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XO Group Inc. (NYSE:XOXO)

Q4 2013 Earnings Conference Call

March 13, 2014 04:30 AM ET

Executives

David Liu - Cofounder and Chairman

Michael Steib - President and CEO

Gillian Munson - CFO

Ivan Marmolejos - IR

Analysts

Steve Rubis - Stifel, Nicolaus & Co.

Sameet Sinha - B. Riley & Co.

Bradley Safalow - PAA Research

Operator

At this time, I’d like to welcome everyone to the XO Group Inc. Fourth Quarter 2013 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. After the speakers’ remarks, you will be invited to participate in a question-and-answer session. As a reminder, ladies and gentlemen, this conference is being recorded. At this time, I’d like to turn the conference over to the Company.

Ivan Marmolejos

Thank you. Welcome to XO Group's fourth quarter and full-year 2013 conference call and webcast. During the course of this conference call, comments that we make regarding XO Group that are not historical facts are forward-looking statements and are subject to risks and uncertainties that could cause the actual future events or results to differ materially from these statements. Such forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements can be identified by the use of words like may, should, expect, plan, intend and other similar terms. You are cautioned that these forward-looking statements speak only as of today's date. Changes in economic, business, competitive, regulatory or other factors could cause our actual results to differ materially from these -- from those expressed or implied by the projections or forward-looking statements made today.

For more detailed information about these factors and other risks that may impact our business, please review the periodic reports and other documents filed from time to time by XO Group with the Securities and Exchange Commission. Our internal projections and beliefs, which upon we based our expectations, may change but we will not necessarily inform you if they do. XO Group's policy is to provide expectations only once per quarter and not to update that information until the next quarter.

We will also discuss certain non-GAAP measures on this call. We refer you to our press release posted on our website at ir.xogroupinc.com where we report our GAAP results as well as provide a reconciliation of the non-GAAP measures to comparable GAAP financial measures.

We have allotted up to one hour for today's conference call, including the question-and-answer section that follows. Please take note that the Company is operating under the SEC Regulation FD and encourage you to take full advantage of the Q&A session.

During this call, David and Mike will give you an overview of XO Group's strategic position and key achievements, followed by Gillian with an outline of the financial results, and then we will open the line up for a question-and-answer session. Thank you for your participation and interest in XO Group.

I'll now pass the call to the Company’s Chairman, David Liu.

David Liu

Thank you, Ivan, and welcome to our earnings call. Today is an important day for XO Group. I like to spend a few minutes putting the management and operational changes we just announced in context. Then, I will turn the call over to Mike Steib, our new CEO and Gillian Munson, our CFO, to walk you through our strategy and financials.

I want to begin by making two simple points. First, our core value proposition is more relevant than ever. Our iconic brands connect large motivated audiences with resources they need. Already the trusted leader, indispensable to more than 20,000 vendors, we continue to position our self to ensure our products remain the preferred way to connect members, vendors, and advertisers.

Second, we’re making an exciting shift from planning for long-term growth to investing in that growth. And our investments, especially in talent like Mike, are essential to a mobile future, in which our audiences will be interested in acting in real time on decisions they make as they’re in making informed decisions in the first place. Therefore we’re preparing for our future as the leading brand and mobile-driven marketplace for lifestage decisions.

Through 2013, I indicated on our quarterly calls, that we will be committing to an increased level of investment in order to stay even more connected to our members and relevant to our advertisers as the world shifted towards more mobile behavior. As pioneer in internet media, staying connected in relevant to consumers and advertisers is at the heart of what we do. For example, with The Knot, we created brands, content and vendor networks that have helped by our estimates more than 25 million couples more easily fulfilled their dreams, the most important day of their life.

At the same time, we’ve served 10s of 1000s of advertisers by delivering to them a highly engaged audience with lifestage specific spending behavior that makes them incredibly valuable, whether you’re a major advertiser or a local merchant.

In addition to the leading wedding brand, we also have built media properties that help consumers achieve post wedding family goals and help advertisers capture additional major spending opportunities. Specifically, we grew the largest community of newly wed couples with The Nest, as well as the fastest growing top 10 pregnancy and baby brands with The Bump. We create value by linking motivated audiences with right vendors and advertisers, and today those audiences are as inclined as ever to look for trusted help with lifestage decisions.

So what’s changed? It’s not the value we provide. The relevance of mobile behavior has changed how we provide that value. I don’t think its news to most of you that mobile device use and the transactional functionality that those devices offer continues to grow.

However, what might be news is that in our view the disruption that digital technology and mobile have had on for example travel, real estate, and eCommerce, its finally catching up to the stubbornly analog nature of the wedding sector. In the past, brides have always have to go in and try on that dress and visit the reception hall and go taste the cake in person and the subsequent transaction happened in person. But now they’re able to discover and enhance those analog behaviors in real time. Thanks to the efficiencies embedded in smartphone.

In short, consumers now view mobile as their first choice for engaging with and acting on content driven decisions. This means we’ve a chance to capture even larger part of the $200 billion annual spend across our lifestages, because we have many, many more consumer touch points than we do via the desktop web. This is why we’re framing this opportunity in terms of a brand, and mobile driven marketplace for lifestage decisions.

But to be clear, our opportunity is to be the place people turn to be not just make lifestage decisions, we ultimately can give them mobile technology that lets them act on those decisions better and faster than they could without us. So let me turn to the investment case for the future. Now is the time to commit resources to our businesses and brands in order to give us the capability to maintain and build branded value in a more mobile future.

The most critical of these investments began with bringing in Mike Steib. In July of 2013, I hired Mike to take our pioneering media brands into a more mobile future. And as I continue my role as Chairman guiding overall direction of XO Group, I’m really delighted to announce that he will be taking over as CEO and he is joining our Board of Directors. It is with the utmost confidence that I pass the baton.

Mike has the background, operational and leadership skills to maximize the value of our brands to advertisers and consumers as they engage with us in more ways, more often, be it mobile and platforms in the future. When I first met Mike, I was most impressed with his ability to unpack exceedingly complex problems and present a clear and compelling path to resolving those puzzles.

His leadership experience in Google’s mobile business, the digital businesses for NBC and more recently as CEO of the luxury eCommerce site Vente-Privee USA made in a perfect triple threat. He is an executive who understands the technology behind mobile, the business of digital media and the details and strategies for the transactional operation. His passion to lead is exemplified by him has being voted best manager by his peers at (technical difficulty) and assumption of CEO responsibilities give me a greater opportunity focused on critical emerging growth areas like China.

As our new Chief Executive Officer, Mike will lead our earnings call today. He is joined by Gillian Munson, who came on board as Chief Financial Officer at XO Group in November. Gillian brings more than 20 years experience working with technology companies and senior management and corporate financials. In a few short months, she has made a substantial and positive impact on our team.

You will hear from them, that while we certainly have the substantial work ahead. The future for XO Group is bright and filled with unique opportunities to create long-term shareholder value.

Now, I’ll the turn the call to Mike, for a review of the 2013 highlights and a discussion of the strategic direction for XO Group.

Michael Steib

Thank you, David. I’m honored to be leading today’s call. You’re a wonderful teammate and friend and I’m really grateful that you invited me to join the XO family. Today I would like to talk about where we’re taking XO, and the context that David laid out, why we can provide unique levels of trust, the access to resources for making lifestage decisions.

First some context. We address the most critical moment in our members life. Getting married, starting a new family, having a baby, these are long and challenging processes, full of uncertainty, angst and joy. They ultimately change couples lives forever.

Our mission at XO is to make every moment of that process easy and awesome. As leaders in this space, we take that responsibility seriously. Together with our large and royal audiences we know we have the opportunity to create even more value for members and investors going forward.

Let’s focus for a moment on the way the internet has changed. Let’s look ahead. Each time the web has evolved, we’ve successfully moved with it. We’ve been number one in online wedding brands from early days on a well to the introduction of the Netscape browser to the vast expansion of bandwidth and social media to the explosion of the app economy.

Today mobile internet presents us with a new opportunity to dramatically expand our daily presence with coupled in the critical lifestages. 70% of our audience is armed with an internet connected handheld device. In 2013, for the first time, American spend more media time with digital than with any other media, and the majority of that time is spend on mobile device, not on desktop.

For years our ability to directly engage our audience relied on their being at a computer or their magazine rack, now with the average American checks at smartphone 110 times a day. We have the opportunity to significantly deepen our connectivity with vendors in real time. We can generate more views; more leads, and expand the services we provide our vendors, advertisers, and audiences.

We are transforming XO Group to maximize our opportunity in this mobile revolution. This is the next great step for our Company. And I want to make sure that you, our investors, understand that there are critical, technical, data installed base improvements XO must make in order to take this step in a meaningful way.

Mobile development requires additional expertise and throughput. In the past quarter or so, we’ve increased our talents in product and engineering as well as with very impressive executives with extensive consumer internet and media experience. In fact, just this week we closed on an acquisition of a New York based mobile first start-up called (indiscernible). Their award winning apps have been featured in Apple commercials and retail stores. This team adds even more talent to our capabilities in mobile design and development.

You will hear in Gillian’s remarks, an increased spend in product and technologies that it’s likely to continue for 2014. This is a strategic allocation of our capital as we believe we will yield significant long-term value for our shareholders. The early fruits of our labor are encouraging. We launched our wedding fashion iOS app in Q4 to help brides find the perfect dress and accessories for their wedding.

Recently we generated more than 1.6 million dress views in 24 hour period. We launched a second version of this app on Android devices in January. Now more recently we shipped The Knot wedding planner app for iOS which provides members with 100s of 1000s of real wedding photos for inspiration, tools for wedding planning and access of a leading wedding vendors in every market in the U.S.

This app featured as the best new app by Apple has already shown a significant increase in leads to our local vendors underlying the economic upside of building great user centric global products. These mobile products significantly increased connections and in turn, engagement among our members, vendors and advertisers. With these expanding touch points, we are offering the tools and resources for couples to act on their decisions more deeply integrating us into these lifestage transactions.

We're in an enviable position not only do we have significant opportunities in the future, we get to build on the foundation of a strong and growing core business. So let me walk you through some of the headlines before turning it over to Gillian to discuss the details of quarter and the year.

First our local online advertising business continues to be a reliable foundation with consistent revenue. And you should note that, we still see 95% of this local market as a Greenfield opportunity. Our team expected our product initiatives will help us bring on new vendors, increase wallet share with existing advertisers. Our national advertising program reaches the highly valuable Millennial female at a critical time in her life, when she is forming her brand loyalties.

Looking at the fourth quarter, we did not fully capitalize on this opportunity. However, for the history of blue-chip advertisers, premium CPMs, and now with new leadership on this team, under the helm of Jennifer Garrett, our new EVP of Enterprise Sales, I'm really excited about the opportunities for the national business in quarters ahead.

eCommerce results for the year showed signs of improvement, reflecting steps that we have taken to streamline this business. We have a renewed focus on merchandize and improving conversion rates and with the recently announced employment of Kathy Brady, as EVP, eCommerce and Registry, tools are in place to put this business in the right direction.

Finally, our Registry business delivered solid revenue improvement driven by investments we’ve made over the last year or so. This is a perfect example of the kind of growth that we believe we can create following proactive technology investments. As we put the pieces in place throughout 2014 to accelerate the growth of our businesses, we will be investing in user centric mobile first products and deepening data driven engagement with brides, grooms and young families. The first place they will turn will be our trusted brands and our future as the leading brand in mobile driven marketplace, lifestage decision is strong.

I would now like to introduce our new CFO, Gillian Munson, who will discuss the financial highlights for the fourth quarter and full-year 2013 in more detail. Gillian, the floor is yours.

Gillian Munson

Thanks, Mike. I'm delighted to be a part of XO. Let me briefly review the numbers and some of the underlying drivers of XO Group’s 2013 results. I'm going to touch on the highlights and guide you to our press release tables for more detailed financials. After speaking to our results for the year, I'll take a few minutes to talk about our expectations for 2014.

Our total revenue for the fourth quarter of 2013 was $32.6 million, up 1.3% compared to last year. All-in we had 3.6% year-over-year revenue growth for 2013. On a GAAP basis, our fourth quarter loss per share was $0.12. On and full-year basis, GAAP diluted earnings per share were $0.23.

We think it's helpful to highlight a number of incremental expenses included in our GAAP EPS results. These incremental expenses are laid out for you in a table in our press release and include severance and VAT tax expense in G&A, impairment charges primarily for our Wedding Channel trade name and an impairment to an equity investment. As we walk through the P&L, I'll highlight the lines that include these costs. Excluding these items, non-GAAP earnings per share would be $0.02 for the quarter and $0.35 for the full-year.

Now, I’d like to give you a little more color on our operations. Our local online business which is our largest, has a mantra, more vendors spending more, staying longer. Through 2013 the team executed well to this goal. Local online revenue grew 7% in the quarter and 9% for the full-year compared to last year. The increases in our vendor count and average revenue per vendor combined with a reduction of churn were the main drivers for the improvement. In fact, we ended the year with an all-time low churn rate of 28%.

Our national online advertising revenue was up 2.5% year-over-year in 2013. However, following 7% growth during the first nine months of 2013, this business saw a decline in the fourth quarter versus last year. A bright spot in our national business continue to be our pregnancy and parenting website, The Bump, which grew 18% during the fourth quarter compared to last year.

While we didn't execute up to our expectations in the fourth quarter, we enter 2014 with a talented new Head of National Sales, and a reinvigorated sales staff, which we believe puts us in a position to grow this business. A highlight of both the quarter and the year was our Registry business. Our Registry service revenue increased 32% during the quarter and 27% for the year when compared to the prior year. Enhancements made to our Registry platform, which launched back in April led to more sales for our wedding retail partners.

Additionally, revenue from our baby registry partners increased significantly albeit off a small base. Registry is a pure commissions business and therefore carries no cost of revenue. So the increased contribution from this business was a solid driver to our overall gross margin mix.

Full-year eCommerce sales fell 14% year-over-year. We are in the process of focusing attention on better merchandising, smarter pricing, and more successfully converting consumers on both desktop and mobile. We are beginning to see early gains from these efforts, which helped slow the rate of decline to 4% during the fourth quarter. While there is still work to be done, we remain optimistic, our investments in this business will generate growth.

Publishing and other revenues were up 3% for the full-year and effectively flat with the fourth quarter of 2012. During the year, we had increases in revenue per ad page in both national and local publications. Offsetting the gains in Q4 were revenue declines from our trade shows.

Year-over-year consolidated gross margin increased for both the year and the quarter due to a positive revenue contribution mix shift towards our higher margin businesses and with 83.3% for both the quarter and the year. As Mike and David has outlined, XO Group is investing in key areas that we believe will create long-term growth and profit for the Company.

In the fourth quarter we began to see the impact of that investment in our operating expenses. Total OpEx for the full-year grew by 7% and in the fourth quarter were up 36% year-over-year. If you exclude G&A and impairment charges as well as the executive management severance and incremental VAT tax expenses, our operating expenses were up 22% for the fourth quarter.

Operating expenses were down year-over-year for the first half primarily due to a reduction in stock-based compensation and a delay in hiring product and mobile talent. In fact our headcount fell in the first half. In the second half of the year we purposefully increased employee related expenses with the majority of the growth coming in the fourth quarter.

The break down of our fourth quarter operating expenses should give you more color and the focus of our investment. Product and content expenses grew about 46% year-over-year as we added employees primarily to support our mobile and technology initiatives. This is our primary area of investment at this time. Sales and marketing expense increased slightly by 4%.

In the G&A expense line, you'll see an increase of $2.8 million or 62% year-over-year primarily due to employee related expenses associated with executive changes. Included in the G&A line are two incremental expenses I should highlight. The first are severance charges of $350,000. The second our VAT taxes and interest related to Ijie totaling $930,000, both which we excluded from our non-GAAP earnings per share.

Excluding these incremental costs, G&A would have been up 33% year-over-year for the quarter. Our total operating losses on Ijie were $2 million for the quarter and $5 million for the full-year. G&A increased by 31% during the fourth quarter compared to the prior years period, primarily driven by depreciation related to new hardware and software purchases and product launches.

During the quarter we recorded a $1.4 million charge related to the impairment of certain trade names, primarily The Wedding Channel trade name. In our loss in equity investment section of the P&L, you will see we had $1.8 million impairment charge related to an equity investment made at the end of 2012.

Stock based compensation for the quarter increased to $2.1 million from negative $46,000 in the fourth quarter of 2012. To put this in context I would like to note that last year in the fourth quarter we made an investment to reduce estimated stock based compensation accrued throughout the first nine months of that year. On a full-year basis our effective tax rate was 45% including the incremental items I mentioned before.

Turning to our balance sheet it continued to reflect strength of our consolidated businesses. We generated $7 million in cash flow from operations during the quarter and $22 million for the year. Capital expenditures for the same period were $1.3 million and $6 million. Net of investments and cash flow from financing activities we ended the year with an overall cash balance of $90 million up from $77 million at the end of 2012.

We view our cash balance as a key asset of the company that we will purposefully protect and allocate carefully where necessary to pursue our goals. During 2013 we did not repurchase any shares under our previously authorized $20 million buy back program. As in other part of our business we will continue to evaluate the best use of our capital in order to maximize shareholder value.

As we turn to 2014 and given the changes you’ve seen in our operations I do want to pause and give you some factors to consider when building your own operating models and estimates for our financial performance. Directionally our expectation is that revenue growth rates will be consistent with the previous five years. We are huge believers in our future opportunity, but we are cognizant that it will take time for the cumulative momentum of our efforts to manifest in more substantial year-over-year growth rate.

As we think about our operating expenses you should consider the following factors. We plan to continue to transform our company with meaningful investments in products and technology and to a slightly lesser degree in sales and marketing. In G&A we intent to be conservative in adding to this expense line. G&A is expected to rise year-over-year as we watched more products and amortized the remaining $2.1 million balance on our books of the WeddingChannel trade name.

Finally our China business continues to be in an investment mode. It has great long-term promise, therefore we expect to allocate researchers to this business likely at similar levels as we did in 2013. I hope you expect us help you build your model and provide some context on how to view the business from a financial standpoint during 2014. Thank you for your interest. Before we open the call for questions, I’ll hand it back to Mike for his closing comments.

Michael Steib

Thank you, Gillian. Our financial results for 2014 looks like the fundamental strength of our core operating in the investments we are making to drive growth with our beloved brands. We are the premier consumer internet and media company devoted to weddings, pregnancy and everything in between. We are already the go to resource for millions of members from ten to thousands of vendors and our customers see us for their first choice for lifestage decisions.

As you heard we have a strong vision for our mobile enabled market place, made all the more powerful by the market leading position our company has already established. In order to expand connections and engagements with our customers, we will continue to appropriately allocate capital to generate growth. As a result we could not be more excited about the future for excels in brand and mobile driven market place for life stage decisions.

I want to thank you for your continued interest in the success of our company and I very much look forward to your questions today. This concludes our prepared remarks. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And your first question comes from the line of Steve Rubis.

Steve Rubis - Stifel, Nicolaus & Co.

Hi, thanks for taking my questions guys. I am on the line today for George Askew who is traveling, he may join later. But to start, Mike have you built out your executive team, do you expect to bring any more people on at this time?

Michael Steib

Hi, Steve thanks for your question. We feel very good about the leadership team that we have here. We have spent the last number of months bringing in the talent at the engineering ranks, product management ranks and at the executive ranks that we think we need to execute this transformation. So, we’re always looking to add talent to accelerate our opportunities here, but we feel very good about the team that we have.

Steve Rubis - Stifel, Nicolaus & Co.

Great, and I should say congratulations on the new role as well. Can you give us any color as to what drove the record low churn rate. I know you kind of called out some of the key positive trends in your local online advertising metrics. Can you give us any more color as to what drove this kind of inflection in improvement?

Michael Steib

Thanks for your questions Steve. As you know the local business for us is a strong foundation of this business and it’s a key pillar of the business going forward. We have seen increased traffic in leads going to our vendors and at the end of the day that is what we sell, that’s the value that we bring to our local merchants. And as we continue to deliver that, we continue to deliver that value we see retention in continued decline.

Steve Rubis - Stifel, Nicolaus & Co.

Great. And then my last question, your background at Vente-Privee and it seems that some of your executives has come over from Vente-Privee. Is there anything specifically from your time there that you think is applicable or something about that experience that you can really bring to bear here at The Knot?

Michael Steib

Steve, I’m quite hopeful that a number of my experiences will lend himself to what we do here, in media and advertising at NBC and digital across mobile, video and online at Google and then my work at -- our work together at Vente-Privee. If your question is specifically about eCommerce I can tell you this, the eCommerce market is growing 13%, 14% a year in the U.S. It's a huge growth opportunity for us and my experience in the past there with the focus on great merchandise, thoughtful strategic pricing and it’s really honing in on converting your customers when they come to your site and turning them into buyers and particular in mobile, that can really drive the business and for us here at XO that seems to offer a lot of upside I mean our business, I am really excited Kathy is here and we’re looking forward to working together on it.

Steve Rubis - Stifel, Nicolaus & Co.

That’s great color. Thank so much and also thank you so much for the guidance, I know that’s something you guys have not done in the past and it's very helpful to us as we go forward.

Michael Steib

It's nice to hear from you, and please say hi to George for us too.

Steve Rubis - Stifel, Nicolaus & Co.

Will do. Thank you.

Operator

The next question comes from the line of Sameet Sinha.

Sameet Sinha - B. Riley & Co.

Thank you. Mike, congratulations on this new position. Let me start off with just asking, you gave some insights into how you’re thinking about how this business is going to develop. But can you help me understand what this market place will look like obviously market places comes with a very broad terms, but if -- but they need to have the necessary ingredient otherwise there it would fall by the wayside and it seems like what you are talking about is basically a continuum which will engage with continuum was along different lifestages, it will be multi year relationships and how at each point of the relationship you will have content, advertisers, vendors, eCommerce opportunities all along the way. And so, I am just going to leave it there and I just wanted to see what, how you envision this market place.

Michael Steib

Thank you. It's nice to hear from you. I’d start with, on the strength of our brands the vast majority of couples getting married every year turn to us for our voice, for our content and the quality of our products and the experience that we’ve provided them for years and years. On the other side, our merchants turn to us because all of the brides and all of the couples are here. The underexploited opportunity for us isn't continuing to better connect those brides with the merchants who offer the solutions that they need for the day of their wedding. And that presents itself in a number of ways, whether its better search, better discovery, easier to use or better integrated tools. And you’re going to find us spending a lot of efforts in both mobile and desktop and making those connections more effectively, that in short is the market place opportunity and the one that we’re really excited about.

Sameet Sinha - B. Riley & Co.

All right. Thank you. You specifically just pointed out brides and merchants, is that telling of what you’re -- how you’re thinking about The Bump, is that not part of this strategy and, or The Nest does that go away and you just focus on The Knot?

Michael Steib

The Bump and The Nest are important parts of our strategy and I think as you heard Gillian mention before, have been key drivers in 2013. I have a tendency to mention The Knot first because it's one of, as you know it's our bigger revenue driver. There’s significant growth coming in our baby segment and in our home and newlywed segment, both in terms of top line users as well as growing engagement and growing spent from premium advertisers. So we’re quite excited on both fronts.

Sameet Sinha - B. Riley & Co.

Right. If I can just continue on that line of talk, so this market place, I mean, so you have consumers, guides coming to your site. How and now that you’re focusing on mobile first, what is the kind of stickiness that will keep bringing them back to this. Is it anything, is there a full version of some tool that you have in place which brings them back to your site to look up something or is there, just any other sort of marketing mechanism which will keep bringing them back all along the decision cycle?

Michael Steib

It's a great question, Sameet I’ll take you through this example. Imagine, in the case of weddings, imagine a bride she’s at her desk at work, she’s thinking about the dress that she might want to wear for the big day. She’s flipping through the pages, she’s clicking the ones that are her favorites. At some moment in the day she gets up from her desk and she leaves. What we know happens is over the course of the day a 110 times she checks her mobile device. She picks up her mobile device, she’s obsessing about her wedding, she comes to us. There in her device are saved some of the favorite dresses she found before and she’s continuing to look through and find other she likes. She can now click one, find out where it's being sold, push the button and call the salon to book her appointment. She can open up the other app and she can start picking out cake, she can start looking at photos of other weddings in the area that inspire her for the big day. She gets home, she checks her email, and there is the daily newsletter we send targeted to her stage in the wedding, bring her more inspiration and more opportunities to find the merchant she needs to plan her big day. So it really is a continuum from desktop to mobiles, email and back and it's an opportunity for us to be there to serve our brides, our moms and our young couples sort of for all of their moments of curiosity, for all of their moments of downtime and all of their moments of anxiety that can be solved with our inspiration and our planning tools.

Sameet Sinha - B. Riley & Co.

So, I mean usually when I talk about, we think about apps these are light, nice pieces of software on our phones and they generally tend to be low on [content] [ph], very easy on the eyes, not very cluttered, but the way you’re talking about it, it seems like there’s going to be multiples of things, you’re talking about pictures, you’re talking about content, saving lists and, so do you think this app could be -- are you talking about multiple apps or is it just going to be one app which will have various pieces to it?

Michael Steib

Sameet, in the last call at four months we have launched three different apps, two for IOS and one for android and these are some of the early signs of what you can expect from us. We created one app, a special purpose app just for what we know to be one of the most important killer app decisions that a bride makes early in her planning process and that is picking the dress, and then the bridesmaid dress, the accessories and the fashion. So we’ve created a single experience around that because that really is a use case that’s deserving of its own stack if you would. The second app we launched is the planner which integrates more of the features of planning inspiration, wedding photos and connectivity to merchants. So what we’ll do and I think you see a lot of consumers and our company is doing this now is we’ll launch apps when there’s a user experience or a use case that sort of acquire that single purpose vehicle and when there are opportunities to bring them together and to a single app we bring other things together into a single app.

Sameet Sinha - B. Riley & Co.

Okay. Thank you very much, I’ll just go back in the queue.

Michael Steib

Thanks for your questions.

Operator

Your next question is from Steve Rubis from Stifel.

Steve Rubis - Stifel, Nicolaus & Co.

A question there, is there an opportunity for you guys to kind of create a sort of CRM solution for wedding planners, I mean you think of how your sales force is kind at the top of the stack there and you’re starting to see segmentation down with companies like Aviva Systems within life sciences, is there an opportunity for you guys to attack that market from a wedding planner standpoint?

Michael Steib

Thank you for the question, it's very thoughtful, as we’re focused right now on the mobile and market place opportunity that’s where you see us deploying our investments and that’s where we have a lot of energy around that. And simplified focus and speed of execution is really important to us. So I think you’ll hear us talking about over the coming months will be on our, the points you’re putting on the board in those areas, like you we’ve got a lot of additional opportunities and pretty exciting ideas, but you’re really going to see us focused on the mobile market place opportunities in the near term.

Steve Rubis - Stifel, Nicolaus & Co.

Great. Thank you very much.

Michael Steib

Thanks for coming back.

Operator

Your next question comes from the line of Brad Safalow from PAA Research.

Bradley Safalow - PAA Research

Thanks for taking my questions. Just a couple of more factual or kind of expectation questions. As we look at the fourth quarter expense line items excluding the charges, severance, write-downs kind of as run rate going forward particularly as we look at sales and marketing products and content and as well as G&A?

Gillian Munson

Thanks for your question. In terms of the 2014 we’d really encourage you to look at 2014 in aggregate, and we believe it will be an investment year. And so what you’ll see is strong growth in our product and content line, growth in our sales and marketing line and then a pretty moderate G&A line. We’d encourage you to think about it that way next to revenue growth that it's similar to our past years.

Bradley Safalow - PAA Research

Okay, that’s helpful. And then what's your expectation for the overall level of investment in China for the year?

Gillian Munson

In terms of China we would expect China to have similar rates of investment this year as we go into the year and continue to grow that business. We would also think that this will likely be our last year of significant investment from that perspective in China.

Bradley Safalow - PAA Research

And just well a last point, can you give us any color from signpost or progress, things that we should either or that you can either certainly demonstrate to us that have already happened as far as your progress there and what the monetization model will actually be there?

Michael Steib

Hi, Brad its Mike, I’ll give you a little bit more color on China. In the, for context first in the major metropolitan areas of China, the cities that we consider our target markets. In 2014, 12 million women will get married, that’s more than five times the number of women who’ll get married across the entire United States and they will spend almost as much on their weddings as brides in the U.S. spend here. What's different about our investments in China today versus when this was a newer venture for us is we are now number one in online wedding media in China. We have really established a brand for ourselves there. Just like in the early days of The Knot here in the U.S. We have multiple longer cycle initiatives that are really coming to roost in 2014, they gave us a lot of confidence in this business and also support our belief that while there was a negative operating expense investment in 2013 there’ll be a similar one in 2014. In 2015 we think you’ll see a self running business.

Bradley Safalow - PAA Research

Okay. And then just a more general question, as you take over day-to-day management of the company, from our perspective or from an investor perspective, what should be the three or four things we takeaway as far as what will be different in your strategic focus?

Michael Steib

Well, the first thing I would say is, this is an investment in continuing the vision that David has set out for us over the last years and continuing to build on the strong business we have and the strength of our brands. The guidepost if you would or the things to expect from this collective leadership team is investments in and success in launching good mobile apps that better connect our brides, our newlyweds and our moms with the vendors, the contents, solutions and community that they need and just some of the things that we had shared earlier, you’ll hear us sharing throughout the year. When we have two month old or a three month app that’s generating 1.6 million dress views in a 24 hour period, we’re starting to get the signals that our early investments in product and technology are really paying off.

Bradley Safalow - PAA Research

Okay. And then as you think about this business again high level, I don’t know if you can frame it in terms of hey, this is how big the business could or should be or how fast the growth could or should be, I think there are a lot of people listening to this or reading the transcript, that think of the company as an asset that’s perhaps been under monetized and has great potential. So how are you thinking about it as you take over running the company?

Michael Steib

If you think about just one of our lines of business, our local advertising business, brides spend with those merchants $60 billion to $70 billion every year. Our take even though we are number one in this space, virtually all of the brides are on The Knot, our take is 0.2% of that overall market opportunity. And while we’re in a position to connect every bride in America with all of the merchant solutions that they need, less than 10% of the local wedding merchants are currently paying advertisers on our site. So we see a huge greenfield opportunity in local. And I could tell you a similar story for eCommerce in national. We’re really excited about taking advantage of the fortunate position we have in this market in better serving our brides and customers to better connections.

Bradley Safalow - PAA Research

Okay. Thanks for the color, I’ll turn it over.

Operator

The next question is from Sameet Sinha.

Sameet Sinha - B. Riley & Co.

Yes, Mike so as you launch these new apps and new sort of destinations and market places, how -- it doesn’t monetize this and can you envision a couple of years down the line whether it's going to be primarily eCommerce, primarily advertising or if there’s going to be a mix, what sort of a mix are you thinking it will be? The second question is, if advertising, if you expect significant growth in advertising along with, how should we think about pricing obviously a well known fact of what mobile ads and how they had been trending especially in terms of pricing. If you can share some of your experiences in these apps, how have you monetized that content in the viewership and the engagement that and of the pricing on these ads specifically if you’ve seen pricing start to stabilize or grow up, that would be helpful. Thank you.

Michael Steib

Thank you, Sameet and I’m starting to see a pattern in the questions here, this is really helpful. On mobile this is an incremental opportunity for us. It's more time and more opportunities for us to connect with our brides and connect them to the merchants that solve their problems. We monetize at our company audience attention in the form of impressions. We monetize leads to vendors and we monetize buy or selling merchandize to our brides our moms and our newlyweds. Mobile creates more opportunities for impressions for leads and for commercial transactions. So, what we expect our expectations of ourselves is that we’re able to drive each of these lines of business. Your advertising question in particular, we sell desktop and mobile audiences together or separately depending upon the strategy and needs of our advertising partners and we feel quite firmly that mobile is just as if not more valuable and engaged audience than desktop. But we do not share the hypothesis that mobile is somehow a cheaper advertising opportunity.

Sameet Sinha - B. Riley & Co.

Thank you.

Operator

(Operator Instructions) At this time there are no further questions. Are there any further remarks?

Michael Steib

Yes. We would like to thank you again for joining the conference call. If you missed any of this conference call, please log on to our Investor Relations site at ir.xogroupinc.com for replay. A replay is also available at (855) 859-2056, conference ID 2198783. If you have other questions, please feel free to contact me at ir@xogrp.com. Thank you.

Operator

Thank you. This concludes today's conference call. Please disconnect.

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