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IAC/InterActiveCorp (NASDAQ:IACI)

Q1 2013 Earnings Call

May 01, 2013 8:30 am ET

Executives

Jeffrey W. Kip - Chief Financial Officer and Executive Vice President

Barry Diller - Chairman, Senior Executive and Member of Executive Committee

Grégory R. Blatt - Chief Executive Officer and Director

Analysts

John R. Blackledge - Cowen and Company, LLC, Research Division

Peter Stabler - Wells Fargo Securities, LLC, Research Division

Ross Sandler - Deutsche Bank AG, Research Division

Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division

Brian Patrick Fitzgerald - Jefferies & Company, Inc., Research Division

Heath P. Terry - Goldman Sachs Group Inc., Research Division

Mark S. Mahaney - RBC Capital Markets, LLC, Research Division

Nathaniel H. Schindler - BofA Merrill Lynch, Research Division

Kerry K. Rice - Needham & Company, LLC, Research Division

Michael Graham - Canaccord Genuity, Research Division

Operator

Good day, everyone, and welcome to the IAC Reports Q1 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jeff Kip, CFO. Please go ahead, sir.

Jeffrey W. Kip

Thanks, operator, and thanks, everyone, for joining us this morning for our first quarter 2013 earnings call. Let me briefly remind you all that during this call we will discuss our outlook for future performance. These forward-looking statements may be 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 first quarter 2013 press release and our periodic reports filed with the SEC.

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

I'm going to now turn it over to Barry for a few remarks, then I'll take it back and quickly walk through our financial results and outlook, then Greg will talk about some of the key drivers of the business and then we'll open it up to Q&A.

Barry Diller

Good morning, everyone. Not to make a statement [ph] or an announcement, but this is going to be the last regularly scheduled call for me with -- at our quarterly earnings. I've been doing it now for, I think, long enough, 18 years. And I think Greg Blatt and Jeff Kip and all of your questions are properly dealt with, and I don't think I add that much value. I'll come back when I have something specific to say about something.

One thing I would like to mention to all of you is something we've been thinking about in the last weeks. It doesn't really -- it doesn't certainly change our report, it doesn't change any of the way we actually do things. But it's a way of thinking about our company and our businesses, which is that, as you all know, we've got 2 main businesses, and they've been our main businesses for some time now. And they are growing, and we spend time on them, and we should spend time on them.

We then have a group with the elegant name, Other. In that group are 12 or so individual businesses that, hopefully, they don't matter to us in the sense of materiality. They're $600 million or so in revenues, and essentially, they'll make or lose a few million dollars. I think, this year, they're -- all of that revenue, is planned to lose about $10 million. These are businesses that we are investing in. And these are businesses that are, say, why are we even bothering rather than focusing primarily on the 2 main businesses. But the reason is, is that we're hopeful that 1, 2, 3, who knows, of these could become a third large business or fourth large business. Really, for the last almost 20 years, that has been the course of the company and how it has developed. And so I just think orienting ourselves to think of 2 businesses plus a lot of optionality that does not -- is not a drag on us is a -- to me, it's a healthier way of looking at our business. It doesn't mean we're not going to talk about these businesses when we have something to say about them. But essentially, they're not of any great matter until one of them becomes substantial. And when one of them does, that will clearly be something we'll talk about. Or when we have prospects for them that, individually, that are worthy of noting, we'll do so.

So with that, I will turn the call back to Mr. Kip, and we'll proceed with the meeting. I'll stay on for the rest of this meeting as well for your pleasure.

Jeffrey W. Kip

Thanks. We had a solid first quarter, with 16% revenue growth and 24% OIBA growth on an as-reported basis. Pro forma for About.com and News_Beast revenue and OIBA growth were 8% and 29%, respectively. The shutdown of Newsweek Magazine in December effectively reduced the pro forma revenue growth rate by approximately 250 basis points for the quarter. It's worth noting that this was IAC's 16th straight quarter of 15% or more OIBA growth and our ninth straight quarter of OIBA margin expansion.

Search & Applications had a good first quarter, with as-reported revenue growth of 16% and OIBA growth of 27%. Our revenue came in a little lower and our OIBA a little higher than expected because of CPC softness at Google, which led us to hold back a little on marketing spend. We did see CPC levels recover by the end of the quarter however, giving us confidence in our expectations for the full year.

Additionally, on a year-over-year basis, we took about $5 million or so of unprofitable legacy Pronto revenue out of websites as part of the restructuring of that business in the first quarter, which contributed to the lower-than-expected revenues there. On an organic basis, websites revenue was virtually flat sequentially.

For the full year, we expect solid double-digit revenue growth pro forma for About and somewhat stronger on an as-reported basis, with margin leverage resulting in strong double-digit OIBA growth pro forma for About or approximately 1,000 basis points or so higher on an as-reported basis. This is modestly better than the outlook from our last call.

In the second quarter, revenue growth were roughly doubled from the first quarter rate on a pro forma basis, with a somewhat less dramatic jump on an as-reported basis. OIBA growth will accelerate from the first quarter rate, although more modestly than revenue, as we ramp up our marketing, which we've already started doing after our CPC-related pullback in the first quarter.

In the back half of the year, revenue growth rates will be in line with our second quarter rate on a pro forma basis, driven year-over-year by accelerating query growth in websites and improved monetization in applications. OIBA growth in the second half on a pro forma basis will be significantly better than the first half of the year but higher in the third quarter than in the fourth quarter, driven primarily by timing of marketing spend. I would also note that, on an as-reported basis, both revenue and OIBA growth will be impacted by the anniversary of the About acquisition in the fourth quarter of 2012.

At Match, we had a great quarter, with 8% revenue growth, strong margin leverage resulting in 24% OIBA growth and, most importantly, solid PMC growth across all of Core, Developing and Meetic. In the second quarter, we expect a modest increase in revenue growth over the first quarter, and we also expect PMC growth rates to accelerate again across all 3 PMC buckets, which will drive solid revenue and OIBA growth in the subsequent quarters. The second quarter, however, has very tough marketing comps, especially at Meetic, where we pulled back spending significantly last year. So we only expect single-digit OIBA growth year-on-year. In the back half of the year, however, we expect to see revenue growth rates in the low- to mid-double digits with flattish margins year-over-year in the third quarter but significant margin leverage in the fourth quarter, again, driven by the timing of various marketing decisions. On a consolidated basis for the full year in this segment, we expect low double-digit revenue growth and strong double-digit OIBA and PMC growth.

In our remaining segments, we continue to see strong revenue growth at businesses like Vimeo and Electus, and we've dramatically reduced our OIBA lost at News_Beast. Our performances were offset in the first quarter and will continue to be offset in the second quarter by underperformance at HomeAdvisor, driven by some technical glitches in the rebranding of the service, which should be resolved by the end of the quarter.

Revenue growth for the full year for Local, Media & Other combined should be low double digits on an as-reported basis, dragged down by the effect of the shuttering of Newsweek Magazine. In terms of full year OIBA, we now expect low double-digit millions in combined losses for the full year for the 3 segments, which means we expect an OIBA pickup of approximately $15 million versus the aggregate OIBA from last year or actually significantly more than double that pro forma for News_Beast. Thus, for the remainder of 2013, we expect to be nearly breakeven on OIBA across the 3 segments, with minor losses in the second quarter turning to modest profits by the fourth quarter.

I'll now conclude with our expectations for the full year and the second quarter on a consolidated basis. We're reiterating our full year outlook of solid double-digit consolidated revenue growth or low double-digits pro forma on a consolidated OIBA growth of approximately 30% or mid- to high-20s pro forma for About and News_Beast. Our improved outlook for OIBA growth at Search will offset our lower OIBA expectation for our Local, Media and Other segments.

For the second quarter, we expect solid to strong double-digit consolidated revenue and OIBA growth on an as-reported basis, with OIBA growth only slightly lower on a pro forma basis on low to mid double-digit pro forma revenue growth.

With that, I'll turn it over to Greg.

Grégory R. Blatt

Thanks, Jeff. Everybody, thanks for joining us so early this morning. Hopefully, I'll fully wake up by Q&A, but I'll try and plow through these opening remarks until then. I don't want to restate what Jeff said. We feel really good about the road ahead, and I think I want to spend some time sort of going through the big drivers of that, and I'll start with Match.

First, is scale. We've now cracked the 3 million subscriber mark for the first time. That's more than double what it was just 4 years ago, and while I don't have an exhaustive list, and these things are subject to varying definitions, we're pretty sure that puts us in a handful of largest pure online subscription business in the world, which is a pretty good place to be in.

But while size is great, momentum is obviously better, and we're really getting it back. At the end of Q3, I think I said I expected Core PMC growth rates to decline in Q4 and Q1 before starting to rise again. And in fact, that never happened, and we basically stayed flattish here on 8% Core PMC growth through those 3 quarters. But we now expect to start rising again, as we did previously, but from a higher starting level, which we're really excited about. I think it's a real testament to the product work that we've been doing. I think it's really solidified my view that there really is no ceiling on the benefit in a business like this that you get from continuously revisiting your product, revisiting registration flows, optimization, et cetera, especially when coupled with fundamental product change like we saw in events last year, which continues to drive sort of the core consumer proposition. So really, a great job by the Match team.

As pleased as we are with where Core is heading, which is up, I do want to spend some time talking about Meetic and Developing, which isn't something we've really had a lot of reason to talk about in the past. But for the very first time, as Jeff mentioned, we got meaningful PMC growth in Core, Developing and Meetic simultaneously. Meetic and Developing have been a real drag on things for a while, but now they're all going in the right direction, and we expect this to continue. Meetic, doing a great job on all its optimizations. Developing, really, really seeing a lot of opportunities open up. And so while the developing numbers are affected modestly by some low-cost acquisitions, even without the acquisitions, the Developing PMC number is up high-single digits. So really excited about this, and that loss of drag feels great.

I want to focus for a second on sort of the part of our momentum that comes from dating products that you wouldn't traditionally consider subscription services. We need to come up with a better name for them, but we're talking about sites like OkCupid, Twoo, Tinder, sites we currently put into our Developing bucket. So we look at lots of things in these businesses. But when you look at monthly active users, the numbers for our traditional subscription sites are growing nicely year-over-year. When you look at the growth in monthly active users for these other products, it's up nearly 500% year-over-year. And our global users in these services actually now exceed those of our traditional subscription sites. Now users are good, but the key is how we make money off of them. And we're seeing real progress, and what we think is going to be a real core advantage for us going forward is our ability to monetize and get revenue from these sort of non-traditional subscription products.

Take OkCupid as really the test case here. We bought OkCupid 2 years ago. Our revenue per user is up about 50% during that period. But that's actually muted by the fact that the ad revenue per user, which was the vast focus of it to be when we bought it, hasn't changed at all. If you focus just on direct revenue from users, that's up almost 500% per user in the 2 years we've owned it, and that's while maintaining and even exceeding the user growth rates that we had when we bought the business. So this is hugely powerful thing for the business, and we think we can leverage it globally. I mean, businesses like Twoo are really outside the United States, but that's actually the areas where the traditional subscription products are least powerful. So we're really excited about this. We don't think that the contribution from these products is going to rival the contribution from our sort of traditional subscription products anytime soon. But we do think it's going to be an increasing part of the incremental growth, and that's at a much higher margin than our regular businesses because there's traditionally no customer acquisition costs associated with this. So that's really exciting.

Before turning to Search, I think it's just always helpful to come back and think about the reasons we're so excited about this business back from the weeds, it's a high cash flow business with little CapEx and great margins. It fills the global need that isn't going away ever. The domestic and international markets continue to grow. We're the global leader in the category across multiple brands, multiple products and multiple geographies. We've shown the ability to both maintain brand superiority and growth in our flagship services like Match and Meetic while growing traditional -- while growing additional non-traditional products around them without negatively impacting sort of the core engines. And again, we're now firing at all cylinders with growth across the board. So we feel really good about where this is going.

I think I forgot to mention just on the PMC trends. I said they're going to increase across the board. This quarter I think our total PMC growth was 11%. We expect it to get into the high teens by the end of this year. So we're talking about real momentum in this business, and obviously, we feel great about it.

Turning to Search & Applications. We said in the last call this would be a bit of a reset quarter, and it was. But it was still really strong, as Jeff said, and we expect overall improvement throughout the year. Focusing first on the application side, Google's policy changes, which everyone has spoken a lot about, they have had an impact on the landscape. But because our practices were already more in line with Google's preferences in the markets generally and because of the nature and quality of the products we distribute, we believe the changes have a different degree of impacts on us than what the rest of the market is experiencing generally. The policy changes do bring down our short-term growth rates, and we've been clear about that, but we will grow nicely nonetheless. I mean, the growth rates leading into this year have been off the charts, and now they're just going to be really good. And I think when you look at the impact of the things on -- these changes on other people, they've been more severe and, in some instances, have actually led people to shift their business to other sponsored listing suppliers. We think this demonstrates what we've been saying for a while. We've got sound business practices. We invest more in technology than anybody else. Our products are coupled with access to a well-known proprietary search and Q&A product like Ask. And we think that, that really leads to a business that's fundamentally different than most others in this space. I also think as an aside, it's interesting to note how quickly some of the other big sponsored listings players jumped on the opportunity to pick up the business that was shaken free. The Search business, the surge area associated with downloadable applications is real, and we think it's valuable to these guys.

I also want to point out again how strong our relationship is with Google. I can't remember being better personally. We support them in their efforts to make sure that this space is consumer friendly, and they continue to be our partner by choice. We're not focused just on dollars today but on dollars today, tomorrow and the day after, so our decisions about business practices, partners, et cetera, are based on an extended time horizon. In total, we believe all these changes have left us in a better long-term competitive position.

Next, I wanted to hit on mobile for a second. We said for a while that it didn't really make sense for Mindspark to jump into mobile until the unit economics improved. Unlike some businesses, there just isn't a short- or long-term benefit in the Mindspark business from doing that, from "investing in mobile acquisition." But now we believe there are opportunities to go after on a profitable basis. We're seeing unit economics change, and we've just launched our first Search distribution product on mobile. It's a small test, proprietary application, but our plan is to distribute Search on mobile with a variety of products and distribution techniques that we've been developing. Some are familiar and similar to what we've done at desktop, and others are novel and native to the smaller devices. We've talked to the app developers out there. We think there's a receptive marketplace for what we want to do, and we think our Search distribution can play a meaningful role in driving revenues in the mobile space. It'll start small, but down the road, we think it can be a real contributor. And given our belief that desktop usage is going to continue to be huge in relation to our overall share of it for some time, we don't think of this as an offset to near-term cannibalization. We really think of it as an additive income stream to help drive growth for Mindspark going forward.

Turning to the rest of the segment. Ask was flushed this quarter due to absorbing the ad policy changes that we talked about so much last quarter and due to the low Q1 CPCs we saw from Google, we expect Ask to grow over the remainder of the year. Its fundamentals are solid. We've adapted the policy changes on the ad side. We've revamped and restarted our marketing in Q2, and we see plenty of runway ahead.

Additionally, and I think really importantly, the About acquisition is really proving to be a grand slam. It's our first big leap in the pure content, and it's beaten our most ambitious expectations. I think we think about sort of what we do and who we are, a lot of it is about leveraging competences, developing competences and leveraging them across a broader asset base. We've been doing it on the Match side with acquisitions like Meetic, OkCupid, et cetera. And About was really the first time we've done it on the Search side, and I think what we're seeing huge runway -- the techniques that we used to take Ask's OIBA and OIBA margin to 7x and 3x on their 2009 levels were highly transferable to this area. And it's clear that this represents a real strategic growth area for us both within the About business and beyond. And I think it's worth reiterating that point. I mean, in 4 years, we drove 600% OIBA growth at Ask. In our first year with About, we're going to drive well over 50%. So this isn't an accident. We believe it can be replicated in other properties, both internally developed and potentially newly acquired. There aren't meaningful headwinds in this area. So this area of generating and distributing and organizing content for distribution over desktop and mobile is going to be a real part of our growth story going forward and as well as a significant basis for diversification of revenue streams and product within the segment.

Summing up the segments that's worth reminding like Match. This segment is a tremendous castle of business, very limited CapEx and increasingly diversified revenue stream. We feel really good about it, confident that it's going to grow nicely for years to come. It is diversified enough and solid enough to grow through whatever changes will take place in this landscape.

Barry hit on our Other segments, but I thought I'd just hit on them real quick. We really do believe that that's something -- I believe in each of them. That's way we do this. But you take the odds, they won't all hit, but we see each of these things as having the potential to be of huge value. Vimeo right now is crushing it for us. Subscriber growth, up meaningfully; ad revenue just starting to come online; a really exciting product roadmap, we think this can be a huge business. HomeAdvisor had some technical stumbles in the rebrand, but the brand results themselves are strong, so don't confuse the 2. The strong brand changes led to SEO and other sort of technical issues that are returning. But the results on the brand, the advertising, et cetera, is really strong, and we think it's going to grow nicely again by the end of the year.

Electus continue to -- I mean, it continues to trail up show after show. And I think as these shows anniversary, is when the revenue and the profits start to come. So we feel really good about that. Tutor.com, an app that we recently acquired, is something we really believe in, so much so that we moved Mandy Ginsberg, the CEO of Match, and Shar Dubey, the Head of Products at Match, to head up that business along with the founder, George Cigale. While I was at Match, I worked with Mandy and Shar more closely than anyone else. I really don't know anyone with better chops for building a consumer Internet service. And pairing them with the education expertise that already exists there gets us really excited about what this business can be not today, probably not tomorrow, but soon after. So I'm not going to spend much time talking about the numbers, as Barry said, until they pop out. But there is a ton of scale here, and I am very confident that there is going to be real contribution down the road.

In all, we're excited about the growth we've had. Each of our big segments, the core areas of it are growing really nicely. We've also sort of built up earlier-stage, higher-growth projects and products around them. We're confident they'll generate strong profit growth well into the future. We like our early-stage businesses. And coupled with disciplined M&A and continued repatriation of cash for our shareholders, we are very confident and excited about the road ahead.

So with that, we'll open it up for questions.

Barry Diller

That's a good report.

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from John Blackledge with Cowen and Company.

John R. Blackledge - Cowen and Company, LLC, Research Division

A couple questions. On Search, it looks like the website segment, x-About and Pronto, declined about 3% sequentially, which was worse than we thought. Could you just talk about the drivers there in 1Q and also discuss the revamps marketing in the second quarter and how that could drive the website segment the rest of the year? And then also just it looks like the revenue for query declined in both segments. Can you just provide some color there and trends for the rest of the year?

Jeffrey W. Kip

Sure, John. A couple things. One is, as I noted, we restructured the Pronto business. We took a bunch of unprofitable revenue out of that. If you stripped that restructuring out, you're probably pretty close to flat in websites. And then when, I think, you look at the fact that Google announced that CPCs were down 4%, that led us to probably pull back a little bit of marketing and reduce a little bit of volume. We're really right on top of where we thought we'd be. We are continuing to ramp the marketing spend. We do expect queries to accelerate through the year. We actually also expect RPQ to accelerate throughout the year sequentially. And I think that, in terms of your RPQ question, there's really 3 factors: one is there's been a modest impact from the policy change in both websites and applications; secondly, you do have the CPC issue; and then thirdly, our international growth, where RPQ is probably 60% of domestic-ish, our growth has been a little bit faster year-over-year over the last quarter. And so we've seen a little bit of a mix shift, which is the last piece of the RPQ shift. And again, we think those will go up sequentially throughout the course of the year.

Grégory R. Blatt

Yes, let me just add to that. It's important, on the policy side, that is not a trend. That is a onetime hit that we absorb in the quarter, and now we grow from it. CPCs have already rebounded. So as we've said, we expect the RPQs to increase across both areas throughout the year.

Operator

We'll take our next question from Peter Stabler with Wells Fargo.

Peter Stabler - Wells Fargo Securities, LLC, Research Division

A question on Match, if I could. So the mix of Core and Developing was a bit different than we expected. As you look out over the remainder of the year, would you expect the growth profiles to kind of remain in proportional balance that we saw in this quarter or I think that you touched on Core PMCs to drive a better growth profile for Core Match? If you could just clarify that a bit for me.

Grégory R. Blatt

I'm not sure I got the entire question, but let me try. And then if I missed it, if I don't answer it, you can ask again. I think if you look -- if you exclude the acquisitions that we did in Developing this quarter, I think growth rates for Core, Meetic and Developing were all roughly comparable within a couple percentage points of each other. And when you add in the acquisitions, that led to an 11% growth rate for PMC overall. By the end of the year, I think I said we're going to be up into the high teens overall. There is going to be growth in all 3 of those buckets. So the growth rates will increase in all 3 of those buckets on the way to the high teens number. And so in other words, we're expecting to get double digits in all of them. But I think Developing, just given the dynamics of Developing, which is it's been declined for a long time because you had runoff of businesses that were in decline and you had growing business of earlier-stage businesses, I do expect the Developing -- I expect Developing growth to exceed growth in the others for some time, which is why they're called Developing. It is the small high-growth products, high-growth geographies. And so over time, we expect Core and Meetic to be very strong growth, but we think that Developing will be higher growth. That's just the nature of it. Did that answer your question?

Peter Stabler - Wells Fargo Securities, LLC, Research Division

That did. And one quick follow-up, Greg. Could you comment on the new product initiatives in Match and any update on the success you're seeing there?

Grégory R. Blatt

Sure. I mean, again, events, we have multiple different types of product initiatives. As I said, we do lots of stuff that you would never notice, which drives real results, and that's been our bread and butter for a long time. On the events business, it's actually really exciting. We've gotten to a point now where, literally, the average event has about 50% returning members. So you've got the people who use them, like them a lot and keep going, what that means is that, over time, as the people who go keep coming back and new people come, the penetration in our business is going to get very high. And we think that's a real huge differentiator that, over time, leads to higher retention rates, with the higher conversion we see in some markets and not others. But overall, the metrics are good. I prefer to think of it as sort of a core sort of attribute of the business that continues to make it standout and drives what are going to be real double-digit PMC growth rates for the remainder of the year.

Operator

We'll take our next question from Ross Sandler with Deutsche Bank.

Ross Sandler - Deutsche Bank AG, Research Division

Congrats on Tinder. The New York City dating scene will never be the same. A couple questions though, Barry. First a little clarification on your initial comments. Was that just meant to highlight some of the emerging opportunities in those other areas? Or is there some larger legal separation in the works?

Barry Diller

No, no, no. Sorry, I'll just quickly deal with that. No. It signals nothing other than I just think it's a more interesting way for me, for my colleagues, and I think for you too, to look at our businesses, 2 businesses plus essentially a scope of optionality for new businesses to become significant. That's all.

Ross Sandler - Deutsche Bank AG, Research Division

Got it. Okay. And then second, Greg, can you talk about the relationship between Core PMC growth of, call it, 8% and accelerating in the next couple quarters? And then the revenue growth, does that reflect the mix between sites, or is that longer-duration subs? What's driving that? And then the last question for Jeff. Search Application revenue was up modestly quarter-on-quarter in the first quarter. Do you expect that growth to continue in 2Q? Will there be any impact from Google policy changes beyond what you saw in the first quarter?

Grégory R. Blatt

Yes, on the digression between PMC growth and revenue growth, I think at any given time, you got a number of different mix issues going on. You've got -- there's always pricing optimization going on at Match. So with geo price, there's different prices in different markets. There is different prices for different packages. They're constantly changing all that. So at any given time, you can see the ARPU from that going up or down. Our intent is always, frankly, to trade longer packages for a lower price because that is much better on a long-term basis, but that does have the impact of driving ARPU down. Then you've got the mix shift between Match and People Media. As I said last year, the Match business, as it's focused on events, lost the step on growth. People Media didn't. So during that period, People Media was growing really well. And it's got 30 brands, all of which have different pricing, but all of which pricing is lower than Match's. And plus they were shifting people out to longer package mix as well. So there has been this digression. I think what I would expect over the rest of the year is for, as I said, Core PMC growth rates to increase. I think the distinction between PMC growth and revenue growth, there will continue to be a gap, but I expect that gap to narrow even as both rates rise. So I think you've seen a period of that mix shift, now with Match growing sort of very steadily, but Match's growth sort of mimicking People Media's growth. That dynamic will reverse itself. But because of the subscription nature of these things, there's a lag time in how the revenue and PMC growth rates match up. So I think that the easiest answer is that it will narrow meaningfully over the course of the rest of the year as the number increases.

Jeffrey W. Kip

And then in terms of your last question, we expect sequential growth in the Applications business with everything we know factored in. We expect the query growth to continue at or above the level it's been at and we expect RPQ expansion, Q2 over Q1.

Operator

We'll take our next question from Jason Helfstein with Oppenheimer.

Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division

Few questions. Just on the last part, can you expand just a little more? I mean, is it fair to say -- we're seeing now -- whatever the Mindspark and the application products look like, that, that won't change? Or the way that consumers use, effectively, we're seeing that business will call run rating right now. Second question, CapEx was a little high, or I guess was high relative to historical levels. Can you comment why? And then on stock repurchases, should we expect repurchases to have a seasonal pattern that looks something more like the company's ability to generate free cash? And I guess, lastly, did you guys pay Martha Stewart for her plug of Match.com?

Grégory R. Blatt

On the last point, I worked for Martha for a long time, so call it a deferred -- call it deferred executive compensation 10 years down the road, but we're very happy that she has chosen to use our product.

Barry Diller

An [ph] enormous amount of publicity. She does generate it.

Grégory R. Blatt

She does generate it.

Barry Diller

Maybe also too, it'll get you some male subscribers who want to date a middle-aged woman.

Grégory R. Blatt

I don't even know what that means. Now I've actually lost the question that was directed at me.

Barry Diller

Well, I said that [indiscernible].

Grégory R. Blatt

Could you repeat the question for me?

Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division

Okay. I need more detail just about the application [indiscernible] my question.

Grégory R. Blatt

Okay. Look...

Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division

But is that product run rating right now?

Grégory R. Blatt

I remember. I remember. Look I think the answer is we don't discuss our policies. We have a contract with Google, that Google requires our confidentiality. We don't disclose it. What I will say is that the outlook we've given incorporates everything that's going to happen. For reference, in Q1 of this year, we actually implemented a policy change that we'd agreed to Google on 1.5 years ago. So things -- but there were offsetting changes that happened at the same time. So I'm not going to say that there are no new changes to come. There will be some changes. But those changes are fully factored into the outlook that we've given. And these are things that we've been able to test, quantify. We understand pretty well, and so I think that they're fully incorporated.

Barry Diller

I want to talk on stock buybacks, and then Jeff will do CapEx. No, there's nothing to be read in this whatsoever. We're not seasonal. We are always opportunistic, and you shouldn't -- although I know you do and will -- take each quarter and say, "oh, that was a nice amount or that was not a good enough amount, et cetera." To us, we bought back nearly half the capitalization of the company.

Grégory R. Blatt

We bought -- we spent $300 million on buybacks in Q4 than -- so it's...

Barry Diller

It is not going to be regular, nor do I believe it should be. Our general thrust has been -- if you look at the past, and the past is a prologue -- has been to shrink the capitalization. Jeff?

Jeffrey W. Kip

In terms of CapEx, you saw the biggest bump you're going to see all year this quarter year-over-year. That's not operating stuff in the sense that you have to realize we own sort of our own real estate. We own pieces of planes with Expedia. And so we're going to basically be at our normal run rate for the year, plus a little bit of extra spends on the real estate side.

Grégory R. Blatt

Yes, but it's not like we've suddenly invested in servers or we're pursuing some high-CapEx business plan in one of our small businesses. These are sort of...

Jeffrey W. Kip

Onetime bumps.

Grégory R. Blatt

Yes, onetime bumps in another sort of nonoperating bucket.

Barry Diller

We're low -- generally, a low CapEx business, so we intend to remain that way.

Operator

We'll take our next question from Brian Fitzgerald with Jefferies.

Brian Patrick Fitzgerald - Jefferies & Company, Inc., Research Division

A couple of questions. You mentioned some technical issues around HomeAdvisor. Did those center around largely SEM or SEO? We're seeing a bit of deceleration in the domestic requests and accepts. Is there any macro pressure there? Was it largely kind of search traffic-related, i.e. it'll go away soon, question one. And two was, in terms of the toolbar business, can you give me some color around to what degree have you implemented Google policy changes around opt-out? Can you remain opt-out for a while? Or is there any type of special agreement there with Google?

Grégory R. Blatt

On question one, the answer, if I remember how you framed it, is yes, which is that the issues we're talking about are largely technical. When you switch brands with different search engines, the amount of time it takes you to sort of rebound on SEO to get credit for your past activities in your SEM prioritization. Everything else can differ. There are certain techniques you use. The gap was wider and longer than we expected it to be, but it is narrowing. So while it is real cash out of our pocket in Q1 and Q2, it is not indicative, we don't believe, of any long-term effect. The brand stuff we've done, in terms of television and everything else, has been powerful, so it's an unfortunate glitch, but it is not any macro pressure. In terms of the second question, I refer to my prior answer, which is we don't and can't discuss those issues. I know that may be frustrating for you. We've given you what we -- what our outlook is, incorporating all of the things that are going to happen. And I guess you'll see them happen over time, but we're just not at liberty to discuss the differences. I will say that...

Barry Diller

We're not at liberty because we have confidentiality agreement.

Grégory R. Blatt

That's right.

Barry Diller

But they're embedded in our relationship with Google, as everybody would expect we would have.

Grégory R. Blatt

Yes, and I think it's not -- we actually -- you used the word policy, and I know Google uses that word generally. But like we have an agreement with Google. It's part of an agreement. It's not part of some general policy thing that they do. And I actually don't even know sort of necessarily what other people are subject to. I know what we're subject to. We negotiated it with Google, and that plays out over the course of the year.

Operator

We'll take our next question from Heath Terry with Goldman Sachs.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

Greg, on the issue of weak CPCs, the 4% decline that Google reported in Q1 was actually the lowest that they've reported since Q3 of 2011. Can you help us understand why that was an issue this quarter when it hasn't really been one that you guys have cited in the past? And then if you could also help us by walking through the decision to shut down Smiley Central. You guys talked about it on your last earnings call as being something, that it generated $120 million in revenue. So I just want to sort of understand how you're thinking about the individual properties within Mindspark and whether you might see more reduction in the number of apps that you guys are offering in the future.

Grégory R. Blatt

I will take the last part first, which is, I'll be honest with you, I didn't even know we shut down Smiley Central. So we have a whole bunch of products. A lot of them have natural life cycles. So if we're not offering that anymore, we're not offering it. We've got a portfolio of...

Barry Diller

We have not gone out of Smileys, I can promise you that. I shouldn't exactly promise you.

Grégory R. Blatt

Yes.

Barry Diller

I would be shocked if we don't offer Smileys. We've been offering them for 100 years.

Grégory R. Blatt

I actually -- I don't -- I wouldn't be shocked, but I will certainly tell you, to the extent we're not offering it but simply because that product has lived out its life cycle, and new products have taken over. But I guarantee you there is no macro issues surrounding the shutdown that you've said had happened to Smiley Central. We actually have an increasing product pipeline. We're offering more products and applications than we've ever offered before. And so if we have, we have, but I guarantee you, it is not meaningful to our business or indicative of anything whatsoever. In terms of the Google CPC issues, I'll turn it over to Jeff, and then I'll add on to the extent that anything comes to mind. But I don't think we comment on Google's CPC issues, meaning they are what they are, and we are subject to them. I don't know, Jeff, if you have any comments on why Google CPCs were lower this -- in Q1 and have rebounded? But I assume Google explains that to some extent on their own call.

Jeffrey W. Kip

Yes, look, I think that they stayed down longer and more than were anticipated, and that's, I think, what's different that's in the past.

Grégory R. Blatt

And I think that it was coupled with -- I mean, what we did say at the beginning of last quarter that -- we did on the ad policy changes that took place back in Q4 that the biggest impact of those were to reduce our revenue per query and that we would then build from there. So it may be that just the double whammy of those 2 things happening at the same time made us call this out, where previously we've grown through it. But we're subject to Google CPCs that's, I guess, that's a burden of our business, but I would say, overall, it's been a huge benefit of it. And this quarter, it went against us, but we've seen it reverse itself.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

Okay, if we're trying to understand the mix between the impact of CPCs versus the policy changes on the deceleration of OIBA growth in Search from 40% down to 7%, how would you break up, Jeff or Greg, kind of what's driving that deceleration? Which one's having the bigger impact? Or quantify for us in some way the numbers around that.

Grégory R. Blatt

The -- again, the business is relatively diverse. I think that on the -- I certainly can't quantify the 2. What I can say is that the impact of the policy side has been absorbed. And we are now growing out, meaning that is a new baseline. It's reflected in these numbers, and now we're growing. On the CPC side, they've also reversed themselves. So Jeff, do you -- are you able to quantify the sort of the -- what the relative contribution was between the CPCs and the policy changes? Again, it's actually -- here's the other reason...

Jeffrey W. Kip

The way to think about is 1/3, 1/3, 1/3 with the international mix, the CPC and the policy.

Grégory R. Blatt

Yes, and the other thing, to recognize this, that it's not linear, meaning when the CPCs and the revenue per query come down, we cut marketing, which leads to meaningful decreases in revenue. So they're not linear. The biggest impact on revenue was the fact that we cut marketing. The reasons we cut marketing were because in this particular quarter, the CPCs and the revenue from the policy changes were lower. So again, we're building through it. We're going to have growth throughout the rest of the year on the RPQ side, and I think it's hard to quantify given the marketing piece of the mix.

Jeffrey W. Kip

And then just the only thing I'd say on Smiley Central, we shut down the desktop version of it because it wasn't ROI positive anymore. We do have a live version of it on mobile right now that we're testing a few features with so...

Grégory R. Blatt

It's a product cycle. We've got a lot of products that have ramped through, and circled up and then circled down. That's the nature of the business.

Operator

We'll take our next question from Mark Mahaney with RBC.

Mark S. Mahaney - RBC Capital Markets, LLC, Research Division

2 questions, please. Greg, I know you talked earlier about these kind of non-traditional Personals businesses, OkCupid, Tinder. You've tracked and been involved with Personals business for a long time, and were running Match previously. Do you think there's a scenario under which, 3 to 5 years from now, those kind of business models could actually become bigger than the kind of traditional subscription models that we've all known over the last 5 to 10 years? And then secondly, on About.com, are you doing anything different in terms of the way that business is being run? Is there a change to the About.com strategy, or are you just letting it run completely independently, or largely independently as it was done in the past? Do you see room for strategy improvement, in addition to just operational efficiencies?

Grégory R. Blatt

On the Match question, I think I would say the following. In terms of users, as I've said earlier, I think we're already seeing that the users in the non-traditional products being bigger than the traditional products. I think in terms of revenue and contribution, I think it's a long way off. And to the extent it happens, I believe it would be driven far more internationally than domestically, although nothing would make me happier. I mean, it's actually -- it's very high margin because you don't have any costs associated with it. But look, Match and Meetic, which are sort of the core subscription businesses, are growing great. I mean, they're growing, that they're going to grow this year double-digit PMCs. And I think what you're seeing is just expanding growth around it. And if that ever laps it and overtakes it, great, that's pure upside for us. I don't see and we haven't seen even in this area of 500% user growth on these non-traditional products, it's not impacting the core subscription businesses. So we think it's upside, and we think it will be great. On the About side, we're very much running it differently. I mean, that's sort of the point, which is we bought this business. We recently brought in a new CEO who is going to execute our plan. But we took people from Ask. We moved them over to About. They brought to bear a lot of things that we understand about website advertising, distribution, et cetera, and that has led to a meaningful increase in the business. And as I said, I think we can leverage that in multiple places, and we're really excited about it.

Operator

We'll take our next question from Nat Schindler with Bank of America Merrill Lynch.

Nathaniel H. Schindler - BofA Merrill Lynch, Research Division

2 quick questions. One for Barry, and this is going to go a little bit on what Ross alluded to, and I'll be -- I apologize for that. But you very strongly said that you weren't looking to do something corporate with kind of the concept of when you split Match and Ask in your discussion. But could you go -- just instead of talking what you could do, talk about why it benefits you to have Match and Ask under one banner? And the second question, for all of last year, you guys were generating quite a bit more revenue growth than query growth in your applications business. That switched this quarter. Could you help me understand why last year it was growing that much faster in revenue? And then this year, what could happen other than Google policy changes? And I'm not quite sure how I understand how they would affect that directly.

Barry Diller

You go first.

Grégory R. Blatt

With the second question? With the first question?

Barry Diller

I'll have the second one.

Grégory R. Blatt

Okay. Look, I think we've said before that at any given time, it's one of the reasons that we've said we can grow at different rates than certain other search providers. At any given time, we're doing things to our business that impact a variety of factors. Sometimes, it's distribution, and we are tapping into new distribution partnerships, new marketing channels, et cetera. On the times [ph] of monetization, we are optimizing pages, et cetera. Last year was a period of heavy RPQ optimization. We're doing lots of things that were driving up revenue per query on our own products, coupled with the CPC increases was leading to really great growth on that side. We said that, that was a period of a specific bump and that we didn't expect that to continue, although we do think, over the year, we'll continue to have RPQ growth through both our own efforts and other. So I think at any given time, that mix of whether our revenue growth is coming from sort of monetization improvement or from query improvements is going to change around. It's also to do with mix of partners. There are some partners, distribution partners that monetize much better than others. And as those partnerships grow and the others decline, you have mix changes. I know it's a little complex, but you've got a lot of different drivers driving these things. And those trends can turn relatively quickly. Barry, on the...

Barry Diller

On the reasoning rationale for why we operate multi businesses under the same house, we've been doing this for a very long time. It has produced -- it does produce some complexity, but it has also produced a pretty large pile of valuable assets. And it's not -- there's no absolute here. At a certain point, at least in my experience with this, at a certain point, some businesses push themselves out because they are fully developed. They have -- they essentially have a need for independence. And it makes sense for us to do so, and we've certainly demonstrated our willingness to do it. The current configuration of 2 businesses to be -- we're in 2 businesses. And then, as I said, we've got a lot of Other that doesn't really generate -- shouldn't generate, to me, too much interest or whatever because it's not -- I'm talking about the specifics of them and queries about them because they are -- as I say, they produce some revenue, but they've produced no net revenue. And when they do, God knows we'll talk about them. Otherwise, I'm comfortable right now with the mix in the businesses. But I would be disappointed if -- and again, this is very long term. I'd be disappointed if our larger businesses didn't essentially force themselves out.

Grégory R. Blatt

I'd also just add on the question of why they are in the same thing, which is when we've done our other spinoffs, we've done it because we actually thought they would operate better outside.

Barry Diller

Of course, they pushed themselves out.

Grégory R. Blatt

That's right. These businesses have been operating great. I mean, the performance of these businesses have been great. It's actually pretty integrated process, meaning Barry and I and the rest of the team here are pretty involved in what's going on in those businesses. It is -- there is a continuum of sort of operations. I think the access to capital, you look just in the last year alone, the ability to go out and buy Meetic, to go out and buy About, both on a dime, were really -- neither of those things would've been able to be done in the absence of this ownership structure. So there while there absolutely could come a time where we think they are more valuable outside of us than within it, now is not that time. They're running great, and we frankly wouldn't shake it up.

Operator

We'll take our next question from Kerry Rice with Needham.

Kerry K. Rice - Needham & Company, LLC, Research Division

Just a couple questions about Meetic and the Personals in general. I think you guys have been spending a little bit more on marketing for Meetic, and that obviously showed up in some acceleration in the subscriber growth. And this may be a clarification from what you said earlier. But when do we -- when do you expect revenue kind of to speed up to match some of that subscriber growth for Meetic? And then the second question is just, in general, do you think there's opportunities for additional consolidation within the Personals market?

Grégory R. Blatt

Yes, on Meetic, I think if you look at -- if you go back and look at historically and you see whenever you're coming from -- whenever you're doing a PMC turnaround, you're going to see a meaningful lag in revenue growth behind PMC growth. If you go back and look at Match in 2009, I think you'll see that PMC growth. The waterfall effect of old subscribers running off has a real sort of impact. So I think that -- I think what we think -- what we said, which is we think we're going to get into double-digit PMC growth in the business this year in Meetic. We think we're probably going to be mid- to high-single-digit revenue growth. And then next year, that revenue growth will reflect this year's PMC growth. So that's just the accounting physics of that business. In terms of consolidation, yes, there's always room for consolidation in this business, especially internationally. I think domestically, there's nothing that we need to own, meaning we've got sort of everything checked off. That doesn't mean there's not continuing opportunity. And internationally, I think there's a lot of room for consolidation, and we're looking at it all the time. And I think our pace of M&A has been actually a pretty steady drumbeat over the last 4 years in the Personals business.

Operator

So we'll take our last question from Michael Graham with Canaccord.

Michael Graham - Canaccord Genuity, Research Division

Just a question on buybacks just getting a little more granular. Can you just comment on what, in the short term, is going to drive how much stock you buy back, is it stock price mostly, how much cash you are currently generating? Second, just a quick update on -- it looks like you ended the quarter with $670 million or so in cash, and you've talked about $500 million as a comfortable level to be at. Could you just give any updated thinking on that? And then finally, if you could comment on what we should expect from new share issuances. It looks like you bought back 1.4 million of shares. The share count went down by about 600,000. So just comment on that new share issuance pace. Should that be steady and predictable, or how to think about that?

Barry Diller

Well, new share issuances, for us, is solely out of executive compensation in terms of options, other. And we're on a -- we've been on a relatively steady state on that, God, over a very, very long period of time. I don't think it is going to rise or fall in the future. As far as buybacks themselves are concerned, look, our -- what we do with our cash is, first, we look as to whether or not there are things we want to invest in, either businesses that are growing or businesses that we want to acquire. After that, it's based upon, of course, how much gross cash we have and how do we repatriate it to shareholders. We instituted dividend a while ago, and we've certainly been active in purchasing stock. We'll continue to be, but we will be opportunistic. And we don't think that -- there's no roadmap here, and I understand the desire for investors is more than often to say just buyback stock and look for any signs or indications. Our overall signs are so overwhelming in that we -- as I say, we bought back almost half our capitalization. So you know where our bearing is. And other than that, it's going to opportunistic. I think that summarizes your questions. So I would say, on behalf of my colleagues, thank you, and we will be back with you in 3 months. Have a nice day.

Grégory R. Blatt

Thanks, everybody.

Jeffrey W. Kip

Thank you.

Operator

And that concludes today's presentation. Thank you for your participation.

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