Demand Media's CEO Discusses Q4 2013 Results - Earnings Call Transcript

| About: Leaf Group (LFGR)

Demand Media, Inc. (DMD) Q4 2013 Results Earnings Conference Call February 25, 2014 5:00 PM ET


Tridi Kidambi - Vice President, Finance

Shawn Colo - Interim Chief Executive Officer

Mel Tang - Chief Financial Officer


Sameet Sinha - B. Riley & Co.

Peter Lowry - JMP Securities

Brian Fitzgerald - Jefferies

Heath Terry - Goldman Sachs


Good afternoon. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Demand Media Fourth Quarter and Fiscal Year 2013 Results 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. Tridi Kidambi, Vice President of Finance, you may begin your conference.

Tridi Kidambi

Good afternoon, everyone. On behalf of Demand Media, welcome to our fourth quarter 2013 conference call. You can find our related release along with supplemental materials posted on the Investor Relations section of our corporate website, located at

On the call with me today are Shawn Colo, our Interim Chief Executive Officer; and Mel Tang, our Chief Financial Officer.

Following the Safe Harbor statement that I will make, Shawn will update you on our business. Mel will then provide details on our fourth quarter financial performance and key operating metrics. Following the prepared remarks, we will open up the lines for Q&A.

Before we get started, we need to make the following Safe Harbor statement. We would like to remind everyone that during today's conference call, management will make certain forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from our current expectations discussed in such forward-looking statements.

In particular, comments about our anticipated future revenue, earnings, operating expenses, page views and growth rates, as well as statements regarding our business strategy and objectives, plans, intentions, operating outlook and planned investments, are considered forward-looking statements. Factors that could cause actual results to differ materially from anticipated results are detailed in our press release furnished to the SEC.

I would also like to point out that during this call, we will discuss certain non-GAAP financial measures, while talking about the company's financial and operating performance, including revenue ex-TAC, adjusted EBITDA, adjusted EPS and certain free cash flow metrics.

A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP measures can be found in the financial tables included at the end of our press release.

Lastly, before we begin, I'd like to remind everyone that today's conference call is being recorded and it is also available via webcast on the Internet through the Investor Relations section of our corporate website. A replay will also be available on our website.

With that, I'll now turn the call over to Shawn Colo, our Interim CEO. Shawn?

Shawn Colo

Thank you everyone for joining and welcome to our 2013 fourth quarter and year end results call. Let me begin by saying how proud I am of our team and the way they performed in the fourth quarter to close out a challenging year.

We delivered a solid quarter financially but more importantly we developed greater clarity around the company’s long-term strategic plan and the actions we need to take to ensure success.

The Rightside plan is pretty simple, execute on new gTLDs product innovation and the spin-off. I will start with the Rightside before taking you through a more detailed review of our plan for content and media.

The team did a tremendous amount of work in 2013 and made great strives in preparing Rightside to become a standalone company and the leader in the new gTLD market. In late Q4, our registry platform went live and we now have 14 registry operator agreement signed with ICANN.

Four of the gTLDs that we currently own our in sunrise availability, .dance, .democrat, .immobilien and .ninja, and we expect to have several more become available later this quarter.

More than 90 new gTLDs have been launched into the sunrise and/or general availability phases and more than 60 of those are leveraging Righside backend registry platform, to-date, more than 150,000 domains have been registered on our platform.

We have made meaningful progress with partners from a distribution standpoint as well and have signed deals with 40 of the largest registrars in the industry including, GoDaddy and

We are also starting to see industry marketing activity around gTLD increase as evidence by GoDaddy’s recent promotion on its homepage and one-on-one recent TV campaign. The new gTLD programs also starting to have a positive impact on the registrar side of our business. Our registrar platform is already distributing more than 80 new extensions and its capturing a meaningful share of all gTLD transactions across the industry.

We expect to launch a steady stream of new gTLDs through the middle of 2015 at each phase of the ICANN auction process is completed. We continue to invest heavily not only in product and technical infrastructure, but also in extending our own portfolio.

We have already built a few opportunistic clusters of extensions in highly commercial categories and we will bundle those domains with complementary value-added services to drive adoption and usage from our existing and new customer bases.

Looking forward, we have an interest in approximately 100 applications that are still in process. Finally, we have successfully built out the Rightside executive team, having completed our search for CFO and Head of Marketing. They are perfect complement to our existing Rightside executives who have proven industry experience and have been leading this business for many years.

Now on to content and media, we recognize that our content and media business is in a period of transition. Our long-term goal is to reestablish this business as a leader in its respective markets.

At a high level, our plan is focused on product and editorial improvements for eHow and Society6 and a renewed effort to leverage our studio platform to produce content for brands and agencies.

The markets that we're attacking our large and growing, commerce content marketing and how-to our each multibillion dollar markets that are highly fragmented and dynamic. These markets also share our common trade. They are driven by content and fueled by community. I can't think of a better description of what we do.

Let’s start with commerce and Society6. The global commerce market of $1.2 trillion is one where we believe unique authentic products will gain an increasingly large share of the market.

Society6 is the marketplace that is flexible enough to address a large portion of the market due to its ability to quickly release new products as a result of its print-on-demand model.

As a reminder, our platform is integrated with leading vendors to print and shift physical products like T-shirts and art prints directly to the customer without carrying any inventory.

The growth of our member community on Society6 will be a key driver of future success. We have more than 550,000 members who are uploading original artwork and curating collections.

We added an additional 86,000 members during the quarter versus 42,000 members in the comparable quarter last year. Another driver of success will be our ability to launch new products and during the quarter, we launched mugs, kids apparel and a Society6 artist calendar, all of which contributed to revenue growth.

Our plan for 2014 includes the continued launch of new products, as well as site development focused on increase mobile functionality, improved search capabilities and curation tools for our members that will facilitate better discovery and increased plurality.

Next let me talk about our content solutions business. The Custom Content Council estimated that spend on content marketing hit $44 billion in 2013 with 39% of marketing budgets now being dedicated to content.

Our studio with its robust online platform and creator community is incredibly well positioned to be a dominant player in this market. The competitive landscape includes a number of interesting startups that each have point solutions but we have seen none that offer the full service approach that we do.

In Q4, we established a dedicated content solutions team and have already seen strong customer response to our offering. We expect to continue to build on this early momentum over the next few quarters. We are confident that our studio platform, our experience as a publisher and are data-driven full-service approach will remain a unique competitive advantage.

Now let's talk about eHow. The online how to market continues to expand not only from a query standpoint which according to Google Trends is growing approximately 10% per year but also from a product and format standpoint. Paid answers, paid learning, live chat and other products continue to gain traction with consumers.

We understand what it takes to be successful here and are committed to making the required product editorial and content investments to reestablish eHow at the undisputed leader in the category. Let me elaborate.

On the product front we demonstrated real success with eHow en Español, a site that as a very different look and feel from the traditional eHow site. It's a more visual and engaging representation of how to content. According to internal data, the site has grown to more than 40 million visitors per month, 280 million page views and more than four page views per visit.

The site also has a very engaged Facebook community with more than 1.5 million fans. All of this from a standing start that began with the successful integration of emerging cast, a small start-up in Buenos Aires that we acquired in mid-2011.

Another example of impactful product execution is the newly integrated cross-platform community experience on Livestrong. During the quarter we completed a rebuild of the site in order to deliver greater community interaction and highlight the property's broad set of helpful tools such as the MyPlate calorie tracker.

And I'm pleased to say that early signs of these efforts have been positive. We doubled the number of new registrations we saw year-over-year in January 2014, adding more than 180,000 new registered users during the month. This is the first time since 2011 that we have seen growth in user registrations on a year-over-year basis.

The relaunch and product enhancements are great example of our ability to nurture and grow communities. We intend to leverage these types of product learning into a redesign of eHow, one that will be much more visual and engaging and focused on community interaction.

As part of the overall redesign, we will be making a number of content and editorial improvements and we need look no further than our internal property Cracked for formula for success. Cracked has been a pioneer in using a simple formula to drive sustained audience growth, create great content by leveraging a network of experts in creation process and packages with the right headline and imagery to help capitalize on the growth and social platforms.

Cracked has developed a network of more than 1000 creators. You see Cracked as an outlet for their talents and a place to develop their careers. Cracked’s formulas for success is working very well. The site now garners nearly 60 million visits and more than 400 million page views every month according to internal data and more than two thirds of the audience returns every month. A significant portion of its traffic comes from user sharing content with 16% of visits or by social and only 22% of its traffic coming from search engines.

In addition to Cracked, other sites such as and more recently LinkedIn are using a similar playbook to drive audience growth. We see a similar opportunity in 2014 for eHow, which will help make the site more current and relevant to today's consumers.

In addition to the creator network, we will begin updating our eHow library to include the addition of new work, more visual formats. For these formats, we will be able to leverage our studio which has been building up a base of original photographers and now has hundreds of photographers creating thousands of original photos each month.

We will also be rewriting, reformatting and in some cases removing articles from the site in order to improve the overall eHow experience. Lastly, we will continue to invest in eHow now, our expert driven paid answer service. The end result will be how to experience, that is more community focused and that delivers the right content topics and formats, in an editorial voice that attracts and engages consumers.

Our goal is to make eHow the most helpful place on earth. Anyone who has build a community knows that success doesn't happen overnight. It's a series of small, subtle product changes that reacts to the needs of the community and that builds momentum over time. It takes real dedication and 100% focus on the user.

To that end in January, we made a choice to shift our monetization focus to premium programmatic as opposed to the more traditional branded display business. This decision will negatively impact revenue this year but will free up product and engineering resources to make the site improvements I mentioned earlier.

Technology for exchange-based media buying has improved dramatically. And we are now able to offer a more efficient way for advertiser’s to access our intent-driven audience. Without premium programmatic offering, our advertisers can customize placement, audience and budget parameters for each campaign. Our audience is ideally suited for this type of advertising.

Clearly we have a lot of work to do in 2014. For our Rightside business, we continue to invest heavily in gTLDs as well as product and customer service experiences. And we continue to move forward with the separation.

For our media business, 2014 is a year of rebuilding, product innovation, experimentation and most importantly, focus, growing Society6 and content solutions and fixing eHow. We have enough proof points from our products, community and content standpoint across our business to know we can be successful.

We have the tools we need at a solid base, which includes an audience of nearly 100 million people each month and top five positions in categories like home and garden, health and personal finance. We simply need to connect the dots and execute.

Before I turn the call over to Mel, I’d like to add that the search for permanent CEO of our Content & Media business is well underway. In the meantime, I will continue to work closely with our team as we execute on these exciting opportunities for our business.

With that, I’d like to turn the call over to Mel to review the financials. Mel?

Mel Tang

Thank you, John. Q4 was a solid quarter, highlighted by record S6 sales, strong international and content solutions growth and double-digit registrar growth, which partially offset continued traffic decline in search engine referrals and a weaker-than-expected direct ad sales.

However, due to disciplined expense management, we were able to largely offset the impact from declines in high margin revenue on an adjusted EBITDA. Finally, we continue to generate substantial free cash flow in the quarter.

We demonstrated again the underlying strength for Content & Media platform in Q4. Our content library generated annualized revenue of overall $100 million. Our content solutions revenue ex-TAC grew 50% year-over-year and revenue from our international sites grew overall 150% year-over-year.

Additionally, our registrar once again achieved double-digit revenue growth driven by the successful acquisition and integration of at the end of Q4 2012. As I will discuss, the strength of our platform and balance sheet gives us the flexibility to make the significant investment this year towards the long-term initiative that Shawn mentioned earlier.

First, let’s discuss our fourth quarter results in more detail. Revenue excluding traffic acquisition costs or TAC was $94 million, down 3% year-over-year with an 11% decline in Content & Media revenue ex-TAC partially offset by 12% year-over-year growth in registrar revenue.

Adjusted EBITDA was $18 million, down 39% year-over-year, reflecting the continuing negative impact of declines in high margin advertising revenue due to lower search engine referrals, coupled with headwinds in display advertising as well as the mix shift in total revenue towards lower margin commerce and registrar revenue.

Free cash flow was $8.3 million, down 51% year-over-year, reflecting lower adjusted EBITDA, increased purchases of intangibles and timing of certain working capital payments, offset somewhat by lower fixed assets CapEx.

More specifically, year-over-year Q4 Content & Media revenue ex-TAC decreased 11% to $55.4 million due to a 31% decline in network revenue ex-TAC, and a 5% decline in owned and operated revenue.

Owned and operated page views grew 21% to $4.1 billion, driven by a tripling of mobile page views on our core-owned operated sites as well as over 6X growth in traffic to our international sites. This more than offset page view declines from lower search engine referrals of approximately 15% throughout the quarter that negatively impacted eHow, Livestrong.

Owned & Operated RPMs of $11.38 decreased 22% year-over-year, reflecting this mix shift to lower monetizing international and mobile traffic, softness in our direct display ad sales and lower year-over-year domain sales of approximately $800,000, offset partially by Society6 revenue of $8.4 million.

As we discussed last quarter, we are also focused on visits and revenue per visit. Revenue per visit to our Owned & Operated properties increased 25% year-over-year to $0.05, primarily driven by the addition of Society6.

Now on to network. Network revenue ex-TAC declined 31% year-over-year, driven by $3.5 million less revenue from YouTube premium channels and lower year-over-year revenue from our social tools business.

With respect to network page views and RPMs, we saw a 50% decrease in network page views to $2.2 billion, reflecting our decision to reduce the number of websites we represent as a part of our IndieClick network. We also saw 38% increase year-over-year in network RPMs ex-TAC to $4.12, primarily related to the removal of lower monetizing network page views from our IndieClick network.

On to our Registrar, revenue was $38.6 million, up 12% year-over-year, driven by 9% year-over-year growth to 15 million domains due primarily to the acquisition. Annualized revenue per domain, or ARPD, of $10.47 increased 4% year-over-year due to higher ARPD.

Since our last call, we have made significant progress to prepare for the separation of Demand Media into two standalone entity. We filed our Form 10 on January 13th of this year and sought our First Amendment on February 14th in response to the first round of FCC comments.

We have also recently received the private letter ruling from the IRS confirming subject to the satisfaction of certain conditions, the plan tax free needs or other separation. Further, we continue to make progress in separating key functions and are targeting to be operationally ready by the end of Q2. The exact timing of the spin will still be subject to a number of conditions such as Board approval, the SEC declaring a registration statement effective as well as market and business conditions. Assuming these conditions are met, we believe that we will be in a position to complete the separation by the end of this summer at the latest.

Similar to last quarter, I will provide high-level estimates for revenue breakdowns for each business in Q4. Specifically for our media business, we are breaking out revenue into two line items -- advertising revenue and commerce and other revenue.

In Q4, advertising revenue, which is comprised only of advertising base revenue, but excludes advertising revenue from domain parking was approximately $37 million and down 22% year over year due to lower search engine referrals and headwinds at display advertising.

Commerce and other revenue, which is primarily comprised of all transaction-based and other non-advertising revenue was approximately $14 million and up 40% year-over-year, primarily due to revenue from Society6 of $8.4 million, more than offsetting the previously mentioned lower YouTube premium channels comps and declines in Pluck revenue.

For Rightside, we have two revenue line items -- domain services revenue and aftermarket services revenue. In Q4, domain services revenue, which primarily represents domain registration fees and value added services was approximately $37 million and increased 13% year over year, driven by growth in end of period domain in the acquisition.

In aftermarket services revenue, which represents premium domain sales and advertising revenue from our Owned & Operated third-party park domains of approximately $8 million and decreased 33% year-over-year due to lower advertising yield on domain parking and lower year-over-year domain sales.

With respect to the adjusted EBITDA of each business, we estimate that in 2013 margins were as follows. Content & Media standalone adjusted EBITDA margins of approximately 30% to 35%, and Rightside standalone adjusted EBITDA margins of 5% to 8%, inclusive of over $8 million in OpEx investments during the year relating to the new gTLD initiative. Note that this margin does not include stand-alone public company costs currently estimated to be $2 million to $3 million.

Turning now to consolidated operating expenses, Q4 GAAP operating expenses were $108 million, up 11% year over year. Excluding depreciation, amortization and stock-based comp, total operating expenses were $83.4. million, up 13 points as a percentage of revenue.

And driven by higher cost of services due to the acquisition of at the end of Q4 2012, increased registration costs from last year's aggressive reseller base expansion ahead of new gTLD’s and product cost from Society6, all partially offset by lower TAC year-over-year.

Product development expense grew, as we continue to ramp infrastructure investment in commerce and in preparation for the launch of gTLD’s, and higher G&A expenses due primarily to $2.7 million related to spin-off preparation fees and gTLD’s start-up expense.

Excluding spin-off and gTLD’s start-up costs, total operating expenses excluding depreciation, amortization and stock-based comp would've been approximately $78.6 million, up 10 points as a percentage of revenue as compared to last year, which takes us to Q3 cash flows.

Cash flow from operations was $9.7 million, down 63% year over year due primarily to costs associated with the aforementioned spin-off and new gTLD start-up expenses, as well as opportunistic premium domain in purchases. Excluding these expenses, cash flow from operations would have been over $18 million.

Discretionary free cash flow was $11.8 million, down 46% year-over-year, due primarily to lower adjusted EBITDA and the purchases of premium domain names. Excluding the purchases of premium domain names, discretionary free cash flow would have been $14.6 million in the quarter.

Free cash flow; in Q4 we generated $8.3 million of free cash flow after investment in content where we continue to achieve attractive projected returns of over 50%. For the year, our platform generated over $75 million from cash flow from operations and almost $45 million in free cash flow.

A brief update on our balance sheet and liquidity, at December 31 we had approximately $267 million of liquidity comprised of approximately $153.5 million of cash and equivalents and $114 million available under our credit facility net of our outstanding letters of credit. Please note at the end of Q4 for the terms of our facility, we drew down the remaining $50 million on our total $100 million term loan complement while also making our first amortization payment of $3.750 million.

Now on to financial guidance, as Shawn discussed 2014 is going to be an important investment year for us as we focus on rebuilding the foundation for sustained, long-term growth in our content and media business as well as operating the businesses. As a result, we will be replacing our specific quarterly and annual guidance with the discussion on short and long-term trends. In 2014, the company expects the following trends. Slightly declining revenue year-over-year driven by the company's shift away from traditional branded display sales and continued declines in eHow coupled with product and ad format changes to improve user experience, offset partially by growth in Society6, Content Solutions and Registrar revenue.

Adjusted EBITDA margins in the mid-teens reflective of the inclusion of $8 million to $10 million of annual gTLD operating expenses post the launch of our first gTLD in February 2014, $10 million to $15 million of operating expense related to content remediation and infrastructure ramp for Society6 and Content Solutions and a revenue mix shift to lower margin commerce and domain name services revenue, and significant free cash flow generation.

Long term Demand Media standalone revenue will be driven by a return to growth in eHow, as well as our growing Content Solutions and commerce businesses contributing a significantly higher percentage to total revenue. Rightside revenue driven by growth in domain name services revenue from the new gTLD opportunity, partially offset by continued declines in domain parking revenue. For both businesses, we expect margin expansion as we continue to generate significant free cash flow.

As discussed, we will be making focused investments in 2014 against the key initiatives Shawn outlined, the new gTLD initiative, reestablishing our leadership position in the how-to category, driving Society6 growth and building our Content Solutions businesses. These investments while significant have the potential to yield equally significant returns. For example over the past two years, we estimate that eHow live strong had negatively impacted by search referral changes by approximately $50 million. Our goal is to make the necessary investments to recover that lost and return it to growth in a sustained manner.

In closing, despite significant top line challenges throughout 2013, we exited the year with a solid quarter and strategic focus on investing against our long-term growth opportunities.

That concludes my prepared remarks. I would now like to open the line for Q&A.

Question-and-Answer Session


(Operator Instructions) Your first question comes from the line of Sameet Sinha with Riley. Your line is open.

Sameet Sinha - B. Riley & Co.

Thank you very much. Can you elaborate on this premium programmatic opportunity and how is it that this is impacting your revenues this year? Secondly, if you can give us more clarity on the content remediation, I mean what’s sort of content are you removing and what sort of content will you be adding? And third and final question is, in terms of Rightside, what did you guide to for 2014 revenues up, down, flat? Thank you.

Shawn Colo

Sameet, so let me talk about premium programmatic, so we are still pretty early in the rollout phase for our offering, but we are pretty excited about the opportunity and I don’t know -- Mel can probably give a better job speaking to the CPM list that I can’t, but we are seeing a lot of interest in our audience as we go through the transition from the branded display partners. We have a lot of the infrastructure and a lot of the plumbing in place from a programmatic standpoint and what’s going to be the key determinant of success for programmatic in many cases are just reach in your ability to target audiences and we have been a lot of that targeting work over the last few year. And now it’s taking what was a fairly manual process and really letting the systems and the networks do the work for us. But I don’t know, Mel, if you want to talk a little bit more about pricing or anything that was more directly related.

Mel Tang

Yeah. I think the color I would share on going from direct sold ads to premium problematic is that there is a discount on the CPM basis as our marketplace starts to ramp-up. I think our view is that over the next near-term hopefully that start to converge. But the flipside of that is that you’re selling at much higher margin. So I think net-net the impact to operating contribution while negative isn’t nearly as large as the discount in the topline I would suggest.

Shawn Colo

I'm sorry, Sameet, I think…

Sameet Sinha - B. Riley & Co.

The other question was content remediation term.

Mel Tang

So, yeah, from a content standpoint, I mean, we made a lot of progress on Livestrong in particular in the fourth quarter which was really kind of our core area of focus from a remediation standpoint.

And I really, I am pleased with the way that library shaping up from the quality standpoint and I think, we saw as I mentioned in my remarks, a really nice uplift from a user registration standpoint in January.

So we’ve done a lot of work on Livestrong and now we’re able to take a lot of those learning and apply them across the rest of our business, obviously, eHow in particular. And it won’t be the exact playbook, but we will take the learnings that we pulled from Livestrong and start applying that to eHow. And we’re really -- we’re just about to start that work. So we’re in the sort of scoping phase, but I expect to make a lot of progress next quarter.

Shawn Colo

And your last question was on Rightside growth. We didn’t guide the specific ranges for Rightside growth, but I think that we had mentioned that it will continue to grow, I think the trends in there you keep in mind are the aftermarket side where we’ve seen some declines over the past few quarters or something we would expect to continue.

Sameet Sinha - B. Riley & Co.

Okay. One final question, in terms of Rightside topic, what was the number of domain that you said you sold and is it all this new gTLDs that are coming to the market. And what’s -- how should we expect that trend in terms of sale, I mean, any sort of initial color or what could the slope looks like?

Mel Tang

Yeah. No. I think it’s still very early. The sale number that we mentioned was 150,000 domains. Those were sold in sunrise essentially and so there's a little bit in [GA], but I think it's early enough to where there isn’t enough general availability, information to be able to draw, I think, even early trend lines with. I think over the next couple of quarters we’ll that marketplace will start to develop and we will probably have better color and visibility on what we’re seeing.

Shawn Colo

Yeah. But I would say, we’re pretty pleased with the early results just given that, we -- one of the questions was, what do we think the consumer demand is going to be in, within really a couple of weeks of being offered. We’re seeing hundreds of thousands of domains being registered. So we think that’s a pretty positive sign for the industry in general.

Sameet Sinha - B. Riley & Co.

Okay. Thank you.


Your next question comes from the line of Peter Lowry with JMP Securities. Your line is open.

Peter Lowry - JMP Securities

Yeah. How is it going guys?

Shawn Colo

Hi, Pete.

Mel Tang

Hi, Pete.

Peter Lowry - JMP Securities

Hey. A couple of quick questions, one, looking at the advertising decline and the commerce revenue increase, where would you see yourself placing more focus on that side of the business. And if you look forward a couple years, you see what those being bigger than the other?

Mel Tang

Well, I think that, we’re going to put really equal focus on both the advertising and commerce. I mean, eHow is still even despite the declines, it still significant part of our business and I think, we are going to aggressively fix that side as Shawn mentioned. Over time, I think, I mentioned that we think commerce could be as big as the advertising complement of our business.

And so we view those two really is equal. And commerce is a necessary shifted only to at six. I think that as we think about remediating eHow and Livestrong and things like that. There are certainly transactional type services and product offerings that get introduced into that mix as appropriate.

Peter Lowry - JMP Securities

Okay. Then second question, I think you mentioned the tripling of mobile page views, 6x and international. Are there any prospects to better monetize mobile and/or international to drive upside?

Mel Tang

While, what we see, we did announce the partnership on the international side of the business a few weeks ago and so we are working with partners to try to really extract more value from that standpoint.

On the mobile standpoint, I think the overall market trends are in our favor from a pricing standpoint. And we've got -- the big challenge and the big opportunity for us, Pete, is to get the product and the experience mix right. So in the long-term, we've got a much more sustainable business. But needless to say we’re pretty excited about both opportunities.

Peter Lowry - JMP Securities

Okay, great, thanks.


Your next question comes from the line of Brian Fitzgerald with Jefferies. Your line is open.

Brian Fitzgerald - Jefferies

A couple of questions, maybe a follow-on. In terms of the shift to premium programmatic, is there any additional kind of required infrastructure or plumbing as you put it in order to reach kind of the optimization of the process. And in your -- in order to get it fully integrated into the process and the content, I guess and it’s so kind of -- what's the timeframe there for being fully ramped up to programmatic and then just one of the follow-on?

Shawn Colo

So, from a product standpoint, we have done a ton of work to get ready to be able to attack this market. We are working with Google pretty closely on really being able to offer sort of guaranteed reserved inventory that definitely what the market is looking for.

And so we expect to be able to roll that out in the next few months. But we've got all the thing lined up with our data partners, with our own infrastructure with Google. So we feel like we really have that curve on that standpoint. And we are starting to see a nice gradual shift from an inventory standpoint and a little bit be lift on CPM.

Mel Tang

Let me clarify that we are selling programmatic today. We’re leveraging the platforms that are built already. We actually have a pretty good platform as well that we can interface with. And so over the next couple of quarters what you going to see is just further development on being able to segment audience deliver better targeting.

So I would kind of view those not necessarily as things that are bottlenecks to us launching the platform already in market. They are really kind of improving and so when you talk about being fully ramped, I think we’re in a pretty good place right now. Over the next couple of quarters, we’ll be even more so. But I think, that will continue to evolve and more evolve with developments in the marketplace.

Shawn Colo

Yeah, its really just, I mean, when you say premium programmatic, to me that just means better granularity and targeting which obviously is going to give brand and agencies, a better service and better return for their investment. And so, if, I think, we don’t know, it’s right, we are in the market but there are few things that we are working on to just continually improve and drive higher yields and higher pricing for us and better returns for our partners.

Brian Fitzgerald - Jefferies

Okay. And then on a Rightside, did you guys mention how many gTLDs view the registry for. And then how many are you providing backend services in your partnership with Donuts and may be a little bit more how the economics work there?

Shawn Colo

So I think we disclosed that we have signed 14 registry agreements. Four are in Sunrise currently and I think nine-year 100 sort of total new gTLDs now are in the marketplace right now. We are powering 60 of them.

Brian Fitzgerald - Jefferies

Okay, great. Thanks.


(Operator Instructions) your next question comes from the line of Heath Terry with Goldman Sachs. Your line is open.

Heath Terry - Goldman Sachs

Great. Thanks. Just a couple of questions on the content side of the business, can you give us a sense of what you are seeing in traffic if you were to break it down between the sites of the areas where you have done content remediation versus the one that I got to see that process. And then as you are thinking about kind of where you want to focus your efforts, how do you think about the economics of content in general, when you are deciding which areas are going to be subject to remediation versus what I may be would guess here thinking about the long terms of the other areas that are just going to continue to operate as it is?

Shawn Colo

Well first let me just make sure we define, when we talk about remediation its really for us a process of not only looking at content, quality breadth and depth but also when we look at the site we have to view it in a really holistic experience because you can’t just assume that you are going to sort of pick the library and then offset magically the site is fixed.

I think the thing that we are trying to figure out and focus on really is making sure that we got the entire experience nailed for the user. And that’s product, its content, it’s tools and it’s community. And so from a remediation standpoint, I think Livestrong is clearly farthest the long for us, is the one that we attacked first, we rolled that and redesign late in the quarter, totally kind of redesign the site, do a lot of the backend work really and spend time integrating tools and applications.

And as I said, I mean, we saw some pretty nice lift as far as registrations are concerned. The good thing about registrations is that those users are much more engaged and I think they view sort of two to three times more page views than non-registered users. So as you start to build a community and you wrap that with the right content experience that is really the formula for success.

So we are strong, I mean, we are really kind of months into it and the kind of process that it is not a quarter or two, it’s going to take a long time for us to really kind of get it. But we are really pleased with the process we have seen so far, and so that’s why we have made the decision to really kind of re-energize eHow and start the process of remediating the site. So, I guess that’s it. Mel, do you have anything?

Mel Tang

Yeah. I think the only thing I would just emphasize on is, we know that our content works on other partners who may have different sort of community or wrapping on and so we know that our content performs quite well. And so, I think the issue clearly that we have some content that we needed to clean up and make better. But it really is to Shaun’s point, more holistic where you have to wrap the entire user and content experience together.

So it’s more than just fixing the library. And I think that’s really how we -- to address your second question, it’s really kind of the same thing. I mean, we clearly going to focus on the content that our viewed the most or top performers necessarily first to make sure that the user and content experience again for the majority of users that come to our site is good and then we will kind of move down into the more niche contents. But it is a complete kind of packaging overhaul.

Shawn Colo

I mean the economics of content are still really compelling, and there is an entire industry now that really kind of didn’t exist by name a few years ago called content marketing that’s really focused on that. Content continues to be a great form of marketing. Content is a great way to drive audience and we really see sustainable value is by giving users a lot more to do once they consume that content so. And that’s what we said about the content solutions opportunity because we have the studio, we have a network of freelancers who are experts in their field.

We made a lot of product improvements at the studio level. And what we started to see even when we had our branded business was basically, what the brands really wanted from us. I mean, they wanted audience but they really wanted content. They wanted content solutions and so we’ve now got that up really running as its owned separate effort. And we are really excited about that and I think we are going to see a lot of growth in that industry going forward. And I think we are going to see nice growth from our content solutions business too.

Heath Terry - Goldman Sachs

Okay. Great. Thank you.


Your next question comes from the line of Sameet Sinha with B. Riley. Your line is open.

Sameet Sinha - B. Riley & Co.

Yes. Thank you. When you were talking about Cracked and you kind of to mentioned that, the formula for good quality content and create content with experts, is that an indication that you are moving up in terms of the quality of the editors that you are now hiring are much higher than let’s say even a year back or even six months back, is that kind of where you are headed and in terms of per unit content creation costs, would that be a material increase?

Shawn Colo

Well, let me talk about Cracked for a second. So the editorial model there, it is a network of independent creators. We have been basically building that creator network. We actually acquired a small form years ago to help launch that effort. And so the quality of the content, the quality of the creators on Cracked has consistently been exceptionally high. I think this year in fact, I think maybe three of the five new Saturday Night Live cast members were collaborators with Cracked over the last 12 months.

So you get really talented people who are really smart, who are sharp and those are the people who are really creating a lot of the Cracked content, of course in addition to our own Cracked editorial team. So that's the Cracked editorial model and you see others like the Forbes as I mentioned and even LinkedIn, just kind of trying to build their own network of credible creators to try to drive audience. So, Cracked has been doing that for a while. 60% of the audience is coming through social channels, so that business is a great business.

Just from a quality standpoint, the things we have been doing in the studio as it relates to the rest of our properties, eHow, Livestrong, we have done a lot of work to try to segment the creator community in most, most if not all the creators take a test to actually prove that they are the subject matter experts in addition to submitting samples and things like that.

So the quality has continued to improve and it really is -- it’s a lot less of a pure volume and are logging for us. We are definitely playing this for a much longer term. But just getting to your question, we are seeing continued good returns from the content that we are creating through the studio and undeniably, the quality of the content is getting better.

Sameet Sinha - B. Riley & Co.

Thank you.


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

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 All other use is prohibited.


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

About this article:

Error in this transcript? Let us know.
Contact us to add your company to our coverage or use transcripts in your business.
Learn more about Seeking Alpha transcripts here.