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Executives

Jeff Kip – Executive Vice President and Chief Financial Officer

Barry Diller – Chairman and Senior Executive

Greg Blatt – Chief Executive Officer

Analysts

Ross Sandler – RBC Capital Markets Equity Research

Mark Stephen Mahaney – Citigroup Global Markets

Jason Helfstein – Oppenheimer & Company

John Blackledge – Credit Suisse Securities LLC

Kerry Rice – Needham & Co. LLC

Nathaniel Holmes Schindler – Bank of America/Merrill Lynch

Heath Patrick Terry – Goldman Sachs & Co.

Mark May – Barclays Capital

Peter C. Stabler – Wells Fargo Securities LLC

IAC/InterActiveCorp (IACI) Q1 2012 Earnings Call May 2, 2012 11:00 AM ET

Operator

Good morning. My name is Jessica, and I will be your conference operator today. At this time, I’d like to welcome everyone to the IAC First Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator Instructions) Thank you.

Jeff Kip, you may begin your conference.

Jeff Kip

Thank you, operator. And good morning and thank you to everyone on the line for joining us for our first quarter 2012 earnings call. This is my first quarterly earnings call at IAC, after six years of doing the same as CFO of Panera Bread. And I couldn’t be more excited to be part of the team here, especially with the company performing the way it is right now. While our business is of the size and similarities, I’m having a great time getting up the speed and learning the range and complexity of the businesses within IAC.

I’m going to turn the call over to Barry and Greg, who will make some introductory remarks, and then I’ll come back with some color on each of our segments. We’ll then finish up with Q&A.

First however, let me remind you that during this call, we may discuss our outlook for future performance. These forward-looking statements typically are preceded by words, such as we expect, we believe, we anticipate or similar statements. These forward-looking statements are subject to risks and uncertainties, and our actual results could differ materially from the views expressed today. Some of these risks have been set forth in our first quarter 2012 press release, and our periodic reports filed with the SEC. We will also discuss certain non-GAAP measures, I refer you to our press release in the Investor Relations section of our website for all comparable GAAP measures and full reconciliations.

With that, I'll turn it over to Barry.

Barry Diller

Thank you, and Kip, welcome. I mean you’ve more than big shoes to fill, which we all know. And I don’t know if we ever – even on our last call talked about how much we are indebted, grateful about Tom McInerney, and what he meant to this company over…

Greg Blatt

11, I think?

Barry Diller

Yeah, certainly more than 10 years. He…

Greg Blatt

15, actually.

Barry Diller

He is outstanding in every way. And I don’t think we’d be in exactly the situation we are now, and have been for a while, if it had not been for Mr. McInerney. So we expect similar contributions from you too, Jeff. So any way, I don’t have that much to say, it’s rare, and sometimes it’s a matter of concern when everything seems to be going well. Complacency, arrogance comes in which I would emphatically say for the companies that I’m responsible for, which is IAC, Expedia and TripAdvisor, all of which have reported earnings now. IAC being the last, but TripAdvisor yesterday; and Expedia last week. Each of them reporting fine quarters. And it is because of the management in each of these companies. Greg and Dara Khosrowshahi at Expedia; and Steve Kaufer at TripAdvisor. I certainly know, I am in good hands.

As for IAC itself, one thing I would note, which is that since the spin of the multiple company that began with IAC originally, we have bough back over 50% of the shares of the company, 88 million shares at a price of $28.

So we’re of course most interested in, most engaged in the operations of the company itself. And if we do well at that, and we have done well at that, then everything else pretty good follows. But I also think that the capital management of company over the last years has been consistent and deeply found as I think that last staff can give you.

So with that, I think you’re next on this, Mr. Blatt. So why don’t you proceed?

Greg Blatt

Sure, thanks, Barry. It’s been seven months about since we closed our tender offer for Meetic. And I wanted to give a general update of where we are in the process. As I said from the outset, 2012 is going to be about reversing core trends in the business, (inaudible). For healthy 2013, I think over the span of 2011, the business lost over 100,000 subscribers, clearly cause for concern. And frankly a bigger drop than we expected at the time we made the offer in June of last year. So I would certainly have my work cut out for us, but I’m happy to say that, through today we are very much on track.

Our focus is really on three core metrics of the business; let me get little more granular than typical, because the reported numbers can – in a turnaround sort of trend in the subscription business that they can be hard to read through.

So we really are focused on three core metrics, the first was conversion, it is the percentage of our members who subscribe. Second was re-subscription, which is the percentage of our former subscribers who come back and subscribe again. And the third was marketing efficiency, which is the cost of acquiring a member. It’s early, we still have a lot of work to do, but we’ve had success in meaningfully improving all three of these metrics and are ahead of our internal plan.

Conversion re-subscriptions are driven primarily by improving the product, those product changes are generally same as that we’ve imported from the U.S., and we’ve had great success in doing so. Marketing efficiency to date has been driven by mostly an increase in analytics, which is the ability to assess your marketing on granular level. And what we’ve effectively done is, cut out a lot of spend that was previously unprofitable.

Still lots of work to be done, but if progress continues the way it has, our full year expectations, deferred revenue purchase accounting side is the following. For the full-year, we think revenue will decline year-over-year due to significant subscriber losses we experienced last year, we think that’s probably in the single-digit range, because revenue trials, subscribers over the life of subscription, there’s sort of a delayed timing effect there. Nonetheless, we expect OIBA to be flat-ish year-over-year, given the offsetting cuts in unprofitable marketing I indicated and product improvements.

Finally, we do expect to be able to get subscriber growth going again this year driven by the improvement in product that we’re implementing throughout the year. I want to point out, I note that there was a big jump in profitability in Q1, that’s primarily driven by the fact that a disproportionate amount of the marketing cuts that we made take place in Q1. So the flat-ish OIBA prediction for the full-year still hold despite the fact that we had a big jump in Q1. Don’t go out and model throughout the year, it’s not what we expect.

In fact, the biggest risk to that flat-ish OIBA is actually success, meaning if we’re ahead of schedule in improving conversion, in improving re-subscription et cetera, then marketing efficiency in and of itself improve, which will lead us to increase the marketing for 2013 growth, which would cut into 2012 marketing. So I don't think that 2012 is a year you should really be focused on margins or OIBA, it’s really about the trends in this underlying business.

Switching topics, I just wanted to speak briefly about our current leadership situation. I’m quite really excited about the senior team, I think in the 15 or so months, since I’ve been CEO, we’ve made meaningful changes at a senior level across all our principle businesses, plus we’ve added Jeff to the senior team, very excited about all of it. It’s the first time in that period, I’m not personally recruiting for a senior spot, which is great.

And I think we’ve developed a really great mix here, we’ve got sort of proven entrepreneurs who started and sold Internet businesses; Sam Yagan, Jason Finger, Kerry Trainor, Ricky Van Veen to name a few, plus seasoned business executives with a different skill set come from larger organizations.

Joey Levin, Mandy Ginsberg, Josh Meyers, Chris Carroll, Doug Lebda, Ben Silverman again just to name a few. We like this mix, We think it gives us the great variety of perspectives to tackle the multiple challenges that a business like ours in sort of multiple areas, faces and I feel really great about the future, because as Barry pointed out, it’s all about management, it’s all about execution and it is a pyramid, I mean we are all relying on each other, and we feel great about the team.

With that, turn it over to Jeff to make some comments about the quarter and some outlook.

Jeff Kip

Thanks, Greg. Again IAC delivered an outstanding first quarter driven primarily by strong performances with our Search and Match segments. I’d like to give you a little color now on each of our four segments starting with Search, which as noted had yet another great quarter.

Our strong year-over-year in sequential revenue and OIBA growth came across all three Search businesses, destination websites, B2C, and B2B driven primarily by volume and through a lesser degree by improved monetization.

We expect top line growth to continue on a year-over-year basis, but as you know we’ll have more difficult comparisons to last year’s revenue growth as the year progresses. Although it’s equal, we expect revenue to be sequentially flat-ish through quarters two, three and four. Similarly, while the saw OIBA margin expansion versus the prior year in the first quarter, we expect some contraction in the second quarter as we continue to invest in new product development.

Next, our Match segment also continues to perform well. When we exclude Meetic, Match revenue grew 13% year-over-year driven by a 12% increase in subscribers in Match’s core operations. OIBA again excluding Meetic grow even more rapidly than revenue primarily because we move some of our traditional first quarter marketing spend into the second quarter. We now expect second quarter margins to be roughly flat year-over-year, given that shift in spending. In our new local segment, we saw a modest top line growth in the first quarter, but OIBA was down versus the prior year due to some relatively significant transitional costs in that business, as well as increased investment in Urbanspoon.

For the remainder of the year, we expect double digit top and bottom line growth in the segment. Wrapping up, our media and other results reflect an increased level of investment in our new businesses, including Vimeo, Electus, CollegeHumor and DailyBurn.

Please recall that, when we realigned our segments, we moved Pronto, which historically made a positive contribution to revenue and OIBA to Search; and we moved DailyBurn into media and other. Through the remainder of the year, we plan to continue to invest in our new businesses at roughly the same overall rate.

Although we’re constantly evaluating our levels of investment and could decide to increase or decrease the amount based on results. As you know, our strategy across all of our segments is to reinvest a modest amount of our current profits into initiatives that set us up for continued future growth. Investment is most visible in this segment, but we’re investing in search in our product pipeline in Match and are developing businesses and in both of our local businesses.

Before we go to Q&A, let me give you a quick update on share count. We’ve two tranches of warrants expiring May, 7 which were issued as part of the consideration of VUE transaction 2002, which in aggregate represents 6.6 million shares. If the warrants are exercised on a net basis, our share count will increase approximately 2.9 million shares. And if exercised on a gross basis, share count will increase 6.6 million shares, but we’ll also receive approximately $180 million in cash.

Please recall as well that we’ve repurchased 5.1 million shares since our fourth quarter 2011 earnings call. With that, let’s take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Ross Sandler from RBC. Your line is now open.

Ross Sandler – RBC Capital Markets Equity Research

Thanks and welcome, Jeff. I’d like to dig a little deeper into the Search business, I just have two questions. First is, as this segment continues to grow, are you seeing the same unit economics either defined by lifetime value or some other metric. With these newer toolbar products, as you were with some of the other ones or are the unit economics improving?

And then second, this business has doubled in the past call it two years, can you talk about the return on ad spend that you’re seeing as you get bigger and bigger with each of these new products that you rollout on the toolbar side, is the marketing ROI holding constant or does it kind of hit a lot large numbers at some point? Thank you.

Jeff Kip

Hey, there. I think on the unit economics, the Search business is really broken into three parts. You’ve got the B2B, the B2C and the proprietary, so it’s our destination. So it’s a little different across.

On the B2B side, we’re mostly distribution deals, the economics are generally holding, our cost of distribution are consistent, and the monetization is going up for a variety of reasons, but the margins are basically holding. Frankly, the margins are basically holding across all the businesses. And LTVs on the various applications we distribute, they go up and down. They tend to be a function of a whole variety of factors, some of which we control, some of which we don’t control, a big driver is the mix of products and applications that we distribute, some have higher LTVs, some have lower LTVs, what we really focus on is the contribution margin.

So you may have a lower LTV product, but it is cheaper to distribute and so you’re maintaining contribution margin. So I think LTV is a piece, but not the major piece. In terms of return on marketing spend or distribution cost across the three businesses, I think they’re holding, and I think that’s really one of the big competitive differentiators we have, which is – in a large part of that business, what we have is years and years of experience of collecting data, identifying opportunity, developing applications or marketing strategies to meet those opportunities, through a highly, highly analytical process.

And we probably have more data, more analytics behind it. And it really is a continuous process. So development of an application, a proprietary application will often be linked to our identification through data of a particular opportunity.

So really we’ve been growing this business through expanding marketing, which we’ve been able to do through this process, all while maintaining margins. So I think, of course it’s possible that a lot of large numbers kicks in at some point. It does for most businesses, but I don’t think there is anything particular to this business that makes it anymore eminent or cloudy than any other. We’re not seeing a slow down right now, we’re continuing opening up new channel and developing, I think the critical new products to meet those channels.

Barry Diller

Thank you. Next question, please.

Operator

Your next question comes from Mark Mahaney from Citigroup. Your line is now open.

Mark Stephen Mahaney – Citigroup Global Markets

Thanks, two questions please. First one Urbanspoon, could you just discuss the type of investments you want to make in Urbanspoon, and why? And then secondly, how about your feeling that the financial markets are going to focus the next month or so on maybe the search engine brand or display advertising. And kind of one of the leading search players on the Internet. Could you talk about whether you think that there is a broad overall greater interest from advertisers in display brand advertising, is that something that you think you want to pivot for, are you already positioned for that or do think that there is not necessarily that kind of dramatic shift? Thank you.

Jeff Kip

On Urbanspoon, first let me say that, I think two weeks ago a new CEO of the CityGrid business, that Urbanspoon took over who is very experienced in this area. He started and ran and then sold that seamless web, which is in the Internet restaurant business, and we are giving him some berth in developing the strategy and the outlook for that business.

So we have been investing in it, small amounts in any absolute way, but I think that I wouldn’t comment on what our long-term strategy is, right now as it would be preemptive, and he is certainly developing it. But we believe in the opportunity to grow that business in a variety of ways; I’ll be happy to speak more about it next quarter.

In terms of display advertising, I think it’s an area that we don’t have nearly as much exposure in as we do in Search and subscription, we do have exposure in it, it is growing as our businesses growth. Historically, I think it has not been as desirable place to be in search and subscription. I don’t know if there is a shift from search to display, I think it as a general shift online, and business like Facebook are growing the opportunity to spend and display, and so the opportunity is growing with it, but we certainly don’t view it as strategic imperative to increase our exposure in that area. Thank you.

Barry Diller

Well, I hope our exposure does increase by virtue of growth of our titles that take or sides that take display advertising. I’ve believed for some time that the evolution of display advertising is kind of – it’s at a beginning stage. There has not been enough creative development in display advertising as there has been in the innovations that Search advertising. I’m hopeful, I don’t see any particular sign of it, but I’m hopeful that as time goes on, people who are in this site business, meaning this product business, and we’ll begin to really innovate in products that allow display advertising to be more effective than the little 2X300 box and banners and things like that which are okay, but they are never going to be particularly highly valued.

More I think that the Internet develops video is really the chance for the Internet system to replicate, what we all know is television advertising. Free rows in front of video do work, they work like, some cases you could say even better than 30 second spots, because you can’t exactly raise through them.

But it’s evolutionary, it’s not that much of video, paid video, display I mean advertising on the web. But I do think that will continue, but there is nothing right now you can grab your hand and say, that there’s some change.

Mark Stephen Mahaney – Citigroup Global Markets

Thank you, Barry.

Operator

Your next question comes from the line of Jason Helfstein from Oppenheimer. Your line is now open.

Jason Helfstein – Oppenheimer & Company

Thanks. Three quick questions, first just on CityGrid you talked about it being up slightly. Can you just give us any more specifics on the outline for that business, just given all the companies calling to that space, many of which have now become public. Is that beneficial to you as far as increasing awareness of advertisers, if there is all these local opportunities that you can help them with, and just looking for more color.

The second question in media, you highlighted (inaudible) growth drivers, our revenues only grew 4%; I’m just wondering if there were any assets that were a drag on media growth in the quarter.

And lastly, can you give us an update on Vimeo user and sub-metrics, if you want to do that. And can you comment on press reports of the company seeking to sell a minority stake in Vimeo, and if so, what will be the reason for doing so? Thanks.

Operator

Your next question comes from the line of John Blackledge from Credit Suisse. Your line is now open.

Barry Diller

We’ve got to go back and answer that first question, last questions. So Greg, sorry.

Greg Blatt

Yeah, on CityGrid we’ve got…

Barry Diller

More a mechanical…

Greg Blatt

Yes, we’re technically challenged over here.

Barry Diller

We are.

Greg Blatt

Yeah, on CityGrid new CEO, so I don’t want to get too much into strategy. I think that sort “awareness” driven by public companies is much more relevant to all of you, and I think it is to the advertisers we serve. They’re well aware of the opportunities online, and what’s going to drive our growth in that business is our ability to serve them well. I don’t think there is an awareness issue there that did help. I think at Meetic growth story, do you want to take?

Barry Diller

Well, first of all, I think you’ve got a – we call this category median, Arthur. Essentially it’s R&D for us, but this for our company is really research and development, that’s the category. So when you talk about, if we had it reported that way, you would say for a company of our size, the amount that we are investing in R&D would be at minimum appropriate. And so, of course we report it, and we expense it, and therefore we report losses.

But I think for analyzing it and thinking about it, think of it as R&D, and the investments that we make, once they, as Pronto has now spun out, and so to with the Urbanspoon, spun out in the sense being reclassified into outside of this median of our sector. Once a business becomes either something substantial or something that has no real revenues and expenses, it will come out of this category, and then you can make judgments about its continuing growth profitability et cetera.

Greg Blatt

I also think it’s important to note that this is really a bottom ups thing which is, we’re not spending what we spend, because we think we should be spending that amount. We’re spending what we spend, because analyze individual opportunities that we believe in and of spending. Obviously, if the number got unreality, we would look at top down, and we try and contain it, we don’t think we are at that point. Each of our businesses, DailyBurn, Vimeo, et cetera, we are investing what we invest because we believe in the opportunity, and we continue to make those assessments everyday.

Barry Diller

For instance that, sorry. Is that for Vimeo?

Greg Blatt

Vimeo, we don’t disclose in granular, but I can tell you that revenue units and subscribers are all up meaningfully year-over-year. Again, another business where we have a new CEO, again about two weeks into it, Kerry Trainor, working on sort of expanding and even further accelerating the growth, but we’re very happy with truckle on and made that hire, because we believe in the opportunity and the ability to go after something large, so in all these areas, we’ll look at giving more granular metrics as we go. Its generally a conflict with competitive and other issues and in each business we’ll look at it and at the right time we’ll start breaking them up for you.

Barry Diller

All right, thank you. Next question?

Operator

Your next question this one from John Blackledge from Credit Suisse. Your line is now open.

John Blackledge – Credit Suisse Securities LLC

Great, thanks. Two questions, one on search and one on, Media & Other. On the search side, the overall search market is growing 20% plus. In 1Q ’12, I see search grew at least two times the search market. So, maybe if you can just provide some more insight into the drivers of the share gains and some color on the sustainability of it. And then also just remind us again why the revenue growth would be flat sequentially for the rest of the year? And then on the Media & Other side, maybe give an update on the TV productions fleet, at electives and notional, in particular, Fashion Star and Chopped. And how do you view these segments potential contributions to the company over the long-term? Thank you.

Greg Blatt

Barry? The comparison…

Barry Diller

It is my point again and I pretty technologically removed myself from this table. It may still be hear by his voice, but not by technology. Sorry Greg, I’ve done it to you twice now.

Greg Blatt

No problem. By the way it happens when we are not on a call as well. So anyway we are -- the comparison to the search market generally I think it’s flat for a number of reasons. In our proprietary destination search business so whatever word we are using at the moment. It really is a fundamental – what we’ve done is we’ve really created a fundamentally different experience, I think than traditional search, which is traditional search is around organizing a navigation from a query to a third-party page and what we’ve done is, we’ve gone after a portion of the market that I think lends itself to given direct answers and we’re organizing content around that.

So we found an area where we can grow in, let’s call it a large number of queries, but by no means the majority of them. They haven’t been well served by the traditional search experience and we’re finding real marketing opportunities in that area, which is allowing us to grow up a very small number. It is a different area though than let’s say, a Google goes after which is sort of [omnibus] universal destination search. And so I think we’re able to exploit an area that is search, because we call it search, but is more than that. It’s a somewhat different offering. And I think with that and our applications business is driven primarily by marketing.

As I said earlier, we’ve been able to develop a really strong marketing machine that has opened up opportunities. Most of the people in the traditional search area are not spending money like this on marketing. They are growing more organically, Google clients since if you peer back all of the efforts they are doing and you’re focused purely on their search business, which I don’t think is a way they report. I’m sure you would have a much higher margin business, it is growing organically faster than our business growth and they are just not playing in what I would call this phase, which is generally incremental to what they do. Its convenient search, it’s coming of a Google click because we are giving an answer instead of a middle ground.

So I think as we evolve, we’ve got to think about the way to talk about this, that isn’t that direct comparison because I think it’s a flat one. In terms of flat-ish growth, I think, look, this business is like any business it sometimes comes in spurs, I think we’ve had a big spur, we’ve developed a lot of products, which exploited a lot of marketing opportunities, some of them had come quicker than we expected. And now we are working on sort of that next – that next round of products and marketing opportunities that will grow, of course anything could happen, we could do better than that, frankly, we could do worse, and that’s just the reality of this business. Was there a media question?

Barry Diller

Yes, yes, our television and digital production activity, which is between three entities, which is Electus, CollegeHumor, and Notional. We are certainly in it. Electus has got real momentum, it’s got lots and lots of projects in development and it has – it does have several shows that are series that are on various cable networks and one show, it’s on NBC, which is called Fashion Star, which you specifically asked about. Fashion Star has done well in the ratings, particularly in the demos. And we are, like everybody else, we’re in discussions, hopeful about having it be renewed for a second season. We won’t know that of course until they set the schedule in the next couple of weeks, but it has been a good effort.

CollegeHumor and Notional were chopped, just still be there for a thousand years and endless number of episodes that everybody seems to like. CollegeHumor is expanding its audience consistently, has made its first movie. So we are in every kind of segment of this production business with a particular emphasis on digital. Electus digital effort includes programming three channels for the YouTube effort, which are beginning to rollout now. So it’s early, but to answer the fundamental, which is other expectations for this to be a contributor, they’re definitely are, it will take some time, but if we can build a strong independent both television and digital production operation, that will be a great enduring value.

Greg Blatt

However, just to be clear, we’re not doing any of this for fun. Every single thing we’re doing, we do because there is an application that it will be a contributor and that’s what we’re working towards to sort of state the obvious.

John Blackledge – Credit Suisse Securities LLC

That’s great, super and helpful. Thank you.

Barry Diller

The next question please.

Operator

Your next question comes from the line of Kerry Rice from Needham and Company. Your line is now open.

Kerry Rice – Needham & Co. LLC

Thanks a lot. I was hoping that you could give us an update on The Daily Beast that looks like, if you look at the equity losses and income from unconsolidated affiliates, it looks like that loss came down or was there something else in the quarter related to that?

Barry Diller

No. This is also – there are definitely expectations here as well as when I last talk about the television production media businesses, the losses are declining, I wish they would decline faster, but they are declining year-over-year, month-over-month. I expect that that will continue. First quarter of advertising was extremely difficult for all, the entire magazine category, almost every single magazine was down single to double digits, usually it was up 20% plus percent, off of not a great base, but nevertheless, pointing in a good direction. The book, the magazine itself, I think is getting better. Daily Beast hit a new record of unique with 12 million, just I think this week for the – I think it’s the month of the quarter; it’s how we look at that. That’s tremendous growth, last year it was $5 million, so that’s enormous growth and the revenue for the Beast is up 60%, 70% I think from a year ago, just on The Daily Beast piece of it.

The Bookshelf magazine continues to improve and I expect that, now that the integration is very difficult because at least a year has been completed. Tina Brown and her staff are now for the first time really able to plan issues in the future, like the issue we did on Mad Man that got such tremendous reaction. Those things take a lot of planning and we’re just in the position where we can do many, many more of them and that’s what we’re going to be doing in the next year.

Kerry Rice – Needham & Co. LLC

Thank you.

Barry Diller

You are welcome. Next question.

Operator

Your next question comes from line of Nathaniel Schindler from Bank of America. Your line is now open.

Nathaniel Holmes Schindler – Bank of America/Merrill Lynch

Hi, I was wondering if you could just help me on two questions. One on Search and One on the Match business. First on Search, can you give us a little more detail on the churn rates that you see and how they’ve changed over time for people who downloaded toolbar. Said in other way, if I download a toolbar today and in fact effect revenue in this quarter, how many more quarters will that download be effective in revenue? And then additionally – and then on the Match side, can you point us to what is a – what you think is the really long-term sustainable margin of the Match business or maybe not, what’s your aspirational margin for that business?

Barry Diller

That’s a new category. I like that. Aspirational margin.

Greg Blatt

Let’s just say everything we say is aspirational. Everything we say about the future is aspirational. In terms of churn rates, I understand what you’re saying, but imagine it this way, you get 100 application downloads, some percentage of those never get used at all, okay? Some percentage of them last many months, some get used once and then get discarded.

So there is a whole bunch of – it’s a continuum, and then the things that affect that, you may love the application, but if you get a new browser, it’s gone, that’s churn. You may get rid of the application affirmatively. There is a whole bunch of things that go to it and they tend to vary by demo because of the rate at which people churn their browsers. They tend to very much vary by the application itself based on it. So I think there is a whole bunch of things, in aggregate, in average. I think we’re probably up a little bit over time, but a whole bunch of things go into it, mix et cetera as well. I don’t think it’s necessarily the meaningful number to look at.

In terms of Match margins, again, I hate to do it, but it’s such a mixed issue. I mean the Match U.S. margin is meaningfully higher than the segment margin. It’s the greatest margin in the world. OkCupid, very high margin. To the extent those two businesses take on an increasing percentage of the business, margins go up. Meetic a smaller margin; Chemistry a smaller margin; People Media a smaller margin.

So you get into these growth rates not to mention the fact that we’ve got a meaningful amount of money invested in this segment in developmental products that we haven’t even launched yet. So that comes into margin as well. I think, so aspirational years out is very hard for me to say. I think in terms of this year for the full-year, I’d like margin to Meetic aside which I said don’t focus on the margin. To be up slightly year-over-year and ideally aspirationally that grows over time, but it really is a mixed issue. What we are much more focused on is, growing profit long-term and if we grow profit by spending more in marketing and bringing down margin, we’re fine with that.

Nathaniel Holmes Schindler – Bank of America/Merrill Lynch

Great. Thank you.

Barry Diller

Next question please.

Operator

Your next question comes from the line of Heath Terry from Goldman Sachs. Your line is now open.

Heath Patrick Terry – Goldman Sachs & Co.

Great, thanks. I wonder if you could update us on the mobile toolbar initiative and particularly around, and also around kind of the effort to grow the mobile business, are saying mobile with a toolbar business, it might spark outside the U.S.?

Greg Blatt

Sure, outside the U.S., let me kind of revere sort, outside the U.S. it’s actually robust, our application, I think we have more downloads internationally than we do domestically. Monetization isn’t as good for a number of reasons but we are working on that all the time, but certainly international is a big component of business today and we work on expanding it through our finite marketing opportunities et cetera all the time.

In terms of mobile, just the Ask business alone that the mobile queries have grown into the double-digits now is a percentage of our whole. Again in mobile, I think across virtually every business category monetization isn’t as good, if it is on desktop yet. But we believe that will come again across all businesses and the Ask business is making meaningful inroads mobile, same with the dictionary business all part of search.

In terms of the application side of the business, I think it’s because application takes a conservative effort to go after and exploit these channels and because the opportunity has been so big in other areas, we haven’t really geared up for that. The analogy I would draw is to the browsers; three years ago, everything we did was on Internet Explorer, because that’s where the big opportunity was. Over last couple of years we’ve developed teams to work on Chrome and Firefox and some of the others. I think mobile is like that. I think we’re assuming to launch our first application – straight application out of the mind, smart business on mobile. I don’t think I can disclose who that’s (inaudible), but that’s number one.

And I think it will grow from there, but it really is a question about assessing the opportunity near and long-term in allocating resources against it appropriately. And today, the desktop has been such a bigger opportunity, that’s where most of our resources has gone. We think over time that will change.

Barry Diller

Great, thank you. Next question, please?

Operator

Your next question comes from the line of Mark May from Barclays. Your line is now open.

Mark May – Barclays Capital

Thanks for taking my question. Just a really just clarifying question regarding your outlook. I believe that you said that you expect search revenue to be sequentially flat, Q2 through Q4; I’m assuming that’s absolute, referring to absolute revenues to be flat. Is that in fact what you saw, and if so are you really expecting flat sequential Search revenue growth in Q4 given the typical seasonality there?

And then the other question, again clarifying question, I believe you said, you expect Meetic’s non-GAAP revenues to be down in these single digits on a year-over-year basis, is that in fact what you said? And then it looks like ARPU for Meetic was lower than expected in Q1, lower than what we were forecasting. Was there something that was kind of artificially impacting ARPU in Q1? Thanks.

Greg Blatt

In terms of the Search, we did say flat-ish, in terms of sequential growth. I think the further out we look, the less certain we are. I think we do expect to have some seasonal lift in Q4 over Q3, the question is magnitude. Last year, we saw dramatic increases. On a comp basis, the growth level will be lower, I would be surprised if we didn’t get sequential growth in Q4, but its not going to be at the same magnitude that we saw last year unless we develop some new things, that Ed as we say, we haven’t predicted every beep that we’ve made along the way internally as well as we go after the – we certainly don’t manage to what we tell you, we mange to try and the get the most growth we can, but in terms of foreseeability that’s where we are right now on the search side.

In terms of Meetic, that is what I said. Again, we lost over a 100,000 subscribers in 2011. Frankly the sheer math of it is, that no matter what we did this year you’re going to have revenue decline because you effectively bear the brunt of that sub-decline later in the subsequent period. So again, we expect to restart sub growth again, but that revenue impact because of the way differed accounting works, without purchasing accounting we will see that more in 2013 and 2012.

In terms of ARPU, I will be honest if you like, I was not focused on that number, it’s down, I’m actually somewhat surprised because I think we eliminated a fair amount of discount and that they were doing last year. I believe you that that’s what it says, but it’s certainly not concerted to anything that I would be focused on or that marks the trend. In fact, my instinct would be that trend would go slightly the other way over time, but that’s to be seen.

Mark May – Barclays Capital

And maybe if could ask a follow-up on Meetic’s margin guidance, I understand that you had some shift in spend from Q1 to Q2, but the guidance for the full year for flat-ish margins I believe it was for Meetic’s on a full year basis, would imply obviously that margins in Q3 and Q4 would be below what they were a year ago, again non-GAAP basis. Sounds like you’re doing a lot of things that would actually drive margins higher there, are you just being conservative in the back half of the year or there’s some other things that we should be considering?

Barry Diller

I think I’ve said that, OIBA overall would be flat-ish year-over-year, with revenue down in the single digits. So that by definition I think means some margin expansion, although again I really caution, that in this business, the single biggest driver of margin is how much we spend on marketing. So we had a big margin increase in Q1 because we cut a lot of marketing. That is fine for a quarter, but that’s not what you want to do long term.

As we start getting the core mechanics this business working again and humming the way we want, we expect to increase marketing. And as we increase marketing, you’ll have near term margin compression, again because you get revenue in subsequent periods but you take the marketing expense in the current period. So I stand by the flat-ish OIBA for the year with down single digit revenue, and then I’m expecting revenue and OIBA growth in 2013 to resume off of that.

Greg Blatt

Well that’s our plan for Meetic, your plan for Meetic is to take an entity that was not performing, and have done poorly; purchase our majority position in it, get engaged in the business, and turn it around for becoming a contributor of five and substance just as the Match property is.

Barry Diller

That is correct.

Greg Blatt

That’s the plot. Nothing that we know says that plot is not grow well underway.

Barry Diller

I think that’s right. And I think one thing that may help you understand the numbers a little bit is, you think about subscribers in both businesses. This may answer some questions I know that have come up in the developing sort of subscribers as well, which is, all subscribers are not created equal. And to the extent that you pay $10 to acquire a subscriber, we’re $12, and I’m sorry, the opposite, reverse of that. We expect you spend $12 to acquire a subscriber that’s worth $10, you’d rather have a sub decline and lose that. And what’s happened if we take it, we are losing subs, but we are losing a lot of subs that were unprofitable to get to begin with.

And so really a way to think about it is, we are right sizing the business by getting rid of a lot of subs that we sort of never should have had to begin with. And then we’re going to grow the profitable subs again. And the same thing is happening with developing subs, which is we acquired a business called Singlesnet, I know people have raised that question. That sub number continues to decline because, that was an unprofitable number to begin with.

So while aggregate sub numbers are coming down, profitable areas like Canada, which is in developing are growing. And we’re focused on putting money towards the profitable subs and taking money away from the unprofitable ones, and in the near-term that can cause some confusion about the trends, but that’s our strategy.

Greg Blatt

Frankly, one should understand is what the plot is for Meetic. The plot for Meetic is that you will start to see it being a contributor in ‘13…

Mark May – Barclays Capital

Growth contributor?

Greg Blatt

Yes, you can see it in ‘12 because ’12 is the period that we’re doing all this work to create the opportunity. Anyway the only other thing I would say is, we had a extremely good quarter. You are not listening to people who are saying, as some people who had good quarter just said, and then say, however our orders in the future are down, our business down or we don’t expect that or this. We’re going ahead with growth this year. We’ll have substantial growth this year. We have comps that – and that’s the trick of the game, we have comps that are of course stronger because we’ve been performing now for several years.

But we’re going to beat those comps. So don’t – anyone saying that the conservative standard thing we do on these goals is in anyway a negative.

Barry Diller

One more question.

Mark May – Barclays Capital

I certainly don’t think it’s negative.

Barry Diller

Thank you. Next question please. Last question please.

Operator

Your next question comes from the line of Peter Stabler from Wells Fargo Securities. Your line is now open.

Peter C. Stabler – Wells Fargo Securities LLC

Thanks, very much. A quick one on Search, Greg, I’m wondering if you could tell us what kind of leverage you guys are able to pull to improver clickthrough rate if any? Thanks, very much.

Greg Blatt

Sure, I think on the monetization site, clickthrough rate is the metrics that we have the most control over meeting, CPC is basically what they are, ad coverage is basically what they are, that’s a pass through. And clickthrough rate property-to-property it’s designed around our – we have a smart system that determines how many ads to serve up, we get whatever ads we get from Google and then we determine how many to serve out at any given moment, optimizing that drives clickthrough, I think the way the page experience works from property-to-property also drive clickthrough. We’ve actually moved it meaningfully over the last couple of years. And I think we’re always looking to optimize that.

Peter C. Stabler – Wells Fargo Securities LLC

Could you quickly characterize your strength there versus the kind of query growth you’re seeing. How much of a driver has been the improvements you’ve been able to make on CTR?

Greg Blatt

I think that we’ve got improvement from both. I think volume has outpaced, volume of queries at least in this quarter have been a larger contributor to the growth than has improvement in clickthrough rates. I’m looking at my friend Jeff Kip to confirm that’s correct.

Jeff Kip

Yes.

Greg Blatt

He is confirming it’s is correct, but we’ve had moving on those.

Peter C. Stabler – Wells Fargo Securities LLC

Thank you, very much.

Jeff Kip

All right, well thank you all, we’ll get back to you with our next quarter, then a quarter.

Peter C. Stabler – Wells Fargo Securities LLC

Thank you.

Barry Diller

Thank you.

Operator

This concludes today’s conference call. You may now disconnect.

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