Demand Media's (DMD) CEO Sean Moriarty on Q2 2016 Results - Earnings Call Transcript

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Demand Media (DMD) Q2 2016 Earnings Conference Call August 4, 2016 4:30 PM ET

Executives

Jeff Misthal - SVP, Finance & IR

Sean Moriarty - CEO

Rachel Glaser - CFO

Analysts

Darren Aftahi - ROTH Capital Partners

Operator

Good afternoon, ladies and gentlemen. My name is Sally, and I will be your conference operator today. At this time I would like to welcome everyone to the Demand Media Second Quarter 2016 Earnings 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 for analysts. [Operator Instructions]

On the call with us today, we have Sean Moriarty, CEO; Rachel Glaser, CFO; and Jeff Misthal, SVP of Finance and Investor Relations. I will now hand the call over to Jeff Misthal. Please go ahead, sir.

Jeff Misthal

Good afternoon, everyone. On behalf of Demand Media, welcome to our Q2, 2016 conference call. You will find our related release, along with supplemental materials, posted on the investor-relations section of our corporate website, located at ir.demandmedia.com.

I'm pleased to have Sean Moriarty, our Chief Executive Officer; and Rachel Glaser, our Chief Financial Officer, on the call with me today. Following the Safe Harbor statement that I will make, Sean will update you on our business, and then Rachel will provide details on our second quarter financial performance and key operating metrics. Any metrics discussed on the call without a reference to a specific source are based on our internal data. After 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 anticipate future revenue, earnings, operating expenses, operating metrics, 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 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 adjusted EBITDA and free cash flow. We will also state certain financial results on a pro forma basis, eliminating the impact of the dispositions of our Cracked business and certain other nonstrategic online properties. Reconciliations of these non-GAAP and pro forma 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 would like to remind everyone that today's conference call is being recorded and that it is also available via webcast on the Internet through the investor-relations section of our corporate website. A replay will be available on our website.

With, I'll now turn the call over to our CEO, Sean Moriarty.

Sean Moriarty

Thank you, Jeff, and thank you, everyone, for joining us this afternoon. We appreciate the opportunity to update you on our second quarter results and share our thoughts on the future of our businesses.

I'll start our call, as I do each quarter, by reminding you of our mission at Demand. We build platforms to enable communities of creators to reach passionate audiences in large and growing lifestyle categories, while helping advertisers find innovative ways to engage with their customers. We are pleased with the progress made in Q2 to further this mission in both our marketplace and content and media businesses.

Today I will focus my remarks in three areas. First, a review of our marketplace businesses, which were marked by solid growth in both transaction volume and revenue and a number of key product advancements. Second, an update on our content and media businesses, highlighting an impressive quarter for LIVESTRONG.COM and our decision to integrate our studioD business into our broader media organization. Finally, I will reiterate our strategy for the company and why we are confident about future growth. Rachel will follow with more details on our financials.

Starting with our marketplace businesses, we had another very successful and productive quarter, with revenue growing 28% year-over-year to $13.4 million. Let me break that down into the two separate marketplaces we operate. Society6 revenue grew 24% year-over-year in Q2, with traffic increasing 15% and transactions increasing 18%. Repeat customers make up over 30% of Society6 customers, and the number of repeat customer transactions grew 25% year-over-year in Q2. Both the repeat-purchase behavior and the growth in traffic are testimony to growing Society6 brand awareness and customer satisfaction.

Society6's traffic growth is also attributable to marketing efforts across multiple channels. Traffic from social sources grew significantly in Q2, and Society6 ended the quarter with over 620,000 followers across social sites such as Facebook and Pinterest. Traffic from paid sources grew 15% year-over-year, driven by targeted marketing efforts, focused on channels that drive new and qualified customers to the site.

Email also continues to be a strong channel for converting Society6 visitors to customers. Email traffic grew nearly 150% year-over-year, driven by email-subscriber growth, optimized lifecycle email campaigns, curated trending product collections, and fresh editorial content. Optimization of the mobile navigation and checkout experience in Society6 continued to yield positive results in the quarter, with mobile revenue growing 51% year-over-year on a 28% increase in mobile visits.

Streamlining the checkout flow continues to be a priority, and during Q2, Society6 integrated PayPal One Touch into its checkout process, resulting in fewer clicks and faster checkout for PayPal customers on both desktop and mobile devices. Society6's internationalization efforts are underway, with the addition of an overseas manufacturing vendor in March. By bringing distribution and fulfillment of products closer to the point of purchase, we expect to reduce the cost of shipping to the customer, improve delivery speed, and ultimately encourage repeat purchase behavior.

The most important initiative for Society6 in Q2 was a major platform upgrade, which will allow us to move much more quickly going forward. The development work required significant effort from the Society6 product and engineering teams and had a short-term impact on our product-launch pipeline in the quarter.

In May, we launched towels as a new product; but a second product planned for the quarter, metal prints, did not launch until June 30. Post-upgrade, Society6 can now release new products more quickly and implement new features and functionality much faster.

At the end of Q2, Society6 had a total of 32 consumer products, over 200,000 artists, and nearly 3 million designs; and the home-decor category represented 73% of total Q2 revenue.

Saatchi Art also saw strong growth in Q2, with revenue up approximately 64% year-over-year. The operating metrics surrounding this revenue growth are similarly promising. Traffic was up 19% year-over-year, while transactions were up 76%, evidence of much higher conversion rates on increasing demands.

Both new and repeat customers grew more than 60% year-over-year in Q2. It is encouraging that growth on Saatchi Art is outpacing the art market. According to research from Hiscox, 2015 online art market sales reached nearly $3.3 billion, a 24% increase from 2014.

One of Saatchi Art's most significant accomplishments in Q2 was the move to all-inclusive pricing, making it easier for consumers to make a purchase decision knowing the full up-front cost. Saatchi Art also saw significant growth in its art advisory business, a free service that provides collectors with personalized recommendations from our team of expert curators. With a comprehensive quiz to qualify leads and a new user interface for direct communication with clients, the art advisory business has strong conversion and repeat buyer rates.

Saatchi Art also continued to promote the site during Q2 through direct-mail marketing efforts and by participating in several live events. Our spring catalog, which features the art advisory service, dropped three times. Saatchi Art had a significant presence at several key art shows, including two small solo shows for top-selling artists Nushka and Hormazd Narielwalla, as well as a presence at the prestigious Art Southampton Fair in early July. These events helped build grassroots awareness of the Saatchi Art brands and propel an increased number of art advisory transactions.

In early July, we purchased The Other Art Fair, the UK's leading art fair for discovering emerging artists. According to [indiscernible] Research, approximately $13 billion worth of artwork was sold at art fairs in 2015, representing 20% of total art sales and up 49% since 2010. This acquisition unifies the two fastest-growing sectors of the art market under the Demand Media portfolio and furthers our mission to connect emerging artists to collectors and buyers across the globe.

The last update in our marketplace business is on the talent and leadership front. We are pleased to welcome Dion Camp Sanders as EVP of Marketplaces and Matt Gehring, VP of Marketing for Marketplaces. Dion has more than 16 years of senior executive experience, most recently at Disney Interactive. And Matt brings extensive experience in consumer marketing, having spent several years at Provide Commerce and Touch of Modern. We have a strong team across the board; products, engineering, marketing, and services; and we know Dion and Matt make the team even stronger.

Now to content and media, which includes eHow, LIVESTRONG, and studioD. Content and media revenue was $10.8 million in Q2, down 30% year-over-year and 7% quarter over quarter on a pro forma basis, excluding the Cracked business and other properties that we divested of over the last year. Content and media was 45% of our total revenue in Q2.

When I joined Demand Media in August 2014, I spoke of the transformation strategy for our content and media businesses. We said this would be at least a six- to eight-quarter effort to reverse the decline in these businesses.

During the last two years, we have made significant changes to the business model for both eHow and LIVESTRONG, moving from a model that valued content quantity over quality to a model dedicated to creating high-quality products with increased user engagement.

The old model relied almost exclusively on search traffic. The new model has significantly extended reach and diversified traffic sources to include email, social, referral from partners, and direct organic audience returning by choice.

For LIVESTRONG, this transformation has been successful. For eHow, there have been puts and takes. Recall that in Q1, we saw traffic begin to stabilize and even grow on mobile, up 2% versus the prior quarter.

However in early Q2, we saw a noticeable downturn in search traffic. Average monthly visits to eHow in Q2 were 36 million, based on our internal data, a drop of 24% versus Q1. This trend has reversed itself somewhat in Q3. In July, eHow visits were on pace to increase 5% versus June.

While organic search remains a significant eHow's total traffic, we have made solid strides in diversifying traffic from other sources. Search traffic was 62% of total traffic in Q2, down from 74% in the prior year.

Traffic from social sources was 10% of eHow's total during Q2, up from 3% in the prior year. During Q2, eHow significantly increased both its number of follows and its reach on Facebook and Pinterest, as it remained focused on growing social audience and engagement.

In contrast to eHow's challenges, LIVESTRONG is quite a success story from an audience perspective. In Q2, LIVESTRONG traffic grew 15% year-over-year to 62 million average monthly visits. Revenue was up 4% versus Q1 and nearly flat to prior year, down less 1%. Traffic growth was achieved in multiple channels. Traffic from social sources grew to 3% of total traffic, up from 2% in the prior year. Direct and email traffic was 21% of total traffic in Q2, up from 16% in the prior year. In Q2, search traffic was 75% of total traffic, down from 81% in the prior year.

LIVESTRONG continued to release videos on Facebook and YouTube as part of its recently launched series, Simple Healthy Eats, one-minute videos demonstrating easy, healthy recipes. In April, they released a no-cook vegan chocolate avocado pudding video that reached over 3 million people. In June, the LIVESTRONG team launched Simple Healthy Beauty, a similar lifestyle series focused on beauty videos, as LIVESTRONG continues to build authority in the women's lifestyle category.

LIVESTRONG has been an early adopter of the Facebook Live capability. During Q2, they streamed a live workout with P90X creator Tony Horton, fitness training with YouTube superstar Autumn Calabrese, and the Cinco de Mayo Cocktail Classes with chef Ariane Resnick. In total, these videos reached over 4.5 million people in the quarter.

There were two significant changes in our content and media portfolio in Q2. The first was the sale of Cracked to E.W. Scripps for $39 million in April. As discussed in our last call, this left us with a more focused portfolio of businesses and significantly strengthened our balance sheet, adding $35.1 million of cash in Q2, with another $3.9 million in escrow until July 2017. Cracked generated revenue of approximately $200,000 for us in Q2. The second change was the transition of our studioD business to be more tightly integrated with our other media businesses. Let me give a quick refresher on what studioD is.

StudioD is comprised of two businesses. The larger business is our content-channels business, in which we create content for other publishers that is primarily posted on their domains, and we share the revenue from ads served in those pages. Content channels had revenue of $2.7 million in Q2, or 79% of total studioD revenue. The content-channels business was not significantly impacted by the changes we made to studioD.

The second business in studioD is our custom-content business, which creates custom content for third-party brands to use in a myriad of ways, including product marketing on their websites, or in print and digital ad campaigns. StudioD designs and produces content for brands such as Samsung, Choice Hotels, and Kroger. The custom-content business had revenue of approximately $700,000 in Q2, or 21% of total studioD revenue.

While the custom-content business has had significant and accelerating growth every quarter since its inception in early 2015, investment in this business has also been significant. Designing and producing content for large brands is labor intensive and often slow, very high touch, both on the sales side and on the production side.

In June, we made the strategic decision to integrate both the content production and sales teams into our broader media organization, reducing the overall headcount by 35 people. We will continue to produce custom content for brands, but going forward, we will sell with an integrated content and media approach.

Sponsored content is one of the fastest-growing advertising formats, and the most successful publishers command the highest ad dollars by seamlessly integrating the advertiser's voice with the content they produce. We are currently focused on retaining as many of our existing client relationships as possible, evolving those into sponsored content deals in which we develop the creative campaign and provide distribution on our owned-and-operated properties. We expect this to be a much more profitable go-to-market strategy.

This company is significantly transformed from eight quarters ago, when I joined the company. We have an art and design marketplace business that now generates over 55% of our total revenue, with gross transaction value growing 34% year-over-year and revenue growing 28%. We have restored LIVESTRONG to a healthy and growing lifestyle brand. We have significantly improved the content, quality, product, and user experience on eHow, and the site is without question a distinctly different and vastly superior consumer experience than it was only a few quarters ago.

We have completely rebuilt the leadership team and have seasoned and talented executives leading every major function in the company. We have rationalized the portfolio and focused the company on fewer and bigger opportunities. We have reduced the company's headcount while investing in core businesses for future growth. We have strengthened our balance sheet, adding $35 million of cash in the second quarter, while maintaining a zero debt balance. Overall, we remain optimistic about the progress in our content and media businesses, but we are well aware of the challenges that digital publishes face in today's environment.

Growth in audience and engagement is evident in both eHow and LIVESTRONG, and the return of revenue growth to LIVESTRONG is promising. Coupled with solid and sustained growth in the marketplace businesses, we believe that Demand Media is likely to see revenue growth in 2017, putting us back on the path to a sustainable, growing, and profitable business.

I will now turn the call over to Rachel for prepared remarks regarding the financials.

Rachel Glaser

Thank you, Sean. I'm pleased to take you through our second quarter results. I'll start with the headline financials. Before I dive in, let me clarify that when I discuss total revenue, content and media revenue, and adjusted EBITDA in my prepared remarks, these financial results will be stated on a pro forma basis net of Cracked and certain other nonstrategic properties that we have divested. We did have approximately $200,000 of Cracked revenue in the first 12 days of the quarter.

First, total revenue in Q2 was $24.2 million, down 7% year-over-year. Our marketplace businesses grew 28% year-over-year, while content and media declined 30% year-over-year. Sequentially, content and media revenue was down 7% in Q2 versus Q1.

Second, adjusted EBITDA was negative $4.9 million in Q2, reflecting the down trend in parts of our content and media businesses, partially offset by growth in our marketplaces business and managed reductions in corporate overhead expenses. Third, free cash flow was negative $4 million for the quarter, reflecting the cash impact of lower EBITDA in the quarter and normal quarterly capital expenditures.

Starting with revenue, let me dive a little deeper into our financials. Our marketplace businesses grew revenue 28% year-over-year to $13.4 million. This was driven by topline growth of 24% for Society6 and 64% for Saatchi Art. Total growth transaction value was $17.1 million in Q2, up 34% year-over-year.

Our marketplaces averaged revenue per transaction of over $61 in Q2, up 7% year-over-year. For comparison purposes, in Q2 the gross transaction value for our marketplace businesses grew roughly twice as fast as comScore's measure of US consumer online spending.

There are three areas that we invested in for Society6 during Q2 that we believe will have positive upside in the future. First, as Sean discussed, in the second quarter Society6 focused on a major platform upgrade that delayed new product release dates and feature launches. We did launch towels and metal art prints during the quarter, but the metal prints launch was delayed until the end of Q2, too late to have any meaningful revenue impact in the quarter. The new platform will enable faster development cycles for both products we release to consumer and new features and functions to be added to the site.

Second, we are investing more in marketing for Society6. Our marketing efforts include market research to better understand our customer segments, improve our targeted marketing, and extend our product assortment. In addition, there are a number of consumer marketing campaigns which are aimed at improving brand awareness, growing audience, and increasing conversion. Finally, we are spending more on paid traffic acquisition, which we believe will be a good lever for driving new visitors to the site and may also improve brand awareness heading into the back-to-school and peak holiday seasons.

Third, we are working on strategies to scale the business and improve margins, including continued vendor negotiation to optimize pricing as volume grows, and vendor consolidation to leverage better pricing with volume growth.

Turning to Saatchi Art, visits were up approximately 19% year-over-year in Q2. The business benefitted from promotional efforts, including three catalog mailings, participation at art fairs, and growing awareness of the art advisory service, which fueled significant growth and conversion rates, leading to gross transaction value increasing 67% and transactions increasing 76%. This is consistent with data we have seen that suggests there is robust growth in the online art market as well as continued growth in the offline world.

On a pro forma basis, content and media revenue declined 30% year-over-year and 7% versus prior quarter. Importantly, LIVESTRONG grew revenue 4% in Q2 versus Q1 and was down less than 1% on a year-over-year basis. LIVESTRONG visits were up 15% year-over-year in Q2, with mobile growing 31% and desktop declining 7%. In fact, LIVESTRONG delivered its highest all-time Q2 traffic ever, with one-sixth of the content it had at its peak. This is a positive proof point that our content strategy is working.

Since mobile eCPMs are roughly 25% to 30% lower than desktop eCPMs, the strength of mobile-traffic growth creates some headwind on revenue growth. The good news is that mobile eCPMs are improving, and the greater percentage of the inventory is still in programmatic or direct channels.

As an example, in Q2 an average of 14% of mobile inventory was filled through programmatic or direct, up from 3% one year ago. The strength and size of the LIVESTRONG audience has attracted major programmatic advertisers, most notably on mobile. On the direct front, both Cancer Treatment Centers of America and Michelob ULTRA have realized the value of LIVESTRONG's audience, one of the largest health, wellness, and lifestyle communities on the Web.

eHow had a challenging quarter, with revenue down 53% versus prior year and down 24% versus prior quarter, due to continued search volatility. Traffic was down 44% versus prior year and 24% versus prior quarter. This downturn in Q2 created an unexpected decrease in impression volume and impacted eHow revenue in Q2 and EBITDA as a result.

As Sean mentioned, this trend reversed itself in July, with visits up 5% versus June. In addition, eHow had great success reaching audiences on social platforms, with followers up 96% in Q2 versus prior year and up 26% versus Q1. Through our newly transitioned studioD business, we are focused on creating sponsored custom content targeted at this robust viewership on eHow and LIVESTRONG, that we expect will yield improved revenue in the future, but may lag growth in audience.

StudioD revenue was $3.4 million in Q2, flat to Q1 and down $200,000, or 6% from prior year. We reorganized this business in June in order to have one sales force interacting with advertisers to help push the company to profitability. This decision slowed the revenue recognition for committed content sales down considerably, but we expect to recognize most of the revenue from the pipeline in future quarters.

Now to Q2 adjusted EBITDA. The primary reason for the EBITDA decline in the quarter was the year-over-year revenue declines in some of our businesses. Increased marketing investment also had a small impact on EBITDA declines, which I will explain in a moment. These revenue declines and marketing-expense increases were partially offset by operating-expense savings, primarily in G&A and IT infrastructure.

Overall, our Q2 GAAP operating expenses were $38.1 million, down 14% year-over-year and down 4% sequentially from Q1 operating expenses, $39.8 million. Non-GAAP operating expenses excluding product costs were $22.2 million in Q2, down $3.8 million, or 14%, versus prior year. The work we did in 2015 to find efficiencies in our back-office infrastructure, closing two offices, consolidating data centers, and reducing G&A headcount, have positively impacted our operating expenses. In addition, the recent changes we made to our studioD structure removed approximately $8 million additional annualized operating expense from the portfolio but did not have a material impact on Q2 results.

Approximately 75% of our cost base directly supports business operations, and roughly two-thirds of that is variable with revenue, primarily product costs related to our Society6 business. The remaining 25% of our cost base is corporate overhead costs, required to run this public portfolio company. We believe these overhead costs are relatively fixed in nature and that they will decline as a percentage of revenue as the company grows. We will continue to optimize our corporate overhead costs to expand margins as we grow.

Sales and marketing expense in Q2 increased by $2.4 million year-over-year. A portion of this increase was related to the performance marketing in our marketplace businesses that I discussed in relation to Society6. In addition, we invested in direct-mail catalogs for Saatchi Art. We expanded this catalog distribution to roughly 200,000 households in the US in Q1 and shipped that quantity again in Q2. In addition, we sent nearly 50,000 catalogs to households in the UK in Q2.

Lastly, we have added headcount to the sales organization to create dedicated site sales teams, and these personnel have had a modest impact on our overall sales expense. Our free cash flow was negative $4 million in Q2, up from negative $4.6 million in the prior year. In addition to reductions in operating cash flow already described, we spent approximately $1.1 million on capital expenditures. Note that our free cash flow includes $3.4 million of cash used in operating activities, $1.1 million of cash used for purchases of property and equipment, and $0.5 million of cash add-backs related to realignment and dispositions.

Our international exposure is fairly limited. Approximately 20% of our total revenue comes from international sources, with approximately 6% of our total revenue from the EU. A very small percentage of our costs are in foreign currency, as all marketplace transactions are settled in US dollars.

As discussed on our last call, as of December 31, 2015, we had federal net operating loss carry forwards of approximately $143 million, which expire between 2021 and 2035, and state NOL carry forwards of approximately $73 million, which expire between 2016 and 2035. We expect to utilize a portion of these in connection with the sale of Cracked.

Though we are not giving formal guidance, let me close by providing some perspective on the direction of our financials in the balance of 2016 and what this means for 2017. We remain confident in our strategy to focus on building authority in our brands, extending our reach through social traffic and improving our monetization capabilities with direct branded deals and new ad technology. We expect strength in marketplaces to continue, driving strong, year-over-year revenue growth and our normal seasonality in the second half of the year, with peak volumes in the holiday season.

In Q2, we began ramping traffic-acquisition spend to accelerate new customer growth. We launched a new platform for Society6 that will increase our speed and agility in site and product development and we believe will ultimately drive incremental revenue year-over-year.

We expect marketplaces revenue to continue to be more than half our total revenue exiting 2016. Going forward, we remind you that the mathematics of a growing marketplace business, which is greater than 50% of our total revenue, should produce a result that is aligned with our expectations for top-line growth in 2017.

As you think about your models on the bottom line, keep in mind that roughly 25% of our operating expenses are fixed corporate overhead, which we expect to decline as a percentage of revenue in the future. Given the cost reductions mentioned earlier, overhead is likely to be lower on a run-rate basis into 2017. The remainder of our operating expense is directly tied to business operations, two-thirds of which is directly variable with revenue.

With continued growth in our marketplace businesses, transformed content and media businesses, and the full impact of our recent cost reduction initiatives, we remain highly focused on returning the company to profitability while retaining financial flexibility to make prudent, long-term investments in our businesses.

That concludes the financial summary, and we will now turn the call back over to the operator to open the line for your questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] This ends the question-and-answer session for today. Thank you for your participation. You may now disconnect. We actually do have a question that just came in, if you'd like to take it. We have a question from the line of Darren Aftahi with ROTH Capital Partners. Your line is open.

Darren Aftahi

Hey, guys. I thought I had pressed the button, but apparently I had to do it twice. Anyways, thanks for taking my questions, a few, if I may. Could you - you guys kind of spoke back on traffic data. Society6, can you repeat what the year-over-year growth was there, and then any segments kid of over indexing? And then I've got a couple of follow-ups.

Rachel Glaser

So we - hi, Darren, it's Rachel. So we said Society6 grew 24% year-over-year in revenue. And then I can read out the others, if you're interested in the other metrics that you cited.

Darren Aftahi

More interested in traffic growth. I heard the revenue.

Rachel Glaser

Okay. So we said, revenue grew 24%. Traffic increased 15%, and transactions increased 18%. And we said repeat customers made up 30% of Society6 customers, and the number of repeat customer transactions grew 25% year-over-year.

Darren Aftahi

Helpful, thank you. And then, Sean, on eHow, it seems like you made progress in Q1 and maybe not so much in Q2. And then July, it seems like things are trending positive. You still have some significant exposure on search with LIVESTRONG. Is there anything specific to the eHow relative to LIVESTRONG where you could implement best practices, or is this just an ongoing issue that's now going to be a thorn in your side?

Sean Moriarty

If you look, Darren, at LIVESTRONG as an example of our ability to really reverse a negative trend and turn that brand and business back into a growing business, that is a playbook that we substantially follow with eHow. It's obvious we've yet to reap similar benefit, but we do believe we're on the right track.

I would say a couple of key areas of differentiation with the business. With eHow, for example, it's broad, spanning 24 everyday life categories. LIVESTRONG has been focused very much on fitness and wellness, number one. Number two, eHow until recently didn't even have tools for engagement of the audience and community, and LIVESTRONG has had a strong community at its core from the beginning.

Thirdly, LIVESTRONG did a good job diversifying traffic, particularly through the email channel, much earlier. And all of those things need to be brought to bear on eHow. eHow was a much bigger corpus of content. We've shrunk it considerably. It's still substantially larger overall; and again, it's broader.

So I think we're on the right track. We've got to continue on the same effort. We haven't diversified audience meaningfully. As you see year-over-year, what we talked about on the call was the diversification of audience to social. But we need to take that further. Then we'll be somewhat buffered from the volatility of search because we're still too concentrated within the search channel. That said, ultimately we believe, if the eHow product deeply engages audiences, not only will we get back to growth through diversification of traffic through other large channels, primarily social, but search should come back, as well.

But we need to position this business such that it is buffered from the volatility that search produces in the present. And I think we're on the right path. We're going to continue to work hard, and I think we'll be rewarded. It's very difficult to call when that will be.

Darren Aftahi

Great. And just a last one from me. On your release, it looks like visits in the content and media business were down 28%. Is that an apples-to-apples number with Cracked backed out of 2015?

Rachel Glaser

No.

Darren Aftahi

What would that number have been apples-to-apples?

Rachel Glaser

You know, I don't have the number in front of me, Darren, but I know we're going to speak a little later, and we can get you that number. I apologize. Let me see, hang on, maybe I have it. Give me a second. So we said - okay, I do have it. I apologize. So the total visits were down 17% versus prior year across all of our existing businesses, excluding Cracked.

Darren Aftahi

Great, thank you. I appreciate it.

Rachel Glaser

On mobile, we were up 4% year-over-year.

Darren Aftahi

Great, thanks.

Operator

This ends the question-and-answer session for today, and this concludes today's conference call. Thank you for your participation. You may now disconnect.

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