Operator

Our next question comes from the line of Ross Sandler with RBC. Your line is open.

Ross Sandler – RBC Capital Markets

Thanks. I just got a couple of questions, first on the Media & Advertising segments, what do you guys is a long term margin goal for Media & Advertising and outside of the mix shift from network to higher margin proprietary revenue is there anything else that’s like low-hanging fruit that you can enact to drive that margin up? And I’ve got a couple of follow-ups.

Tom McInerney

Yes, Ross, it’s on the margin question again, it’s – we are in a $11 billion market, growing very rapidly. As Barry said, we are coming at this from all angles and it’s really impossible to say because it will very much depend on what the composition of that growth is, how much comes from Ask.com versus the other toolbar brands versus the other initiatives Barry outlined, et cetera. One could construct scenarios where you have a very attractive, growing, profitable cash flow, all the good things in life, business over multiple year that operate at different margin rates. It’s just impossible no all I can tell you is we bought the business at 20%, we invested, it went down. It’s come back up. There is nothing in the business or the collection of businesses really that we would say longer terms it can't be an attractive margin business for us. We’ve learned to operate quite leanly. You heard the capital numbers I mentioned earlier that we see coming down. And so we think it can have attractive margins. But what that number is and what that composition is, will very much be left to play out.

Barry Diller

You have a follow-up??

Ross Sandler – RBC Capital Markets

Yes, just two quick follow-ups. So, prior question about Ask query growth, I just wanted to – for all the queries whether it’s on Ask or on Ask toolbars or (inaudible) toolbars, for all the queries that are associated with Google revenue, that Ask or that IAC receives, what would be the aggregate kind of query volume growth across all those different businesses and given the agreement anniversaries in 1Q09, what kind of growth rate do you expect to see across all the Google monetized businesses next year?

And then the last question, just a housekeeping, display advertising has been one of weaker areas in the marketplace. Can you remind us of the overall exposure across IAC to display? Thanks

Barry Diller

I will do the last. It’s very small. Display advertising is 4% of our business, so no to worry about display. Tom, you want to talk about the –

Tom McInerney

Yes, on the query side, we saw – notwithstanding those comments that we disclosed in terms of specific (inaudible) on our proprietary businesses, we saw double-digit year-over-year query increases. So again we have a very balanced business in a number of areas and there was query growth as well in the non-proprietary side. So–

Barry Diller

Okay. Thank you. Next question.

Operator

Our next question comes from the line of Jeffrey Lindsay with Sanford Bernstein. Your line is open.

Jeffrey Lindsay – Sanford Bernstein

Thank you. Wanted to ask, if you are rationalizing your Emerging Business portfolio as seems to be the case, and there are fairly a tactic set of Web properties, a mixture of commerce and content, what is the theme that connects the pieces that you want to keep? So, what would be the strategy that you are hoping to achieve with these Emerging Businesses?

And then the follow-up is, would you have an opportunity to really rationalize these businesses significantly especially technologically?

Barry Diller

Not so sure I understand the latter part, but I will thank you the first part, which is – you know look there is – there has been no great theme other than that we have been open to stimulated by individual ideas and start Internet businesses across the spectrum of the Internet. And we’ve had certainly things that have been very successful. Pronto was a very good example of a small investment that’s going to develop into a vary valuable business. We have some other examples. We have examples where we started something and shut it down. What all I am saying there is no – the rationalization for it is frankly to concentrate less on it and focus the majority, not all, but the majority of our time, resources, et cetera on the businesses that we have. You know if we decide there is another business sector for us to get into we’ll tell you all about it and we’ll tell you the capital we are applying against it. But to have a large number of eclectic small startup businesses is not our – anything to be called our main majority strategy. And we do want to thin it out, meaning we want to prune it, which is, we think the sensible to do. So there will be less of them. And I think there will be somewhat less focus on starting new ones although we certainly are open to any good idea that’s coming down the pike. I don’t think it’s a – what I am really saying in aggregate is it’s not a material part of our either business structure of our – of capital we devote to it or time we devote it. And it’s going to be somewhat less.

As it relates to the last part – technologic, I am sorry, I just didn’t understand the question.

Jeffrey Lindsay – Sanford Bernstein

Just in that case, is there, you know, (inaudible) say that, that you could really consolidate them and –

Barry Diller

No.

Jeffrey Lindsay – Sanford Bernstein

Combine them technologically and combine the management teams, for example.

Barry Diller

We do consolidate an awful lot of technology and services for these Emerging Businesses. We don’t staff them. Obviously startups, we have the ability to render group services so that we are –we keep our cost down. But there is no grouping together of these businesses. They are all essentially one-shot ideas.

Jeffrey Lindsay – Sanford Bernstein

Thank you.

Barry Diller

You are welcome. Next question please.

Operator

Our next question comes from the line of Imran Khan with JPMorgan. Your line is open.

Lisa – JPMorgan

Hi, this is Lisa [ph] in for Imran Khan. Could you please discuss the international exposure – relative international exposure of each segment and provide a constant currency adjusted growth rate? And also could you discuss your hedging strategy?

Barry Diller

Yes, I think that this one I am going to turn over to McInerney.

Tom McInerney

I was waiting.

Barry Diller

Particularly in the mark-to-market currency adjustments.

Tom McInerney

First of all in the quarter given the strength of the dollar for the first time in a while that’s hurt us marginally, so it’s a 30 basis point negative FX impact to our top line. International is about 19% of our total business and it’s meaningful – but along the lines of those percentages and it matches 30% of their business and then the balance of the business is in the Media & Advertising side. These are profitable businesses to us and so if the dollar is fortunate or unfortunate enough depending on your perspective, to continue to strengthen, you will see that come through, but that’s the rough magnitude. We do no FX hedging.

Barry Diller

And we think we’ll take one more question.

Operator

Our last question comes from the line of Scott Kessler from Standard & Poor's. Your line is open.

Scott Kessler – Standard & Poor's

Hi, thanks a lot. Two quick questions. One I guess was kind of touched upon before but clearly because of some of the efforts you undertook earlier this year there is now a pretty significant disparity in terms of your proprietary and network revenue mix pertaining to Ask. I am wondering to what extent you expect kind of this break out two-thirds and one-thirds something along those lines, to be consistent going forward?

The second question I have is about one of the acquisitions you have made recently, which is Dictionary.com. I am wondering if you could talk about some of the things that you guys have done and maybe some of your plans for the property into the future. Thanks a lot.

Barry Diller

I spoke earlier about Dictionary.com, I am happy to give you some more detail. As far as the first part of your question, which dealt with –

Scott Kessler – Standard & Poor's

Is the mix of proprietary and network –

Barry Diller

Can you really – I don’t think we can make any predictions about this. I think that the different pieces of this are going to accelerate or (inaudible) relationship of growth as to each other and –

Tom McInerney

I think you will see it jump around just given the nature of not huge numbers in some respects and so I do expect to see changes but there is not one driving force at this point that I can say this is how it’s going to change and (inaudible) what period of time. On Dictionary, I had a couple of more details. I mean we – on the property we have seen greater, as Barry alluded to, greater organic traffic than we even expected to. We’ve seen very effective monetization of their display inventory as well s the aforementioned driving of queries to Ask. And we are still in the process of integrating the products from a look-and-feel perspective so Dictionary will remain a separate product, but over time it will take on certain elements –

Barry Diller

Majority–

Tom McInerney

–change it has it will – that will continue. So really the thesis behind the deal, which was that it helped Ask fundamental positioning, presented a large point of organic traffic that we could monetize better on day one, et cetera, et cetera, have all come thorough.

Barry Diller

Yes, I mean if you – the most significant thing if you look at the site itself is the change that was made was you will see now in addition to of course the definition you requested, you see on the left side, or left rail so to speak of the page, you see a number of other related topics. That’s what’s delivering this bounce to Ask.com in terms of direct queries to Ask and getting people familiar with the Ask product itself.

Well thank you all very much. I much more enjoy, I hope you do, the less than formal remarks, and the dialog, hopefully, nature of this. And hopefully in ensuing conference calls we’ll get off of narrow quarterly issues and onto really the issues that are the topics of our day, which is how to build from the assets that we have and capital base that we have a really and enduring company and that’s certainly what we are about. And that does not relate, again I emphasize, to quarters, it relates to a not an everlastingly long-term, but a good and balanced and I think disciplined process to build a company that is just going to have increasing value. So, thank you all for coming today to the call, and we’ll see you again some time next year, I guess in February of next year.

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