MarketWise, Inc. (MKTW) CEO Mark Arnold on Q4 2021 Results - Earnings Call Transcript

Mar. 10, 2022 4:00 PM ETMarketWise, Inc. (MKTW), MKTWW1 Comment
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MarketWise, Inc. (NASDAQ:MKTW) Q4 2021 Earnings Conference Call March 10, 2022 11:00 AM ET

Company Participants

Jonathan Shanfield - Head, Investor Relations

Mark Arnold - Chief Executive Officer

Dale Lynch - Chief Financial Officer

Conference Call Participants

Sam Salvas - Needham & Company

Devin Ryan - JMP Securities

Jason Helfstein - Oppenheimer

Steven Pawlak - Baird

Patrick O’Shaughnessy - Raymond James

Operator

Greetings and welcome to the MarketWise Fourth Quarter and Full Year 2021 Earnings Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jonathan Shanfield, Head of Investor Relations at MarketWise. Thank you. Please go ahead.

Jonathan Shanfield

Thank you. Good morning, and thank you all for joining us on today’s conference call to discuss MarketWise’s full year and fourth quarter 2021 financial results. On the call today, we have Mark Arnold, our Chief Executive Officer and Dale Lynch, Chief Financial Officer.

During the course of today’s call, we may make forward-looking statements, including, but not limited to, statements regarding our guidance and future financial performance, market demand, growth prospects, business strategies and plans and our ability to attract and retain customers. These forward-looking statements are based on management’s current views and assumptions and should not be relied upon as of any subsequent date, and we disclaim any obligation to update forward-looking statements. Actual results may vary materially from today’s statements. Information concerning our risks, uncertainties and other factors that could cause results to differ from these forward-looking statements are contained in the company’s SEC filings, earnings press release the supplemental information posted on the Investors section of the company’s website. Our discussion today will include certain non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, but not as a substitute for or in isolation from GAAP measures. Reconciliation to non-GAAP measures can be found in our earnings press release and SEC filings.

I’ll now turn the call over to Mark.

Mark Arnold

Thanks, John. Good morning, everybody. Welcome to our fourth quarter 2021 earnings call. And without a doubt, this is a landmark year for MarketWise. It was both transformational for our company and highly profitable for our shareholders. Our team delivered record results, and I’m excited to share them with you now. Here are the highlights. Compared to 2020, we grew revenues by 51%, increased billings by 33% and improved our adjusted cash flow from operations by 47%. We also grew our paid subscriber base 13% to almost 1 million subscribers. More importantly, we positioned our business for future success as we now have 12 customer-facing brands, more than 175 products covering a full spectrum of investment themes. And our team is now almost 800 employees strong including almost 100 investment research professionals. Now I would be proud of these results in any normal year, but the fact that we achieved these results in the same year that we took the company public and navigated a once in a century pandemic, makes me especially proud.

From a financial perspective, 2021 proved to be a record-breaking year for MarketWise. Billings for the full year 2021 finished at an all-time high $730 million an increase of 33% over 2020. GAAP revenues climbed to $549 million or 51% higher than the prior year, and adjusted cash flow from operations rose to $197 million, up from $134 million in the prior year for an increase of 47%. We also continue to engage and attract self-directed investors to our research products and software solutions while developing long-term relationships with our growing subscriber community. On a year-over-year basis, we grew our paid subscribers to $972,000, an increase of 13% from the prior year. Combined with our free subscriber base of almost 14 million, our total subscribers grew by 4.3 million people or 41% to almost $15 million in total.

Here are some other notable milestones we achieved last year. First, as we began the year, we experienced tremendous subscriber growth as we capitalized on high levels of customer engagement, moderately priced digital advertising and highly effective product offerings, which combined to produce record-breaking growth in our subscriber base and financial results. We continue to develop new products and add investment research professionals to our company, and we also purchased Chaikin Analytics. And then we successfully integrated that business into our own, providing investors with an additional software tool for analyzing businesses and enhancing their investing activities. The Chaikin Analytics integration into our business is a representative example of the power of adding a new technology product and marketing it to our existing subscriber base. We added more than $26 million in new billings with the new Chaikin brand in 2021 and are hoping for more going forward.

During the spring and summer, we completed our go-public transaction with Ascendant and became listed on the NASDAQ in mid-July. This too was an extraordinary achievement by our team. We also continue to recruit and expand expertise and capabilities to facilitate, support and grow our public company operations in areas such as finance, accounting, compliance and reporting. There was a tremendous amount of work done over the past few years to get us ready to operate as a public company, and that too is a big milestone for us.

Early in the fourth quarter, we entered into a $150 million revolving credit facility with a syndicate of five banks, the first such facility in our history. We also established a $35 million share repurchase program and began executing market purchases during the fourth quarter. We continue to believe that our current share price does not at all reflect the intrinsic value of our company, and we intend to continue purchasing shares when returns realized from those purchases are accretive to our investors as we believe they are now.

During the quarter and for all of 2021, we repurchased just over 0.5 million shares of our common stock at a total value of approximately $3.3 million, which is slightly less than 10% of our total buyback program. With this list of accomplishments, you can see why I would call 2021, a transformative year for our company. You may have noticed in today’s earnings release, we announced that we are not providing forward-looking financial guidance that some companies do. We introduced financial research, as you know, and we know better than most that investor sentiment can change quickly, and that financial markets can be volatile.

We also know that rapid shifts in investor sentiment can impact our business performance in the near term. While those short-term fluctuations can and do occur, we have a long-term perspective and make decisions based on what we think will benefit our owners over time. We know many investors are of like mind and our goal is to attract investors who share our view, investors who are looking for growth and profitability over the long term. Our communications have been consistent with this message as we consciously seek to avoid the pitfalls of managing for short-term gains or unrealistic expectations rather than working towards long-term growth and importantly, profitability.

For those reasons, we are not going to provide detailed forward-looking guidance. I would also add that we believe that the financial markets have become too focused on the short term, and the earnings guidance is a major driver of this trend and contributes to a shift away from long-term thinking. We’ve written a lot about this in our content over the years. Companies frequently hold back on spending, hiring and research and development to meet quarterly earnings forecast. In this vein, we believe providing earnings guidance often leads to an unhealthy focus on short-term profits at the expense of long-term strategy, growth and sustainability. If investors take a multiyear view, we believe they will be very satisfied with the financial results, cash flows and returns of the company here at MarketWise. However, as we report each quarter, expect us to provide a full analysis of operations, periodic updates to current market trends impacting our business and other relevant information such as consumer engagement and general investment interest and activity.

As we look forward to this year, a number of significant opportunities to grow our business stand in front of us by doing a couple of different things by expanding our product offerings by adding investment research professionals, developing new distribution channels and deploying more technology and data science throughout our business. Regarding technology, we’re increasingly looking for ways to marry our research content with technology products like we did with Chaikin Analytics. We believe this is a highly accretive way to expand revenues, create better customer retention and we continue to look for more technology acquisitions in order to expand these efforts.

In addition, we continue to work on the development of our pan-MarketWise information content and fulfillment platform and look to roll this out over the course of 2022. Regarding data science, we’re excited about the work already underway with our partners from Ascendant as we look to employ a higher level of data science throughout our business. We believe that this has the potential to increase conversion rates improved subscriber retention and perhaps expand our distribution channels. We continue to strive to be the trusted source of financial information and a leading financial wellness platform for self-directed investors. Our almost 15 million total subscriber community relies on MarketWise to deliver high-quality and actionable tools and research for navigating the investing world, and we continue to develop and expand the breadth and depth of our products and brands to fulfill that goal.

For over 20 years now, we have been very focused on growth with profitability, and we manage our marketing metrics and financial results to achieve a high return on investment as any good investor would. We believe and have proven that over our long history of profitable growth, this disciplined approach to operating our business produces exceptional results like the results you saw in 2021.

And with that, I’ll turn it over to Dale.

Dale Lynch

Thanks, Mark, and good morning. As Mark just discussed, this has been an extremely busy and successful year for MarketWise, with our company delivering record results, while also navigating a challenging operating environment. In the fourth quarter, we grew revenues, billings and subscribers sequentially, and we saw improved engagement statistics through October and November, but later in the quarter, we saw some lower engagement statistics through the holiday season. We’ll talk more about that in a moment.

During the fourth quarter, our measures of customer engagement indicated some improvement from those of the prior two quarters, which we have previously indicated, we believe are related to reopening of the travel and leisure economy and less emphasis on investing activities. Indications such as landing page visits to our website, including for our front-end marketing campaigns were up early in the fourth quarter and moderated somewhat as we got into the holiday season towards the end of the year. Order form conversions were also – subscribers purchase more content. This is consistent with the market trading data that we track, which indicated an approximate 10% increase in equity trading volumes in the fourth quarter.

In total, fourth quarter customer engagement was down from the prior year’s levels, but up from the third quarter levels. For fourth quarter revenue was $146.7 million compared to $106.8 million in fourth quarter 2020 for a 37.3% increase. The increase in revenue was driven by a $25.7 million increase in term subscription revenue and a $15.3 million increase in lifetime subscription revenue. Billings decreased by $7 million or 4.4% to $151.4 million in fourth quarter of 2021 as compared to 158 million – $158.4 million, excuse me, in the year ago quarter. We believe this decrease in billings was due to a modest decrease in customer engagement as indicated by a 10% decline in landing page visits in fourth quarter ‘21 as compared to the year ago quarter, combined with the decision to reschedule a number of our new campaigns into 2022 for various business reasons. This is not an unusual occurrence as the timing of campaigns is often adjusted in our business. We did, however, see an increase in customer engagement in fourth quarter ‘21 as compared to the third quarter, as indicated by a sequential 13% increase in landing page visits, and billings also increased sequentially by $13.3 million or 9.6% as compared to the third quarter.

In both fourth quarter ‘21 and fourth quarter 2020, approximately 30% of our billings came from lifetime subscriptions, 61% from term subscriptions and 2% from other billings. As Mark mentioned, we acquired Chaikin Analytics in January of 2021. For the fourth quarter, this acquisition contributed $3.2 million in revenue and $7.1 million in new organic billings by selling their products to our existing subscriber base.

Now turning to the financial statements, our cost of revenue was $17.6 million this quarter compared to $85.7 million for the year ago quarter. The current quarter included $0.5 million of stock-based compensation from our new incentive stock comp plan as compared to $70.8 million in the year ago quarter, which was related to our original Class B stock-based compensation. If you were to exclude stock-based comp from cost of sales, sales margins as a percent of revenue would have been 88% this quarter as compared to 86% in the year ago quarter, and generally in line with our historical averages.

As we look at comparisons to prior periods, I should remind everyone that from the time of the combination with Ascendant in July through the end of 2021, there was no stock-based compensation attributable to our original Class B units recognized. Prior to the transaction, these units were treated as derivative liabilities rather than equity. As such, they had to be remeasured each quarter and the change in fair value was included in stock-based compensation. Also, any distributions of profits paid to Class B unitholders were treated as stock-based comp expense. Since the transaction and going forward, as those original Class B units converted to common units or straight common equity. We expect to increase significantly lower stock-based comp at a level that would be consistent with the traditional stock-based compensation plan for our employees.

For fourth quarter 2021, and as a result of our new 2021 incentive award plan, our total stock-based compensation was $2.3 million. Sales and marketing costs were $65.7 million this quarter compared to $67.8 million in last year’s quarter, a decrease of $2.1 million. Included in these amounts for stock-based compensation of $0.6 million this quarter as compared to $7.4 million in the year ago quarter. Now excluding the stock-based comp expense numbers, Sales and marketing expense increased by $4.7 million, primarily driven by an increase in headcount as well as an increase in direct marketing expenses.

General and administrative costs this quarter were $31.8 million as compared to $325.7 million in the year ago quarter. Included in these amounts were stock-based comp of $1.2 million this quarter as compared to $302.8 million in the year ago quarter. Excluding stock-based comp, our G&A costs increased about $7.7 million year-over-year, primarily driven by a $3.1 million increase in headcount and cash incentive comp and $1.4 million in travel costs primarily related to our annual conference.

So for earnings, net income in the fourth quarter of 2021 was $35.9 million compared to a $375.4 million net loss in fourth quarter 2020. We recognized stock-based compensation expenses related to the new incentive award plan of $2.3 million in fourth quarter 2021, and stock-based compensation expenses related to the original Class B units of $381 million in fourth quarter 2020. Excluding the stock-based compensation numbers, the increase in net income this quarter was primarily due to the $40 million increase in net revenues.

Now significantly, we continue to focus on cash flows and therefore, our non-GAAP measure as adjusted cash flow from operations. To be clear, this metric only adjusts for stock-based comp expense associated with our old Class B profit distribution historically as well as any unusual or non-recurring items. But from the time of the transaction and going forward, this metric will only adjust for any unusual or non-recurring items. Adjusted CFFO was $5 million in fourth quarter of 2021 compared to $16 million in the year ago quarter, with the decline primarily due to a decrease in billings as well as a modest increase in marketing. Adjusted CFFO margin was 3.3% in fourth quarter 2021 as compared to 10.1% in fourth quarter 2020. For all of 2021, our year-to-date total adjusted CFFO was $197.1 million as compared to $134.3 million for all of 2020, a 47% increase. Adjusted CFFO margin for the year was 27% compared to 24.5% last year.

Now turning to a few KPIs. Our paid subscriber base grew from 857,000 at the end of 2020 to 972,000 this quarter, which represents a 13.4% increase year-over-year. We saw our free subscribers increased from 9.5 million a year ago to 13.7 million at the end of 2021, a 43.8% increase.

Turning to ARPUs. ARPUs declined slightly to $742 from $759 last year, which is to be expected as we grew our subscriber base significantly during the year. The modest year-over-year decrease was driven by a 36% increase in the trailing four-quarter average paid subscribers in 2021, which slightly outpaced the increase in trailing four-quarter billings of 33% for the year. The increase in trailing four-quarter average paid subs in 2021 was largely due to the rapid increase in our subscriber base in the first quarter of the year. Most of our new subscribers join us on an entry-level publication, which are generally at lower price points and thus are initially dilutive to ARPU.

We have shown that over time, these subscribers will continue to invest in our platform by purchasing higher end subscriptions, which then tends to drive increases in ARPU. As of year-end, we have 19% and 32%, respectively, more high-value and ultra high-value subscribers than we did a year ago. Sequentially, paid subs increased by 7,000 to 972,000 in fourth quarter. As discussed on our last earnings call, we began to see increased customer engagement in October and early November as subscribers began to emerge from the travel and leisure room that seem to affect the summer months. As we get further into the quarter, however, we saw a decline in engagement around the holiday seasons, perhaps due to a similar travel and leisure affect that we saw throughout the summer. Overall, for fourth quarter, engagement as measured by landing page visits was up 13% sequentially, as I mentioned.

As Mark mentioned earlier, we are not providing 2022 financial guidance. We believe providing guidance is contrary to our operating philosophy of balancing long-term growth and profitability, but always with an eye towards profitability. We will, however, continue to provide quarterly and annual financial results, obviously, as we’ve done. And with a full analysis of operations updates to current market trends impacting our business and any other relevant information that we believe will be helpful and insightful to investors. As we’ve discussed many times, our operating model is based on flexibility and adaptation to current market environments.

This basic tenant allows us to be nimble with our subscriber campaigns and marketing spend, being more aggressive when costs are low, and engagement is high and pulling back on marketing spend in times that are less favorable. We do this with the goal of preserving profitability and maintaining our return on marketing investment. We believe issuing short-term guidance can provide the wrong incentive for managing these dynamics, potentially inducing behavior to achieve guidance or make our numbers as opposed to actually doing this right for the business for the long-term. While we’re not providing 2022 guidance, some general thoughts are still important. First quarter 2021 was a record across all metrics and our business is not linear quarter-to-quarter, as you’ve seen. Therefore, we do not expect to show year-over-year growth versus first quarter 2021.

As we saw in 2021, similar to most direct-to-consumer businesses and perhaps due to post-COVID influences, our business was impacted by unusual amounts of lower customer engagement around the summer months and December holidays as customers resume travel and leisure. And this serves as a case in point of why we want to maintain our freedom to operate our business truly for the long-term, and in a market where investment themes are in flux and there has been volatility in customer engagement and unit costs. Therefore, it’s especially important to reserve this latitude and stay true to our long-term philosophy.

I would like to reemphasize the point that Mark made earlier. We would like to attract long-term fundamental investors to seek a proven combination of growth and profit that we’ve generated for more than 20 years. If investors take that multiyear view, we believe they will be very satisfied with the financial results, cash flows and returns of our company. Furthermore, while we’re not providing guidance, we believe that providing investors a view as to any potential tax distributions that we may have to make in 2022 will be helpful in making assessments as to fundamental cash flows generated and retained by our business.

Therefore, we are providing an estimate as to what those potential distributions may be for tax liabilities in 2022, which we estimate to be between zero and $10 million. Before I wrap, I want to touch on our share repurchase program that we announced last quarter. As Mark mentioned, we repurchased about 500,000 shares for about $3.3 million, leaving us with about $31.7 million remaining on our program at the end of the year. We continue to be active in the market as we see the value of our shares to be well, well below that of any fundamental valuation of the company. And through the end of February, we purchased an aggregate total of 1.6 million shares at a total value of approximately $9.7 million.

In closing, I’d like to reiterate that 2021 was indeed a landmark year for the company. We took the company public in its volatile markets, delivered all-time record financial results and position the company for attractive future organic and inorganic growth opportunities.

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

Mark Arnold

Thank you, Dale. When I reflect on all of our accomplishments last year, I’m very proud of what we’ve done, and I’m confident that we will put together a strong foundation from which to execute our strategic plan and drive the next stage of our company’s growth. And as we’ve moved into this year, I’m very excited about our plans for organic opportunities for growth this year. And we, as you know, have had a very acquisitive history. As we enter this year, we see a number of attractive potential opportunities on this front. Our new status as a public company is certainly facilitating more of these introductions and conversations. Having said that, expect us to be disciplined on valuation multiples and not lose sight of our strategic objectives.

Before we take your questions, I want to take one quick moment to thank everybody in the MarketWise organization. All our employees, our partners and affiliates who worked so hard over this past year to get to this place. This is a truly remarkable year, and there is a lot to be proud of as we look forward to the future. And most of all, I want to thank our subscribers. Our relationship with them, we believe, is our biggest asset, and none of this would be possible without them.

I’d now like to turn the call over to our operator for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question today is coming from Kyle Peterson of Needham & Company. Please go ahead.

Sam Salvas

Hi, good morning. This is actually Sam Salvas on for Kyle today. Thanks for taking the questions. To take things off, I was wondering if you guys can provide some commentary around what you’re seeing across some of the core KPIs like billings, subscribers, traffic year-to-date, especially given the market volatility in recent weeks with some of this geopolitical uncertainty going on over in Eastern Europe. Thanks.

Mark Arnold

So are you talking post D31? Is that what you’re saying?

Sam Salvas

Yes. Just over the past few months.

Mark Arnold

Yes. So look, I mean, I think that like if you step back and from the trees and try to gave the forest, what we told you was that summer months were tough for all B2C companies in many regards, engagement was down, right? What’s interesting is – and we’re seeing this in States, very interesting dynamic. Engagement has been volatile this year, but our conversion rates have been pretty good. Even when engagement is down, our conversion rates are pretty static and actually improved a little bit in the fourth quarter. So the driving force here is not so much eroding conversion rate, it is the volatility that we’ve seen in engagement. That’s point one. That’s really important to keep in mind, okay. Engagement steadily fell Q2 and then sell further still in Q3. And then in Q4, the first half of Q4 was up relatively 20%, I guess, versus the prior 5 months. And tailed off a bit into December and December look more kind of like quite as bad as late summer, right? Now if you look post December, I mean, just generically, you can look at trading volumes, and this is an interesting proxy, the stuff – the data that we look at is all public. We look at average daily trades for a given metric. The average daily equity trades that we saw in January were maybe 13% from the fourth quarter average. And then in February, they were down again mid-single-digit percentages. So you’re seeing some volatility in trading volumes.

And I would look at that as a reasonable proxy for it may or may not be happening with our landing page visits. I mean that’s a decent thing to look at to say what might be happening with our engagement. I really can’t give you our engagement statistics post D31. But I’ll tell you that trading volume metric is a decent proxy for that. So a little bit better in January, perhaps a little bit worse in February. But yes, engagement seems to be, is still bumping around, right? So that’s hard to put your finger on. And as Mark said, look, a 100-year pandemic, we are seeing the shake out of this across the world, right? And then on top of that, you’ve got inflation, you’ve got oil prices, you’ve got geopolitical conflict. So there is just a lot of things that are in flux. And I think long term, we all have to have the view that we’ve seen some things in the past, including the financial crisis that we’ve navigated quite well. And in the end, our ability to flex, adapt, move on and succeed for the long-term has been what’s made this business model so resilient. So lots of things that we’re working on, but we continue to expect there is going to be volatility engagement for at least the next several months as we kind of get through what may or may not be happening in Europe and if we can get some stabilization in energy prices. But from a research perspective, expect that all of our investment professionals are nimbly adjusting to what’s going on in the markets right now in writing content that will be relevant for investors to try to protect them in volatile times and help give them investment ideas that aren’t normally your standard sort of melt up easy-peasy investment ideas, right? So hopefully, that answers your question.

Dale Lynch

Yes, that’s right. I would just add that what’s key from our perspective is that we’ve got a full suite of products that cover a full spectrum of investment strategies. So while the markets may ebb and flow over time and they do. What’s key for us is that we have a broad variety of products that cover investment themes applicable to the times that we’re in. That’s what’s key from our standpoint.

Sam Salvas

Got it. Thanks for that commentary. That’s super helpful. And then just a quick follow-up on capital allocation. And thanks for the update on the buyback there, too. As we head into 2022, how are you guys thinking about balancing free cash flow use between the buyback, organic investments in content and writers and M&A.

Mark Arnold

Yes, that’s a great question. Go ahead, Dale. You want to go first?

Dale Lynch

I was just going to talk through the corporate financing part, which is, look, the buyback is highly accretive and makes wild sense to continue doing that. So that’s point one. Expect us to continue doing that. Our stock is – we’re trading at 3x revenue, I think, something in that order, maybe less now. So expect us to do that. We will always look for what is the best use of our cash from a corporate finance perspective. We do want to continue to build some cash. We want to be active on the M&A front, and that’s probably a good segue to you, Mark.

Mark Arnold

Yes. I love this question because we think about it a lot. Capital allocation is one of the most important things we can do. And to that end, we think of our business kind of like partners do a long-term partnership. And because of that, and you’re getting a flavor for that in our decision, not to your guidance, we have the long-term view in mind. And so when our management team makes decisions about capital allocation, what we usually choose to do is what we believe are in the best interest of our owners over a period of years, not necessarily months. So we frequently, every day, make decisions that might limit our growth and profitability in the short term, but that we believe are best for the long-term interest of our shareholders. And candidly, we want to attract like-minded shareholders. Folks that don’t measure their investment time horizon in days or months, but more years. And so that – when we think about capital allocation, we’re very well aware. And because we think like long-term partners, we know we are in business to ultimately provide a return to our investors and our owners in return for their faith and trust and us as capital allocators. And we’ve got a 20-year track record of doing that with both growth and profitability but we don’t think about short-term fluctuations when we make those decisions. What we’re trying to do is make sure that the decisions we make are accretive to our owners for the long-term. So I don’t know if that’s specific enough for you, Sam, but – that’s how we think about it. That is why we put the buyback program in place. And over time, we will keep that long-term interest of our owners in the front of our mind like we always have.

Sam Salvas

Yes. Awesome. That’s super helpful. Thanks, guys.

Operator

Thank you. The next question is coming from Devin Ryan of JMP Securities. Please go ahead.

Devin Ryan

Great. Good morning, Mark and Dale. How are you guys?

Mark Arnold

Hi, Devin.

Devin Ryan

First question here, just on subscriber growth over the past 2 years. So you nearly doubled subscribers. And I appreciate the comments that people come in kind of at a lower end subscription. And then over time, they will often kind of increase to a higher value subscription of the firm. I guess, how should we think about kind of this cohort, just given the step function that you saw really over the last 2 years. Are you starting to see conversion from kind of people that came in, in early 2020? Or what’s the time frame of that? And what are you guys doing to drive these subscribers from a, call it, lower value to a higher value?

Dale Lynch

Look, it all comes back to what I said 5 minutes ago, Devin, around content, right? You have to have content that resonates that’s relevant that helps protect your customers and/or make the money, right? I mean there is defensive ideas and offensive ideas. And with the markets in the state that they are, our investment professionals have to be very nimble. That is job one, right? Absolutely. So we have to have content that resonates. So know that we’re doing that. Now having said that, when things are changing so rapidly, right, you have to give some acknowledgment of – it takes time to develop and write and research and produce and record and launch a new investment idea. That might take a couple of weeks or it might take a couple of months, depending on the nature of it. So with that volatility, there is going to be some adjustment and new themes, but you have to have the content first and foremost.

As far as like the cohorts and so forth, we don’t necessarily get into cohorts, but I get the thematic gist of your question, which is you’re saying, look, we have these subscribers that came in, in 2020 was the go-go year. The first quarter this year was obscene, it was incredible, right? And then you saw a slow down in a modest recovery in the fourth quarter. What you’ll see is that if you look – if you were to see cohort data, right, it’s not a casting stone sort of thing. In other words, you may have a cohort in particular, it starts in 2020 or 2021, let’s say, 2021. And its revenue build might have a flatter slope to it initially. And you say, well, this is going to be a bad cohort. This was cohort Q2 of ‘21, Q3 of ‘21. It’s a bad cohort. That’s not true. If you look at our data over time, you’ll see that there is a lot of flexing. You’ll see inflection points in those converge cumulative conversion lines in those LTV lines, and it’s driven by a number of things: content, market environment, engagement, all those sorts of things.

So I wouldn’t get overly wrapped around the axle a, round the fact that, well, second to third quarter weren’t great to work for us. That’s why we reduced the spend, so we manage the cost longer term. We know we’re going to get those folks to engage in significant enough of them financially to continue to purchase product from us that we will get back into line with our 20-year history. And we’ve seen that time and time again. So I would look to the long-term metrics. And if you look at our deck in our K that we filed today and you look at some of those, we give you those charts with the cumulated conversion. And you can see those numbers. If you divide those numbers by 3, you’ll get to the annual conversion rates. If you were to take all our cohorts guide, by definition and average them, you get those numbers, and yes, there is a distribution, but we have 20 years of data. So anyway, it all comes back to content being smart on the cost side upfront and not blow your economics out of the water and then continuing to write good content over a long period of time.

Devin Ryan

Yes. Okay. Terrific. Thanks for the color, Dale. And a quick follow-up here, just a lot of conversation on M&A opportunities and I know that’s an area that’s been a focus for the company, and I’m sure the conversations are occurring. When we look at just the market dynamics, you clearly – there is been kind of a revaluation across the board in the public markets. And so I appreciate comments about MarketWise stock and we agree. Are you seeing any change in expectations in the private markets in terms of whether it’s content sellers or technology and – is the bid-ask spread really wide right now or are expectations may be shifting given the recent market pullback?

Mark Arnold

Yes. That’s a good question, Devin. I’m glad you brought that up, and you’re right. As valuations have sort of peaked and come down off those peaks, we’ve noticed too. And that’s definitely an environment that we are more excited about because from our view. We’ve seen a lot of properties, but there were a lot of really high valuation expectations and the conversations we’ve been having and especially so in private context where you can’t see what your equity is worth every day like you can with us. And so we’ve seen that. And I think that’s a more attractive environment for us. We’ve had a number of discussions recently that we’re excited about, and that valuation dynamic is one that is helpful. Now of course, we can’t comment on specifics. And of course, each party we talk to has a different view on that. Some people are little more stubborn and slow to react to the true market environment. So – but certainly, we’ve seen that dynamic play out.

Devin Ryan

Okay. Good to hear. I will leave it there. But really appreciate it, guys.

Mark Arnold

Yes. Thanks.

Dale Lynch

Thank you.

Operator

Thank you. The next question is coming from Ygal Arounian of Wedbush Securities. Please go ahead.

Unidentified Analyst

Hey, this is Chad on for Ygal. So the past few quarters, you’ve discussed higher CPMs in the marketing environment and not pushing unprofitable spend. Can you maybe update us on the current environment and how you’re approaching marketing spend? And then maybe thinking about the rest of the year because 2020 and 2021 experienced strong tailwinds and then some headwinds from COVID and a strong stock market? How should we maybe think about a more normalized environment for business?

Mark Arnold

Yes. So Chad, that’s – at some level, we would like to answer that question, too. What we saw at the end of the year, fourth quarter, if you will, again, we don’t disclose CAC. But anecdotally, what we can say is we told you definitively, Q2 unit costs went up. In Q3 they remain elevated. In Q4, they came down. They came down mid-low teens percentages. That was good. They are still pretty elevated to what they were, say, in 2020. But we can have good quarters and generate really good earnings. We can live with escalating CAC through time. So, that isn’t really the limiter for us. What we need to do is produce good investment ideas make sure that we are not blowing out a particular campaign whose unit costs aren’t resonating. It’s not working, right. We have to manage that on a campaign-by-campaign basis. And our marketers are very good at that. So, we have to manage our costs, make sure that we have investment ideas that are going to resonate in today’s markets. And that may change from three-month to three-month segments throughout the course of the year. We are planning for CAC to remain elevated, like our model is not going to be dependent on CAC falling 20% or 30%. Our model can accommodate to that. We can make that up with conversion rates, good ideas at some level pricing, right. But the key is good content and being very disciplined on a campaign-by-campaign basis the button of blowing at your cost. The breakevens on those cohorts in the second and third quarter will take a little bit longer, right? But the good news is you spend way less money in this cohort, so they are underweighted on a weighted average dollar basis. Coming into the first quarter, we will have to see how things shake out. As I mentioned a few minutes ago, there is still volatility on engagement up one month, down the next, and we will see how that continues to play. But – yes. I mean some uncertain, but it’s up to each. The good news is we have a very decentralized platform with each of these marketers able to manage their campaigns as they know how to invest. We are not telling them how to do it. We don’t know how to do it, they do it, right. So, we have 100 investment professionals and a couple of hundred marketers working on this. And in the end, I think at the end of the year, we will have a balanced cost with revenue and maintain a good revenue profit profile with the revenues that we produce.

Dale Lynch

Yes, that’s right. And I would just add to that. This goes back to Sam’s capital allocation question. To us, that marketing spend is also part of the capital allocation decision that we make as managers. And so we do what we think you all would do if you own the business, which is when it becomes cheap or cheaper to acquire subscribers, we do it more. And when it becomes really expensive to acquire subscribers, we do it less and back off, always with the mind of growth, but also profitability. So to us, that’s just another capital allocation decision that we make using our marketing expense that has necessarily our balance sheet.

Unidentified Analyst

Okay. Thank you.

Operator

Thank you. Our next question is coming from Jason Helfstein of Oppenheimer. Please go ahead.

Jason Helfstein

Hi guys. Let me follow-up on the marketing question, then I have got another one. So, this was the worst, at least from the way numbers on the page, this was the worst mark and efficiency quarter, I think, in like seven quarters or eight quarters. So, if we are just thinking about all of ‘22 and we are thinking about sales and marketing as a percent of billings, I mean, do you think you guys can kind of bring that ratio in line with where you were in 2021, or should we just assume that this is going to be kind of a deleverage year for sales and marketing as a percent of billings. And then a follow-up.

Mark Arnold

Jason, can you – I am sorry, I am not sure I am tracking that. Can you repeat the first part of that question again?

Jason Helfstein

Yes. So, if you look at sales and marketing, excluding ex stock-based comp, as a percent of your billings, right? It was 43% in the quarter, which I think was probably the highest ratio in like eight quarters or something like that, right, just reflecting lower efficiency in period, right? And obviously, one quarter doesn’t give the answer or agree with that. You are running a business over time. But understanding that you are not giving us guidance for EBITDA or other things for 2022, can you at least let us know how you are thinking about sales and marketing efficiency for all of ‘22? Do you expect sales and marketing to show comparable ratio to ‘21 improving leverage or deleverage?

Mark Arnold

So, a couple of concepts on that, that are important. You are kind of linking two things, Jason, that aren’t directly related, okay. Meaning that the marketing spend that we have isn’t necessarily tied to billings. I mean the way we look at its efficiency, if you look at the number of new subscribers that we acquired in the quarter, okay. The billing – and keep in mind, when we acquire them, it’s probably $100 revenue event for each of these new guys, right. So, it’s not going to drive billings a whole lot. The billings needle begins to move in the subsequent 3 months, 6 months, 9 months, 12 months after that as they buy their second, third and fourth publications from us. So, there will be a lag. There is a time lag for it, right. If you look at the efficiency, the actual results in the fourth quarter were the best results since the first quarter by a wide margin in terms of our unit costs. We produced 20% more gross adds in the fourth quarter than we did in the third quarter. That’s a huge, more than 40%. That’s a huge step up and the unit costs were down 13% sequentially from Q3 to Q4. So efficiency-wise, I think that’s the way I would think about it is to kind of estimate our churn, and we have told you our churn is around between 1.8% to 2.2% or 2.3% historically over the past 3 years. And we have also told you we are kind of at the high end of that range. So, you can get pretty close on what our gross adds were. That’s the way that we think about efficiency, not as a percent of billings. The billings is going to be driven by the back-end conversions when they buy that next publication at $1,000. But as far as your broader question around returning to 2020, we will have to wait and see, right. I mean it’s going to be predicated on some of these global events, right. Right now, we are tracking at a decent rate. We are not going to – we have already told you, first quarter ‘21 is a record number, don’t expect that, right. And with the volatility that we are seeing in the market, expect there to be ups and downs. The key for us is more content, continuing to grow organically, hire more folks, spend wisely, control costs and manage for profit. The growth will come and it will come with good ideas, right. We can handle the elevated CAC. Our internal forecasts are not – I will be crystal clear, are not dependent upon CAC coming down. We continue to forecast escalating CAC year-to-year-to-year in our forward-looking 5-year model. We always do.

Jason Helfstein

Okay. Then just a follow-up, it sounds like focusing on landing page visits and the change in that is maybe a helpful way to think about the business. And so you gave it out on the third quarter call, you just gave it on this call. Can you perhaps put on your website kind of that historical data and maybe that’s something – those of us who are trying to model this perhaps can use to think about. And then the other thing is it seems like this business obviously is getting back to some kind of normal seasonality. And so I mean thinking about the business, I mean you are talking a lot quarter-to-quarter, but shouldn’t we all start thinking about the business more on a year-over-year basis in this idea of like we start kind of normalizing people’s behavior. And as a result, you are always going to have maybe weaker periods when people are likely to take more vacations, etcetera, is just starting to go back to thinking about the business on a year-over-year basis.

Dale Lynch

Definitely, that’s right, thinking about the business on an annual basis. And I do feel like the COVID influence is waning here, I think, unless there is some big foot yet to drop. So, I think maybe those large whipsaws in engagement will gradually fade a bit. And maybe there are some seasonal patterns, although if you look in Decembers past, we have had some really huge Decembers because we have had good campaigns launched with the right idea at the right time at the right price at resume. So, I mean there could be some seasonality and for the near-term, like this year, as COVID continues to shake itself out of the system, I might expect that to continue to be a factor. I traveled this past weekend and every part of garage in Rygge Airport was filled. I have never seen that before, A, B and C. So, that travel dynamic might persist a bit here in this year. But think of the business over a long-term period of time, if you sort of say, well, let’s maybe average like what ‘19, ‘20 and ‘21 look like, that’s a 3-year view, guys. If you take kind of an average view and you say, okay, now let’s say we can continue to grow our subscriber base through time. We take some of these other average profiles. That’s all I would think about the business, if I were you, is a multiyear average view with some view as to what you think we are going to grow our subs and with some view as to what you think our ARPUs might be. And those tend to be lower volatility numbers in terms of the percentage growth rates. Billings can be very volatile as you have seen, right. But you are right, multiyear view, thinking of averages and then you have a long-term view on things like ARPUs and paid sub growth and those sorts of things. So, I think that’s the right way to look at it.

Jason Helfstein

Thanks.

Operator

Thank you. Our next question is coming from Jeff Meuler of Baird. Please go ahead.

Steven Pawlak

Hi. It’s Steven Pawlak on for Jeff. Thanks for taking the questions. I was hoping to get some more detail around sort of the things that you are working on with Ascendant to either improve or change your go-to-market and marketing strategy. And I guess is that more focused on the acquisition – customer acquisition side, or is that really benefiting the up-sell to the higher-value subscriptions?

Mark Arnold

Yes, I will take that one. Yes. The guys at Ascendant have been great so far. I have said that a number of different times throughout the past year. They have been really, really great partners for as long as we have known them. And part of that partnership is discussions that we have had around how we can prove our data science, AI and ML efforts. And so I am happy to report that that progress has been going very well. We are in the early phases of upgrading our skill set around those areas. And to your question, it’s all the above. For sure, we would like to improve the efficiency of our front-end marketing but also some of the sales efforts that we have to our current subscribers and what comes out of that. We are doing all of that in an effort to experiment and improve on our already efficient business model, but we think it’s possible because the better and better we get to understand the buying behavior of our customer base. And remember, we have got 20 years at this. So, we are pretty good at it already. But if we can improve on that, we think that will result in even more efficiencies to our business model that already has high operating margin and in our view, high net income margin. So, we are making nice progress, and we will continue to do so throughout the year. It’s a high priority for me.

Steven Pawlak

Thanks. And on the pan-MarketWise terminal platform, what still needs to be done in order to launch that product fully? And then sort of what’s the go-to-market around that? Is that sort of built into subscriptions, or is that sort of an add-on offering that’s incremental?

Mark Arnold

Yes. We have made significant strides since we spoke to you last, with that pan-MarketWise product. We – what’s happened more specifically is we have launched the platform itself, which as I have described in prior calls, is we were doing some work behind the scenes. I think I called it changing some of the plumbing. But we launched that reformatted platform in one of our brands in Q1. That’s going nicely so far. They are still working out some of the bugs in that re-plumbing and then they are planning on expanding it. They have tested the ability to integrate the additional affiliate content into the environment. And the idea is that going forward this year, we will do that. And specifically, what we are trying to do is lower new subscriber acquisition costs through this digital channel and platform. And so our hope is that we will attract traffic of our own organically in ways that we haven’t really done much before because most of what we have done is the direct marketing base. But we think if we had a platform like that, we could decreased our customer acquisition costs even more as people start to understand the quality of the content and the breadth of the content that we have got across that platform. So, we are making nice progress, not as fast as I would want, but I do expect by – at some point this year, hopefully, the sooner the better we will launch that platform across all of our brands.

Steven Pawlak

Thanks.

Operator

Thank you. The next question is coming from Patrick O’Shaughnessy of Raymond James. Please go ahead.

Patrick O’Shaughnessy

Hey. Good morning. On your third quarter earnings call, you guys said that MarketWise will come out with 2022 guidance in the fourth quarter cycle, and you would have a lot more specifics to say then. What changed in your thinking over the last three plus months such that providing guidance is no longer appropriate?

Dale Lynch

Do you want to take that, Mark, or do you want me to...?

Mark Arnold

Sure. Sure. Yes, I am happy too. Yes. We have had conversations over the whole year about what our stance on guidance would be. When we went public, the SPAC, that gave us more latitude to project out into the future. We declined to do so even though a lot of other SPAC businesses chose to paint rosy 5-year pictures. That’s never really been us. That’s not what we have done. And so we were putting out some metrics over the course of last year that we were comfortable with. But ultimately, it just came down to a philosophical choice. In our experience, business in general and specifically, doesn’t move in a straight line. The world’s financial markets are ever shifting. We have seen a lot of that lately with Russia’s invasion of Ukraine and economies move up and down in cycles. What we try to do as managers is make decisions that we think will benefit our owners over time. And so that’s our philosophy. But that’s also consistent with the investors that we are trying to attract. So, as we face the question of philosophical guidance, what we wanted to do is basically take the temptation out of our hands to make decisions in order to “make earnings,” which we know a lot of people fall prey to. And we wanted to make sure that we have the discipline to keep a long view in mind. We understand that those short-term fluctuations will happen. That’s part of business, for sure. But we try to maintain the discipline to make sure we are making decisions that are accretive to our owners over the long-term, measured in years, not months or days, as I said earlier. So, it basically just came down to a philosophical choice, Patrick.

Patrick O’Shaughnessy

Yes. No, I appreciate that. And I think that there is certainly logic behind that philosophical choice. But that wasn’t your philosophy three-plus months ago. And so I think there is a reason to suspect, hey, maybe the philosophy changed just because that 2022 guidance won’t have looked particularly good.

Dale Lynch

So, let me add to that, Patrick. So, just a little color. When I interviewed here 3 years ago, I made a three-hour presentation to the Board, and it was the investment thesis on the company. And I got peppered with questions around guidance because the talk was to go public. And there was – and you can tell the angle of the questions were all the – they were philosophically absolutely against providing guidance. And frankly, I have been – I have never been at a place that had provided guidance either. So, I tended to be aligned with their thought process. As you get into the go-public process and it’s back – you have to put forecast in your S-4. So, we did all of these things that the bankers kind of said, you need to do this. It’s kind of against our DNA. We did it. To be candid, you kind of get sucked into that vortex for a period of time. And you kind of say, okay, but is this the right long-term answer for the company, yes, they are in our S-4. We have gone public. We had a good year. But philosophically, should we try to right size and correct and do what we actually feel in our heart is the right thing to do. So, there was a lot of conversations. We have been working on this for months with Mark and others, our consultants, bankers, advisers, and we just decided to say, you know what, you can’t wait into it because then it’s really hard to take away. So, we are going to make the plunge now. We are going to stay true to ourselves now, yes. I know it’s hard. It feels a bit uncomfortable. We get it. It was a big decision. But we think we are making the right decision for the long-term. So, I just – I mean that really is – that’s the genesis of this discussion in the decision. That’s really the background. There is really nothing more to it than that.

Patrick O’Shaughnessy

Got it. And I appreciate that commentary. And then so not thinking about 2022 specifically, but about the long-term that you guys are trying to plan for and prepare for and grow over during the go-public process, you guys were talking about MarketWise being a Rule of 50 company. A combination of revenue growth plus adjusted cash flow from operations margin in the 28% to 33% range, do you guys still believe that’s a reasonably achievable goal over the long-term?

Mark Arnold

I think the concept is very valid, growth and profit balance, but with a particular eye towards profitability. We keep trying to emphasize that last part because that is how we have always run the business. So – but if you take those actual numbers and you say them, then it turns into guidance, right. And we are not going to provide guidance. So, if you take the philosophy and extend that forward without the numbers, yes, that would be – we want to balance growth and profitability with an eye towards profitability. That part is solid. But saying those other numbers out loud, then it turns into guidance immediately, your kind of – it’s a little schizophrenic.

Patrick O’Shaughnessy

Okay. Thank you.

Operator

Thank you. At this time, I would like to turn the floor back over to Mark Arnold for closing comments.

Mark Arnold

Yes. As I have said before, and I will say again, I am tremendously proud of our accomplishments last year as a transformational year and a highly profitable one for us and one that we are – we cannot be more proud of. And so I am just very grateful to our readers for having been good to us, and we, I think are good to them. And I want to once again express my appreciation to the team here at MarketWise, who did a tremendous lift to get us to this place, and we are very much looking forward to what happens from here because we see tremendous opportunities in front of us. And with that, I would like to thank everyone for their participation in today’s call and your interest in MarketWise. I hope everybody has a great day.

Operator

Ladies and gentlemen, thank you for your participation. You may disconnect your lines and log off the webcast at this time and enjoy the rest of your day.

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