Remark Media's (MARK) CEO Kai-Shing Tao on Q4 2015 Results - Earnings Call Transcript

| About: Remark Media, (MARK)

Remark Media, Inc. (NASDAQ:MARK)

Q4 2015 Earnings Conference Call

March 30, 2016 4:30 PM ET

Executives

Becky Herrick - LHA Investor Relations

Kai-Shing Tao - Chairman and Chief Executive Officer

Douglas Osrow - Chief Financial Officer

Michael Reichartz - Co-Founder, Roomlia

Analysts

John Grimley - TJW Capital

Operator

Ladies and gentlemen please standby, we’re about to begin. Good day and welcome to this Remark Media Fourth Quarter and Year-End 2015 Financial Results Conference Call. Today’s conference is being recorded.

At this time, I’d like to turn the conference over to Becky Herrick of LHA. Please go ahead.

Becky Herrick

Thanks, Shannon, and thank you all for joining us today for the Remark Media fourth quarter and full-year 2015 financial results conference call. On the call today are Chairman and CEO, Shing Tao; and CFO, Doug Osrow. After the prepared remarks, we’ll open the call to questions. A webcast replay of today’s call will be available at Remark Media’s website for 90 days.

Some of the statements made today may be forward-looking statements. These statements involve risks, uncertainties and other factors that could cause our actual results to differ materially from those expressed or implied by these forward-looking statements. Any forward-looking statements reflect Remark Media’s current views and Remark Media expressly disclaims any obligation to update or revise any forward-looking statements after the date hereof. This disclaimer is only a summary of Remark Media’s statutory forward-looking statements disclaimer which is included in its filings with the SEC.

It’s now my pleasure to turn the call over to CEO, Shing Tao. Please go ahead, sir.

Kai-Shing Tao

Thank you all for joining us today. 2015 was a transformative year for Remark Media as demonstrated by our year-over-year top line growth. We evolved from a digital media content company, managing a portfolio of domain to a digital media technology company with a powerful proprietary technology platform.

During this transition, we’ve been leveraging our expert knowledge of one of the most powerful and influential demographics, the Millennial. With a continued focus on the 18 to 34-year-old demographic, our proprietary digital media technology platform provides us with a unique opportunity to enhance user engagement and brand awareness on a global scale. I’ll review this in more detail shortly.

For those of you new to Remark Media, we’re a digital media technology company with assets representing multiple content verticals, including travel, entertainment, personal finance, and lifestyle. We are focused on millennials, which is perhaps the most sought-after demographic in the world.

In 2015, millennials became the largest demographic of the American workforce. Their purchasing power of approximately US$600 billion per year is expected to grow to US$1.4 trillion by the year 2020. As a result, millennials represent a highly lucrative demographic and we believe our portfolio brand and our unique technology platform are extremely well-positioned to capitalize on this opportunity.

At the core of our company is KanKan. KanKan is our proprietary data intelligence platform that aggregates social media across the world’s largest platforms, including Facebook, Twitter, Instagram, WeChat, Weibo, and others. We believe this aggregation platform is an industry first.

Many of you may have seen our press release this morning announcing the launch of KanKan 2.0. With KanKan social media platform, it shows the users the best post in the social space, whether it’s who they’re craving, the travel destinations they’re planning, the exercise they’re performing, and many more. It enables users to find friends, connect and post across all major social media platforms with a single touch of a button. That provides map-based social media post based on location, time, relevancy and preferences. And it supports access into a friend circles across social networks.

In addition to providing a vastly more dynamic and comprehensive social media platform, KanKan allows us to amass data from over 1.3 billion socially active users globally. This information provides us significant advantage in enhancing user engagement and brand awareness, because all of our digital media property.

In fact, to support our future revenue growth, we expect to leverage our database to attract retailers and advertisers who could benefit from the predictive analytics and location-based services we provide. To-date, we were amass close to 2 petabytes of valuable data, and to put that in perspective, 1 petabyte represents approximately 1 million movies.

Vegas.com represents a strong example of how this data enhances our vertical. As Vegas.com has been around since 1995, we have announced over 20 years of user data. However, this data is limited only to users who have transacted through Vegas.com. With the KanKan data intelligence platform, we can now expand our circle and target people who haven’t visited Vegas.com. We are able to track people who are in Vegas this second, tourists that visited Vegas dating back three years, and those who plan to travel to Las Vegas.

KanKan exponentially increases the number of people we can target. Supporting the growth and evolution of KanKan is our relationship with Alibaba, which we announced via press release before market this morning. By virtue of this relationship, we’ve been granted a dedicated line to bypass the greatest firewall that exists between U.S. and China, enabling us to support user experience across geographies and track user data.

In addition, Alibaba has granted us access to the data of all transactions made through Alibaba, primarily through Taobao, Tmall, and Alipay. This reflects approximately 400 million users on an annual basis.

In 2016, we expect KanKan’s user base to grow even further, while we are continuously building out our platform. We believe this will further enhance the data we aggregate and unable us to secure more transformative third-party partnerships in the near future. As I mentioned before, KanKan provides us with a proprietary digital media technology platform, that enables us to enhance user engagement and brand awareness on the global scale across all of our vertical.

In our travel and entertainment vertical, we acquired Vegas.com in September of 2015. In addition to being immediately accretive and increasing our scale dramatically, this acquisition enables Remark Media to leverage our unique operating position in Las Vegas to build a significant competitive advantage. With our senior management team being based in Las Vegas, we believe we have a significantly improved perspective on the business, social, and political activities in our community, which adds to our competitive advantage.

Key to our growth plans for Vegas.com is the key user data obtained from our KanKan platform. As I mentioned, the proprietary data obtained from KanKan enables us to exponentially increase the number of people we can target for Vegas.com. In addition, since acquiring Vegas.com, we have begun implementing several technology upgrades, future enhancement, and operating efficiencies to strengthen this asset.

In the fourth quarter, we accelerated the release of product enhancements in the Vegas.com marketplace. As just one example, prior to the close of the transaction, October 2015 hotel shopper conversion was down 10% versus 2014. Conversion for the rest of the quarter improved by 2% year-over-year and so far in the first quarter of 2016, hotel conversion is up 10%. We strengthened the advertising business at Vegas.com in the fourth quarter, as we saw advertising revenue increased 82% versus the fourth quarter of 2014.

Speaking to operating efficiency. We are – we were able to restructure the management team and reduce payroll and related expenses by over $2.5 million annually. We also improved costs for the number of technology vendors that allow us to save an additional $800,000 annually. We are making big strides in mobile, as we saw transactions in the fourth of 2015 increased by 60% year-over-year aided by a 35% increase in conversion.

Our intention is to transform Vegas.com from a traveling and ticketing hub into a digital media platform, representing the multiple facets of Las Vegas experience. Our near-term initiatives include improving content across all capabilities within the site to better appeal to a target millennial audience, building out a nightclub and entertainment offering to provide visitors with a complete guide to the city.

There are also additional opportunities in food, sports, gaming, comedy, dating, and more. Las Vegas represents many things to many people. But typically because of the competition here in town, Las Vegas represents the best-of-class in most verticals, and we see this as an immediate opportunity.

Supported by the proprietary information we obtained from our KanKan data intelligence platform, we believe we can enhance the Vegas.com asset by, one, adding strategic partnerships and sponsorships with companies looking for exposure in Las Vegas. In November of 2015, we lost the partnership with Lyft, the popular ride-sharing company to handle their local marketing efforts. We see this as a first of many opportunities to continue to solidify Vegas.com as a partner of choice in this city.

Two, marketing and growing our advertising platform, and three, developing closer ties and content relevant to major events taking place within Las Vegas. We’re excited about the potential of Vegas.com and we look forward to keeping you updated on its growth. We can also leverage KanKan to derive value from additional verticals, including Bikini.com and IRS.com.

In 2012, we acquired a suite of personal finance URLs that include Banks.com and IRS.com to capitalize some effect on millennials of the most understood demographic in the personal finance space. In fact, over 81% of millennials have at least one form of debt. We have a series of initiatives underway to build out our finance vertical and take advantage of this significant opportunity.

Bikini.com is our luxury beach lifestyle site, where followers can tap into the inner daydreamer anytime and anywhere. 2015 was a year of growth for the brand, both in terms of content and e-commerce. As a first step in its media channel strategy, Bikini.com wants video franchisers both on its website and social channels. The video franchisers deliver content desirable to the brand score demographic of Millennial Women, increasing traffic and engagement. The lifestyle side of Bikini.com improves in content quality and frequency thereby strengthening the brand’s authority into beach lifestyle space.

The e-commerce site saw increased revenue and higher conversion rate due to improved product mix and brand awareness. For 2016, we’ll be leveraging Bikini.com’s positive brand momentum to further grow and secure additional monetization opportunities on all of its platform.

Lastly, I wanted to provide a brief update on one of the early foundational assets of Remark, our equity interest in Sharecare. In 2009, Remark Media along with Dr. Mehmet Oz; the Founder of WebMD, Jeff Arnold; Oprah Winfrey of Harpo, Discovery Communications and Sony Television co-founded Sharecare.com.

Sharecare is a health and wellness website that enables visitors to ship personalized resources across the website’s user base. To-date, nearly 40 million people have shipped more than 5 billion data points across their health status and habits via Sharecare. This data results in a comprehensive resource for personalized health and wellness information.

Our Board representation in Sharecare along with our minority ownership position in the company is expected to provide us with a monetization opportunity. In summary, we are very excited by our progress in 2015. However, we’re confident the best is yet to come.

Now, I’ll turn the call to our CFO, Doug Osrow, for a review of our financials. Doug?

Douglas Osrow

Thank you, Shing. Our financial results for the fourth quarter of 2015 compared to the same quarter last year reflect the first full quarter contribution from the company’s Vegas.com acquisition, which closed on September 24, 2015.

Net revenue was a $11.8 million compared to $0.2 million. The increase in net revenue was primarily attributable to acquisition of Vegas.com. Operating loss was $7.3 million compared to $5.6 million. Net loss was $14.1 million, or $0.72 per diluted share compared to $5.4 million, or $0.43 per diluted share.

Now for the full-year 2015 compared to the full-year 2014 results. Net revenue was $14.2 million compared to $1.8 million. Net loss was $31.4 million, or $2.06 per diluted share compared to $1.8 million, or $1.53 per diluted share.

It is important to note that our financial results for the full-year 2015 reflect full years contribution from Roomlia, which had a loss of roughly $3 million, and income contribution from Vegas.com only since the close of acquisition on September 24. At December 31, 2015, cash and cash equivalents were $5.4 million and our restricted cash position was $11.7 million.

And with that, I’ll turn it back to Shing.

Kai-Shing Tao

Thanks, Doug. Before I turn the call over to take your questions, I’d like to summarize our vision for the company. Now that Remark Media has firmly established as a digital media technology company. We can fully realize the opportunity with a highly lucrative millennial demographic.

KanKan provides us with a data intelligence platform with which to drive user engagement and brand awareness among all of our digital media verticals. It also established us with a unique competitive advantage in amassing rich, highly relevant, and broad data for millennial that is highly sought after by advertisers and retailers.

In 2016, we have the following growth objectives. One, continuing fortifying our KanKan asset by building out its user base and enhancing its capabilities to attract even more data. Two, optimize and expand our Vegas.com offering by implementing technology upgrades, improving top line growth, streamlining costs, enhancing features, and expanding our platform into a digital media one.

Three, enhance our finance and lifestyle verticals to increase brand awareness. We look forward to updating everyone in the next 45 days on our next earnings call on how we are progressing and achieve our goals for 2016.

Operator, we’re now ready to begin the Q&A.

Douglas Osrow

Before our Q&A, I just want to correct one quick thing. Net loss was $31.4 million, or $2.06 per diluted share in 2015 compared to $18.2 million, or $1.53 per diluted share in 2014.

And with that, we’re happy to take questions.

Question-and-Answer Session

Operator

Yes, sir, thank you. [Operator Instructions] And we will take our first question from John Grimley with TJW Capital.Pleasego ahead, sir.

John Grimley

Hey, guys, thanks for the update. Just can you just go through KanKan a little bit more. Would you consider that an advertising platform, or how should we be thinking about that thinking about it towards the Facebook?

Kai-Shing Tao

Yes. So advertising was just kind of one piece to it, and we have multiple facets to KanKan. I mean, the first primary goal is our ability to target. As we said in the previous kind of investment conference though that we built KanKan to be able to target as a laser rather than a shotgun.

So as I use an example was Vegas.com, we feel that not only can we use to enhance our own business, but we can go to anyone’s customer loyalty program and basically exponentially increase the number of people that they target with higher relevancy.

John Grimley

Got it. So just, I guess, sticking with KanKan, I guess, over 21 months or so you’ve got all these data?

Kai-Shing Tao

Yes.

John Grimley

How does the other social networks view KanKan from that perspective?

Kai-Shing Tao

Well, I think like any new company, they view people and they never like new people coming into their world right? They view everyone as a disruptive. But the way we view it is, we’re providing a service to them. For example, there are a lot number of these U.S. social networks that haven’t been able to get their content within to China or expose to Chinese users.

We potentially provide an avenue for that. And we’re basically allowing, where – and think I’ve used as an example before is, we – if you take a look at in real estate on an empty block, when a restaurant, when the first restaurant goes there, they’re are very predictive who else is on the block. But at the end as the block attracts more traffic the – their rising kind with small boat and that’s the way that we’ve pitched it through the social networks and I think we’ve gotten some acceptance from them.

John Grimley

Got it. And then the deal with Alibaba, so is it safe to assume that they have integrated that into their – and aggregated that into the social media content into their product offering, or are they using the information you’ve given around. What value do they get out with KanKan?

Kai-Shing Tao

So I want to just, John, just to take a step back answering your previous question regarding the social media. I think the other part I – which I forgot to mention was, we’re not the way I think most other companies that kind of claim to do what we do are dependent on one, having them as actual users of their particular app, which were not. And then number two, they’re dependent on whether a social network or data servers keeps their APNI – their API open or close, and again, we’re not dependent on that. So, those are two things that really differentiates us and really speaks to the strength of our – up to the power of our backend.

As with regards to Alibaba, it’s primarily those two edges that got us there. They obviously they’re a company that have tremendous resources, both financial and human resources. But so far, we’ve been able to crack the code sooner than anybody else has and doing this. They have – they [call it the king of data], particularly in China. And I think the fact that they’ve engaged us to help them make sense of exactly what they’re looking at and what they amass is super important.

John Grimley

Got it. And then can you just remind me what percentage of Sharecare you guys currently own?

Douglas Osrow

Hey, John, this is Doug. Currently, we own roughly 5% of all shares issued in Sharecare.

John Grimley

Okay, great. Thanks. And then Roomlia, what’s the plan for Roomlia? Is that going to integrate more ties with Vegas.com, or along with same lines of that, are you using the KanKan product to improve the operations of Vegas.com for the efficiency at Vegas.com?

Kai-Shing Tao

There are certainly – I’ll speak to one part from a strategic side and Michael who runs our Vegas.com asset can speak to the – how – where they will integrate. First part from – is – after the acquisition of Roomlia, as you know we’ve been running Remark Media basically on a shoestring budget. And so it’s never been our strategy when you look at other privately funded companies that spend $5 a download. You just go out and acquire downloads without any thought on what the bottom line means.

John Grimley

Yes.

Kai-Shing Tao

Michael was created the company in Roomlia, where they focused on scalability, and it took about 18 months to get to the point where we are. And it’s always been in our business strategy to not only build out what Roomlia is, but more importantly how do we get the demand without paying for it. So there are number of things that we’re working on that we can exist within other different sort of ecosystems, where we’re not paying for the demand and then more as a partnership.

John Grimley

Got it.

Kai-Shing Tao

Does that make sense? So and then…

John Grimley

Yes.

Kai-Shing Tao

And then, Michael, do you want to talk about, sort of, how the Roomlia technology in Vegas.

Michael Reichartz

Sure. Thanks, Shing. Thanks for the question, John. So we thought about Shing’s point, when we thought about Roomlia, we wanted to build for scale. So we knew that we had the opportunity to build something really big and interesting from a hotel distribution perspective. So we spent a lot of time kind of doing a lot of the plumbing that would allow us to do that.

When you think about kind of Vegas.com and integration of Roomlia, what we’ve been able to do there first and foremost obviously integrate teams to kind of leverage the talent and the technology that we have. So that we can take best-of-class on both brands and see how we can maximize the business.

What I would say from, kind of, short-term to near-term, we are spending a lot of our time on the Vegas.com brand simply, because the return on invested time there is just simply so much greater for us in the near and short-term right? So, but as we kind of get our arms around Vegas.com and improve the efficiencies, improve the operating metrics of the business, there will be a natural inflection point, where we can start spend more time back on Roomlia.

And what I would say there is that, the database that we have at Vegas.com, it’s quite sizable and it’s interesting, and obviously they have an intent to travel. And so we have a targeted database that we can speak to. So we’re very much in the early days of talking to that database from a Roomlia perspective, but we’re starting to do that, and as a result of that, we’re starting to see some pretty interesting results.

And we’re pleased with the response that we’re getting from Vegas.com consumers respond to the Roomlia brand. And then I would say, kind of, out there on the horizon as we get better at this, certainly what KanKan has leveraged in taking advantage of that, as we start to understand the users in the marketplace that have an intent to travel, I think that speaks to the efficiency that Shing is talking about from kind of customer acquisition and the demand and the cost of that. So we certainly intend to leverage that as well.

John Grimley

Got it. Okay. And then just some of the other assets, I know you guys have touched on the more strategic and most important assets with IRS.com, the finance vertical, Bombo related stuff, Brazil, what should we be thinking about those? I know they are much less important and obviously Vegas.com’s, the nice revenue base and KanKan got a ton of growth potential, and how should we be thinking about those other assets? Should we even be thinking about those other assets might be better I’d say?

Douglas Osrow

The assets that I’ve been focused on over those three assets would be – this is Doug by the way, John, would be IRS.com. The good news is traffic for IRS.com continues to be significant in growing your brand, growing the number of users that come to the site every day, don’t really want to provide guidance as the results today. But our next call will be about 45 days, and we’ll definitely provide you an update on that platform.

John Grimley

Got it. Okay, thanks. Congrats on a progress.

Kai-Shing Tao

And just as a quick thing, when you mentioned about, Doug said – mentioned about the Bombo asset. But there are things that as we expand our digital media platform, there are things that we potentially might use to increase the – on the content side.

John Grimley

Got it. Okay, great. Thank you.

Kai-Shing Tao

Thanks, John.

Operator

[Operator Instructions] And ladies and gentlemen, that does conclude today’s question-and-answer session. I would like to turn the conference back over to Shing Tao for any closing remarks.

Kai-Shing Tao

Nope, I think that’s pretty much it. As always Doug and I are open to questions and please feel free to reach out. Thank you.

Operator

Ladies and gentlemen, that does conclude today’s conference. We do thank you for your participation. You may now disconnect. Have a great rest of your day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!