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Executives

Courtnee Ulrich - VP of IR

Greg Maffei - President and CEO

Chris Shean - SVP and CFO

Mike George - CEO of QVC

Claire Watts - CEO of QVC U.S.

Analysts

Barton Crockett - FBR Capital Markets

Matt Nemer - Wells Fargo Securities

Jason Bazinet - Citi

Thomas Forte - Telsey Advisory Group

Ben Mogil - Stifel

Matthew Harrigan - Wunderlich Securities

Liberty Interactive Corporation (LINTA) Q4 2013 Earnings Conference Call February 28, 2014 12:15 PM ET

Operator

Good day everyone, and welcome to the Liberty Interactive Corporation Fourth Quarter Conference. As a reminder today’s conference is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Courtnee Ulrich, Vice President of Investor Relations. Please go ahead ma’am.

Courtnee Ulrich

Thank you. Good morning. Before we begin we’d like to remind everyone that this call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about business strategies, the proposed creation of the QVC group, and Liberty Digital Commerce Group tracking stocks, the proposed spin-off of interest in TripAdvisor, market potential, future financial performance, new service and product launches and other matters that are not historical facts.

These forward-looking statements involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements, including without limitation, possible changes in market acceptance of new products or services, our ability to satisfy the conditions to both the proposed recapitalization and proposed spin-off, competitive issues, regulatory issues and continued access to capital on terms acceptable to Liberty Interactive.

These forward-looking statements speak only as of the date of this call and Liberty Interactive expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Liberty Interactive’s expectations with regards thereto or any change in events, conditions or circumstances on which any such statement is based.

On today’s call, we will discuss certain non-GAAP financial measures, including adjusted OIBDA. The required definitions and reconciliations, preliminary note and Schedules 1 through 3 three can be found at the end of this presentation.

And now I’d like to introduce Liberty’s President and CEO, Greg Maffei.

Greg Maffei

Thank you, Courtnee, and good morning to all of you out there. Besides myself today speaking on the call we’ll have Liberty’s CFO, Chris Shean; QVC’s CEO, Mike George; and the CEO of QVC U.S., Claire Watts.

On to some of our highlights. At Liberty Interactive QVC reported strong U.S. and UK results and also some growth in Italy and China. Results were more challenged in Japan and Germany. In Q4 dot com penetration in the U.S. was 45%, and impressively 32% of those orders were mobile. During the quarter, we also repurchased or rather from November 1 to January 31, 2014 we repurchased $309 million worth of LINTA shares and for the full year 2013 we repurchased $1.1 billion. Yesterday Board of Directors of Liberty Interactive voted to increase the stock repurchase authorization effectively a reload by $1 billion.

At our Digital Commerce Company we experienced mixed results for the quarter. We had continued success at Bodybuilding and CommerceHub and challenges in some of our other units, Chris Shean will talk a little bit more about those.

At Liberty Ventures we were very pleased with the results at TripAdvisor and Expedia; both had good operating results and good success in the stock market. Today also Liberty Ventures were announcing a two for one split. This is driven by a need to comply with the NASDAQ listing requirement for the minimum number of publicly held shares of our series B stock. For your information the minimum is 100,000. We are at 80,000 that are not held by insiders.

To regain compliance and keep those Liberty Ventures B shares lifted we are going to split the B shares. We would like to split the B shares but due to charter requirements, Liberty’s charter, we also required to split the A shares. So we’re going to split both. We expect that split to be effective in early Q2, and we go forward with that.

Regarding our previously announced recapitalization of Liberty Ventures and the tracker at Liberty Digital we have not changed our plans but the timing is running a little behind. We probably will not get this done until Q3 and as usual claim it on the lawyers.

With that let me turn it over to Chris Shean, our CFO to discuss the financials in more detail.

Chris Shean

Somehow I managed to escape blame through this whole thing. Liberty Interactive Group’s revenue increased 3% for the quarter and 3% for the year while adjusted OIBDA decreased 1% for the quarter and was essentially flat for the year. QVC’s revenue increased 2% and 1% for the quarter and full-year respectively while adjusted OIBDA decreased 1% for the quarter and increased 1% for the year. Our e-commerce businesses grew revenue 8% for the quarter and 12% for the year while adjusted OIBDA decreased 29% for the quarter and 11% for the year.

The increased revenue was a result of increased marketing efforts which draw additional traffic, investments in sight improvements, increased shipping charges and overall broader inventory offerings. Additionally the increased revenue was driven by the selling of product at discounts which we did to help to manage our inventory levels to appropriate -- managed down inventory levels, I guess for the year which impacted margins in some companies, particularly Celebrate Retail Business and Red Envelope. The decrease in adjusted OIBDA was primarily due to lower margins.

Now let’s take a quick look at the liquidity picture. At the end of the quarter, Liberty Interactive Group had attributed cash of $598 million and $5.1 billion in principal amount of attributed debt. QVC’s total debt to adjusted OIBDA ratio as is defined in their credit agreement was approximately 2.1 times as compared to a maximum of allowable leverage 3.5 times.

Now with that I will hand the call over to Mike George for additional QVC commentary.

Mike George

Thank you Chris. In what turned out to be a very difficult holiday season for many retailers, we’ve really delighted with our strong performance in Q4, driving 4% consolidated revenue growth in constant currency, with really nice gains in the U.S., the UK and Italy but partially offset by continued challenges in Germany and Japan. We also enjoyed strong growth in China which is not consolidated, at nearly 40% in local currency. Our adjusted OIBDA also grew 4% on a constant currency basis excluding the impact of the $20 million credit card legal settlement that we highlighted in Q4 of 2012.

We believe this level of revenue growth combined with strong and stable adjusted OIBDA margins proportions are highly differentiated performance versus the broader retail market. E-commerce growth also remains strong at 11% on a constant currency basis to 40% of revenue, that’s a three point increase over the last year. And in the U.S. we hit an important milestone in December with e-commerce representing 50% of total revenue in the month.

We also extended our leadership in mobile commerce with orders up 56% globally in constant currency, mobile now represent 35% of e-commerce. And in both UK and in Japan mobile orders are now more than half of all e-commerce. The health and vibrancy of our customer base also remained outstanding. Sales growth from our new customers increased 7% worldwide on a constant currency basis and sales from reactivated customers were up a strong 11%. While retention and repeat purchase rates of our existing customers also remain strong.

Now looking at the results by market. In the U.S. we grew revenue by 6% in the fourth quarter and adjusted OIBDA by 7% after normalizing for last year’s legal settlement. The U.S. team executed at a high level in Q4 with the compelling holiday positioning, strong and balanced growth across the number of product categories and good gains from our new QPlus channel. And we also benefited from anniversarying the impact of super storm Sandy, which we believed suppressed last year’s revenue by 1% or 2%. And our team has driven strong improvements in delivery times to our customers which enabled us to reduce the FOB or revenue recognition adjustment that we make at quarter end from four days to three days. This effectively extra day of shipping in Q4 increased our revenue growth rate by approximately 1%.

Now as we look to Q1 in the U.S., we do face some timing and calendar shifts that will negatively impact the quarter including lower carry forward of shipments out of Q4 into Q1, the late timing of Ester, several gardening and advanced order jewelry events where the product will sale in Q1 but ship in Q2. And we also saw some viewership competition from the Olympics.

And of course we are immune to the weather challenges that all retailers are talking about right now from power outages to delayed purchases of spring goods but it’s too early to say whether these challenges will reverse themselves once we hopefully see warmer weather. That’s the U.S. now looking at Japan, net revenue fell 3%in local currency as we continue to see pressure from a decline in new customers due to the digital conversion we have talked about for the last year or so along with some performance misses in the jewelry and accessories categories. We are also disappointed with the results from some TV carriage that we have added earlier in the year and faced a generally soft discretionary spending environment.

And our adjusted OIBDA fell 14% driven by decline in product margins and an increase in TV carriage cost related to a pricing step-up in one of our carriage contracts and the addition of an extra hour of carriage on a new distribution platform. As a reminder we will lap those costs around March. The team has, I think a very comprehensive plan in place to address some of these challenges in Japan including driving higher sales growth in key categories like beauty and jewelry moderating return rates, accelerating digital growth, rebalancing our TV carriage portfolio and tightly managing costs. And so despite what turned out to be the disappointing back half of 2013, we remain very confident in the long-term potential of the business in Japan.

In Germany, revenue declined 4% in local currency due to weak growth in jewelry and apparel coupled with highly promotional retail environment. Our adjusted OIBDA fell 3% although after adjusting for one-time cost related to severance and other restructuring actions, adjusted OIBDA actually grew 5% and strengthened product margins and lower inventory obsolescence expenses. And return rate which rose significantly earlier in the year fell over 60 basis points on improved product mix. This is now our second year of disappointing performance in Germany and while we have made progress, strengthening a number of QVC disciplines including diversifying our product assortment, increasing product rotation and lowering our promotional usage. We are certainly not satisfied with the results. We took a number of difficult actions late in the year including making several leadership changes and launching cost and productivity initiatives including announcing plans to switch from live to reported hours in the overnights and consolidating our European IP structures.

Steve Hofmann, our Europe CEO is currently serving as acting CEO in Germany, while we conducted search for permanent leader as Steve is working closely with the German management team to reexamine every aspect of our operations in order to develop a more sustainable plan for driving revenues, will also structurally reducing our cost base. Nonetheless, we do expect performance to remain challenged in the short term. On a brighter spot the UK had a terrific quarter with revenue up 5% in local currency and adjusted OIBDA up 10%. We saw particular strength in home and beauty, outstanding growth in e-commerce up 22% and mobile up 97% to now represent over half of all e-commerce orders.

Good growth from our extra and beauty channels and a 14% increase in sales from new customers. And adjusted OIBDA margins expanded 117 basis points primarily on strong product margins. The UK team has done I think a really nice job driving both growth initiatives and productivity improvements like our recently announced warehouse automation project. And so, it’s encouraging for us to see such strong results. Italy continues its strong growth track with revenues up 17% in local currency. We continue to see terrific retention and repeat purchase behavior from our existing customers comparable to our other markets. And as I mentioned on the last call, we reduced our day time selling minutes in Q3 in anticipation of expected regulatory changes. This bid hurt our new customer acquisition pace in the back half of the year. We no longer think the regulatory change is likely and we restored the airtime late in Q4, although we’ve not yet seen a material increase in customer acquisition from this change.

We had to get to breakeven profitability in the quarter but fell just shy with an adjusted OIBDA loss of a little over EUR1 million as revenues weren’t quite enough to cover our fixed cost investments.

Looking at China we’re very encouraged by the strong growth there with revenue up approximately 39% to RMB200 million or $33 million and our adjusted OIBDA loss fell slightly to about RMB8 million or just [indiscernible]. We added another 7 million homes of TV carriage in quarter bringing our total home count to 70 million and we added over 200,000 new customers in just Q4 and grew our total customer base nearly 30%.

We continue to add QVC International brands to the programming mix and increased the number of new items introduced every week. And in October we launched our today’s special value programming along with other changes to bring the viewing experience closer to our standards of other markets. We believe these actions will differentiate us from the competition and overtime drive customer royalty and retention.

We’re seeing modest but consistent gain n repurchase rates which will be key to driving growth over the long-term. And with that I’ll wrap up with a few comments on the full year, with full year revenue and adjusted OIBDA growth of 4% in constant currency and a 12 basis point expansion in OIBDA margins after adjusting for the legal settlement. We once again demonstrated our ability to drive strong, consistent growth at high adjusted OIBDA margins despite economic ups and downs and some significant challenges in a couple of our markets.

We added over 3.1 million new customers in our consolidated markets and another 740,000 new customers in our China joint venture, and our growth rate in new customers accelerated throughout the year. We believe these numbers truly highlight the expanding relevance of our brand and our unique customer experience in a challenging retail environment that’s often characterized by aggressive price promotion and eroding service. And we welcome these new customers to the brand while continuing to delight our existing customers, whose retention rate at 89% hasn’t changed in years.

And the purchases averaging 24 items per year our existing customers remain among the most loyal and most frequent shoppers of any general merchandise retailer. Our ecommerce revenue ended the year over 3.2 billion up 13% in constant currency making QVC one of the worlds larges and certainly most profitable ecommerce platforms, and we did 1.2 billion in mobile commerce orders globally, growing 62% of which purchase among the very largest global commerce players worldwide.

In addition with expending TV carriage and the launch of specialized TV channels in the U.S. and Europe we now reached nearly 300 million homes in eight countries through 12 different channels and we’ve demonstrated that there is still meaningful growth to be achieved by expanding TV footprint. And with over $240 million in revenue from Italy and China in 2013, we’re demonstrating the extendibility of this platform to new markets. This continues to be a high priority for us and we’re pleased to welcome Matt Goldberg to our team in Q4 to lead our Global Expansion Efforts. To his prior roles as CEO of Lonely Planet and Head of Digital and new business developments for Dow Jones, he brings great experience to our expansion efforts.

With the addition of Matt and also Ted Jastrzebski our CFO who joined last year after leading Hershey's International Division along with many other great hires and promotions, we continue to add strength to our team and build our capacity for global growth.

And we remain committed to not only driving sustainable growth in revenue and adjusted OIBDA but also to ensuring strong free cash flow conversion. We’re focused on driving improved capital productivity as we invest to grow. In 2013, our CapEx was 211 million down from approximately 250 million to 260 million over the prior two years and in 2014 we anticipate CapEx spend of just 175 million to 200 million and even on this lower spend our investment in technology to power innovation in the business is actually increasing at nearly 110 million in 2014, our technology investment will be the highest that it’s been in the last three years.

And with that I’ll turn it over to Claire, to provide more insights on the U.S. business.

Claire Watts

Thank you Mike. QVC U.S. generated very strong results to close out 2013, we focused on re-imagining shopping, entertainment and social as one and our customers responded to our unique curation of products and programming, integrated on all of our platforms. We’re delighted with our performance this quarter as we achieved increased sales and margin in every category with the exception of jewelry. Our inventory is 1% lower than prior year with proposal declines in certain categories to open to buy for fresh receipts, growing sales.

We’re thrilled with the results to engage our new customers, in the fourth quarter we welcome the highest number of new customers in QVC history. Our new name count increased by 9% and sale to new customers was up 11% compared to prior year. In addition, our customer count reached an all-time high of 7.5 million customers. We provided our customer an ever changing collection of interesting time. QVC was the destination for easy gifting this holiday, offering ready to give gift, multiple gift sets and gift collections inspired by our program host to shopper.

During one of the busiest shopping weeks of the year, Monday, November 25th through Cyber Monday, QVC created the ultimate multimedia shopping experience for our customers across all of our platforms. We set dozens of internal sales and new name records that week including achieving our biggest sales week in history, our biggest digital sales as well as mobile sales week in QVC’s history and the highest grossing new name week every. We saw positive results across our product categories. Electronics showed great momentum through quarter with popular brands like Kindle, Dell, Cannon, Samsung, Apple and HP.

The Halo pocket power charger today special value which aired on Sunday, December 1st sold more than 380,000 units, making at the number one selling TSV of all-time in terms of unit and the top selling item in a single day on QVC. Our home division generated strong results particularly our holiday assortment of home decor and toys as well as floor care and home furnishing. Some of the standout brands include FlashPad, BlissLight, Dyson, Shark, Ninja, Serta and La-Z-Boy.

Our beauty business surpassed $1 billion in ship sales in 2013 driven by strong growth in the fourth quarter. QVC’ Customer Choice Beauty Awards in October featured this year’s best brands including Josie Maran, Mally, WEN by Chaz Dean, Philosophy, IT Cosmetics and Peter Thomas Roth. We also saw positive results in our apparel and accessory business driven by proprietary designer lines like Isaac Mizrahi Live, LOGO by Lori Goldstein, and Susan Graver as well as our footwear and handbags with standout brands Clark and Dooney & Bourke.

We invested in our platform to create a more consistent and accessible shopping experience. In 2013, we expanded our TV distribution by launching a second broadcast channel called QVC Plus and making our current programming available over the air. We’re seeing a positive response to QVC Plus in over the year with additional reach of more than 75 million households and as generated more than 30,000 new customers.

We also completed the first space of responsive design to transform our existing website develop for desktop experience into a site that has the ability to render content to fit the screens of desktops, tablets, smartphones and devices yet to come from a single source of content and code. Customers now have an optimized experience for mobile devices for shopping cart, checkout and my account. The next phase will complete the mobile device experience to include all pages within the shopping experience.

We understand social shopping like no other retailer and are finding innovative ways to bring life-minded people together discovering great sign to gather QVC’s social experience that’s bringing the magic of what we do on TV every day into the digital phase was a very popular destination for holiday gift ideas from a community of passionate shoppers, program host and vendors and designers.

In 2013, the social platform generated more than 290,000 users with more than 35,000 unique collections created. We’re excited about the perspective customers of joined together and their level of engagement with our shopping community. Throughout 2013, we also created unique connections on our community platform on qvc.com with 2.4 million sessions per months on social platform such as Facebook, Pinterest and Instagram and on our mobile applications.

We’re improving our service experience at every touch. QVC received the top score of 88 for contact centers customers satisfaction by 4C Experience index. We held the top range at each of the key drivers of customer experienced including accessibility, knowledge and professionalism surpassing the performance of all top 100 retailers in the study. In 2013, we accomplished several initiatives to enhance the service we provide for our customers. We piloted live chat completing to close to 80,000 chats in 2013 to help support our customer in making purchase decisions.

We have decided team members who responded to customers questions on our social platforms. We expanded our customer communication that we delivered after purchase to anticipate questions and create a personalized shopping experience and we improved the speed and accuracy of delivery to our customers. We’re proud of the results we delivered in 2013 and the actions we’ve taken to establish a model that positioned QVC to reinvent the shopping experience. We’re excited about our product and programming offerings creating a unique shopping experience in the first quarter as well.

Today, we’re in LA for our fifth annual Red Carpet Style event celebrating Red Carpet moments and inspiring viewers to create their own personal style with icons Isaac Mizrahi, Nicole Richie and Joan Rivers, plus Project Runway All Stars winner Seth Aaron. On March 16, the Muppets come to QVC to promote their upcoming movie Muppets Most Wanted which hit theatres on March 21. The multi platform event, QVC celebrates Muppets Most Wanted to provide customers with an integrated experience with Miss Piggy and the Muppets on air on QVC, on mobile and all of our social platforms.

And with that let me turn it back over to Chris.

Chris Shean

Thanks, Claire. Let’s take a quick at the liquidity picture as Liberty Ventures Group. At the end of the quarter, the group had attributed cash and liquid investments of $1.6 billion and $2.5 billion in principal amount of attributed debt, which includes $670 billion of cash at TripAdvisor as well as liquid securities and $369 million of their debt facilities. The value of the public equity method securities and other public holdings attributed to the group was $2.2 billion and $1.1 billion respectively at the end of the quarter.

And now, I will hand the call back to Greg.

Greg Maffei

Great, thank you Mike, Claire, and Chris. We’re pleased with results for the quarter and year and look forward to a strong 2014. We appreciate your continued interest in Liberty Interactive and with that operator, let me open it up for questions

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Barton Crockett with FBR Capital Markets.

Barton Crockett - FBR Capital Markets

I just wanted to follow-up on the change in verbiage around the spin, just to make sure that I am completely clear on this. Before you guys were saying that the spin would be contingent upon satisfaction of certain conditions when you lifted them. Now you’re saying that you know management can essentially not guarantee when or if this will happen. Are you still interested in doing this as you were before, and the only changes were with the timing at this point?

Greg Maffei

We remain instead committed to the spins we outlined, and as the verbiage will have to ask Rich Baer.

Barton Crockett - FBR Capital Markets

Okay I will leave it there. And then just secondly, HSN has slowed its kind of share repurchase pace from what it was doing you know several quarters ago. You know in the past you guys remember, you pretty vocal about wanting HSN to buy back stock. How satisfied are you with the pace of share repurchases there, and do you think there needs to be a change?

Greg Maffei

Well, by Liberty standards, and which we believe obviously is the correct ones, HSN appears under leveraged, so utilizing their capital structure more efficiently, I mean the reality is these are not high-growth businesses today, they are high free cash flow generating businesses. They can support leverage and need leverage to shield taxes efficiently and provide the relatively slower growth of these assets, be generating still sufficient equity returns. So that’s our view of the world, whether it’s in the form of share repurchase or return of capital via dividend or other method, we think that’s the appropriate way to approach how you should treat your shareholders. That would be message to HSN. That’s certainly what we’re trying to do with our companies.

Operator

Our next question comes from Matt Nemer with Wells Fargo Securities

Matt Nemer - Wells Fargo Securities

First, I’m wondering if you could provide a little more color on their Liberty Digit to assets and how they grew in terms of the various properties.

Greg Maffei

So, I’ll give some highlight and then I’ll let Chris Shean, our CFO chat a little further. We have had to businesses which is as I mentioned had grown very well and consistently; CommerceHub and Bodybuilding. We had some other businesses which are more of challenge for a variety of reasons. Provide Commerce has several units ProFlowers, its Gourmet Foods area, those where reasonable growers, RedEnvelope did a repositioning of itself, that I would say was not as successful as management would’ve liked. We will see where we go with that. And Personal Creations which is basically the personalizing gifting effort there, also somewhat stalled out on somewhat of a repositioning. Looking at Celebrate, we did talk for several quarters about how the business is really in transition; need to be more efficient in its marketing, more effective in conversions, and better control of its inventory. I think some of that is underway but on a smaller sized business, and at the country we had better weather this year, not as good as we might report, because what we really need is larger snow early, particularly cold early in the Eastern markets and the Western markets. Certainly you got plenty of snow in the East. Unfortunately much of it would be probably too late for us greater benefit from it in terms of demand for our products. We also see increased competition not only from department stores who are selling to more kind of outdoor gear but liquidation causing write downs with some of the traditional suppliers like the outdoor chains pressure from other large online retailers and the trend towards some of our suppliers going direct and also opening up additional outlets like the department stores. So all those created pressure on back [indiscernible] and it’s sort of traditional winter gear. It’s efforts in the cycling area we’re very expected its efforts with the Motorsport acquisition will probably okay not as strong. So it’s kind of a mix bag, Chris would you like to add any of that.

Chris Shean

I would say that at celebrate we have taken down their inventory levels by 50% and some of that through clearance pricing some of that through obsolescence charges. But we think we’ve got that down to a level where the businesses hopefully settled out and now on a path to where we can grow it a bit. And as Greg mentioned at these businesses in certain areas we try to do experimentation and something like RedEnvelope where we’re trying to replatform the business it was a bet that didn’t turn out particularly great this year and were having to reevaluate where we head with that. So I mean I think that covers the water front with ecom for the quarter.

Matt Nemer - Wells Fargo Securities

Great, that’s very helpful. And then two quick follow ups on QBC, the first is the faster shipping that you mentioned that impacted the quarter. Is that something that plays out over the course of the next three quarters or when that we cycle that? And then secondly on Germany can you provide anymore color on you mentioned an intense promotional environment. Anymore color on where that’s coming from.

Greg Maffei

Yes, on the faster shipping it’s really a one quarter benefit so last year we deferred in Q4 kind of four days of shipping and this year we only deferred three days. But now going forward it’s largely a neutral impact to the business. On Germany what we just see is fairly aggressive promotional environment with traditional retail also with our primary home shopping competitor lot of ease in the marketplace to free shipping growth of we’ve really just seen a dramatic growth of online retailing in Germany. It had been a little bit slower to come in Germany and now it’s kind of coming full course and players like Solando who do a lot with the free shipping.

I don’t know that it’s fundamentally different than what you see in other markets but I would say that market is a little more dynamic with little more kind of pressure for distance retailers like ourselves. That said we also think a lot of our challenges in Germany are more self inflected and we need to do a better job executing consistently and try to rise above those promotional pressures in the marketplace.

Operator

And we’ll go next to Jason Bazinet with Citi.

Jason Bazinet - Citi

I have sort of an unusual question for Mr. Maffei. Regarding Liberty ventures in terms of your efforts to defies this $5 billion liability in 20-30 or so, it would seem to me it’s far more difficult to find investments if you have to go or generate returns if the cash that you’re dealing with is sort of $100 million or $200 million slug that you get per year from Liberty Interactive. And far easier if you pledged in essence those inflows to a creditor and got sort of a multibillion dollar check today to give you more degrees of freedom to buy something bigger and chunkier today to generate returns. Is that something that you’ve thought about or contemplated with and do you think that sort of a inappropriate notion given the that it would obviously cost money to do that?

Greg Maffei

Yes I mean I think Jason you’re talking about leverage basically or formal financial leverage. We have a fair amount of leverage at that company in the form of not only the exchangeable which are generating those deductions but other exchangeable what become more exchangeable. So if you look at the gross asset pool there at Liberty ventures it’s actually a fairly big pool over $7 billion of market value or cash I’d also point that we have a fairly big cash slug there as well. So when you think about what we are using to try and build value and fees those bonds down the road and to fees that obligation it’s a larger set of assets than just that stream.

And while we have because we think about the value trip has grown substantially, the value of Expedia has grown substantially we have a invested and many of us -- not many, we’ve invested money in now four or five energy projects which we think will generate high rates of returns and our tax advantaged high rates of returns that in affect are fighting fire with fire. So I think it’s misleading to do that. And if you thought about just trying to secure that interest, that’s a very difficult interest to secure because its contingent upon profitability at QVC, it’s contingent upon the continued outstanding of all those bonds and it’s continued upon, it would only be attractive if we had a big project in which to invest but you have to know that upfront because otherwise you are paying, you get a negative arbitrage of that. So, it’s not, it isn’t the case that we are short on capital at Liberty Ventures. It’s the case today that we are being judicious and slow perhaps too on finding investments that are attractive.

Jason Bazinet - Citi

Well, let me ask a follow-up, to the extent if you have assets there other than the cash that’s coming in from Liberty Interactive, do you feel like you are impaired at all in your ability to do things like spending out trip or if you do something with Expedia because of that liability?

Greg Maffei

No.

Operator

And we will go next to Thomas Forte with Telsey Advisory Group.

Thomas Forte - Telsey Advisory Group

Great. Thank you for taking my questions. I was hoping that Mike, you give us an update on his thoughts on international expansion, what’s your current list of targets and what’s your current thoughts on potential timing?

Mike George

Sure, Tom. Not a lot of new news, we continue to be add at full force, looking at a number of markets. We have shared in the past that we continue to see nice full on opportunities in Europe. We would love to be in France, potentially Spain, maybe Turkey as that market grows although it certainly had its momentary challenges, continue to be interested in plays like Mexico and Brazil, continue the India, something interesting although probably a little bit further out. So, those are probably still kind of the short-list. We are fairly advanced in one or two opportunities, so I hope that we will have news in the next few months. But as always when I say that I caution that these deals are volatile and may not happen on the timetable we would like. But given that it’s now been a couple of years since we have done one of these, the time is right and we think we are pretty close to at least one interesting opportunity.

Thomas Forte - Telsey Advisory Group

Great, thanks. And a quick follow-up for Claire, so for consumer electronics, I was pleased to hear that you had strong performance, have we fully led the transition away from televisions and laptop, computers and are you positioned for continued expansion in consumer electronics as 2014 progresses?

Claire Watts

Thank you for the question. I would say that to characterize the transition away from selling televisions and laptops would be an overstatement because we still sale a lot of those. Having said that the key growth really still has come from the tablet category. We feel good about position for 2014 and we have become a key partner for many of the electronics brands they introduced new technology and new story, the new functionality to their customer. So, we feel that we have a very solid plan for ‘14.

Operator

And we will go next to Ben Mogil with Stifel.

Ben Mogil - Stifel

Hi, good afternoon, thanks for taking my question. Just a quick one Claire, on the return rates on QVC U.S. much lower return rates we have seen sort of for a while now, anything that you can add in terms of sort of what wad changing?

Claire Watts

Yes, so thank you again for your question. What we are seeing in some of our higher categories of return rate that being apparel and accessories and jewelry, we have seen a decline in the rate that’s been purposeful. We put a lot of effort and energy into understanding of why products are returning and how we could improve the quality and the experience for the customers. So, we were very pleased to see those fashion categories improve in their rates in the quarter and stabilization in our hard lines area, so that’s the biggest difference.

Operator

And our last question will come from Matthew Harrigan with Wunderlich Securities.

Matthew Harrigan - Wunderlich Securities

Thank you. Two questions, first on international, you talked a little bit at your Investor Day about capital wide and can you talk also about working capital needs for that and how your technology investments are affecting your working capital cycle, I mean Greg obviously talked about the cash generation being in parallel? And then secondly, the other huge trend in retail other than m-commerce is kind of wall break it down between consumer product companies and tech companies and the retailers themselves a lot of more consumers are engaging directly with manufacturers. I know and almost I haven’t trying to be mediate aspect to the business, I know not everybody can be Red Bull or Louis Vuitton. But do you still feel like you are always going to be distinctive as an aggregator in having such a traditional media background or do you get a little bit more nervous about some of your suppliers trying to do what you do basically even on the social media basis?

Mike George

So, let me try to take kind of both of those and see if Claire has anything to add on the second. So, on international, there is a general statement as you said, we are going to try these on a little bit more of a capital light basis just because we think that in areas like distribution center, call center sometimes even studios, there are good third party operators and we can leverage their assets for period of time and kind of variablize our cost of getting into these markets. Although ultimately, we’ll probably hit a size and scale in those markets where we’ll do more things internally, it will be more economic to do things internally than through third parties but we think we step into the capital commitment more gradually. And I don’t know that I’d say on the working capital front that there’re any big technology changes they’re going to fundamentally affect that.

We usually can manage the step up in working capital so that is a not huge drain. We do incur obviously OIBDA losses in these markets in the early years. We are pretty caution in how we bring in inventory, often in a new market we might do a little bit on consignment or other ways to manage due to the finance cost or risk of the inventory. All markets are different in terms of customer payment, which is the other big driver of working capital and so the characteristics will look different by market. But at a high level, I don’t see working capital in a new market as being highly material to the overall cash flow of the company and to something what we - we’ll manage on a pretty careful basis.

I guess that a high level on your second question, Matt, if I understood kind of where you were going. We do think in aggregate we have a very distinctive proposition in how we present ourselves to our customer as a curator and aggregator of great content, not only the product content but the experience that we put around that content. And we actually are working very closely with our partners to have integrated social strategies, so we love it when the partner has their own social strategy as you described it because then you get a real win-win and they can bring their customers to the QVC experience.

But because we’re such an attractive channel for our brand partners and typically this often the case that we’re their most profitable channel and certainly that channel that gives them the best sort of halo around the brand experience. So we have this nice mutual interest in building the business and leveraging sort of the capabilities of both QVC and the partner and so you’ll just see us do a lot more of kind of integrated social strategies, reaching out to both customer bases. So, I see in opportunity column then at the risk. Claire, anything else you would add?

Claire Watts

No, I think that’s exactly right.

Greg Maffei

So, thank you everybody for your questions and interest in Liberty Interactive. We hope to speak with you next quarter, if not sooner.

Operator

And ladies and gentlemen, that does conclude today’s presentation. We thank you for your participation.

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