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Executives

Jessica Thorsheim - Investor Relations

Steve Berkowitz - Chief Executive Officer

Rachel Glaser - Chief Financial Officer

Analysts

Jason Helfstein - Oppenheimer

Dan Kurnos - The Benchmark Company

Lauren Slabaugh - Stephens

Mitch Bartlett - Craig-Hallum

Ian Corydon - B. Riley & Company

Move, Inc. (MOVE) Q4 2013 Earnings Conference Call February 13, 2014 4:30 PM ET

Operator

Good afternoon, and welcome to the Move, Inc. Fourth Quarter 2013 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions)

After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

I'd now like to turn the conference over to Jessica Thorsheim. Please go ahead.

Jessica Thorsheim

Thank you, operator. Good afternoon, and welcome to Move's fourth quarter 2013 earnings call. On the call with me today are Steve Berkowitz, Chief Executive Officer, and Rachel Glaser, Chief Financial Officer.

Today's call is being webcast from the Investor Relation section of our website, investor.move.com, and will be available for replay shortly after we conclude. A copy of our press release issued earlier this afternoon is also available on the company's IR website.

Please be advised that some of the comments that will be made today constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act, that involve potential risks and uncertainties concerning Move's expected financial performance as well as Move's strategic and operational plans. These potential risks and uncertainties include among others, decreases or delays in advertising spending, market acceptance of new products and services, and our future expected financial results.

Additional factors are discussed in the company's annual and quarterly reports, which are filed with the SEC and are available on our website. All information discussed on this call is as of February 13, 2014, and Move undertakes no duty to update this information. Results projected on the call today may differ materially from actual results and should not be considered as a guarantee of future performance.

On the call today, we will also be discussing non-GAAP financial measures and talking about the company's performance. Reconciliations of those measures to GAAP measures can be found on tables attached to today's press release.

I'll now turn the call over to Steve.

Steve Berkowitz

Thanks, Jessica, and thanks to all of you for joining us today. Rachel and I are very pleased to welcome Jessica Thorsheim to the Move family. Jessica came to us after many years at Cole Real Estate Investors, and was previously with Goldman Sachs.

Today is her first day, and we look forward to having her lead our IR efforts going forward. We'd also like to thank Marta Nichols for leading the IR function at Move, and say our farewell as she moves next month to her new endeavor.

I'll start our earnings call as I have previously with a reminder of Move's market position. Move is the leading company in the real estate industry with products and services that satisfy the entire value chain from content to connection to close.

We strategically and methodically brought together Realtor.com, Top Producer, ListHub, SocialBios, TigerLead, and most recently, Doorsteps and FiveStreet to create a virtuous ecosystem that delivers far and away the best content to consumers. The highest quality transaction-ready leads to our broker and agent customers, and the software to help them manage those leads to a transaction.

The fourth quarter wrapped up a great year for Move, driven by a healthier real estate market and meaningful gains in consumer engagement. Q4 revenue grew 7% bringing our full year growth to 14%, our best annual growth rate in seven years.

Unique users grew 13% year-over-year in Q4, capping a year of consistent double-digit user growth each quarter. We're continuing to see healthy growth in our leads reported to our broker and agent customers, driven by exceptional engagement from our mobile users.

We have a lot more to share with you about what we've accomplished in Q4 and 2013 overall, but let me step back a moment and break my remarks into three areas. First, I'll provide color on the real estate market. Second, I'll share some thoughts on recent industry trends, and third, I'll take a quick look at our Q4 results, 2013 accomplishments and our plans for 2014.

First, let me talk about the overall market. 2013 saw a considerable shift of the housing market towards a sustainable recovery. Amidst fluctuating interest rates, steep inventory shortages and new heights of demand, the national market tracked a solid trend towards stability with moderately increasing prices in steadying inventory levels.

Specifically in Q4, the National Housing market remains healthy with average home prices up over 7% versus Q4 a year ago, and 8% in the month of December. Prices continue to rise in the majority of U.S. markets. And again, in more than 40 markets we tracked, average listing prices rose double-digits in December versus the prior year.

Gains here in California continue to outpace most of the country, but the recovery continued to demonstrate greater breadth with strong gains in markets in Florida, New Jersey, Oregon and Utah. The number of days that a home spent on market was down nearly 9% year-over-year in Q4, indicating inventory is turning over more quickly. However, the pace of improvement did moderate somewhat in the second half of the year as inventories remained constrained. Average monthly listings available for sale in Q4 were essentially flat with the prior year.

As you've heard us say before, "When prices are rising and inventory is tight, finding the home first becomes much more important. "Find it, See it, Get it First," is the theme of our ongoing brand campaign, which we'll be expanding and building on in 2014. As we look forward, the real estate market remains strong in an environment we believe sets us up for another good year of growth.

Next, I'd like to spend a little time on the historic agreement Realtor.com reached with the NAR last year. We've experienced a continued drumbeat of industry support since the NAR's vote in July, which allowed us to expand our contents on Realtor.com including new homes, rentals and other contents. We have new homes contents up and running shortly after the vote, and we've been steadily building our rental content as well, which is now off to 250,000 units.

As important, if not more so is the NAR is now promoting Realtor.com as the consumer real estate website of choice, alongside Realtor.com's commitment to do even more of the highlighted advantage of using a realtor. And at its annual conference in November, the NAR showcased new creative ad prominently encouraging consumers to contact the realtor and visit Realtor.com.

You can view these ads at the "About NAR Section" on the NAR site, Relator.org. And local associations and brokers are doing more to reinforce the NAR's goal of making Realtor.com the first and best online destination for real estate.

We continue to work closely with the industry as partners, through unique product like ListHub, which help the industry manage its content and understand its metrics.

Another important partnership product that shows our unique industry alignment is our FIND platform. We provide this search engine to analysts for free in exchange for broader data rights like pending sales information and historical sold information that we can add to our site in real-time without waiting for public records.

We have over 60 FIND contracts today that represent roughly 40% of the members of the NAR or over 400,000 realtors. These contracts include over 1 million current listings and also provide us with access to accurate sold and pending data on millions of other properties. For example, look at the zip code 11518 in Long Island on our mobile apps, zoom closer in on the area, and you will see not only the most current listings, but also up to the minute, sold data, as well as houses that just came off the market in the last few days. None of our competitors can even come close to this timely and accurate user experience. "Find it, See it, Get it First," on Realtor.com.

Turning now to our financial results for 2013, a strengthening real estate market and improvements in our products offering, sales processes and branding yielded a very strong year for Move. Revenue of $227 million grew 14% year-over-year, that's our highest reported growth since 2006, driven by solid growth from both our consumer ad products and our software and services offerings. Software and services led the way in 2013 up more than 36% versus 2012. And consumer ad products also contributed to growth up over 8%.

Strong growth in Co-Broke and media sales throughout the year boosted the consumer ad product line, while strength in our software and services line was driven by TigerLead, which has clearly benefited from the stronger real estate market, exceptional at improving technology and the leverage of the combination with Move.

Our full year adjusted EBITDA of $28.6 million grew 6.4% over 2012 and represented 12.6% of revenue. Our margins reflected the very important investments we made in product, technology and consumer branding in 2013, which boosted user growth, and we believe will provide real payoff in the years to come. Rachel will provide more financial details and our guidance for 2014 shortly.

So what drove those great results? In 2013, we set three very clear goals. One, audience growth, two, product innovations, and three, differentiating our offerings for real estate professionals. So, let's touch on each briefly.

First, to grow audience, Realtor.com is always starting with the most accurate and timely listing information in the online consumer real estate industry. Last year, we had a significant new and enhanced content to our products, including new homes, substantially more rentals, expanded 15 minutes updates now at over 90% of active listings. We expanded sold and pending data and its multiple price estimates for new home, [not for wholesale] [ph], improved mortgage data via Bankrate and increased our focus on new home buyers with the Doorsteps acquisition.

To drive consumer awareness of all this great new content, we re-launched the Realtor.com site and brand introducing an award winning marketing campaign "Find it First," and tested offline media with great results. All of this led to Move with Realtor.com getting ten times more media converge in 2013 than we did in 2012.

And now our industry partners with the NAR are including exposure for Realtor.com as part of their multimillion dollar annual ad budget. All of these efforts resulted in strong increases in unique users in 2013 delivering on our first goal of audience growth.

Our second goal is to deliver meaningful product innovation. We re-launched the Realtor.com site with better SEO. We introduced a fantastic new rentals app. We enhanced all of our apps and features across mobile platforms. We improved our search technology with great new features like school search. We enhanced technology to dramatically increase our response time and we beta tested AgentMatch.

By the end of 2013, our product suite was more comprehensive up-to-date and faster at offering more useful features to our consumers.

To achieve our third goal last year, differentiating our products and services for agents, we help agents manage their consumer relationships in marketing with Top Producer, acquire more valuable leads with TigerLead and manage those leads from other sources by acquiring FiveStreet.

We expanded the penetration of our FIND technology; want SocialBios to help with marketing dollars on line. And perhaps more importantly, most importantly, we made our relationship with the NAR in the industry stronger than ever.

In short, we accomplished a lot in 2013, and it's showed in our metrics. Unique users grew 15% year-over-year and mobile listing data page views increased more than 45%. Leads for both web and mobile were up approximately 34% year-over-year and up 130% versus the same period in 2011.

Now, I'll turn to 2014. We have a clear roadmap this year to build on our 2013 success. And we laid out three clear justice to help us execute on that roadmap. One is, grow our consumer audience. Two is to enhance and integrate our product suite to hundreds of competitive advantages of our real estate platform. And three, NAR should expand our partnership with the real estate industry, building on our recent success with the NAR and focus on raising the ROI for agents and industry partners.

I'll give you a little color on each one. On the first goal of growing audience, growing our consumer audience, first, we'll keep bringing together the best real estate content with the buyers towards first time home buyers building on our Doorsteps acquisition as well as expanded rentals content and deepening our editorial and user generated content. Second, we will increase personalization of our products to grow retention and engagement. Third, we will improve on our mobile features adding new apps and distribution. And last but not least, we built on our growing share of voice through PR, SCL and brand marketing.

Specifically on marketing, we expect us to double our consumer marketing on Realtor.com this year based on the success of insights from our Q4 2013 media test. We do launch new TV spots nationally this month, and you can see them now at news.move.com.

The new creative continues to focus on Realtor.com's industry leadership in content, timeliness and accuracy and also highlight the elegance in ease and use of our mobile apps with fun, light-hearted looks that consumer is finding their perfect home super fast using Realtor.com.

Our second goal of this year, we'll focus our product efforts on enhancing and integrating our product suite to harvest the competitive advantage in our real estate platform. To do that, we will be building out Top Producer, which already takes in leads for over 50 marketing partners. We'll be integrating even more lead sources through FiveStreet expanding on our strong Top Producer mobile products and creating a more interactive product that makes leads and context more valuable.

We'll be expanding the capabilities and penetration of our strong TigerLead and ListHub products. We'll integrate and optimize our offerings across our B2B suite to simplify our products offerings for agents and brokers. And lastly, we'll work to optimize page views through all of our ad products, media mortgage moving etcetera.

In summary, our software and services business will work closely with the industry to provide unique productivity tools like Top Producer and TigerLead alongside valuable syndication control and ROI analysis through ListHub to make everyone in the value chain more productive.

Finally, on the industry side, we're building on the tremendous success of our revitalized industry partnership with the NAR, strengthening and deepening our relationships with all the core consistencies in the real estate space from agents to brokers, to franchises, to MLS's, to state local association and our partners in the brand, the NAR.

More important measure of the industry partnership will be our continued focus on raising agent and broker ROI by helping them target quality and not just quantity of leads. We will work to make the leads we offer smarter and provide more insightful reporting about the performance, all with the goals of raising the ROI of our customers. When our customer's ROI improves, we expect ours will too.

Each of those three goals seasoned to our ultimate strategy to serve the whole real estate value chain. Move's model is about so much more than simply attracting and selling consumer attention.

I'll say a bit more about that in a moment. But first, let me turn it over to Rachel for more details about our results and our 2014 guidance.

Rachel Glaser

Thank you, Steve. As Steve said, Q4 was another solid quarter for Move capping a great year for the company. Starting with the top line, our total revenue on the fourth quarter was $56.5 million, an increase of $3.7 million or 7.1% from the fourth quarter of 2012.

Q4 was our seventh straight quarter of year-over-year growth. Full year revenues grew $27.8 million or 14% versus the prior year. Breaking that close down into our two revenue categories, consumer advertising products grew $2.4 million year-over-year in Q4 or 5.8%, and represented 77% of total sales.

One key source of growth is consumer advertising is the continued strength in Co-Broke Connections, which grew 44% year-over-year. Second source of growth was media revenue including CPC product in finance and lending, which accelerated very nicely in the quarter. Offsetting that media growth was a planned decline in our PreQualplus mortgage-related revenue as we retired that platform earlier in the year and have reoriented our finance and lending revenue stream toward partnerships like the one we announced with Bankrate last quarter.

We're beginning to see a modest return to growth in our Showcase product doing part to the changing tides of the housing market. Showcase's revenue trajectory has improved remarkably from down double-digits year-over-year in Q2 to down slightly in Q3 and to up slightly in Q4.

As many of you know, Showcase's price on a historical listing count basis or what we call HLC, a trailing 12-month metric that's a proxy for agent's book of business.

HLC began rising last quarter, and that trend continued this quarter ending Q4 at 6.8 million historical listings, an increase of 9% versus the prior year, and up nearly 2% versus the prior quarter. Q4 represented the third quarter of year-over-year growth in HLC.

In August, we began rolling out our new Showcase rate card and we're pleased with the progress. Showcase revenue increased both quarter-over-quarter and year-over-year in Q4. As we continue to renew our customers with the new rate card and assuming listing count continues to rise, we expect to see Showcase remain at an upward trajectory. We believe it will take a full 12 to 24 months for the additional revenue from rising listing counts and Showcase pricing changes to be fully realized.

Revenue per HLC for our consumer ad product business was $25.58 this quarter. This represents a slight decline versus prior quarter and prior year, again, within our expectations and at a macro level any increases in HLC will not be fully realized until our annual Showcase contracts fully renew at the higher listing count.

Revenue per HLC for our entire business was $33.19, approximately $7.50 higher than that of our consumer ad product business, which is a positive example of how our software and services products help penetrate a greater share of the real estate marketing budget.

In Q4, leads were up approximately 25% year-over-year and leads per user grew 8%, which is evident and focus consumer intent on finding their home.

As Steve said, we are more focused on quality of traffic and quantity and leads, and conversion of leads is what creates value for our customers.

Turning now to software and services, which includes our three key offering for brokers and agents, Top Producer, TigerLead and ListHub, revenue was up nearly $1.3 million or 12% versus the fourth quarter last year. Top Producer has another quarter of subscriber growth and revenue for the Top Producer CRM product and our market snapshot product were each up in the fourth quarter.

ListHub grew revenue double-digit again year-over-year and now has nearly 130 publishers and more than 490 content sources.

TigerLead continue to see very strong growth up over 30% year-over-year due largely to synergies Move has brought to the TigerLead business.

We are focused on creating an integrated experience in our SaaS businesses, and the progress we made in 2013 is very promising. Overall, software and services represented 23% of the sales in Q4.

Turning now to profit, EBITDA was $7.7 million in the quarter roughly flat with the prior year and 13.6% of revenue. We made two important investments in the fourth quarter. The first was in marketing, where our four weeks "Find it First" campaign was tested in offline channels in three markets.

The tests ran from September 15 to October 15. So, a portion of this expense was incurred in the fourth quarter. A second investment was the acquisition of FiveStreet. FiveSteet is integrated and sold with Top Producer and is already providing a very nice tailwind for our SaaS product suite. We have not disclosed FiveStreet financials, but I can say it has minimal existing revenue and moderate expense, which we have now fully absorbed.

Our press release include the reconciliation of GAAP net income and earnings per share to non-GAAP. The calculation of non-GAAP net income is similar to that for adjusted EBITDA excluding non-cash items such as stock-based compensation and charges, amortization of intangibles and amortization of debt discounted and issuance cost.

For the fourth quarter our non-GAAP net income was $4.7 million and non-GAAP earnings per diluted share was $0.11. Net cash flow from operating activities was $11.9 for Q4 and we ended the year with $119 million in cash.

Before I finish with our 2013 financials, let me briefly describe two housekeeping items new to the accounting in our financial statements this period.

First, traffic acquisition costs. Effective October 1, 2013, we elected to change our presentation of certain lead acquisition cost and to reclassify these costs from the cost of revenue to sales and marketing, in order to be consistent with our peers and to come by all traffic acquisition costs that are not directly related to the fulfilment of product into sales and marketing. This have the effect of decreasing cost of revenue and increasing sales and marketing expense. The press release tables reflect this reclassification for all periods presented and we provided the amount of the reclassification for previous periods as well.

Second, the interest expense related to our convertible debt offering in August. As previously discussed, we issued 100 million in convertible senior notes in August, which resulted in 1.6 million of quarterly interest expense, 688,000 of which represents actual accrued cash interest to be paid in Q1 with the remaining 912,000 representing non-cash interest.

These talk about our goals for 2014 and many of the exciting initiatives we have in the pipeline. These goals to grow audience and engagement will be accused by stepping up investment in content creation, content acquisition and consumer marketing, and that is the context for which I will now provide guidance.

For the full year, we expect revenue to be in the range of $254 million to $258 million. This would equate to growth of approximately 13% at the midpoint for total revenue.

Looking at our two revenue categories, we expect consumer advertising revenues to grow approximately 11% to 12% for the full year and the software and services revenue to grow roughly 13% to 15%. Within those numbers there are a number of puts and takes. So, let me briefly describe those.

First, our rentals business. This year while we accelerated our investment in rentals, we are also shifting our business model from exclusively paint inclusion to a hybrid model that will include cost for leasing also referred to as cost for lease.

Property managers will be able to post their listings on the site for free and will no longer have a minimum lead requirement to satisfy those contracts.

As a result, by the end of 2014, we expect to have significantly more content on the site, and they have nearly eliminated our traffic acquisition costs. We expect profitability in this segment to improve while revenue at least initially in 2014 is expected to decline by $2 million to $4 million.

Second, our moving business. We expect revenue will be down for a few reasons, but primarily because interstate full service Move volume are bread and butter category for monetization is down as less people are moving long distances. We call these two items out specifically so that we can underscore the relative health of our quarter real estate and media business.

We are moving in tact of the rentals model transition and our ancillary moving business. Our core consumer ad products business is expected to be growing 15% to 16% versus 2013. We expect healthy growth in our consumer audience from investing in marketing and content. This will directly and favorably impact both our Co-Broke revenue with increased leads and media revenue through increased impressions.

Our SaaS business will similarly continue to grow, helped by the strength of TigerLead, new product features and a rollout of mobile applications.

The integration of FiveStreet into our CRM suite has already gotten some legs and it's helping fuel-accelerated Top Producer's growth.

Combining all of these factors, we expect total revenue to grow approximately $29 million at the midpoint of our 2014 guidance in line with also the three estimates we have seen, but perhaps achieving that growth with a slightly different mix than your models may suggest.

Before I discuss our plans for expenses and profitability, I'd like to remind you that as a company we have always been focused on value creation. That is evident in the high ROI products we deliver to our customers, our commitments to products that serve the whole value chain from content to connection to close. The high rate of return on our acquisition and they deliver it in judicious way we invest in marketing. Without compromising that focus on long-term value creation, in 2014 we expect that we will make more upfront investments to gain longer term rewards.

These investments will come in the form of marketing, content acquisitions and more aggressive internal development in areas that we believe will help grow and engage our audience.

Specifically regarding marketing, as Steve mentioned, after carefully reviewing the success of the testing we did in 2013, we expect to at least double our investment in consumer marketing in 2014. And we're optimistic that this will help us gain share in this very competitive space.

Consistent with our goals on aggressively growing audience through consumer marketing and content acquisition, we are providing a full year adjusted EBITDA target of approximately $30 million. We expect to reinvest incremental revenue at a greater rate than we have this past year. While this investment is projected to have short-term margin contraction, we have analysed this carefully and believe it will have a positive ROI over the next four quarters.

As a reminder for those of you who may possibly be comparing our financials to our competitors in this sector, we capitalize an insignificant amount of our website development cost relative to our total technology expenditure in a year.

We expect depreciation to range between $13 million and $14 million, amortization of intangibles to be approximately $4.5 million, stock based compensation to range between $12 million and $13 million and CapEx to be approximately $16 million to $18 million, up $3 million to $5 million year-over-year as you make several infrastructure-related investment.

Last but not least, let me briefly outline how that revenue on EBITDA guidance will translate to our first quarter. We currently expect revenue for the first quarter of 2013 to be approximately 58 million. This represents 7.5% year-over-year revenue growth or an increase of about 4 million.

We expect our first quarter adjusted EBITDA will be roughly $5 million reflecting seasonality of our expenditures. Revenue in the first quarter for our consumer advertising product is expected to be approximately $44.5 million, up 6% over the same period last year.

We expect our software services revenue in Q1 to be about $13.5 million, up roughly 12% over Q1 2013. We look forward to sharing more about our 2014 plans with you at our Analyst Day scheduled for Thursday May 22nd in San Francisco. More details on the day will be available soon, and in the mean time please take the date.

In summary, in 2014 we are galvanizing our resources to increase our share of the consumer audience. Move is the only company in this arena with products and services that span the full value team from content to connection to close and with the partnership of the real estate industry. What that gives us is absolutely unparallel content, which in turn attracts the most valuable audience which is what makes our customers, the real estate professionals the most successful.

Now, let me briefly turn this back over to Steve.

Steve Berkowitz

Thank you, Rachel. And thanks to all of our employees, leaders and our Board for leading Move to a tremendous year. We are proud of our accomplishments and our focus on serving the entire real estate value chain.

We give consumers the best, most accurate information in any channel and on any device they choose. We connect those consumers to agents when the time is right and we help our agents convert those consumer leads into closed transaction. And we are the only company that stands with four realtors online representing the highest level of quality and service in the industry and a code of ethics that no other online real estate portal can touch.

No one else has the industry alignment and complete products that we have designed to super serve both real estate consumers and professionals. With a major shift in the industry and are willing to be more competitive with fresh energy for our brands, strong business leadership and innovation, good financial growth and a further strengthening of our balance sheet, we are well positioned to continue the success this year and beyond.

And with that we will open up the call for your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Jason Helfstein at Oppenheimer and Company.

Jason Helfstein - Oppenheimer

Hey guys, thanks. That was a good overview. I just want to understand the reason why the first quarter of consumer revenue guidance is so much lower than the full year is because of the initiatives that you outlined that are a drag on the full year, but you are putting those in place earlier in the year. Is that a fair assessment?

Steve Berkowitz

Correct.

Jason Helfstein - Oppenheimer

Okay. Therefore, did your guidance assume the benefit of the increased advertising or should we think about you spending the money, you think it's going to create positive, but what's driving the improvement in consumer revenue is largely positive and what we're seeing now, and perhaps an assumption for the flow through of historical listings count?

Steve Berkowitz

Well, I think what you are seeing in the consumer business is the success, the underlying success we had in 2013 starting to work its way into 2014. And the investments we make in 2014 should have some impact on 2014, but will continue to have the impact into 2015.

So, we actually see real focus and we saw a really positive response to people understanding that accuracy matters and that timeliness matters and having a human involved in the transaction matters. And we believe we can build on that the way that nobody else in the industry can build on that. So what we are going to do is we are going to shout it, we are going to tell people about it and get them to use the product. So when they do, they love it.

Jason Helfstein - Oppenheimer

So kind of keep going with that. So basically what it sounds like, and especially just given the magnitude of the investment because it's not an insignificant amount of money. If you do finish the year up 15% to 16% on an organic, what everyone call pro-forma basis, consumer 2015, if you smartly spend your money, should grow faster than that.

Steve Berkowitz

I haven't talked about 2015 yet. I am hopefully -- I'm still talking about 2014 as the future. So we're focused on building value. So we hope that everything we do, or of most everything we do has the right outcome.

Jason Helfstein - Oppenheimer

And I guess kind of to keep going with that, the changes you've made on the Showcase side as Rachel outlined, we really won't see the full impact in 2014?

Steve Berkowitz

Yes. You will start to see it. You will start to see, we are starting to see it everyday. But again I think the most important thing for us to focus on again is building that audience and continuing to build that audience and getting people aware of what we do. And that will benefit both Showcase and Co-Broke.

Jason Helfstein - Oppenheimer

Okay, thank you.

Steve Berkowitz

Sure, Jason, thank you.

Operator

Our next question comes from Dan Kurnos of The Benchmark Company.

Dan Kurnos – The Benchmark Company

Great, thanks for taking my question. So, Steve, just to follow-up on the Showcase side, it seems like you haven't been having any problems passing through the rate card increase, just curious, maybe it's too early to think about this, but do you think that we could see another round in August or possibly a shift in that model away from the historically backwards looking model?

Steve Berkowitz

Yes. I mean, I think I can't answer the question of the shift, but I can tell you that our goal is to deliver ROI to the agents. And so, what we've found is that we can grow our lead volume, grow our page views, grow our audience, deliver smarter leads, then we'll be able to price to market. And I think -- but the most important thing for us is to focus on deliver that value, deliver it and tell them about it, deliver it and help them close the transaction with our software and service suites. And I think then, everything else will kind of build behind that.

Dan Kurnos – The Benchmark Company

Great, that's helpful. And then on the expense side, I want to get into the marketing in a second, but maybe could you give us a sense of where you think that there are gaps in the platform, where you might be investing either organically or through tuck-in, some sort of product roadmap of the areas that you think might be crucial to help and build out a more robust end-to-end platform?

Steve Berkowitz

Sure. Well, I think what Rachel said was really it. I mean we're focusing on contents. We're focusing on experience. And we're focusing on telling people about the quality of that content and that experience.

So I think that our technology platforms are significantly better than they've ever been. Our technology team is stronger than it's ever been. And our software and service suite leads the biggest thing for us in 2014. We will be integrating those offerings as we take them, because I mean we've been delivering lead management for 50 or more marketing engines or other publishers, the content coming into our Top Producer product for a long time. Other people are trying to catch-up with that, but we're going to continue to enhance our ability to make Top Producer and TigerLead an amazing source of lead management and closing product.

So, you'll see us invest in the experience on Realtor.com. You'll continue to see us invest heavily in mobile, because there is lots of opportunity in mobile. And you'll see us work hard to build out what we're calling the real estate platform, which is that connection of leads to make them smarter, to also connect Top Producer and TigerLead and the ListHub platform because it really does tell agents and brokers the performance of their products across the entire web and mobile.

Dan Kurnos – The Benchmark Company

And then just one last one if I could, on the ad side, I understand that you probably can't get into too much specifics due to the competitive nature here, but just curios if you could give us a little bit more granularity in terms of either markets or channels that you plan on pressing, and then actually if you could even parse that out between maybe your expected spend and how you think the NAR is going to allocate their funds?

Steve Berkowitz

Sure. Well, the NAR is going to allocate the funds the way they allocate their funds. They're very focused on building the idea that realtors and the National Association of Realtors are the voice of real estate, and that realtors are important to the transaction. So they have a plan. And that plan is very aggressive and very important, and we're glad that they've added us as the tagline to that. And hopefully, we'll even do more in the future, but it's like any other relationship. But our focus will be in the places where we tested. We learned quite a bit about the results of offline marketing. So, we are going to be investing in offline marketing. And we're going to continue to invest in online marketing, because we've seen some really positive result. So, our focus will be online and offline, but again, what we've found and our research has told us, if we tell people and get them to see the product and use the product, the accuracy and information sells itself. So we have to kind of go out there and let them know and in both the online and offline mediums.

Dan Kurnos – The Benchmark Company

Great, thanks for the color, Steve.

Steve Berkowitz

Sure.

Operator

The next question comes from Lauren Slabaugh at Stephens.

Lauren Slabaugh - Stephens

Hi, guys. Thanks for taking my question.

Steve Berkowitz

Hi, Lauren.

Lauren Slabaugh - Stephens

Quickly, I'd like to ask on margin. So, thinking about medium-term margins and where they could go, I understand you all are spending a little bit more this year, and so they are muted, but whenever everything is up and running in terms of advertising and revenue from that, what are your medium-term margin goals?

Steve Berkowitz

I think we've talked about -- our ability here is, again, we're looking at 2014. We've said before in the past that this should be a 20 plus percent margin business. We haven't changed that. But the opportunity in the space is growing. The total available marketing spend in this space is big. And we found that it's really important for us to let people know of the quality we do. So, we haven't changed off the long-term view of what we've said in the past. It's just a question of when, but we're really going to focus on those opportunities that sit in front of us now. And we'll continue to take advantage of those opportunities as we see them.

Lauren Slabaugh - Stephens

Okay, thanks. And then one other switching topic, I think you all mentioned some of the increases you've done in terms of real inventory. Can you give any update on what you've seen in terms of revenue or traffic or anything on the rental side from what you all are doing there or maybe when that will play out?

Steve Berkowitz

Sure. I mean, rentals, for us is an investment area. So in 2014, our real focus is about building audience in the rental space. I mean, one of the things that we've learned in our research is that we need to bring the Realtor.com brand back to that younger audience. And rentals is a very important category to bring it back to that younger audience.

And so, our goal in 2014 is going to be focus on contents and audience. And we'll address the monetization in the years to come, because the monetization will benefit us in two ways. One, it will benefit us in the rental space as we learn to monetize it in more of the complete content experience versus the paid inclusion experience. And the second thing is, the more we expose younger rentals to Realtor.com, the more likely they are to use Realtor.com in the future when they are looking to find their first home.

Lauren Slabaugh - Stephens

Okay. That helps. That's all from me, thanks.

Operator

The next question comes from Mitch Bartlett at Craig-Hallum.

Mitch Bartlett - Craig-Hallum

Hi, guys.

Rachel Glaser

Hi, Mitch.

Steve Berkowitz

Hi, Mitch.

Mitch Bartlett - Craig-Hallum

So, everybody kind of has come out with lower expectations on profitability, driven by marketing, or a large part of it. Zillow put a number on it, 65 million, truly just reported, but they've reported me with our forecast, its way, way down. So, it's obviously inclusive of the rollout of marketing spent, whether they put a number on it or not, I don't know at this point. But you've basically just said we're going to double. We don't know relative to what that and how much that is.

And then, the benefit that you get from NAR, it's hard to kind of quantify or I know you don't want to put a fine point on it, but if you could just talk to that and then talk to the way you go and get customers, you say offline/online, it shows more of a guerrilla approach there, is it a brand approach or -- I don't know, anything that you could add to that equation.

Steve Berkowitz

Sure. First of all, our brands are 100 years old, 104 years old to be exact. And it's represented by a million people feet on the street. So, we have an inherent guerilla effort that goes on everyday with every business card that an agent gives away or a broker pretends to give away. But our goal as, Rachel's always talk to; I mean I have to say, "We analyze a lot of what we do." I actually believe we're the best company in analyzing how we spend our money and how we use our money? And if you look at even with our most current projections, I'm going to be willing to bet you on an apples-to-apples basis, we're still the most profitable business in the industry, because I think we spend smarter and we look at things in the right way. So, our marketing efforts will be really geared towards where we see that opportunity to make the impression with the consumer on the brand side.

On the trade side of our business, when we market to agents, we got a great connection with agents after being in this business for 14 to 16 years, and our biggest story with agents is -- let's just focus on that ROI. Let's focus on giving them the best return and actually what helps them become more productive. So, our marketing efforts, when we say 2x, it -- I hope that the 2x in money spend gives us 10x in awareness. Awareness, and that's really what we're working for.

Mitch Bartlett - Craig-Hallum

Okay. And NAR, I know you've talked about it already. So, I don't mean to keep plodding you, but they have a big budget, there is some portion that accrues to you, how do we think about it?

Steve Berkowitz

I think you think about it as I said earlier, I mean, we're partners in the brand. And if we do the job well together, there is a clear commitment that we want to do it together, which is to say realtors are important, realtors are different and just traditional professional, so we're going to apply that on our side, and they are going to apply on their side to say, yes, they actually represent the consumer not just for transaction, which is what a lot of what happens in this space. Realtors represent the consumer for the lifetime; they own their house because they're defending the rights of home ownership.

So, there is a real alignment and a sense of understanding that we can bring to there a real consumer voice in the idea that home ownership matters. So we're continuing to meet with them and meet with them quarterly. We're continuing to focus on ways we can work together creatively, but ultimately since we both co-own, kind of -- are co-marketing the brand I think you'll see us get more and more aligned I hope in our messaging as we continue to go down the road.

Mitch Bartlett - Craig-Hallum

Okay. If I could ask about Co-Broke, up 47%, 46%, whatever you said, sequentially into a seasonally softer quarter; that sounds pretty healthy. Could you talk to how that business is going, maybe help us on the total number of subscribers to Co-Broke, and sequentially what it did look like within the last quarter?

Steve Berkowitz

I think one of the things we're going to try to hopefully get everybody to understand is that when we talk about Showcase and we talk about Co-Broke, what we're really talking about is our two lead generation products, one from listing agents and one for buyers agents. And I think as we've done a good job of understanding the cost or lead underneath both, I think the best thing for people to look at will be what's those two revenue streams as they come together, right? Because ultimately we're looking at what we call kind of a finite set of inventory in a sense of the number of listings that are out there and then the volume will become the driver, the volume and price become the driver.

So, to answer your question, I think what you're going to see is we have the ability now to focus on the value we deliver to agents, whether they are listing or buyer's agents. And that's really the total story that we want people to understand. And if we can get them there, then I think you'll see us be able to grow revenue and continue to grow revenue. And not so much whether at the Showcase or a Co-Broke, but ultimately realize we're generating more value, we're generating a higher ROI. And we're offering agents the opportunity to buy their own listings exclusively or to allow us to work with them to help them sell their houses.

Mitch Bartlett - Craig-Hallum

If I can squeeze one last one in.

Steve Berkowitz

Sure.

Mitch Bartlett - Craig-Hallum

The 15% to 16% growth in the real estate, the core real estate products, what does that imply as far as listings are from a macro perspective in the 2014?

Steve Berkowitz

I think we're looking at listings, we're seeing historical listing counts grow because listing counts grew in the -- we came (off to) some of the worst lowest inventory levels a year ago and nine months ago. But for us as we look at it, we look at a more normalized pattern in the real estate industry. So we're kind of looking at more traditional seasonality that happens in the spring, where more listings come on the market, and so really not looking at anything dramatically different that we've seen in the past.

Mitch Bartlett - Craig-Hallum

Got it. Thank you.

Steve Berkowitz

Over the past nine months.

Operator

Our next question comes from Ian Corydon at B. Riley & Company

Ian Corydon – B. Riley & Company

Thank you. Regarding Top Producer, do you expect subscribers to grow this year? And then as you integrate the various software products, how does that -- how do you think that affects the growth rate and how does that change your go-to-market strategy?

Steve Berkowitz

So, first of all, we hope the Top Producer subscribers will grow. They were up in 2013, and we hope that they will continue that positive trend as we move into 2014. And we're offering significantly more value in that product with the integration of FiveStreet. This idea then you can actually bring in not only leads from the 50 plus sources we have already, but actually parse leasing from all of any source that's necessary. It also gives you a more of a broker like dashboard that allows you to actually route leads and puts us in a better situation to sell to brokers. Historically, Top Producer is very agent-driven.

So in terms of our planning, we plan to continue to bring those things together. And I think when you take what we're doing in the lead management space, in that CRM space plus, we manage that plus making lead smarter, you bring that together with ListHub and its reporting capabilities, what you're going to see us be able to do hopefully is make those agents more productive. And hopefully a year from now, what we're talking about as an industry is the quality of the lead and the quality of the connection, and we're actually helping the agents manage their time better to the tools that we offer them.

Ian Corydon – B. Riley & Company

Got it. And then, regarding the Bankrate partnership, when do you start to feel the benefit of that? And then, can you talk about the business model there and what the ultimate opportunity is?

Steve Berkowitz

Well, we don't breakout mortgage, but one of the things that we do is we grow audience, both our media business and our mortgage business benefits from it. And as we continue to broaden our content categories into more with the off-market world this year we launched estimates on -- three estimates on almost every listing on every property in United States. We hope to be able to expand our mortgage business not just to what we do mostly today, which is first time home, which is primary mortgages, but actually maybe get a little bit into the re-fi market. But we realize what we're good at the moment, and we're really good at, we really want to stay focused on that home for sale marketplace, we want to stay on that first time home buyer. We want to build out the rentals business.

And then as we do that, that will give us the opportunity to benefit from people who understand how to do well in the mortgage place. And who knows what will happen two or three years from now. But the good news is the relationship had started off really strongly, and we feel really good about having done that.

Ian Corydon – B. Riley & Company

Got it. Thank you.

Steve Berkowitz

Sure.

Operator

(Operator Instructions)

Steve Berkowitz

Well, so, no more questions. Well, I'd like to say a couple of words. One is I look forward to speaking with you again in our Q1 results in 2014. And hopefully you all will get a chance to use our products, look at our products. I think we're very excited about the quality of the products we deliver. We hope to see you in May at our Analyst Day on May 22nd, and give you significantly more insight into the industry. I think we believe we're experts on it and the future of the business. And have a great weekend, and -- three-day weekend, I guess its Abraham Lincoln's Birthday and George Washington's Birthday as well as Jessica's Birthday.

So, anyway, everyone have a nice weekend. Thank you very much for your time.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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