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XO Group (NYSE:XOXO)

Q4 2012 Earnings Call

March 07, 2013 8:30 am ET

Executives

Malindi Davies

David Liu - Co-Founder, Executive Chairman, Chief Executive Officer and President

John P. Mueller - Chief Financial Officer, Principal Accounting Officer and Treasurer

Analysts

Sameet Sinha - B. Riley & Co., LLC, Research Division

George I. Askew - Stifel, Nicolaus & Co., Inc., Research Division

Bradley G. Safalow - PAA Research LLC

Brett Allen Hendrickson - Nokomis Capital, L.L.C.

Operator

At this time, I would like to welcome everyone to the XO Group Inc.'s Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded. At this time, I would like to turn the conference over to the company.

Malindi Davies

Thank you. Good afternoon, and welcome to XO Group's Fourth Quarter 2012 Conference Call and Webcast. During the course of this conference call, comments that we make regarding XO Group that are not historical facts are forward looking statements and are subject to risks and uncertainties that could cause the actual future events or results to differ materially from these statements. Any such forward looking statements are made pursuant to the Safe Harbor provisions in the Private Securities Litigation Reform Act of 1995. Forward looking statements can be identified by the use of words like may, should, expect, plan, intend and other similar terms. You are cautioned that these forward looking statements speak only as of today's date. Our internal projections and beliefs upon which we base our expectations may change, but we will not necessarily inform you if they do.

XO Group's policy is to provide expectations only once per quarter and not to update that information until the next quarter. The important factors that could cause actual results to differ materially from any forward looking statements mentioned today include, but are not limited to: One, our online wedding related and other websites may fail to generate sufficient revenue to survive over the long term; two, our history of losses; three, our inability to adjust spending quickly enough to offset any unexpected revenue shortfall; four, delays or cancellations in spending by our advertisers and sponsors; five, the significant fluctuation to which our quarterly revenue and operating results are subject; six, the seasonality of the wedding industry; seven, the dependence of our e-commerce sites on search engine rankings and the limit of our search engine optimization efforts to influence those rankings; eight, the dependence of weddingchannel.com's registry business on third parties; and nine, other factors detailed in documents we file from time to time with the Securities and Exchange Commission.

Additionally, if you have not received a copy of today's press release, the release is now posted on the Investor Relations section of the company's website at ir.xogroupinc.com. We have allotted up to 1 hour for today's conference call, including the question and answer section that follows. Please take note that the company is operating under the SEC Regulation FD and encourages you to take full advantage of the Q&A section. During this call, David will first give you an overview of XO Group's performance and key achievements, followed by John with an outline of the financial results. And then, David and John will be available for a question and answer session to complete the call. At this time, I'll turn over the call to our Chief Executive Officer, David Liu.

David Liu

Welcome to our fourth quarter earnings call and thank you for joining us this afternoon. Overall, our 2012 results were mixed, reflecting strength in areas of investment like local, online advertising, offset by weakness in e-commerce and national advertising. Specifically, we grew our top line by 4% for the quarter and full year compared to the same period of 2011, with significant improvements in profitability over both periods. Our local online business ended the year with double-digit growth and our publishing business continues to exceed industry averages. However, e-commerce and national online were more vulnerable to external conditions, including the economy, the proliferation of mobile devices and the fragmentation in the digital landscape. In the fourth quarter, local online revenue was up 11% compared to the prior year quarter, and full year 2012 revenue was up nearly 15% compared to 2011. This is on top of the robust growth we experienced in 2011 as our exceptional team continues to deliver sales with strong vendor relationships and new products.

As we enter 2013, we are rolling out additional, innovative products to ensure we are providing our vendors with tools to better manage their businesses. Our most recent product rollout is the new vendor storefront, which gives vendors unlimited photos, social media functionality and other enhanced features. Also, we have launched mobile optimized Knot profiles to allow our vendors' information to be easily accessible on all platforms the bride uses. We are now the largest and most comprehensive multi-platform brand connecting brides with vendors on the web, on mobile and in print.

Our publishing business continues to deliver solid results, growing 7% in the fourth quarter and 12% for the full year of 2012 compared to 2011. Our national and local magazines have been outperforming the industry for the last several quarters, largely due to the superior quality of XO Group's publication, market share gains from competitors exiting the market and the tangible and emotional nature of wedding planning, which inspires brides to read, clip and save pages and use our print magazines as a treasured resource. At the same time, XO Group's digital magazine business is also growing quickly with almost 90,000 digital copies sold this year, up more than fourfold from last year.

Our national online advertising business continues to be affected by economic uncertainty, which is causing agencies and clients to scale back or delay their campaigns. For the fourth quarter of full year 2012, revenue was essentially flat compared to the prior year. Although the results are disappointing, 2012 did provide some positives. We had a few highly-integrated, multi-platform campaigns with large advertisers, several new advertisers in the financial services and home good categories, as well as great results from The Bump, which saw revenues and unique visitors grow double digits compared to last year.

Turning to our merchandising businesses. We were able to grow our registry service business 17% but still faced challenges in our e-commerce businesses, which declined 21% in the fourth quarter of 2012 compared to the fourth quarter of 2011. These businesses declined 3% and 16% respectively on a full year basis compared to 2011. And the strong year-over-year increase in the registry business in the fourth quarter is mostly attributable to lower than normal revenues in the fourth quarter last year caused by technical difficulties at several of our partners, which have subsequently been resolved.

As I stated last quarter, the rapid increase in mobile usage continues to present challenges for our e-commerce business. We are currently testing a beta version of our mobile e-commerce site and plan to have a live site up by the end of the second quarter. While getting our e-commerce site optimized for mobile consumption is a priority for us, we are also looking for other ways to provide our members with the product they need for their weddings and beyond. For instance, live-label deals and affiliate partnerships will help us leverage our technology and audience more effectively.

To recap 2012, our local business developed and sold new products and delivered robust growth for another year. Our publishing business also reported steady, strong results and continues to outpace the competition. The national online business has experienced peaks and valleys and we remain cautiously optimistic that the value of our brand and audience will remain top of mind for advertisers looking to reach our highly qualified and targeted female audience across The Knot, WeddingChannel, The Nest and The Bump. The results from our e-commerce business were disappointing, but we believe we are on the right track here with better gross margins, improved operations and upgrades to the sites in various stages of deployment and development.

And finally, our start up in China, Ijie.com, made great strides this year, building a sales force partnering with the Beijing Marriage Bureau for custom publishing product and partnering with one of the most popular national TV shows produced and broadcast from the highest profile celebrity weddings of last year.

In summary, our 2012 results proved our business model to be truly diversified. We are not satisfied with low single-digit growth in revenues when we have such strong brands, great relationships and talented employees. After nearly 17 years in the business, we believe there is significant work to be done and growth to be achieved. The landscape is rapidly changing and so are the needs of our audience and advertisers. They're connecting with us and with each other in new ways across multiple platforms. Fragmented audience attention increased mobile access and the proliferation of competitive niche sites and apps and continuous changes in the SEO landscape present challenges to our business in the coming years. However, we believe that we are uniquely positioned to leverage the changes in this landscape and advances in digital technology to our advantage. Our team is invigorated and ready to tackle these opportunities and we have ambitious goals this year. For the better part of the last 7 months we've been working on new products, tools and services that will make it easier for the bride to plan her wedding day, for the new parents to plan for her first born baby and for the advertisers to reach our audience during these critical life stages. We plan to roll these out over the course of 2013.

Finally, we are managing the business with a priority to creating long-term shareholder value. To this end, we believe there are multiple options to achieving this ultimate purpose. With over $70 million in cash at year end, we continue to explore options to maximize long-term returns on this and future cash flow, including investments in our own technology and products, potential acquisitions and the return of cash to shareholders.

Before I turn the call over to John, I'd like to recognize our talented employees. Their creativity and dedication to our mission is why, after over 16 years, we continue to thrive and dominate our category, an accomplishment in longevity that has proven to be rare in the digital world. I'd like to thank our marketing partners for their continued support and I'd like to thank our shareholders for their patience. We look forward to talking to you over the course of the year about exciting new products and services and resulting new revenue stream as we look to build our business for the future. With that, I'll turn it over to John for the financial review.

John P. Mueller

Thank you, David. Revenue for both the fourth quarter and the full year ended December 31, 2012 increased 4% over the prior year periods, representing growth in revenue of $1.2 million and $4.9 million in the fourth quarter and full year, respectively. In the fourth quarter of 2012, gross profit increased 5% compared to the same period last year, mainly due to improved online advertising revenue, which is one of our most profitable businesses. For the quarter ended December 31, 2012, the company achieved operating profit of $5.2 million, compared to $4.3 million in the prior year quarter. The 21% year-over-year increase was driven by overall revenue growth and improved gross margins, partially offset by increased operating expenses. Operating expenses increased compared to the fourth quarter of 2011 as a result of higher compensation expense, due in part to headcount, which is partially related to Ijie.com in China, and increased software technology-related expenses. The increase in operating expenses was partially offset by a decline in stock based compensation, which I will address in a moment.

Cash flow was about $25 million for the year ended December 31, 2012. We ended the year with $77.4 million of cash and no debt, which is unchanged from 2011. Now, the reason cash is unchanged year-over-year is that we use the positive cash flow for stock repurchases of approximately $18.9 million, capital expenditures of $3 million and investments in equity interest of $1.5 million. These results are in our press release issued Wednesday evening. In addition, supplemental data tables in our press release contain local online advertising metrics, gross margin by business and stock-based compensation charges, broken out by products and content, sales and marketing and general and administrative, along with the summary of our completed stock purchase program from inception through December 31, 2012. Just a reminder, that we did not repurchase any stock in the third or fourth quarters of 2012.

With that overview of our financial results, here's a little more detail on how each business performed during the quarter.

Local online advertising revenue increased 11% year-over-year compared to the fourth quarter of 2011. For the quarter ended December 31, 2012, we had approximately 22,100 vendors displaying nearly 29,100 profiles. The churn rate was 30.2% at the end of the fourth quarter of 2012, up slightly from 29.8% last quarter and 29.1% a year ago. The average revenue per vendor improved to approximately $2,350 compared to $2,270 in the same period last year.

Publishing and other revenues increased 9% in the fourth quarter of 2012 compared to the prior year quarter. We continue to see revenue growth from increases in both advertising pages and revenue per ad page as our advertisers continue to see the value in our magazines.

Our national online advertising business decreased slightly in the fourth quarter of 2012 compared to the prior year. We continue to see positive momentum in online advertising on TheBump.com as the year-over-year percentage growth in revenue increased by double digits compared to the fourth quarter of 2011 albeit, off a relatively small base of revenue. The strong gains in TheBump.com were offset by weakness in the travel category on our wedding properties. For the fourth quarter of 2012, the share of bridal and non-bridal advertising revenue was 71% and 29% respectively. The share of bridal advertising has declined to 71% from 75% a year ago.

Turning to our registry business. Fourth quarter 2012 revenue increased 17% compared to the fourth quarter of 2011. This is $200,000 increase and it was primarily the result of a one-time benefit experienced in the fourth quarter of 2012 from the resolution of technical difficulties experienced by one of our registry partners last year. Our e-commerce business decreased 21% in the fourth quarter of 2012 compared to the prior-year period. As we stated last quarter, e-mails have historically driven a large share of traffic to the e-commerce sites, but as e-mail is increasingly viewed on mobile devices, conversion rates have declined. This is primarily due to the fact that we have not yet launched our mobile optimized or m.e-commerce sites. On a positive note, we continue to see improvement in our e-commerce gross margins, which were up 130 basis points in the fourth quarter of 2012 compared to 2011. The margin improvement is mainly due to better inventory management. To generate growth, we are planning to launch our mobile-optimized m.e-commerce sites, improve margins through optimization of shipping and inventory management and develop better ways for our members to find and purchase the products they need via strategic partnerships with affiliates.

Turning to operating expenses. There were $21.3 million for the quarter ended December 21, 2012, compared to $20.9 million in the prior-year period. The year-over-year increase of approximately $0.4 million includes increased compensation expense, including headcount at Ijie.com, as well as increased software technology cost. Our total expenditures net on Ijie.com were $0.9 million for the fourth quarter of 2012 and $4.1 million for the year, approximately flat compared to the prior year quarter and up $0.5 million compared to $3.6 million for the full year 2011.

As I previously mentioned, these increases in operating expenses were partially offset by decreased stock-based compensation. Stock based compensation is a contra-expense of $46,000 in the fourth quarter compared to an expense of $1.9 million for the same quarter last year. In the fourth quarter, we recorded an adjustment to reduce estimated stock based compensation that we had accrued in the first 9 months of the year. As a result, stock based compensation in the fourth quarter is about $2 million lower than the prior-year quarter. However, for the 12 months ended December 31, 2012, stock based compensation is $6.4 million compared to $5.9 million for the prior year, an increase of about $0.5 million.

In conclusion, our results were mixed. Our local online and publishing businesses have executed very well this quarter and this year. The national online business remains hampered by macro factors and secular trends towards mobile viewership. Our registry business is stable and our relationships with our partners are solid. The e-commerce business has been disappointing but we are hopeful new initiatives, like the mobile site and improved operations, can help grow the business in the long-run. Considering these mixed revenue results, we are pleased with our double-digit percentage growth in operating profit and net income this year. This demonstrates the power of our highly leverage-able brands and business models. EPS was up strongly in the quarter and full year due to both net income growth and our share repurchases. Entering 2013, we expect conditions to remain challenging on most fronts, as secular trends toward mobile in particular and rapid innovation in the digital space in general, create headwinds for our businesses. This concludes our prepared remarks. I will now open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Sameet Sinha with B. Riley.

Sameet Sinha - B. Riley & Co., LLC, Research Division

John, if you -- several questions. If you can first talk about the reason for the delay of this call, I would appreciate that. Secondly, in the local advertising side, you saw an acceleration revenue per profile, although your churn rate had gone up. So is that a function of some of the marginal advertisers churning off, and how does the trend look going into 2013? Third question is on the national side, how much of the weakness can you attribute to macro versus the fact that consumers are coming in through the mobile devices, which obviously don't monetize as well? And my final question would be when do you expect these mobile-optimized sites to be deployed and have you done any tests as to the increase in monetization that you could receive from them? That's it.

John P. Mueller

Thanks, Sameet. Maybe David and I will split up the questions. First, I guess the reason for the delay was we just didn't anticipate the amount of time that we needed to reconcile some of our tax accounts. And so just needed to take more time to get that straightened out. Then that was -- that's all there was to that. And then the reason for the change in time for the call was just more just kind of internal scheduling. However, I would say this to you is that, I think, we're going to, as a policy, start doing our earnings call later in the earnings season for 2 reasons. One, the amount of time that can elapse between an announcement of earnings and the filing of a SEC document, like a 10-Q or a 10-K, just increases the risk that something can happen in that interim period and that you have to restate things and then confuse investors. And then once you file the SEC document, the actual materiality level is higher because the SEC argues that refiling an SEC document actually creates more confusion. So that's one reason. And secondly, when you're a small company and you're trying to get the attention of analysts and investors like yourselves, if you have your call right in the middle of earnings season, what we've noticed is half the time, people are on someone else's call. So we think we actually may garner better attendance by doing it this way. So that's kind of the long-winded answer on the delay. I guess your next question was on the local and the revenue per profile. There's been good improvement in selling higher value-added products and services. The Q4 year-over-year increase was largely due to both increase in what we call primary vendors, the number of those vendors and increase in the average revenue of those primary vendors. Our secondary vendors, which are the lower-price vendors, were largely flat both in terms of the number of vendors and the average revenue per vendors. Churn rate, however, interestingly, has trended up a little bit and it's almost all due to the secondary category vendors churning off, which could be due to the economy. These are smaller vendors that can go in and out of business, et cetera. In fact, if you look over the last 12 months, primary vendor churn rate has actually declined slightly from where it was 12 months ago. We don't break that information out because we already break enough stats out, so I don't want to get myself in a bind of having to report primary and secondary stats to you, but that's basically the reason for that. The trend going forward, I don't expect major changes to the churn rate, up or down, but obviously the direction we want to take it is down, so.

David Liu

On just the national, quickly. I think there are a number of influences that have made national challenging this past year. Advertisers are faced with, I think, an explosion of options, particularly on the digital landscape. I think mobile has definitely impacted all of us. As sort of digital publishers, you have increasingly more impressions being generated by a mobile session, which as you well know, is much more difficult to monetize. And I think what we're seeing going forward is that, while there's decent momentum and we still have a great deal of demand for our inventory, the advertisers are still planning very short-term and it's a lot less predictable than it was for us in the past.

John P. Mueller

And then the timing on the m. sites for e-commerce?

David Liu

End of Q1 or beginning Q2.

Operator

Your next question comes from the line of George Askew with Stifel, Nicolaus.

George I. Askew - Stifel, Nicolaus & Co., Inc., Research Division

Yes. The e-commerce business has kind of gone downhill the last 3 or 4 years. And by my math, with -- in your current collection of businesses, the CAGR, the last 3 years of revenue growth is 6.7%. If you strip out e-commerce merchandise, it's 300 basis points faster, 9.7%. Explain to me, please, what is the business rationale for being in the e-commerce business that could not be accomplished through a partnership, a referral agreement or some other sort of cooperation with a company like CafePress or something similar?

David Liu

George, well, I think if you look at the history of the business, one of the things that has enabled us to maintain, I think, a very stable foundation is the multiple revenue streams. And while you point out a very salient observation in the sense that our e-commerce business has struggled over the last 2, 3 years, we view it less as a e-com business and more as a service that we are actually providing for our audience. It is actually hard to find a single provider of the sheer volume and diversity of the products that we offer through our site, and over the years, we've actually acquired a bit of a specialized skill set in the personalization of all these different products. We actually think that coming into this year and then going forward, we're out of the woods on the e-commerce issues from the platform upgrade we had to do to get the PCI compliance to suddenly getting hit with all these SEO changes that -- with the algorithm changes of Google, the heavy sledding is behind us, and now, it's really just about strong merchandising, good customer service and streamlined operations. And the operational stuff, we've definitely got a handle on and have improved dramatically. So I share the frustration. We have often said that if we could just get all 5 of these revenue streams working together that we would be able to deliver some great results. And e-commerce has definitely been a disappointment over the last 2, 3 years. But with the transition to mobile and with the launching of the m. sites, we think we'll begin to make some incremental improvements. And I think, the other opportunity for us is to look at the now diversified landscape where brides can be looking for some of this information and to begin to become the portal for that as well, so that the service side of what we are actually providing the brides maintains a level of diversity and completeness. So, but it's something that we examine very closely on a quarterly basis and ask ourselves those questions, too. But for right now, we actually think that we can get this thing turned around.

George I. Askew - Stifel, Nicolaus & Co., Inc., Research Division

Okay. The Ijie business here in China. You mentioned the expense base, what was the revenue in 2012?

John P. Mueller

It's less than USD $1 million. USD $1 million.

George I. Askew - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And can you kind of describe the monetization strategy there today? What are the similar strategies in China compared to the U.S., for example? Or maybe the different strategies. Just kind of what the strategy is there in terms of driving revenue?

David Liu

Sure, with our portal relationships and with the Ijie site itself, we're getting decent traffic growth. And so the 2 revenue streams that we were able to implement relatively quickly, first, was, obviously, national brand advertising. And it's significantly different from the U.S. in the sense that people aren't necessarily buying impressions or CPMs and there's some calculation to that, but they're really buying placement and sponsorship through these -- our CNET [ph] portal, MSN portal and through the Ijie home site. We launched a local sales team in both Shanghai and Beijing this past year and they've gotten some decent traction with a lot of the hotels and destinations, but that's kind of where the similarities end. The China team has been working pretty aggressively in building out, I think, its own brand identity and business. We launched a pretty significant wedding planning event in the fourth quarter last year. It was a huge success in Shanghai. And we believe that there is an opportunity to -- actually could have more of these events in the local markets. The goal going forward is to become much more present in the second tier cities as well, and I mentioned on our last call that we have begun to distribute our Beijing magazine in partnership with the Beijing Marriage License Bureau, where pretty much every bride who's getting her marriage license in Beijing will be receiving this co-branded publication and they will be receiving a little membership card that allows them to come online and get deals and discounts from our local vendors. So there is different wrinkles to how we're actually growing this business and our belief is to be able to launch this publication in a couple of cities this year will begin to create a network effect for us as well.

George I. Askew - Stifel, Nicolaus & Co., Inc., Research Division

Okay, good. And 2 quick ones I hope. Do you have a share authorization -- share repurchase authorization in place today?

David Liu

Not as of yet.

George I. Askew - Stifel, Nicolaus & Co., Inc., Research Division

Okay. I hope you do soon. And then lastly, David, you used the term ambitious goals during your comments and you talked about m. sites and some of the other things. Can you sort of, from a financial standpoint, give us what -- from an -- what is an ambitious goal that we will see on a financial situation? Any data you can give us there.

David Liu

I can give you some color, I'm not sure I can give you any data. So over the last decade and a half, we have been operating and building this brand in the wedding category. And I think what's interesting is we watched digital media and the Internet disrupt massive industries, whether it's bookselling to selling of shoes to music, film. And the disruption has been in the distribution of the product, and really, it's ringing out inefficiencies in these legacy industries. What's been fascinating is that the wedding industry or the process of planning a wedding has been inherently analogue. The bride has to go visit the cake baker and taste the cake, has to visit the caterer to look at the menu and taste the food, visits the site, tries on the dress. Pretty much 90% of the wedding vendors' expense has been an off-line transaction and has ultimately not been disrupted by the digital technologies. Now what we've done in the last decade and a half is introduced more efficient marketing platforms and we've been able to really upset the kind of powers that be in our category by executing, I think, faster, better and delivering better results in both the publishing, as well as our digital space. But something has changed in the last, I would say, 18 months, and that is the introduction of these smartphones and now, the ubiquity of this device. To us, we view the introduction of this mobile device as disrupting technology that the rest of the industries have experienced when the Internet arrived and the shopping cart was created. And so for us, we view there being an enormous opportunity and the reason why we think we're so well positioned to capitalize on this sort of disruption is the fact that we already engaged with very -- a deep relationship with the majority of the brides who are planning a wedding in the United States, we capture a lot of information about this consumer, and we have deep commercial relationships over many years with the advertisers that want to reach them and we have been able to prove that we deliver strong results for them. And so we look forward to launching additional services that we think will make it a lot easier for the advertisers to conduct business with the brides and for the brides to actually find the exact product and services that they want through our various brands and services.

Operator

[Operator Instructions] Your next question comes from the line of Brad Safalow with PAA Research.

Bradley G. Safalow - PAA Research LLC

Just going back to Ijie. You guys are still planning to spend, let's say, an x amount as you did in 2012, 2013?

John P. Mueller

I think it'll be a little higher. I would estimate about $1.5 million a quarter.

Bradley G. Safalow - PAA Research LLC

Okay. And is there any commensurate uptick in revenues from coming out of China or is this -- you have a bigger hole to fill in 2013 from your other businesses?

John P. Mueller

I would assume we have a bigger hole to fill. It's too hard to predict, obviously. And we're not saying we're not trying for that, but I'm not comfortable enough on this call to give you any hope that we're going to have a major jump in revenue. Obviously, that's what we're trying to do though, but.

Bradley G. Safalow - PAA Research LLC

Okay. And I guess as a follow-up to George's question, it's not clear to me, and perhaps others on this call, exactly what the monetization model is there. And we're $10 million over the last 3 years into the spend and now, maybe $6 million in '13, and not seeing much in terms of tangible evidence of market opportunity. So could you put some finer points on what you see on the ground that is exciting to you from an actual revenue perspective?

David Liu

Sure. I think what we are seeing is that, particularly in the high end in China, the wedding budgets and the amount of money that's being spent, is actually pretty significant. And if you look at the actual spend by the advertisers per account in China, they're not too far off what our advertisers in the U.S. are spending. And so for us, the strategy in China is really building the brand and building the distribution and gaining relevance, particularly on the local markets. We have Beijing and Shanghai up and we want to build in, in 2 or 3 more cities in the tier 1 and other tier 2 cities. There is also, as I said, this workshop that we created and launched just almost as a test in November. We had close to 1,000 people attend, and these were wedding professionals from all around the country who were basically seeking information and more effective ways to market their business to these consumers. So it is early days there. It is the largest wedding market. And we have been able to establish the brand solidly as the premier luxury brand in that category, which is ultimately where everyone wants to drive towards. So -- and with this relationship with the marriage license office in Beijing, we believe that's the beginning of a potential, almost a distribution partnership, with the government that could spread nationwide. So -- and we actually think that the opportunity remains pretty strong and our team that's been executing there has actually done a great job this past year.

Bradley G. Safalow - PAA Research LLC

And when you guys talk about advertisers, I just want to be clear that -- because you made mention of vendors, too. Do you have a real local platform at this point? Or is that something that you're working on pulling out?

David Liu

No. There's a local vendor directory in both -- for Beijing and for Shanghai right now, on Ijie.

Bradley G. Safalow - PAA Research LLC

Okay. And those vendors are not in your total -- the numbers you disclosed to us in total account?

David Liu

No. The vendor accounts that we disclosed is purely U.S., it's not --

Bradley G. Safalow - PAA Research LLC

Okay. So but the model would be, in some respect at least, in monetization, you'll have local revenues, national ad revenues and then I understand there are other different dynamics, but that's the evolution you expect?

David Liu

Yes. China's just very transactional. The advertisers and the vendors there are very, very focused on measurable ROI. And because of the way the bride is spending, it's -- there are different ways of connecting them there. So it just could be a nuance of difference, but obviously, the revenue, ultimately, that is being generated by this category are going to be either the big brands that are selling product nationally or the local vendors. So ultimately, it'd be bucketed that way.

Bradley G. Safalow - PAA Research LLC

Okay. And then just going back to the e-commerce business, are you guys still comfortable with the 42% to 45% range for gross margins that you discussed in previous calls?

David Liu

Yes.

Bradley G. Safalow - PAA Research LLC

Okay. And then just -- and I'm jumping around here, but on the registry side of the business, it sounds like you've ironed out the technical issues you've had or had last year and some of those other issues. Between Gift Registry 360 and the legacy WeddingChannel business, I mean, what are going to be the growth opportunities for you guys? What kind of -- what's the profile of that business at this point?

David Liu

Sure. So registry, there are 2 components, and in terms of what happened last year or the previous year, we were victim to a technical difficulty that our -- 1 of our retail partners had. And so we have tracking pixels, we're essentially running an affiliate network, and so when 1 of our retail partners does a big technical sort of revision and the tracking pixel gets lost, we're beholding to them to try to resolve that and to find that. We can't go into their code to fix that. So that was resolved and you kind of see the benefit of that in the financials. On our side of it, I talked about this, this past year about when we launched GR360, it was with great optimism, and when we looked at the stats of how people were adopting it and using it, we could see that this was going to have a really positive impact on the transaction volume and on the efficiency for the brides. The problem, as I articulated last year, was that the underlying technology that our registry system is running on was built back in the late '90s and was incredibly brittle. We were not able to build on top of that. And so for the better part of this past year, we have been furiously rebuilding that underlying technology. And we are looking to launch the new registry platform soon and we will then be able to be far more nimble and flexible and to really pursue some of these more innovative opportunities on top of a more up-to-date code base. And so if anything, what's, I think, has been frustrating for my business managers and for the company as a whole, is that there hasn't been a lot of innovation in the registry space this past year because of this platform rebuild.

Bradley G. Safalow - PAA Research LLC

Okay. And I guess it's your expectation that you'll have this new platform and then maybe a bigger emphasis on GR360 in the marketplace in the next couple of quarters?

David Liu

Yes. The new platform should launch late as Q2. We're targeting end of Q1.

Bradley G. Safalow - PAA Research LLC

Okay. And then I guess that's in the next few weeks. And then just last question. It seems like there's a slight change in your tone or orientation towards share buybacks or capital allocation. When you look at the opportunities ahead of you, is there any way you can rank them for us between acquisition, technology investment and share repurchase?

David Liu

I think we're trying to be very opportunistic about this. We've certainly demonstrated the appetite to buy back shares and we think when the conditions are right, we will be absolutely doing that again. I would have to say that just going into the end of this year and looking at the beginning of this year, a lot of the macroeconomic things are troubling, from what's happening in Washington, and some of the uncertainty out there has made us sort of become a little more cautious. But I would say that it's not as if share repurchase has dropped in priority and it's not like there's some massive acquisition that we're pulling our cash for. We have always believed that having enough dry powder and having a long-term view over how we allocate our capital is the way to approach this.

Operator

Your next question comes from Brett Hendrickson with Nokomis Capital.

Brett Allen Hendrickson - Nokomis Capital, L.L.C.

I got on the queue before the last gentleman asked the question, and my question was going to be, why would you not be buying back stock? Right now, you just gave us a little sense, but I guess, let me set it up a bit. I mean, China is either going to get better in terms of revenue generation or the expenses are going to go away. e-commerce gross profit contribution has become almost, you could call it, de minimis amount. So with, I mean, your free cash flow yield is something like 16% off the enterprise value for a company that's growing free cash flow and has some of the challenges behind it. I appreciate a conservative management team, but at some point, the macro issues and issues in Washington, your investors can deal with that, they can hedge that, they can position for that and kind of we pay you to allocate capital and keep growing your business and people seem to keep -- there's idiots in Congress who can't figure out what they want to do 1 day or the other, but people keep getting married and your business is a solid business. I guess, you're not getting credit, in my opinion, in your valuation for your cash, I think, because people are worried it will be kind of withered away in some acquisition that maybe other shareholders won't be too fond of. And so I think people aren't giving you full credit for your cash and your cash is growing. I mean, we've got it at 3 70 at the end of this year per share. I guess I'm having a hard time understanding why you wouldn't buy back stock. So just help me by explaining that a little more even with all the, you sited macro factors, but I think that's made me grow more confused. So help me understand that.

David Liu

Like I said, it's not that we're not interested in buying back shares. We don't have a plan currently in place, but it's not something that we would -- we have discounted or said we're not going to do.

John P. Mueller

We did -- we bought back 28% of our shares outstanding, which is not insubstantial relative to any other company that's done that. Secondly, we have looked several times over the course of the last 2 years, at our cash balance, relative to our total assets and we've compared that to over 50 tech companies like us. And when we started that stock repurchase, our cash balance as a percent of our assets was an outlier and was much higher than a lot of these tech companies that we were comparing to. Post the stock repurchase, we are in line, if not a little bit lower, in terms of our cash balance as a percentage of our total asset. So, I'm not saying that means we don't have to do a stock purchase, all I'm saying is we're not as big of an outlier as -- because if I had to state and the undercurrent from the questions from just about everybody on this call is why don't you buy more stock back? We're not saying we'll never do it, but I'm not -- I don't think we're as big an underlying -- we're not under-repurchasing our stock. We're, I think, fairly well allocated in terms of our capital allocation decision here. And, I guess, third, and I think I said this on the last call. We do not have a credit facility. Our cash balance is our credit facility. And I know you can argue, okay, well, what's the right level of cash? And when you think about that, you have to think about operating cash and you have to think about dry powder for other opportunities. My sense is $50 million is the right number, so -- and I think I said that on the other call. So maybe there's another $25 million for stock buybacks that you could do, but we're not like jumping up and down right now on that because I think the last thing would be, and you even said it, you want us to grow the business. And that's what we're hired to do and we're going to figure out how to grow the business first before we shrink even more of the equity outstanding, which was 28%, that we've done already with the stock buyback.

Brett Allen Hendrickson - Nokomis Capital, L.L.C.

Yes. Just a couple of things. Congratulations. But the net, we are well aware of the 28% that you bought. We're just confused with the pause, and so that's why I think this conversation has been time well spent. But just a couple of comments. In the last 5 years, your -- just call it 5 years, your stock is still down and I would just caution you, please don't compare yourself to the cash percentage of value to other "tech companies" that include hardware tech companies, some of which are called dinosaurs. You guys are an online media company that's different, doesn't have CapEx needs. And to compare yourself to that group is kind of like being the tallest midget. There's -- that's why we've seen activism in tech, because whether it be Dell [ph], all the way down, because companies had too much cash or being too conservative on their buybacks. So I wouldn't compare yourself to that group. Kudos to you on 28%. We were just curious as why it all suddenly stopped. And the gentlemen before me kind of had this inkling that you were looking for an acquisition, I think there's like confusion out there among your investors and I think a yearning for even more buybacks because we're believers in the business. What we love in this business is it's somewhat economically insulated and it can grow without CapEx. So that's kind of a definition of a good lemonade stand. If a lemonade stand can give back capital to the people who own it, then that's what people own it for, and I'd say any other business is no different. There's no reason you can't grow and give back cash. And then last 1 on the credit facility, I mean, thanks to Mr. Bernanke, rates are so low and just to maintain a rate, it's measured in basis points just to maintain. If you wanted to have a standby credit facility of $25 million, you could probably have that paper at almost by the end of the week. I mean, we could do it in almost a day. There's so many banks that would love to give a company like you a credit facility. So that would be -- I guess if that's something you're worried about, I would say just go get a credit facility and then buyback stock because all your shareholders seem to be asking for it. But I'll shut up. I think this has been time well spent because I don't think I was the only one who's confused about it.

David Liu

I agree with you on the credit facility comment. And in terms of the comps on the tech companies, we did comp to comparable companies in tech media sector, but yes.

John P. Mueller

We don't disagree with you.

Operator

Your next question comes from the line of James Lee with CLSA.

Unknown Analyst

This is [indiscernible] covering for James. And all my questions has actually been asked except for 1 housekeeping. Can you remind me a little bit about why the publishing and other business' gross margin has been down quite a bit this quarter? Above year-over-year and quarter-over-quarter?

John P. Mueller

Yes, the publish -- that sector or that segment or, not segment, but that line of revenue, which we call publishing and other, the publishing part obviously includes all the magazines. The gross margins for publishing are relatively constant. The other piece of that, which is, frankly, a lot of cats and dogs of licensing deal here or an advanced payment from another partner there on some other new business initiative, that other revenue fluctuates up and down a little bit and in the fourth quarter we had -- and it wasn't that much, but several hundred thousand dollars of revenue that was pure 100% gross margin revenue that went away just because of some short-term other deals that we were doing and as a result, the gross margin for the other piece of publishing and other declined dramatically, and that's what you saw. Long-term, for 2013, you can use our more historical gross margin rates for publishing and other. And in fact, I think even if you look in 2012 for full year, you'll see the gross margins are relatively steady.

Operator

At this time, there are no further questions. Are there any further remarks?

Malindi Davies

Yes, we like to thank you again for joining us this afternoon. Our upcoming conference schedule is posted on the Investor Relations section of the website. If you missed any part of today's call, you can access the replay of the entire conference call in the Investor Relations section on the company's website at xogroupinc.com or at (877) 859-2056, conference ID #15013209. If you have any additional questions, please don't hesitate to contact us at ir@xogrp.com. Thank you.

Operator

Thank you. This concludes today's conference call. Please disconnect.

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