Excerpt from the transcript of IAC/Interactive Corp's (IACI) conference call:
CFO Tom McInerney
...Ask.com continues to grow queries at a rapid pace in the U.S. and declines at Ask in the UK while still disappointing, are showing signs of lessening. Our syndicated search and Fun Web products businesses both exhibited strong query and revenue per query growth with the latter business benefiting significantly from the highly successful launch of our Zwinky product, a personalized avatar which can be used for chat, social networking and other places on the web and desktop. This latest innovation, which added 1 million registered users during the quarter, accounted for over half of the new downloads in the quarter and is just one of many examples of the business’ ability to create products that resonate with its audience...
COO Doug Lebda
At Ask, we are definitively taking share. Ask.com share was over 2.4% in September, up from 2.18% last year. Query growth for the quarter was equally strong, up about 30%. According to ComScore, Ask traffic was up 46% in September compared to September 2005, second only to Google in terms of growth. And, we now lead AOL in search rankings for IAC Search and Media.
Innovation will continue across the search and media businesses. At Ask.com, we fundamentally believe that we have a great search product, and future releases will be even better. We recently launched Ask Mobile, where you can locate what you need on any web-enabled phone with a few key strokes, with faster page loads and better navigation...
And later in the Q&A:
Justin Post - Merrill Lynch
Thank you. Can you talk about Ask’s proprietary growth versus network growth, why is network outperforming so much? And then if we do the math, you said queries are up I believe 30%, we have got to assume that the monetization is improving as you work with Google. What is the sustainable growth rate for proprietary going forward?
Let me hit the first part of that and then let Tom pick up on the numbers. First off on the network that is really driven, these two things are related but also very independent: the network growth is driven by great products and consumer applications and portals. That business will grow share largely independently based on how great their products are. They’ve got great products in Smilies, they’ve launched a great new product in Zwinky, and they innovate like crazy and launch new products all the time.
Proprietary is obviously direct domain Ask.com and that is based on consumers hearing about Ask, either through TV advertising or online and coming to Ask.com, purely direct domain. A big driver of that is the interrelationship between visitors and frequency and how many times they come; and retention, that we actually retain them month-over-month.
In addition to some of the strong performance we have seen in our syndication businesses is as we have referenced a couple of times, the UK, AskUK, which is a proprietary business has declined and continues to decline including this quarter. So while Ask.com U.S. is doing terrifically, the U.K has declined so that is weighting down that proprietary number and that is also related to your question. We mention that query volume growth, that’s really a U.S reference. When you layer on the higher monetization, that gets offset by some of the revenue declines we’ve seen in the international markets.
As to sustainability that’s to be seen. Obviously it’s a big market, it is growing quickly and we have a small share and we are firing on all product, marketing and everything else we see as an opportunity to continue to drive that. We expect it to continue, albeit at what rates is to be determined.
Part of the UK, we made a management change some months ago, I don’t know how many months ago. I think we have gotten it back in hand. it is going to take a while, I think, for us to get competitive again, but I think we are on our way there.
... Heath Terry - Credit Suisse
I was wondering if you can talk about the Ask integration into the rest of the network. How far along would you say you are with that? Are you at a point where you feel like the heavy lifting in that integration is complete? And if so, to what degree are you seeing the ecosystem building the way you envisioned it when you first bought the company?
Let me touch on that. I think it’s safe to say we are still in the very early days of integrating Ask. It will be integrated in two ways. Clearly, for example, you have got the search boxes on all of the IAC properties and those search boxes are beginning to propagate inside of the search experience. For example inside of CitySearch you can place it in the right place for search queries that makes sense and inside that product. But it’s still small and still early days.
We are also working with each of our businesses on toolbar distribution. As our sites want to maintain a presence with their customers with a toolbar that they can download we’ve got those that we are starting to work on. Then you have got the reverse integration, if you will, which is integrating the IAC properties inside of Ask.com. That is beginning, I would say, and we are working on it and we are working with the product teams at Ask.
The very good news I would say on all of this is the people inside of IAC are very focused on this and understand that it’s incredibly important and are open to it. So we talk to the people at the businesses and they say, let’s find a way to help Ask grow share and we talk to the people at Ask and they want to integrate within IAC to differentiate their product from others but we are still in the very early days.
... Robert Peck - Bear Stearns
First of all on Ask, do you talk about what the growth was when you strip out any of the traffic coming from affiliated properties? Could you also touch a little bit on the TAC increase during the quarter and what your view is with the Google relationship going forward?...
On Ask growth I think the difference between the affiliated sites as you call them and direct domain is what I answered before, where the Ask.com query growth is up about 30% and that is direct domain to Ask. The IAC Search and Media network would be the so-called affiliated sites which would be a combination of portals, our own Fun Web products and some other affiliated sites where we would have a so-called TAC, or we would be paying for distribution.
I think the TAC costs from the cost of syndication have been rising. I mean, that market has just gotten more competitive. The good news is we re finding good syndication opportunities and good revenue and profit growth from that, but it does come at a higher cost. So there is no question that over time, I think as we turn around the UK, hopefully continue the trajectory we are on at Ask.com U.S., I think at some point you will see this mix between proprietary and network shift, which is important to our long-term margin objectives.
Excerpted from the full transcript of the IACI conference call.