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Executives

Andrew Greenebaum – Investor Relations

Bob Brisco – Chief Executive Officer

Scott Friedman - Chief Financial Officer

Analysts

Christa Quarles - Thomas Weisel Partners

[Unidentified Analyst] - Jefferies & Co.

Yun Kim - Pacific Growth Equities

[Rod Shanlon] - RBC Capital Markets

Internet Brands, Inc. (INET) Q3 2008 Earnings Call October 28, 2008 4:30 PM ET

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Internet Brands third quarter 2008 earnings release conference call. (Operator Instructions)

I'd now like to turn the conference over to Andrew Greenebaum. Please go ahead.

Andrew Greenebaum

Thank you. Good afternoon, ladies and gentlemen, and welcome to Internet Brands third quarter [inaudible] earnings call.

By now everyone should have access to the third quarter fiscal 2008 earnings release which went out today at approximately 4:00 p.m. Eastern Time. If you've not received the release it's available on the Investor Relations portion of Internet Brands website at www.InternetBrands.com by clicking on the Investor tab. This call is being webcast and it is available for replay.

Before we begin today we'd like to remind everyone that the prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance; therefore undue reliance should not be placed on them. We refer all of you to the risk factors contained in Internet Brands recent Form 10-K for the year ended December 31, 2007 filed with the Securities and Exchange Commission for a more detailed discussion of factors that could cause actual results to differ materially as well as second quarter results filed on Form 10-Q.

Internet Brands assumes no obligation to revise any forward-looking projection that may be made in today's release or call.

With that, I'd like to turn the call over to Bob Brisco, CEO.

Bob Brisco

Thanks, Andrew. Good afternoon, everyone.

With me today is our new Chief Financial Officer, Scott Friedman. Scott joined us in September. He was previously with World Poker Tour, Sony Pictures and the Walt Disney Company. Despite that pedigree, we believe he's seen the light about where the growth is and is joining us on the exciting side of the future of new media. Scott's been ramping up quickly and you'll hear from him in just a bit.

In the third quarter Internet Brands had more record setting levels of both revenue and EBITDA. More importantly, as we look ahead to both year end and the next year, we remain confident in our ability to profitability grow our business. For the third quarter revenues grew 10% year-over-year and EBITDA by 19%, both records.

Looking ahead, you should expect to see continued margin expansion from us as our business shifts to higher margin advertising product lines. With early visibility into the fourth quarter, we expect full year revenue will be roughly $105 million and EBITDA will be approximately $35 million, or a bit higher.

Next year you should expect significant continued revenue growth and, as I said, strong margin expansion for reasons we will explain later on this call, we're confident in our plans moving ahead.

I took you through this guidance right at the start of our call for a reason. In a few weeks it'll be exactly a year since I met many of you as part of our IPO road show. Our financial performance over this year is exactly as we laid out. We have now reported results for four quarters since the IPO and we continue to deliver the results we committed to.

Looking back, the general economy has obviously been full of surprises that we could not anticipate. Despite that we've performed very well. We've done this by diversifying our revenue lines, budgeting carefully and executing with passion. Next year you can expect more of the same from us - strong execution and profitable growth.

Now I will return to some of the details about the quarter. I'll start with our Consumer Internet division. Consumer Internet revenues for the quarter increased by 9% to $18.4 million.

Our mix of revenues continues to shift. In the tough economy, our auto dealer revenue has slowed compared to prior years. This has been the only significant portion of our revenues that has not grown - the only one. We expected this year to be difficult for dealers as we went into the year and it turns out it has been. To dimensionalize our current exposure to the auto dealer segment, our revenue run rate from dealers is in the mid teens as a percent of total company revenue. From an EBITDA perspective our exposure is much less than that.

Looking ahead in our guidance, we budgeted for further declines in this piece of our business given the economy overall, so its impact has become quite modest.

On the other hand, we're seeing solid to strong growth of advertising revenues in all other areas, both on our existing websites and in our recently acquired sites. This growth is obviously not the result of a booming economy, but three other important factors:

First, a vast majority of our advertising is performance based, not branded display advertising sold on a pure CPM basis.

Second, diversification - not only are we diversified over many sectors, we are diversified within sectors. For example, our travel revenues don't predominantly come from branded hotel or airline companies, but from thousands and thousands of more recession proof local travel establishments who actually do well as people travel closer to home, and they pay advertising based on results.

Third and most importantly, a substantial majority of our advertising inventory is dramatically under monetized, meaning at the time of acquisition by Internet Brands these sites carried low prices, suffered from low sellout rates, and were not yield optimized. This last point is a big one and good news for us. Our sales and marketing teams continue to make strong progress in increasing the monetization of our sites and there's still much more for us to capture.

To date we've only captured a relatively small portion of the total potential advertising opportunity on the inventory that we own and control. While industry Internet forecasts for ad revenue growth in 2009 are in the low to mid teens, we believe many of our acquired websites could perform much better than that.

Now in terms of website audience and traffic, our numbers continue to climb. Monthly unique visitors have grown to approximately 39 million, a 45% increase year-over-year, the result of both acquisitions and organic growth. Our monthly paid views have increased to approximately 639 million, representing 110% growth year-over-year.

We're happy with the consumer Internet sites from both a traffic and an advertising perspective. Now I want to briefly turn to our Licensing division, which is also performing well. Revenues increased 11% to $8.5 million, which is a year-over-year gain of 11%. Most of this increase was from winning new contracts in our Auto Data division. The other portion of that division, vBulletin, also had a very strong quarter.

Now I want to turn to our acquisitions program. During the quarter and subsequently, we acquired three principle websites, two in shopping and one in careers. I'm going to discuss the largest two of these in the call right now.

The largest is Ben's Bargains. Ben's Bargains is a leading discount shopping website. It features deals, coupons and discount shopping, and these areas are all surging in the slow economy. And Ben's, along with the other websites that we acquired this year in this segment, are performing very well.

The other large site was Groove Job. This site is one of the largest that's dedicated exclusively to part-time, seasonal, and hourly jobs. The site reflects our focus on alternative types of employment and job types that tend to suffer from chronic worker shortages even in economic downturns. This site's doing very well out of the gate with us as well.

I want to step back now and comment more broadly about our acquisition program. Although we have significant tightened valuation parameters in light of the stock market decline, we remain active. Prices are down for assets and they're down by a lot. This allows us to be choosier and to buy much more for our money.

We recently arranged for a $35 million credit facility with terrific terms should we need the money. It's unclear if and when we would need the facility, though it's very unlikely that we would draw upon it in the next few quarters.

Not including the facility, we closed the third quarter with more than $53 million in cash available, no debt and ongoing strong operating cash flow. In this market, we will be extra prudent with our cash, but we will selectively take advantage of the opportunities. We are currently seeing some growth assets available, with pre-tax rates of return of 40% or more.

Finally, since this is our last earnings call of the year, I want to finish my remarks by thanking our employees, our customers, and our investors for helping us get through this year in fine form. While we're not planning on any tailwind from the economy next year - in fact, probably to the contrary  there are so many ways we will continue to help our customers and to improve our business.

Now I'll turn you over and I want to introduce you to our new CFO, Scott Friedman.

Scott Friedman

Thanks, Bob.

Total revenues for the quarter increased 10% to $26.9 million from $24.5 million in the prior year period. This increase is comprised of a 9% increase from our Consumer Internet division and an 11% increase from our Licensing division.

Within our Consumer Internet division, our mix of revenues continues to shift. In this tough economy, our ecommerce revenues from auto dealers had been lower than prior year levels. Offsetting this has been strong growth in advertising revenues on both existing and acquired sites. The shift of revenue mix is good for EBITDA margins. EBITDA margins are expanding faster than revenue growth. I'll explain our margins more in a moment, but you can expect to see continued margin expansion in the quarters ahead.

Licensing division revenues increased in the third quarter as a result of new client contracts at our Auto Data division as well as continued organic growth from vBulletin.

Sequentially, total company revenues increased 6% from the second quarter. Revenues for the first nine months of 2008 increased 19% to $77.1 million from $65 million in the prior year period. This increase is comprised of a 13% increase in Consumer Internet revenues and a 33% increase in licensing revenues.

Net income attributable to common shareholders for the third quarter of 2008 was $2.6 million or $0.06 per diluted common share. Excluding a non-cash foreign currency translation loss of $1.2 million due to an extraordinary exchange rate movement in the quarter, net income would have been $3.8 million or $0.08 per share. Let me clarify that this is an entirely non-cash charge, the result of an intercompany loan between vBulletin and Internet Brands. Since approximately 90% of vBulletin's revenues are in dollars, this item does not create any cash or operating implications.

Adjusted EBITDA, which we define as earnings before investment income, income taxes, depreciation, amortization and excluding share-based compensation, increased 19% to $9.1 million in the third quarter of 2008 from $7.6 million in the same period last year. For the nine months ended September 30, 2008, adjusted EBITDA grew by 24% to $25.5 million from $20.5 million in the prior year period.

EBITDA margins in the quarter increased to 33.8%, an expansion from $30.6 million in the fourth quarter of 2007. Our EBITDA margins have increased sequentially throughout the year as a result of two factors - one, a shift of revenue mix from lower margin ecommerce revenues to higher margin advertising revenues, and two, continued efficiencies on our operating and technology platforms. We are confident that EBITDA margins will continue to expand in the quarters ahead for the same reasons.

Now turning to the balance sheet, we ended the third quarter of 2008 with $53.2 million in cash and short-term investments with no debt. During the third quarter we acquired four websites in the Consumer Internet segment for an aggregate purchase price of $10.7 million. For the nine months ended September 30, 2008, we acquired 25 websites for an aggregate purchase price of $59.9 million. Net cash provided by operating activities during the first nine months of 2008 was $23.3 million compared to $24.7 million in the prior year period.

In closing, I would like to add that I'm delighted to be a part of the Internet Brands team. I look forward to speaking with many of you in the investment community in the coming months. Internet Brands is on an amazing [inaudible] sites and [high driving] verticals, and I look forward to leveraging my financial experience to help grow and position the company for the future.

Now we are ready to take any questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Christa Quarles - Thomas Weisel Partners.

Christa Quarles - Thomas Weisel Partners

The first question I had was just on the revenue run rate that you characterized as it relates to your auto dealers. I was wondering if that's as of October, September, Q3, just kind of what time period that's referring to. And then if you could also characterize where that might have been about a year ago.

And then the second quarter I have is just on the incremental margins, so we're looking at 62%, I think, by my calculations, in the third quarter. Is that sort of at the upper bound of what we would expect as you think about the margin enhancement in the company?

Bob Brisco

On the revenue run rate from auto dealers, yes, that's the right way to think about it, as a kind of current snapshot, September/October timeframe. That's how we did that calculation. And that would have been, as you know, a bit higher last year. Scott's calculating it here, so we can give you some guidance on that in a moment.

Regarding the incremental margin expansion and flow through of incremental revenue, at 62% quarter-over-quarter, your question is is that sort of the theoretical upper limit, and I'd probably think about that - no, no, it could even go higher.

I think as a long-term metric, that's probably right, if you thought about it over the course of a year or two. In certain quarters, depending on the assets we buy, it can sometimes be higher than that or depending on the mix of revenues in the quarter. And obviously some quarters it can be lower. But I'd say that's probably a good, long-term average for many pieces of business. And some quarters could be a bit higher and some quarters a bit lower.

Christa Quarles - Thomas Weisel Partners

And I have just a follow up, I guess, on the acquisitions that you guys have completed. Obviously historically the lion's share of all the traffic that you get to your acquisitions is organic. A) I wanted to confirm that with the new acquisitions, but B) if you could give some broader characterization of how dependent on SEO they are versus some of the direct kind of community type-in traffic.

Bob Brisco

Let me go back. Scott did some calculations here, so we were guiding, on your earlier question about auto dealer revenue run rate, being in the mid-teens at the present snapshot. If you look back a year ago, that would have been - around 20% would be good guidance, so that you can see it's dropped as a percentage significantly year-over-year.

Now on your other question, yes, organic traffic. So of the five deals that we did in the quarter and subsequently, all of them follow the pattern of having almost entirely, meaning - call it 100% actually; I'm thinking through this set of five acquisitions. I don't believe there's even 1% that's nonorganic pay traffic. Those are 100% pure organic. So we are following pattern there.

In terms of the mix of the traffic, on that specific asset class I would guide you that it's more tilted towards direct to URL rather than SEO in proportion, that the direct traffic would be larger than the SEO on that specific set of assets. If you look at our entire portfolio, not just what we bought in the quarter but what we own with the 78 principal websites, the mix is more balanced. They're roughly the same in terms of - we're 98% organic traffic and that breaks down ever so slightly more direct to URL than SEO, but rather equal.

Interestingly, we love the organic traffic and that's branded - people are connecting with the brand and coming back. The SEO traffic is massively diversified. We've got more than 15 million search engine pages in the Google index, so it's massively long tail.

We haven't seen vulnerability of that SEO traffic as the Google algorithms have changed over time. In fact, it tends to benefit us because our sites are very deep, quality - very deep and high quality and focused so precisely on their niches, generally net-net across all of those index pages. We're a beneficiary of the algorithm as it's gotten updated because all of our quality signals are good in the eyes of Google.

And in fact, just to close this point off, we think a longer-term opportunity is a lot of those pages don't have the visibility that they ought to on Google. A lot of our user-generated content and community driven content is not in page formats that are friendly for the search engines, so we've been working on that in the course of over the summer and the fall, starting to update the websites, the 78 websites, one by one, and we're seeing some really dramatic increases in search traffic to those sites as they get better tuned up.

Operator

Your next question comes from [Unidentified Analyst] - Jefferies & Co.

Unidentified Analyst - Jefferies & Co.

So now that you're really diversified and, you know, with shopping and career as the additional verticals, what did you see over the quarter in terms of business outside of auto? Did you see more effect from the economic slowdown in certain verticals versus less somewhere else? We're just trying to see if you are able to sort of trend over the next few quarters and are able to see specific benefits of diversification.

Bob Brisco

What we're seeing across categories is strength and, as I mentioned, the only down piece are the auto dealers. We're seeing very sharp upturns, as you would expect in this kind of economic backdrop, in discount areas - shopping, coupons, offers, deals, that sort of thing. And then, if you look at the other categories that we compete in, we're seeing those hold up very well and showing nice growth rates.

What I would comment on, though, is a couple things. One, our rates historically have been very low in this long tail of sites that we bought that compete in the long tail. The rates are much lower than high-branded CPM. We've got ECPM or revenue per 1,000 page views that run on a lot of these sites down in the low to mid single digits as opposed to more mature websites that we've got where those figures can run in the $20, $30, $40, $50 revenue per thousand page view range. So I think we're the beneficiary in some ways of reallocation of dollars right now. We're the more efficient advertising vehicle.

What's a bit striking though - and this probably will seem obvious once I say it - is the mix of marketing methods you see in the advertisements. So, you know, if you looked across our 78 websites, it's very retail, very value focused in the messaging now, so advertisers are obviously paying attention to the consumer signals. So much of our advertising is performance based. One way or another, the vast majority of it is. People are tracking click-through rates and paying us on those or cost per action or even where we sell CPM, they're converting the CPM basis into cost per click or cost per action.

So they watch this carefully and again, you know, we're looking ahead to next year. I think this is getting to the last part of your question. We feel good about our visibility into 2009. Our advertising works for advertisers. They're able to track it and see what the results are. I think even in the big branded guys, advertisers like auto makers and such, they continue to shift their budgets towards what's working for them, even in the downturn.

So we feel like our forward visibility into 2009 is quite strong at this point. We feel good about how the year's shaping up at this point.

Unidentified Analyst - Jefferies & Co.

And just a quick follow up in terms of the acquisitions. How do you view your run rate in today's market? Obviously, the valuations have come down dramatically and it seems that you've become more selective, so let's assume sort of a $50 to $60 million a year run rate. Do you think that you will be able to maintain that moving forward? And, more importantly, with that sort of a run rate would you be able to grow revenues at, you know, 20% next year, for example?

Bob Brisco

[Sandeep], that's a very good question. The answers are, starting in reverse order, the answer is yes. So yes, we're going to be able to grow it at strong growth rates next year on less acquisition spending is our current belief based on pricing we've seen on, I'd say, not only this last quarter but also in Q2. So let me give you a bit of a fuller answer.

If you look, we've spent $60 million in acquisitions year-to-date. We did slow down in the second half; $50 million of that was in the first half and we were a little over $10 million in Q3. What you're seeing is we're able to buy better in this market. So more traffic, more revenue, and more EBITDA, probably most importantly, for the same investment dollar.

So yes, as we look into next year, we think prices are likely to stay diminished on assets, more like what we've been seeing over the last few months if not lower, and that really opens up opportunities for us. So either we will end up spending less on acquisitions next year than we might have previously thought, because we had been guiding about $20 million a quarter and, as you observed, we only did about $10-ish in Q3, or we'll be able to drive growth at even higher rates.

So one of the many nice things about our business model right now is there's a self-correcting aspect that we are able to take advantage of low asset prices in this market. Since we're still in the growth phase of building out our platform and the assets we put on it, we get lift, actually, from diminished asset prices.

So I hope I've responded. We're not sure which way it'll play out, but my general guidance will be we're going to continue to be acquisitive. We'll probably do roughly the same number of deals, but we'll do them at lower prices and get better values on that. So that economic equation should work in our favor in 2009.

Unidentified Analyst - Jefferies & Co.

And very quickly, just a little bit of color on what happened on the advertising side in terms of higher margins. What was the mix shift? Was it less display and more CPA type of things? What sort of changed the margins?

Bob Brisco

Oh, yes, no, Sandeep, good question. The mix is really that we lost some auto dealer revenue as this year's gone by. It still held up relatively well, better than the economy in total, but that is lower margin because it's one of the few areas of our business that we are not 100% organic traffic. We're still a majority organic traffic, but we supplement what we generate organically with primarily search engine marketing and some other marketing that we do.

So the incremental profit contribution on that piece of business is much lower than, really, all of our other advertising lines, which, as you know, all of the other lines have on the margin enormous flow through, 80% to 85% to the bottom line. So that's the mix shift that we were talking about.

Operator

(Operator Instructions) Your next question comes from Yun Kim - Pacific Growth Equities.

Yun Kim - Pacific Growth Equities

Just a follow up on the visibility question from the last caller. Are you at the same level of visibility right now as you were at this time versus last quarter in terms of next six to 12 months out?

Bob Brisco

I would say yes and no. Let me start in reverse order.

The no part is advertisers, I think, are being slightly more cautious on - I shouldn't say more cautious - we're seeing the upfront schedules be placed later this year than prior years by a month or two, and that's true basically across the board with media and certainly in the Internet sector.

But I'd say yes that we do have good visibility. The pieces that have already come in have come in favorably. So when we sort of, you know, do the actuarial calculation on looking ahead - and a lot of our business is renewal business that we have booked up to a year in advance - the combination of renewal rates and new commitments is running strong right now.

Yun Kim - Pacific Growth Equities

And then the second question is, with all the acquisitions you made this year, is the typical split among your revenue model, I think, CPM, CPC, [inaudible], CPA and even leads, has that split or breakout changed significantly since the beginning of the year and where do you see that breakout changing over the course of the next year?

Bob Brisco

That's a good question on the split. Driven by the auto dealer piece, our cost per lead business is a smaller percent than it was at the beginning of the year or this time last year. Our other pieces are growing in relative proportionality, I'd say, with CPA and CPC increasing the fastest and then I'd say CPM next fastest. We also have a large piece of the revenue that is on a subscriber basis. That's also doing well. And then, as I mentioned, the CPL piece is the only one that's at a decline, a diminishment, and that was about auto dealers and somewhat significant.

The rank order I'd give you is CPA, CPC first, CPM and subscriber second, and then CPL was the one that's been challenged.

Yun Kim - Pacific Growth Equities

Do any of those models right now make up more than 40% of your revenue?

Bob Brisco

No. If you put it in those five buckets, breaking apart CPA and CPC. I've historically guided that it's rather flat across those pieces, around 20% each, and you just make a little bit of adjustments on that. The CPL piece, which pretty closely aligns to the dealer revenue run rate that Christa asked about earlier, in the mid-teens, that's the way to think about that. And you can spread the 5 points that's come out of that to re-percentage to 100 relatively evenly across the others, with a bit more at the CPA and CPC.

Yun Kim - Pacific Growth Equities

And then, you know, with your plan to continue to expand margin next year and it sounds like you guys are going to be fairly active in acquisitions next year as well, does this mean that you'll be continuing to look at smaller websites, smaller acquisitions, since most larger ones probably don't have the margin profile you're looking for?

And then also, second question, your acquisition strategy, are you at all open to looking at websites that use affiliates to generate traffic or leads or are you sticking to mainly those sites with organic traffic?

Bob Brisco

Let me take those questions in turn. On the size of assets, if you do the math on our average acquisition size, it runs about $2.5 million. There's quite a range around that, so we will do acquisitions as small as, say, $100,000 and up to $10 million plus. And the mix across that range has been relatively stable over time.

I don't anticipate a big shift of that into next year in terms of valuations. It may come down a bit or more likely we might buy a little bit bigger asset size next year rather than smaller. But I'd say net-net I wouldn't expect a big change across the portfolio of what we acquire.

The second part of your question about dependencies on affiliate traffic, generally we look for pure organic traffic that we would define as being either direct to URL or through free search, search engine optimization. Occasionally we see business models that have very stable, very sticky affiliate relationships. We haven't done many acquisitions, if any, like that, and if there's much of that traffic, it's usually been a small piece of it. So as a general trend, I do know those aren't the types of assets we're looking for.

The only footnote I would make, the only exception there, is I would say not all affiliate-built businesses are the same, so I don't want to paint it all with one broad brush. There are some market leadership positions that certain websites and companies have relative to their affiliate networks that are long-standing and profitable and stable, and on the other hand, there are some affiliate networks that are very volatile and hard to hold onto and extremely competitive. So we obviously stay away from the latter and look for the former.

So generally we don't do a lot of it. It's not a religious issue, but it tends to be more us just weighing the quality of each asset as we look at them one by one and say does this fit with our sensibilities about what's sustainable competitive advantage in that business.

Yun Kim - Pacific Growth Equities

And then quickly, Scott, just a quick question on the investment and other income line on the P&L. That shows a negative number for the first time. I think you explained that, but I might have missed it a little bit here. But I think you may have said that it had something to do with the currency rate and an intercompany loan. Can you explain that just one more time again and is this something that we should expect again or how shall we expect this line going forward?

Scott Friedman

Yes, it does relate to a foreign currency loss associated with our U.K. subsidiary, and you're right, specifically it does pertain to an intercompany loan. It's merely an accounting exercise. We figure going forward that this will not be something to consider. You won't see this again.

Yun Kim - Pacific Growth Equities

So we can expect this to be back to the normal $1 million a quarter rate investment income line?

Bob Brisco

I'd take that in two pieces, Yun. The first piece is you won't see, we believe, the same foreign currency issues impact that. As Scott said, we won't drag you through all the details of it, but it's a very technical analysis around an intercompany loan that actually we don't think will impact us again in the future for a variety of reasons not having to do with exchange rates, actually.

The second part of your question is you're kind of asking us to forecast interest income off that line, so I guess we'd point you to, you know, that's going to be a function of sort of our average balances and what prevailing rates are. Obviously in this environment rates are extraordinarily low. You'll probably see that lower. But you ought to see that line switch signs from negative back to the positive column and the magnitude of the positive will be an intersection of cash on the balance sheet plus rates.

Operator

Your next question comes from [Rod Shanlon] - RBC Capital Markets.

Rod Shanlon - RBC Capital Markets

I may have missed this, but if you strip out the revenue drag from the dealer piece of the business, what was the growth rate for the rest of the advertising business? And then can you talk about the run rate within the quarter - did you guys see late quarter softness that some of your peers have mentioned on other calls? And then the last question, we've spent a fair amount of time talking about M&A and multiple compressions or expectations around multiples coming down. How much anecdotally have the multiples come down? Is it 50%? Is it more than that? Any color there would be great.

Bob Brisco

Let's go piece by piece through that. So Scott's calculating if you back out some of the auto dealer piece and we'll get that to you in a second. Let me go to the second part. In terms of how the quarter unfolded, no, no atypical trends. It was pretty smooth across the quarter as we go, and that's again why we feel confident as we look out through the end of the year and into 2009.

On your third question about acquisition multiples, I would guide you that, if you look at them compared to a year ago that they're probably not quite off half, but they probably behaved a lot like the stock market has in general. So today notwithstanding, if you thought about it, about down a third year-over-year. That's probably a good starting point. It depends, of course, on the class of asset you're talking about and that sort of thing.

And I would say that it softened a bit in Q1, much more in Q2 and Q3. And then I think as we sit here today it's a little bit of uncharted territory. So you could make a case that the third off that it is at this point could get worse, but you could also make a case that it won't. And I think it's sort of the, you know, same thing we're looking at with the big macro forces on the stock market of are we there yet or aren't we? We thought about next year. Our guess is we're probably getting there, you know, towards the bottom of the valuations. There may be a little bit further down from here.

Let me have Scott loop back on the revenue question you had.

Scott Friedman

Yes, I think your question was asking for the Consumer Internet year-over-year increase, pulling out the auto dealers. Is that correct?

Rod Shanlon - RBC Capital Markets

Yes, that's correct.

Scott Friedman

Okay. It's about a 30% increase after you pull out that piece.

Operator

And that concludes our question-and-answer session. I'd now like to turn the call back over to Bob Brisco for any closing remarks.

Bob Brisco

We just want to wrap up by thanking everyone for being with us today. We're really pleased to have another good quarter on the books and we look forward to seeing you next time. Thanks, all.

Operator

And ladies and gentlemen, this concludes the Internet Brands third quarter 2008 earnings release conference call. The conference will be available for replay after 5:00 Pacific Time today through November 11th at midnight. You may access the replay system at any time by dialing 3035903030 or 8004067325 and entering the access code of 3930331.

Thank you for your participation. You may now disconnect.

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