RetailMeNot's CEO Discusses Q3 2013 Results - Earnings Call Transcript

Nov. 5.13 | About: RetailMeNot, Inc. (SALE)

RetailMeNot, Inc. (NASDAQ:SALE)

Q3 2013 Results Earnings Call

November 05, 2013, 04:30 PM ET


Mike Magaro - Vice President, Investor Relations

Cotter Cunningham - President, Chief Executive Officer and Founder

Douglas Jeffries - Chief Financial Officer


Mark Mahaney – RBC Capital Markets

Brian Fitzgerald – Jefferies & Co.

Deb Schwartz - Goldman Sachs

Stephen Shannon - Morgan Stanley

Ralph Schackart - William Blair


Good day, ladies and gentlemen and welcome to the RetailMeNot Q3 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would like to now introduce your host for today’s conference, Mr. Mike Magaro. Mr. Magaro you may begin your conference.

Mike Magaro

Great. Thanks Candice. Thank you and welcome everyone to RetailMeNot’s third quarter 2013 earnings conference call. This is Mike Magaro, Head of Investor Relations for RetailMeNot. With me on the call today are Cotter Cunningham, RetailMeNot’s Chief Executive Officer and Doug Jeffries, Chief Financial Officer.

Before we begin, actually I know there is some trouble in some of you being able to access the press release. So it should be on the web now. There's two sections in which you can find it, under Events and Presentation or in the Quarterly Result section. So apologize for that inconvenience, but everything should be on the site now.

So let me take the opportunity to remind you that during the course of this conference call, management may make forward-looking statements, which are subject to various risks and uncertainties. These include statements relating to expected financial results such as net revenues, adjusted EBITDA and net revenues per visit as well as non-financial metrics such as visits to our website, mobile application downloads and app sessions. Actual results may differ materially from the results predicted and reported results should not be considered as an indication of future performance.

Also I would like to remind you that during the course of this conference call we may discuss the non-GAAP measures when talking about the company’s performance. Reconciliation to the most directly comparable GAAP financial measures are provided in the tables in the earnings release issued today and available on the Investor Relations Portion of our website at

In addition, after our prepared remarks we will host a Q&A session. To ensure everyone has ample time to ask questions we ask that each of you limit the number of questions to a maximum of two and then can circle back in the queue, if you have additional follow-ups.

Also on the Investor Relations portion of our website you will find the CFO commentary, which summarizes our financial results for the third quarter and also the third quarter key financial metrics and operating results presentation. These two documents provide useful information on our results for the quarter and key operating metrics.

With that, I’ll now turn the call over to Cotter.

Cotter Cunningham

Thanks Mike. And welcome everybody to our third quarter 2013 conference call.

On today’s call, I’ll start by summarizing our operating results for the third quarter. I’ll provide an update on our business and then finally I’ll close with some comments on the fourth quarter, which is seasonally our strongest quarter before turning the call over to Doug Jefferies, our CFO, who’ll give us a more detailed look at the numbers and the updated outlook. So with that, let's review the third quarter results.

I am very pleased to report another strong quarter for RetailMeNot. Total net revenues grew 39% year-over-year to over $47 million. In our international business, net revenues grew to approximately $10 million, that’s growth of 56% year-over-year.

Our net revenues from mobile were approximately $6 million; that represents about 12% of total net revenue. While we continue to make significant growth focus investments in the quarter, we delivered adjusted EBITDA of over $16 million and adjusted EBITDA margins of approximately 35%.

In the third quarter visits grew 19% year-over-year to approximately $132 million. Growth in visits was primarily driven by our mobile web, which excludes mobile app visits and represents 27% of total visits, that’s up 18%. It's up from 18% a year ago.

Our mobile apps are playing a major role in deepening our direct engagement with customers in the third quarter. Cumulative downloads of our mobile apps totaled $8.8 million that’s up $1.7 million from the second quarter and we saw Mobile App User sessions up to $46 million for the quarter.

As we’ve discussed previously, RetailMeNot is benefiting from several secular trends that support our long term growth potential. First, consumers are increasingly using desktop and mobile devices to make informed purchase decisions in the shop online according to IDC’s global economic market place. This is expected to grow at a CAGR of 18% over the next five years.

Second, the proliferation of smartphone devices and tablets makes mobile commerce one of the fastest growing retail channels. According to IDT, mobile commerce is expected to grow at a CAGR of 36% over the next five years or double the anticipated growth rate of the broader consumer eCommerce market.

Third, the effective digitalization, mobile connectivity and social sharing has empowered consumers and is fundamentally changing the relationship they have with brands and retailers. We believe many retails are reallocating marketing budgets for those channels that consumers are increasingly using to make purchase decisions.

Finally, the emergence of digital offers and a mindset of savings have changed our landscape. According to our recent study by e-Marketer more than half of U.S. adult internet users or about a 103 million people who redeemed a digital coupon via any device for either online or offline shopping. The number of people who redeem digital coupon is expected to increase 11% this year, that’s more than double the previous estimate.

New mobile users are expected to be the primary growth driver for the digital coupon market. The role of digital marketing solutions in commerce, both online and offline is evolving rapidly. Businesses like ours are at the confluence of several significant trends, so we’re excited to have achieved our position as the world’s largest digital coupon market player.

We continue to reinforce our position, not only by helping consumers save money, but also by creating an efficient channel for leading retailers to engage with a large enthusiastic audience. We are very excited about the opportunity ahead. I would like to talk a little bit more in detail about some key areas we are focusing on to drive growth and monetization.

First, improving our consumer experience; second, developing our mobile and in-store channel and third, expanding our retail relationships. I am really pleased with the progress our product and tech teams are making continuously enhancing the consumer experience across all of our platforms.

We recently rolled out new page template for web and mobile websites. We also improved navigation on these sites to make it easier for consumers to find the best offers and more importantly to actually make purchases. We believe these enhancements provide a visually cleaner and more efficient experience for the consumer, which in return will help traffic and improve monetization.

In addition, we are also strengthening our platform to facilitate cross-channel consumer engagement. Last quarter we had the ability to save a coupon on our RetailMeNot mobile app and website and have it available for later use on either platform. This quarter, we've extended our geolocation capabilities beyond the app to the RetailMeNot desktop site in order to enable the delivery of more relevant content to consumers based upon their location regardless of the website they are using.

Coupled with the geolocation capabilities in our RetailMeNot mobile app, we now have the ability to geo target offers across multiple RetailMeNot platforms. Beyond improving the consumer experience, we believe that omni-channel type of capability significantly enhances the value we can offer our retailers.

Ultimately a great consumer experience comes down to our ability to deliver the best offers wherever and whenever consumers want to shop. The reliability and breath of our offers has been a key differentiator for RetailMeNot and user generated content has been an important part of our success.

During the third quarter more than a third of our content came directly from our community of users. We strived to ensure that all of our offers work and to-date assessing the quality of the average spending inventory has been a very manual process.

I am pleased to announce that we have recently acquired Zing Deals, a company focused on coupon validation. The Zing Deal team is joining us here in Austin. Their proprietary offer verification technology will be integrated into our business ,first in the U.S. but eventually worldwide. It’s a great team and they are hyper focused on solving a problem we care very much about. I believe Zing deal’s patent pending technology will help us in delivering the highest quality offers to consumers on the Internet today.

Turning to in-store, we continue to see strong progress with our initiatives. Mobile app downloads and user engagement metrics continue to improve. We now have over 3,000 geofence retail locations including shopping centers out at malls and free standing stores that’s up from 1,100 as of our last conference call. In September roughly one-third of our mobile app sessions were triggered by one of these geofences.

We are also seeing strong retailer demand for our in-store technology and are now collaborating on in-store promotions with 65 retailers that includes Colls, J Crew, Toys"R"Us, Aeropostale and Saffora, just to name a few. As we have said many times it’s still the early days but we are encouraged by both the consumer and retailer interest we are experiencing.

I want to highlight a few themes we have heard from our October partner conferences. It was a fantastic event hosted by our terrific partner management team, both in the U.S. for our EU retailers and in Austin for our U.S. retailers. I attended both events and was really impressed. Nearly 50% of all U.S. ecommerce was represented in the room at our U.S. event. We spent two days talking with our partners about their business and how we can help support and grow their omni-channel initiatives. We had a number of great speakers including bestselling author, Seth Godin who was just fantastic.

Here are few of the themes we heard in the event. First, we were viewed as a strategic partner. Our brand strength and ability to deliver growth across our partners channels and platform sets us apart from our competitors. We believe our investments in driving awareness and brand recognition are paying off.

For example in an unrated online coupon awareness study recently conducted by an independent third-party was mentioned by consumers twice as much any other coupon site. Our partners are acutely aware of our growth and success and view it is a positive for their business.

Second, our early success in driving in-store sales has been well received. Many partners have indicated that they plan on ramping up or testing in-store campaigns in the coming months and I really feel a quickening of the pace here.

Lastly RetailMeNot is viewed as an innovator in our space, providing opportunities to support our partners' long-term growth initiatives and enabling partners to drive significant sales. Feedback from our partners is very important and so we take it extremely seriously. We are focused on expanding net revenues from our largest retailers and brands.

Before I turn the call over to Doug let me close with some thoughts on our very important seasonally important fourth quarter. As you can imagine much of what we do all year is geared toward the holiday season, it’s really fun, it’s a little crazy. We literally have teams working 24 hours a day from the Tuesday before Thanksgiving until the Tuesday after Cyber Monday.

The holiday season tends to be a very promotional period which provides us with significant opportunities to attract new consumers to RetailMeNot. We will continue our investments focused on increasing brand awareness through media channels such as TV and online marketing.

We’ll also focus our efforts on initiatives that create a long-term relationship with the consumers like downloading the mobile app. Finally we have some promising in-store initiatives with leading retailers that will help position us as we expand our role in digital marketing.

In summary we are excited about our strong third quarter results which continue to underscore our leading digital coupon marketplace. We believe we are well positioned to capitalize on the $28 billion opportunity we have before us.

Now let me turn the call over to Doug for some more details on the quarter.

Douglas Jeffries

Thank you, Cotter. Hello everyone thanks for joining us. As we walk you through the results for the quarter please note that my comments on growth rates will refer to year-over-year comparisons unless otherwise indicated.

As Cotter noted we achieved strong result in the third quarter across many of our key operating and financial metrics. These results demonstrate the progress we are making in expanding RetailMeNot’s position as the world’s largest digital coupon marketplace.

Net revenues were $47 million, up 39% as we saw strong growth in consumer business to our website and continued strong monetization. Our organic growth rate which excludes the impact of acquisitions was 35%.

Net revenues from our mobile products were $5.8 million in the third quarter, up 190% and growing to 12% of our total net revenues. International net revenues were up 56% to $9.5 million now representing 20% of total net revenues. We built leadership position in key European markets, we are number one in the UK and France and are optimistic about the long-term prospects for our international business.

Net revenues per visit were $0.36 in the quarter, up 17% reflecting our progress in improving the consumer experience through enhancements to our desktop and mobile products and our continued focus on delivering the highest quality offers.

While net revenues per visit is a convenient short hand approach to assessing monetization trends it's important to keep in mind that our net revenues are driven by consumer purchase transactions not visits.

We earn commissions when consumers visit us and then they purchase from our paid retailers. Increasing use of mobile devices with [trend] to the store net revenue per visit trend as consumers use of mobile devices differs fundamentally from the behaviors we see on the desktop.

We believe many of our mobile web visits and mobile app sessions are for research and offer discovery that lead to transactions taking place on larger screen format such a tablets or desktops. Ultimately we believe the increased frequency of consumer interactions with our content made possible by mobile devices will result in increased sales volume for our retailers and increased commission revenues for us.

Looking at total visits we experienced approximately $132 million consumer visits during our third quarter, up 19%. Growth in consumer business was driven by mobile web, which is up 82% year-over-year, 18% sequentially and represented 27% of our total visits. Mobile web business includes any visit to our mobile websites from a tablet or mobile phone but excludes mobile app sessions.

Consumer engagement with our mobile app continues to be strong as reflected in the $46 million sessions in the quarter, a sequential improvement of 74%. We believe the growth in mobile app sessions was fueled by a combination of an increase in our installed base, extension of our geo-fence locations, increased frequency of our mobile deal alerts and an increase in retailers use of our in-store offer platform.

We've been investing to extend our mobile product offerings and to increase consumer awareness of our mobile applications and our in-store offers and we are very encouraged by the strong results we are seeing.

We believe these solutions offer enormous potential growth as retailers and brands embrace digital marketing solutions. However it's important to keep in mind that we are in the very early stages of an adoption trend for these solutions that will likely play out over several years, as retailers and brands adjust their marketing strategies to better leverage digital technologies to reach offline consumers.

While our websites and mobile products are showing very strong consumer engagement metrics we are also continuing to see strong demand for our e-mail newsletters. During the third quarter worldwide subscribers to our e-mails increased to 13.9 million, up 81%. Growing our e-mail subscriber base expands our relationship with engaged consumers and helps bring direct traffic to our sites contributing to revenue growth.

Now looking at some of our key investments and operating results in the quarter, we continue the balance spending approach we’ve followed for the past year and increasing investment in those areas we believe will enable long term growth while continuing to maintain strong operating margins.

During the third quarter our revenue growth allowed us to continue an increased level of investments in building our teams and our technology platforms, increasing brand awareness and expanding consumer engagement while at all the same time delivering adjusted EBITDA margins of 35%.

While we are investing to expand our internally developed technology platforms we also look for opportunities to accelerate our technology development through acquisitions. As Cotter mentioned we completed a technology acquisition in early October for proprietary offer verification capability that will enable us to improve content quality and scale more efficiently as our offer volume grows.

From a financial perspective the acquisition is expected to reduce adjusted EBITDA by approximately $700,00 in Q4 and $1.4 million in 2014. Fundamental for investment strategy is building the teams and culture that will allow us to sustainably scale our business. In the third quarter we continue to make good progress in attracting talents to our company, adding 41 people on the quarter and exiting with 414 employees.

Most of the additions to our teams were focused on our product and technology and operations teams. We plan to continue to invest in the people that are key to our growth initiatives and expect to exit 2013 with 440 to 450 full time employees.

A few quick items before we turn to guidance. First, as we noted last quarter , our GAAP EPS reflected in the income statement does not include the common shares issuable upon conversion of our preferred shares for periods prior to the IPO.

With the completion of our IPO in July our preferred shares have now converted to common shares. For purposes of computing historical EPS on a basis consistent with our EPS calculations going forward we provide a table in the earnings release that calculates pro forma historical fully diluted shares outstanding as if our preferred shares were converted to common.

Second it's important to keep in mind that the seasonality inherent in the retail business cycle affects our operating trends. We historically experience the highest level of visits to our websites and our highest net revenues in the fourth quarter of the year which coincides with the winter holiday shopping season in the U.S. and Europe.

In terms of cash flows the seasonally strong holiday revenue trends and our normal 50 to 60 day collection cycle results in lower cash flows relative to revenues in our fourth quarter followed by very strong cash flows in our first quarter. And lastly there is a potential that consumer spending this year may be affected by a shorter holiday shopping season. It's unclear what impact if any the shortened season will have on consumer spending patterns but historical seasonal trends may not be indicative of results for this year.

Now turning to our outlook, for the fourth quarter we expect net revenues in the range of $66 million to $69 million which equates to 33% growth at the midpoint. For the full year we expect net revenues in the range of $197.4 million to $200.4 million resulting in approximately 37% growth at the midpoint. For the fourth quarter we expect adjusted EBITDA to be in the range of $26 million to $28 million or 40% adjusted EBITDA margins at the midpoint.

And for the full year we expect adjusted EBITDA to be in the range of $76.3 million to $78.3 million or adjusted EBITDA margins of approximately 39% at the midpoint. For full year 2013 modeling purposes depreciation and amortization expense is expected to be approximately $14 million and stock-based compensation expense is expected to be approximately $10 million.

CapEx is expected to be approximately $7 million in 2013 primarily reflecting investments and facilities to accommodate our larger employee base. We expect our full year effective GAAP tax rate to be approximately 40% and lastly our weighted average fully diluted share count for the fourth quarter should be approximately 53.3 million shares.

On a full year pro-forma basis assuming preferred shares are converted into common we expect the denominator for our weighted average fully diluted share count to be approximately 50 million shares.

Although our 2014 planning is not yet complete we thought it will be helpful to provide a preliminary look at our first quarter 2014 outlook, especially given the impact of seasonality on our business trends. For the first quarter of 2014 we expect net revenues in the range of $51 million to $53 million which equates to a 28% growth at the midpoint. We expect adjusted EBITDA to be in the range of $16 million to $18 million or 33% adjusted EBITDA margins at the midpoint. We’ll provide our full year 2014 outlook on our next earnings call.

In closing we saw very positive trends across our key metrics in the third quarter including traffic volume, net revenues and monetization. We believe our strong operating performance is driven by the investments in people and innovation we have made today and highlights the opportunity we see in the very large markets we are addressing.

With that thank you for your time and we’ll now take questions.

Question-and-Answer Session


(Operator Instructions). Our first question comes from Mark Mahaney. Sir you may begin.

Mark Mahaney – RBC Capital Markets

Thanks, two questions please. Cotter you talked about these 3,000 geo-fence locations, could you just give us little more context on that? I know that you talked about the sequential growth. But what is that number, if that roll out is successful what is that number, should that number be or how many potential geo-fenced reasonably potential geo-fenced locations are there and then real briefly on the mobile side of the business can you talk about what you see with those mobile visits and the mobile users? Are those just people who are already desktop so you just expanding you engagement with them, is it a new type of user that’s coming in and if so how are they different than the desktop visitors you had in the past? Thank you.

Cotter Cunningham

Yeah thanks, Mark great question. So essentially I think we would predict -- we do foresee maybe is a better word there, that the growth in geo-fencing will slow. What we are doing right now is working through a backlog of requested malls and stores and strip centers that people have sent to us, for a variety of reasons they said hey there is this big mall in my neighborhood you didn’t have, or one of our employees said there is not a mall and our -- that I am aware of that going.

So we worked hard to add the malls and store locations that people have asked for. In addition we’ve also identified chunks of the country that give us good coverage sort of U.S. wide for the holiday season. So areas that we’ve felt like we were under represented we needed better penetration for the holiday.

I think we’re not predicting that this number continues to grow at this pace. However we do believe that there will continue to be a series of sort of in filling for lack of a better word, where we’ve identified the stores we want to target or we are working on a specific set of malls or something like that. So I think the pace will slow a bit but we’ll continue to be fairly strong.

In terms of the profile of the users I think it’s a mix and I know that sounds like a comp out but it really is true. Certainly a large percentage of our mobile users are users of our site and that’s just a function of the fact that the site is so large and has so much traffic today of course given the profile of that user, the website a large percentage of the people that want the app are already familiar with this and have used this et cetera.

In addition there is a type of customer that seems to be more of a mobile only customer and I would say it’s a pretty small number but it’s younger and in demographic and slightly more female, that I have seen. So kind of mobile only if that makes sense. So the younger and little bit more female, but in general spending patents are still the same.

The other thing that’s interesting is we are still seeing the mobile being used primarily for search and discovery and execution or sales if you will occurring at the desktop. So it’s kind of the thing we talked about throughout the history of the company and the public history of the company we definitely see people using the app to learn more about sales, learn more about deals, learn more about coupons, find coupons but then actually make the purchase via the desktop.

Mark Mahaney – RBC Capital Markets

Thank you, Cotter.

Cotter Cunningham

Sure, thank you.


Thank you. Our next question comes from Brian Fitzgerald. Brian you may begin.

Brian Fitzgerald – Jefferies & Co.

Thanks, a couple of questions. As a follow-on Mark’s question, in terms of the geofence triggering the mobile app session 33% of the time. Can you give us some trajectory of how that’s ramping, where do you think it gets to at maturity as you roll out these geo locations. And then in terms of your traffic and visits growth can you delineate maybe if it’s new users versus repeat visitors or what you are seeing on that front? Thank you.

Cotter Cunningham

Sure. I will be honest on the trajectory of the mobile user. We think it’s really too early to kind of came a call on where that number goes and the reason is this time last year that number was zero. So we are still sort of learning about the customer and about where they are going. I will say though we love the push aspect of the technology. I mean to me that’s the customer that you may or may not have gotten to remember hey I have got this app. I should go check it you know you are pulling them all, your app makes like a chink noise and you pull it out of your pocket and go hey I think I see what’s on sales.

So we love this sort of push aspect or the reminder if you will that even if you, we basically tell consumers download the app and just forget about it and it will remind you when there is a sale around you and that we think is super powerful. We are seeing similar rates of acceptance around geofencing as we have had previously so 70% to 80% of the people who get the app accept the geofencing technology or the ability for us to track them. So we haven’t seen any increase or decrease there and really feel good about that.

Could you do me one favor, could you repeat the second half of your question?

Brian Fitzgerald – Jefferies & Co.

Yeah, sure and then the second question was when you look at traffic, source of traffic to your site organic direct, paid, any notable dynamics in the mix going on there?

Cotter Cunningham

No, I mean we have seen direct traffic albeit it represents a smaller percentage of our total traffic than we like. It is continuing to grow at an incredibly rapid rate but today organic still represents the majority of our traffic and we don't see that changing for the short term for sure. So no significant change, no. Paid search is still kind of high single-digits. It’s been that way for some period of time. No significant changes from when we met previously.

Mark Mahaney – RBC Capital Markets

Great, thanks Cotter.

Cotter Cunningham

Thank you.


Our next question comes from Debbie Schwartz with Goldman Sachs. Ma’am you may begin.

Deb Schwartz - Goldman Sachs

Great, thanks. Cotter so you mentioned the potential impact of the shorter holiday season in Q4 just taking a step back and thinking about the broader macro retail environment you know seeing a little bit of weakness broadly in retail. I am curious if you are seeing any impact on your business or sort of change in retailers behavior as it relates to the initiative that they have on RetailMeNot.

Cotter Cunningham

Yeah so far I would say we haven’t seen any changes, the consumer demand is there, retailer demand is there. I wouldn’t say it's increased or decreased, from say this time last year. And it's been pretty much -- this is a -- I mean to be very clear this is a very high demand kind time of year.

Our customer is extremely valuable for the next twelve weeks, it's valuable around, make no mistake but it's newly valuable for the next twelve weeks, because retailers understand in their hearts that there is the sort of hard deadline that I have to go home on Christmas Eve with a present for my wife, with my kids. So I got to buy it at some point right.

I may delay it for Christmas Eve but I eventually have to buy the gift and they know that and so that sort of forced deadline gives retailers the confidence to ask for the sale if you will and I think they don’t forget it. So we are not seeing a change to that. I think our concern is just more in the past we’ve seen shortened holiday seasons that represented slightly less spending because there is one last weekend this year the compressed sort of season between Thanksgiving and Hanukah and then Christmas is the sure, it's been in some time as it was only I think three or four Saturday, four weekends between the two and we are nervous a little bit about what that represents in terms of spin, but don’t have any particular data points in which to pull in.

Deb Schwartz - Goldman Sachs

Great that’s helpful. I mean and just one other question if I may. Just wondering your desktop traffic notwithstanding you have seen extremely strong growth in mobile traffic. But any impact you are seeing from the recent algorithm changes Google has made?

Cotter Cunningham

No, it's hard for us to -- we’ve never seen a cause and effect in terms of Google makes a change and we see a direct noticeable change in our traffic. I want to be very clear we constantly see wins and losses if you will in organic search, and today we are a hero for a specific type of coupon search and tomorrow we are gone and that occurs at some levels. As I said on the words we track we represent a huge majority of the traffic to those words versus our nearest competitors.

So we may have ebbs and flows if you will but nothing significant over long term.

Deb Schwartz - Goldman Sachs

Great, thank you.


Thank you and our last question comes from Scott Devitt with Morgan Stanley.

Stephen Shannon - Morgan Stanley

Hi this is Steven Shannon for Scott. Cotter you had mentioned that you are now in 3,000 malls and have relationships with like 65 retailers for the in-store piece. Could you give us what was that number of retailers last quarter and then how do you envision the kind of the monetization model for the offline piece evolving as you kind of deepen your relationships with retailers? Thanks.

Cotter Cunningham

Yeah and so it's about 50 retailers in Q2, and then we mentioned the number of malls it went from kind of 17 -- 1,100 to little over 3,000. So excellent growth there. I think you know the model around in-store monetization continues to change. We are trying although 60 to 65 retailers we are working with today we are trying a bunch of different models, everything from the our traditional commission model, the CPA that you know and know well and we certainly know well, to subscription, cost per click

I mean we are experimenting with a bunch, especially with some of the one’s that are spending lower volumes. And I think it's all in an effort to better understand how can we most easily tie our traffic and demand to retailers ability to pay and interest in paying. And so we feel like there is a bunch of things we can do to kind of experiment learn here. We are very much see this is the early days and so once you got the kind of model that that we feel really click with us and retailers I think you’ll see us turn on the gas a bit.

But for the short term it's still very much a -- we are very open to testing a variety of model, and I am happy to go into more detail in that if you are willing.

Stephen Shannon - Morgan Stanley

I mean is there I guess a prevalent model that is being used right now or is that just or are you testing different models within the same retailers are you is you are kind of that you are taking a different. I mean I guess it would be help for us to understand how you are thinking about testing and kind of showing the results to the retailers?

Cotter Cunningham

Sure, I think we’ve done both we’ve done in general to be clear the main model we’re working on is still our traditional commission-based model where we take a very small percentage of the overall sales that we drive, there is no upfront and the retailer only had to share with us some of the backend proceeds.

There are times in which the retailer doesn’t or isn’t enabled to track specifically to a sale or doesn’t want to. And so we are working with retailers that are focused on models like that to do things where may be there is an upfront payment we approximately value at roughly the traffic will drive or there is couple of click models that we’ve experimented and these are mostly with different retailers but we have done for at least one retailer we have try four different models just to try and work with them and see what resonates with them and with us.

And each time the trick was experimenting with the retailers as they tend to be they have to be open to talk about their success and so that helps us sort of calibrate for the future and them as well and they typically very willing to work with us on a very open basis to kind of learn and move forward so very much a partnership.

Stephen Shannon - Morgan Stanley

Okay, great. Thank you very much.

Cotter Cunningham

Thank you.


Okay. And our next question comes from Michael [Persell]

Unidentified Analyst

Hi thanks for taking the question. Cotter I am wondering if you could just give us a sense of how the ecosystem for the coupons sites are doing overall and if you think you’re still gaining share within that net shopping, your growth and your visits et cetera. And then secondly for both of you guiding for the first quarter right now there has been, the outlook looks good just wondering how do you set up that guide are you looking in terms of your traffic trends keeping up additional pace or do you have partner contracts already with a lot of your retailers in place and just how do you formulate that outlook here in the first week of November? Thanks.

Cotter Cunningham

Sure, so let's see the ecosystem for coupon in general I think we are still gaining share. It’s difficult for us, as you know many of our competitors are small and private and so it's difficult for us to have insight into their revenues. But my personal opinion is that yeah, we’re still gaining share versus some of the smaller players in the space.

We hear that from retailer as well but again it’s sort of rumor and you [end as] opposed to facts and spreadsheets. Yeah, I think that’s fairly right.

In terms of Q1 guidance I’ll let Doug.

Douglas Jeffries

Yeah Michael it’s what you would expect I think for the outlook, it's kind of looking at what we are seeing in terms of the traffic trends, incorporating how we think about spending, market spend investments in Q1, and the kind of the conversion monetization trends we’re seeing as well and rolling those up into that point of view that we talked about for Q1.

Unidentified Analyst

Okay. Within that you assume the growth rate trends that you are seeing now between the U.S. and international buckets continue or do you expecting higher within the international?

Douglas Jeffries

Yeah I guess we didn’t really want to give guidance to on 2014 trends necessarily, what we want to do is highlight or remind folks there is a seasonal pattern here and the fact is the seasonal trends if you go back and look at our history may not be representative of what we’re seeing right now. So we want to share our point of view around Q1. We are in the middle of planning ’14 and we’ll have more in-depth conversation on the full year outlook and the trends we’re seeing in the next call.

Unidentified Analyst

Okay. Thank you.

Cotter Cunningham

Thank you.


Okay. And our next question comes from Ryan [Dimianti].

Ralph Schackart - William Blair

Hi it’s actually Ralph Schackart. Cotter I was just curious I apologize I jumped on later if this has been asked. Just curious if there has been anything on the RetailMeNot site that’s from a marketing and branding standpoint for Q4 that's trying to push mobile traffic and or monetization or anything you are seeing from retailer behavior be it proprietary coupons or special incentives to really sort of drive the mobile holiday traffic and monetization, thanks.

Cotter Cunningham

Yeah, I don’t want to say too much but we definitely have at least two marketing promotions for Q4 that we’re excited about that are specifically geared to one is especially geared to driving mobile downloads and mobile usage. It’s important to note that our downloads we typically are only paying for that 20% of that number.

So the bulk of the downloads are still organic in nature and voluntary if you will. We really want to encourage that and see that continue to grow. So anything we can do to [inaudible] the consumer via getting you download the app or getting you getting you to sign up for email as opposed to just having you click on a keyword and you page search or make a purchase. You know the win is establishing the relationship.

So in general the bulk of our spend is geared towards the developing this long term relationship as opposed to counter short term revenue win if you will and then there’s nothing wrong with the short term revenue win but it only pays for itself kind of that one-time. And so we definitely are shifting our spend and focusing much more on kind of that long term play.


Okay and I am showing no further question. Ladies and gentlemen that does conclude your call. You may now hang up.

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