IAC/Interactivecorp

NASDAQ:IAC

Earnings Call Transcript 2018-Q4

[Operator]

Good day, and welcome to the ANGI Homeservices Fourth Quarter 2018 Results Call. I would now like to turn the conference over to Mr. Glenn Schiffman. Please go ahead, sir.

[Glenn Schiffman, EVP and CFO]

Thank you, operator. Good morning, everyone. Glenn Schiffman here, and welcome to the ANGI Homeservices fourth quarter earnings call.

Joining me today is Joey Levin, Chairman of ANGI Homeservices and CEO of IAC; and Brandon Ridenour, CEO of ANGI Homeservices. Joey and I will also address any questions you may have on IAC’s fourth quarter results. Similar to last quarter, supplemental for quarterly earnings releases, IAC has also published its quarterly shareholder letter. We will not be reading the shareholder letter on this call. It is currently available on the Investor Relations' section of our website. I will shortly turn the call over to Joey to make a few brief introductory remarks and then, we'll open it up to Q&A.

Before we get to that, I'd like to remind you that during this call, we may discuss our outlook and future performance. These forward-looking statements typically may be preceded by words, such as we expect, we believe, we anticipate or similar such statements. These forward-looking views are subject to risks and uncertainties and our actual results could differ materially from the views expressed today.

Some of the risks have been set forth in both IAC and ANGI Homeservices' fourth quarter press releases and our reports filed with the SEC. We'll also discuss certain non-GAAP measures, which, as a reminder, include adjusted EBITDA, which we'll refer to today as EBITDA, for simplicity, during the call.

I'll also refer you to again to our press releases and the Investor Relations section of our websites for all comparable GAAP measures and full reconciliations for all material non-GAAP measures.

Now, let's jump right into it. Joe?

[Joey Levin, Chairman, ANGI Homeservices and CEO, IAC]

Thanks, Glenn. We're now up to almost 8,000 employees at IAC and I just want to thank all of them for another great quarter, which capped I think the best year in IAC's history. And it's fun to be a part of it and fun to have everyone among those 8,000. We have lots to look forward to at IAC right now, and so I want to get to questions quickly so we can answer on what that looks like.

And with that, I'll turn it over to questions.

[Operator]

[Operator Instructions] We will now take our first question from Dan Salmon from BMO Capital. Please go ahead, sir.

[Dan Salmon, BMO Capital]

Good morning, everyone. Joey, a couple for you. First, there's a really interesting line in the letter here with regard to ANGI Homeservices where you talk about wanting to become the one stop hub for managing their home. I think in a lot of different businesses from utilities to ISPs to smart home technology that could use that type of phrase. Obviously, ANGI Homeservices focuses on your physical home traditionally. You've also added a business here with warranties. Could you talk a little bit more about that vision that you have for a one-stop hub for managing the home? And then, just a second one, I think next year, your ad partnership with Google is coming up for renewal. I would love to hear maybe just some precision on the timing of that and what you think is important for investors to focus on that? Thank you.

[Joey Levin, Chairman, ANGI Homeservices and CEO, IAC]

Sure. First question, Dan, is probably best for Brandon to answer, but I'll give it a second -- take the second question and turn it to Brandon. When you think about the home, it’s this massive investment from -- by a consumer, really significantly more than their net worth, and it's something that the vast majority of people have no experience doing, whether it's the financial component, certainly the repair components, maintenance, things like that. And we think that given our position in the market in terms of being able to help them prepare, help them understand the products that are in their homes, the products that comprise their home that we can add a lot of value to the consumer. I do think that we’ll tie in -- I am being a little bit vague here, but I do think that will tie in with the acquisition we just made on the warranty side, and offering consumers warranty. But, there will be a time we believe in our future where a consumer can come to us through our apps and manage the significant components of their home through their relationship with us. And that's what we're trying to build in kind of one piece at a time.

Let me answer the second question and then turn it to Brandon. The current Google Search deal expires in March of 2020, so about a year from now. But, as we have typically done, we started that process much earlier and we are now in a position where I think actually coincidentally we just sent a signature page over to Google on an extension today or this morning or yesterday or something. So, we are -- we'll make a filing as soon as that becomes official. I’ll get to them the next week or so. And that's a three-year extension on that deal. That's been a great partnership for us; that's been a great partnership for Google. I think, it's probably generated well over $10 billion of revenue between the companies over its probably close to 20-year history now. And that is an important piece of revenue for some of the businesses within our emerging and other segments, specifically Ask Media, and our Desktop applications business. So, I think that's the good sign. Obviously, this extension is important as a sign of our relationship with Google and how that works. And that’s on substantially the same terms as our previous agreements.

But, the thing I'll remind you, which I always remind when we talk about, in particular, the applications business is, policy changes can happen; those can happen outside the agreement. And so, that’s a risk that continues in that business. So, let me turn it to Brandon on home, [ph] really the architecture.

[Brandon Ridenour, CEO, ANGI Homeservices]

Yes. And Joey did a nice job describing it. I think if you look at our North American properties in the U.S. in particular, we're reaching almost an unprecedented population of homeowners through Angie’s List, HomeAdvisor and Handy. And fundamentally, we believe that we have the opportunity to productize Homeservices in new and innovative ways that just have never existed before, and through that really transform how people maintain and care for their home. The way HomeAdvisor and Angie's List and Handy work today is helping people; it’s taking friction out of process, makes caring for your home easier. But, it's still episodic. People have something go wrong. They react to that; decide they need to go find a specialist to come fix that project. And we think, there's an opportunity to really change the way this works in a more complete way, and take a lot of the pain and difficulty and friction out of just carrying for your home. And so, home warranty is -- you could think of this maybe our first foray into dealing with unexpected repairs. That's one segment of the type of work people need to deal with; there are many others, as you know. And that's how we're thinking about it.

[Joey Levin, Chairman, ANGI Homeservices and CEO, IAC]

Yes. Dan, and just to maybe frame the opportunity a little bit. The average homeowner in the United States does about 6 to 8 jobs a year and between periodic maintenance and episodic repair, the average homeowner probably should do a dozen or so jobs a year. Right now, we do about 1.8 jobs for each of our customers. You may recall from a letter, about two years ago, we said that was 1.6. So, we’re making progress there. But, as Brandon said, as we take friction out of the process, we can drive closer to that 6 to 8 and then help homeowners drive closer to the dozen jobs that they actually should do. Getting back to the Google deal, versus when we renewed it a couple of years back, we're a very different company. Our partnership with Google now comprises less than 20% of our revenue; as you know, we have a lot of other engines of growth in the business.

[Operator]

And we'll now take our next question from John Blackledge from Cowen. Please go ahead, sir.

[John Blackledge, Cowen]

Great. Thanks for the questions. And quick thanks to Glenn and Mark, and the team for the segment restatement before earnings. That was really helpful. Joey, in the letter, you kind of set the table for investments across the platforms this year given the respective opportunities. On ANGI, maybe could you discuss the share gain opportunity in more detail and also provide kind of the key puts and takes to getting to and/or exceeding the 25% revenue growth? And then, just one question on Vimeo. How should we think about sub growth, in particular kind of driving higher enterprise adoption this year? And who are Vimeo’s kind of competitive threats, if at all? Thanks.

[Joey Levin, Chairman, ANGI Homeservices and CEO, IAC]

Sure. On the ANGI share gain and 25% growth. I think the overall services market in the U.S. grows like low-single-digits. So, 25% growth obviously is by definition going to take share. I think that'll take share from by and large our by far our biggest competitor, which is word of mouth. We think that’s still 90% of the market. So, that's the goal there. We have -- there is number of things that are going to drive the growth. It's the typical thing that we've been investing in, sales and marketing being new to us, adding more sales people to add more service professionals on to the platform or help service professionals, who are already on the platform, understand the opportunity there to spend more money and find more customers to us.

Separate from that, we are doing two things that get forward what we were talking about before and what Brandon was talking about before. The warranty business, that's going to be an investment. The prepriced transactions we talked about I think a quarter or so ago with the acquisition of Handy. Getting into prepriced transactions allows us to evolve our relationship with the consumer, and will be an investment over the course this year and then can push revenue growth. But the biggest ones to get to that 25% growth is really pushing more the sales and marketing. And you'll recall that last year, we pulled back -- mentioned it in letter, we pulled back on marketing. We've now reaccelerated that marketing because we're ready to be able to absorb all that demand. We're also already to be able to absorb all that demand because the service professionals on our platform are now different than the service professionals of last year in a sense that they're capable of spending more money and they're capable of using more of our products.

So, all those things come together in the revenue growth and the share gain. Brandon will probably want to add to that, but I'll answer maybe question two. On Vimeo sub growth, enterprise is definitely a component of that, that's a relatively small component of total revenues in 2018, that continues to grow as a component, still will be a relatively small component but a noteworthy component of revenue by the end of 2019. That business I think is -- enterprise is probably doubling year-over-year right now, and I think that that pace is likely to continue.

When we think about the competitive landscape, we don't have a competitor who does the full suite; we do have competitors who in any individual thing we're doing does compete. So, take storage or hosting, I think Dropbox is there and storage take some of the editing tools or review tools, and I think Adobe and Apple have products there. But really, the end to end turnkey product for somebody who is not a video professional -- by the way, we have a plenty of video professionals on our platform, but that product for think about a small business, somebody who's not in the media business or somebody who's in a different business that -- we have I think the only product for that customer end-to-end.

Do you want to…

[Brandon Ridenour, CEO, ANGI Homeservices]

Yes. So, the one thing to note is that the lion share of revenue acceleration next year to ANGI is still coming from the marketplace business. The advertising business is still shrinking, ANGI's list is still shrinking. When you look at the entire year, we do expect that to turn around by the end of the year, but still the net drag for entirety of 2019. Joey said this, but sales and marketing are really the engines that are going to drive marketplace business growth. We started the year with our service provider network in a stronger position than I've seen in a very long time, and it's monetizing very efficiently. This led us in late Q4 to really lean back into marketing, which we are seeing returns on as we get into Q1. And that's really the formula that drove growth prior and up to the point of the merger with Angie's List, and that's what we've been eager to get back to, now that the integration there is complete and behind us. And so, that's the main engine.

[Glenn Schiffman, EVP and CFO]

And look, just to throw some numbers around fourth quarter to highlight it, this fourth quarter, we really set the stage for the acceleration going into 2019. Our capacity was up 36%. We talked about that all year; I think last year it was 34%. We continue to make progress and roll out our opt-in product. You heard me on last call, but the numbers continue around lifetime value for our service professionals, our 2018 cohort of service professionals of a highest lifetime value that we have. So, that obviously flows through. And then, in terms of investments, to put a fine point on What Joey said, between Handy home warranty and the investment in home hub of which Joey and Brandon spoke, we're looking at about $25 million of discrete investments in that. But for that $25 million and our increased spend on marketing, of course, our margins would be going up here. There's real scale in this business, as I talked about, virtually in every line item. And there will be real scale up from a margin perspective in every line item in 2019.

And you've also heard me talk about how we -- we pulled a lot of margin improvement that we otherwise thought was going to occur in 2019. We pulled it into ‘18, particularly on marketing and maybe we want a more factor to train marketing. Marketing still will be as a percentage of revenue, lower in ‘19 than it was in ‘17, again evidencing real scale economics in this marketplace.

[Operator]

We will now take our next question from Brent Thill from Jefferies. Please go ahead.

[Brent Thill, Jefferies]

Good morning. Joey, last night, you'd mentioned that ANGI is countercyclical, and I'm just curious if you could walk through if the consumer starts to soften, why you have such confidence? You did see a little weakness in Q4, and I'm just curious if you could parse out perhaps what you saw in the fourth quarter?

[Brandon Ridenour, CEO, ANGI Homeservices]

This is Brandon. We are mindful of and obviously aware of the slowdown in the home industry. But, we have not seen any impact on our business. Our performance this year was largely driven by our pullback in marketing early in the year than our reacceleration back in the marketing, late in Q4. That’s a far bigger factor for us than any macro impact.

In terms of how subjected we are to those types of macro impacts, the reality is, there are offsetting factors when and if that does occur that benefit us. So, if consumer softened a little bit, that tends to mean that providers actually have a greater need for our service in terms of finding new customers. Providers are where we obviously make the majority of our revenue. And so, in general, we don't -- we think we're pretty -- I know it's hard to say -- we think we're pretty resistant to that effect. Clearly, if there was some sort of major collapse in consumer demand, that will be a different story. But, I don't think what we're seeing, which is largely probably driven by interest rate effect on homebuyers is really affecting our business the most.

[Joey Levin, Chairman, ANGI Homeservices and CEO, IAC]

And we just look at what happened in 2008 in the business; it was a very different business then. But, one thing that I think was consistent and we expect would be consistent is activity among service professionals less up, meaning they were more engaged on the platform; they were spending more time on the platform during that period. And, I think that is something we'd expect if that’s just on market.

[Brandon Ridenour, CEO, ANGI Homeservices]

You could also argue our opt-in product is tailor-made potentially for an economic slowdown because you know an SP can react to a job and a potential opportunity based on his up to the minute or her up to the minute schedule as against a month or year old budget that they negotiated with a member of our sales force. So, again, as we move more and more to an on-demand opt-in type model, that of course helps us in that in terms of being more recession resistant.

[Operator]

We will now take our next question from Robert Coolbrith from Wells Fargo Securities. Please go ahead.

[Robert Coolbrith, Wells Fargo Securities]

Good morning. Thanks for taking our questions. On ANGI, I just wanted to ask on the 2019 EBITDA guide. Does that reflect a more aggressive investment spend versus like you've been contemplating around the kind of the 3Q call, as well as if there is any changes in your thinking around the investments that you will be making over the course of the year? And then also on fixed, if curious we could get a little more detail on the business. How they go to the market today in terms of mix and customer acquisition channels, direct-to-consumer versus broker? Anything you might be able to tell us about the retention in the business would be interesting as well. Thank you.

[Glenn Schiffman, EVP and CFO]

I'll take the 2019 guide and Brandon will take fixed. One big thing obviously that happened was fixed, and that's losing money, of course, and that's part of that $25 million discrete investment that I just mentioned earlier. And that wasn't in our contemplation when we talked about the potential guide. But, recall, in the letter, in the third quarter letter and on the call, we said revenue will grow faster than EBITDA and then therefore margins will go down. So, fixed is clearly one. And then as we finished our year-end planning and we saw some of the real momentum inside the business, some of the unit economics inside of the business, some of the metrics inside of the business in Q4, almost across the board the investments as Joey mentioned earlier, we wanted to lean in. Mostly, it’s marketing. But again, it's across the board to drive the revenue growth that we expect. We mentioned the 25% target, and that is absolutely our goal for the year.

[Brandon Ridenour, CEO, ANGI Homeservices]

With regard to fixed, what we really like about fixed is they are delivering a product that meets customers’ expectations and makes people happy with regard to warranty service. Obviously, our plan around -- our thought around this is that we have this amazing reach to millions and millions of U.S. homeowners through Angie’s List, HomeAdvisor, Handy. And so, our intent is to offer this product to the homeowners who are already in contact with from a direct-to-consumer standpoint. We have both, unique ability here to offer this amazing acquisition economics and also some interesting promotional opportunities. When you think about all the homeowners that are coming, let's say the HomeAdvisor telling us very specifically the type of project they need, we might be able to identify a subset of projects that we could promotionally offer as we include it in a warranty if somebody were to sign up today; that's all unique to us. And it's something I think that can’t be replicated elsewhere. So, that's kind of how we're thinking about it. It's small; it's a few markets in Texas; there's a long way to go to get this full scale. But, we think we have some natural synergies there in terms of how we can bring it to market.

[Operator]

[Operator Instructions] We will now take our next question from Jason Helfstein from Oppenheimer.

[Jason Helfstein, Oppenheimer]

Just two-parter on ANGI and then IAC question. So, can you guys talk about how ANGI performed in the quarter, at least in EBITDA relative to your expectations? I think there was some confusion perhaps relative to Street numbers, just giving the moving parts. And then, again, related to ANGI, the logic behind the buyback, that would be a pretty high percent of the float per stock, doesn't have a lot of float to maybe talk about the timing and the logic behind that.

And then, Joey, as far as on kind of M&A and allocation of capital, it does look like, there will be some movement with Yelp. As far as an activist shareholder, wouldn't be surprised if they get pushed to have a formal process. Clear that their legacy business of having local sales people doesn't work, you guys have a lot of experience around local. It looks like that business would have at least if you move more to a lead type of business, i.e. ANGI or a GrubHub, i.e. eat24, there would be a lot of synergies with your business. Maybe just talk broadly about how are you thinking now about local and that platform. Thanks.

[Joey Levin, Chairman, ANGI Homeservices and CEO, IAC]

Sure. So, on Q4 performance, I think we said -- our most recent number was 260 to 270 for the year, we came in at 260. So, we're happy with that outcome. If you go further back, we said two years ago we're going to do 270. And so, coming in -- where we came in I think we're thrilled with. The one thing I would like to see is some fact to revenue acceleration. I think, we're probably off by maybe a month there, meaning we knew we pulled back on marketing, we pulled back on marketing after Q1 of last year. We then started to as Brandon mentioned, accelerate that marketing late in Q4 of also last year. And I think we're seeing the benefit of that in our numbers now as we started the year. I mean, would have liked to see that a month earlier, but we're now debating days. So, overall, I think, we're quite happy with where we are in that business and our outlook for that business.

As it relates to buyback, that is just something we like to have for good housekeeping. We have one in place at Match; we have one in place at IAC. I think we should -- we always want to have all tools available for capital allocation, and buyback is one that you need to obviously lay out in advance with the Board. And so, that's what we did in this case. And it’s just something we want to have on the shelf as a tool that's available for us. It did nothing I think more to read into that in a sense, it doesn't mean we're on the verge of something or not on the verge of something. It just means we like to have access to that tool as a mechanism.

As it relates to Yelp, I think we’ve said for a long time, I don't know, publicly or privately, we'd love to have a commercial deal with Yelp. We think we can do a great job for them as a partner on this segment that we’re in [indiscernible] services. And we're totally open to that. We would love to do that. That would certainly be our first choice in how to do something as it relates to M&A that to the extent something becomes available, we always take a look at everything and every category where we're in when there's an opportunity to do that. But we wouldn't comment beyond that.

[Operator]

We will now take our next question from Anthony DiClemente from Evercore.

[Anthony DiClemente, Evercore]

Thank you very much and good morning. Just a couple of on just on Vimeo trend. So, the subscriber growth for Vimeo has trended closer to around 10% the last I think three quarters.

So, such a deceleration in sub growth there. As we think about the forward outlook, just talk a little bit about expectations around revenue growth from here for Vimeo? And should we expect a reacceleration in that subscriber growth or will more of the growth come from pricing going forward. And then, more broadly on Vimeo, just the investment strategy to drive growth, how would you sort of rank your priorities for it between new products, marketing, international? I do imagine, it's all of the above, but any more color on the investments for growth strategy would be great on Vimeo. Thank you.

[Joey Levin, Chairman, ANGI Homeservices and CEO, IAC]

I'll start with the second part and then I’ll turn it to Glenn for some of the specific on the numbers. But, it certainly is, as you said, all of the above when we're thinking about growth. Maybe taking a step back, the thing that’s happening at Vimeo which is our design is we are transitioning that business to a higher value, higher type of customer, not necessarily away from the basic customers who use the only the most basic features but certainly emphasize the high energy around leveling up. So, that’s video professionals; that's all small, medium sized businesses; and that’s certainly enterprises. Each one of those segments is very important to us.

The sort of casual video maker uploading for their iPhone is not really an emphasis we can serve that customer, that’s [indiscernible] done in the process, anything to bring that customer in, but that's not where we're emphasizing our product roadmap and our vision. It's really around the pros, the small and medium-sized businesses and the enterprises. And all of those segments are growing and all those segments will continue to grow.

Now, the math of an enterprise customers were $20,000 and a basic customer was worth $60. So, I think that’s probably 300 and something to 1 to math one to the other. But, that's the fact. And the bigger point is we think that's roughly $20 billion market. So, just to give you an example, which I found out was, take a customer, like Warby Parker, a phenomenal company, they are in the eyeglass business, the retail business, they are not in the video business. But, they're making five videos a day and they are publishing those videos on social media to talk to their customers, to get that what they do, they are a very forward leaning company. And their customers expect that and that's how they communicate.

Go back even two years, three years, four years, somebody making five videos a day would be a media company. But, this is an eye glass company making those videos, and they're using our platform to do that. I think about all businesses need to be doing that -- whether need to or not, will be doing that over the next 10 years. And when we look at that tailwind that's kind of how we think about it, and that's how we're emphasizing it. And there is some math in there as it relates to the subs when the higher value subs grow and the lower value subs don't grow. That's the math that gets to the numbers that we've been seeing.

[Glenn Schiffman, EVP and CFO]

Yes. To give you specifics around that math, business in premium tiers are the fastest growing from a sub perspective. That's obviously logical, based on what Joey said in terms of our mix shift. And enterprise is the fastest growing from a revenue perspective, but business and premium are not that far behind. Joey earlier in the call mentioned the enterprise revenue doubled year-over-year. Translating that into how to model this business on a go-forward basis, we've talked about from a subscriber perspective, 10% to 15% sub growth. I think, we're going to be at the lower end of that. We did 9% this quarter; we could get down as we accelerate that mix shift. We could be 8%, 9% for the next couple of quarters, maybe 10% going forward or maybe we never quite get to 10%, given this mix shift. But, what you will see is continued ARPU strength, and that ARPU strength this quarter was 22%, and we guided ARPU at 10% to 15%. And I would think we'd skewed to the high end, for sure, of that range on a go-forward basis. More broadly, the way those factors interplay, as we've talked about 20% to 30% growth for Vimeo for a while now, given the tailwind in the marketplace and given the strength of our solution.

[Operator]

[Operator Instructions] We will now take our next question from Doug Anmuth from JP Morgan.

[Doug Anmuth, JP Morgan]

Thanks for taking the questions. Joey, in the letter you noted that a bit more than 10 years later you've replaced the profits from the spends in 2008. So, now that you have a big base of EBITDA and free cash flow once again, how are you thinking about your ability to create more shareholder value by potentially shifting the structure, and how do you think about your positioning now versus 10 years ago? And then, if I could also ask, you talk about BlueCrew a little bit in the letter as well. And I think this is probably a business people don't know much about. Can you just explain more of your thesis around that business, and how do you view it kind of relative to your other marketplace businesses?

[Joey Levin, Chairman, ANGI Homeservices and CEO, IAC]

So, on profitability and how that relates to capital structure, I wasn't trying to portend some big change on the horizon. I think, it's an interesting spend, something that we're proud of. But, it doesn't mean that we've sort of hit the trigger where we start to take things apart again. We as we always say and always will, those are things that we consider regularly; those are things that we -- that a lot of factors go into how we consider whether or when to spend something. And we continue to evaluate the cost and benefits of transactions like those and always will.

On -- the second was about BlueCrew. On BlueCrew, look, I'll start by saying BlueCrew is tiny, less than tiny as it relates to -- I think the opportunity there is massive but it is tiny, and we probably won't talk about BlueCrew again for a little while. I really put that in the letter to illustrate just as this sort of interesting dichotomy, which we fall victim to, I think others fall victim to as well, is you size the investment in something like BlueCrew, based on the opportunity ahead. And so, we are going to invest in that and I'll explain why, in a minute. But, I think that the right framework for all future investments, it's not just a small company they are losing money out but then it should be the big companies that are making money and that aren't that strongest with the most certain return. But, going into BlueCrew, this temp labor market is a multi-hundred billion dollar category. And the amazing thing is it is still basically entirely offline. People are getting labor onto a factory floor or into a venue or whatever the case may be, based on phone today and totally inefficient information. This is the kind of problem that can be solved with software and can be meaningfully enhanced by marketplace. You have liquidity and jobs on the one side; you have liquidity and employees on the other side. If that whole thing is working, people can choose exactly when and where to work for what pay and employers can choose exactly when to hire quickly with the click of a button. I do think that more hiring will happen with a click of a button than it will with the labor process around interviews et cetera when software is in there and can help inform hiring decisions meaningfully. And that's what we're going after there with I think both investment capital, M&A capital, whatever we can -- we see a big opportunity and it's very, very earlier stages there, but again, impact on IAC immaterial for quite some time, I would say.

[Operator]

We will now take our next question from Eric Sheridan from UBS.

[Eric Sheridan, UBS]

Maybe two, one on the revenue side. Now that we have the breakout of Vimeo and Dotdash, is there anything we should be aware of that traditionally from the seasonality standpoint tends to have how those businesses are through the year, just to be aware of in terms of cutting those things up in our model on a going forward basis? And then, with respect to Dotdash, I want know, if you could give a little bit more color there on what are some of the key investments or how are you thinking about the drivers there going forward that could continue to compound that from a growth standpoint?

[Joey Levin, Chairman, ANGI Homeservices and CEO, IAC]

So, Dotdash is definitely seasonal, Q4 is going to be by far the biggest quarter I would think in that business forever just because of the average in the fourth quarter with retail are much higher. Vimeo, I think much less seasonal; I don't know. I mean, I know we're spending a lot in Q1 this year, which is not a seasonal thing; it's just a choice of ours in terms of marketing. But, I don't think it's exactly seasonal.

[Glenn Schiffman, EVP and CFO]

That's correct. Just one thing to watch there. We broke out the hardware business. So, we got the SaaS/platform business we broke out in our press release, and hardware. So, you'll see a little more volatility in the hardware, given it's a SaaS business, it's very predictable, but hardware is what could undulate the fair amount quarter-to-quarter there. Yes, Dotdash obviously is fourth quarter weighted as Joey said. You see in our guide the first quarter Dotdash is a little lower, it's about 10% is our guide is lower than kind of our baseline that we've talked about for that business, because we're transitioning the Investopedia business onto the Dotdash platform and program. And just as when we verticalize all the other businesses, we -- traffic gets set, revenue gets set, and then we come out stronger the other end. But other than the fourth quarter and this first quarter of ‘19, that's the seasonality you need to kind of factor.

[Joey Levin, Chairman, ANGI Homeservices and CEO, IAC]

And then, Dotdash growth opportunity I think is inside the existing verticals of course and then entering new verticals. So, inside the existing verticals, it's creating more valuable content that they know works, where works, where there is demand for that content. And they've done a very nice job of growing that I think in almost all of their verticals. And it's six of those same three simple principles. It's the previous content; it's the lowest ads; and it's the fastest site and they keep doing that putting in good, high-quality material, I think that growth.

Entering new verticals, we just entered a new one a few weeks ago, which is the beauty vertical. It's one that we had our eye on for a while. We founded little acquisition, I mean really tiny acquisition to do there, and we'll see how that one goes. We did our first experimental acquisition let's say by acquiring an internal company, meaning moving Investopedia internally on to the Dotdash platform. Now, we've got the external one in the beauty vertical.

And then, the last thing and we talked about this in the priorities for Dotdash is building the brands. We have a lot more traffic to those properties than we do brand, and we've got big ideas and big concepts around how to build up those brands. And as you build the brand, you build that brand recognition to that through a lot of different means, primarily just delivering a great experience but we've got some tricks up our sleeves there. And I think that we start to get more repeat business. And that's how that business grows. Of course, getting better at advertising and ad sales helps that.

[Glenn Schiffman, EVP and CFO]

I think, I said this on the last call, but these are very large categories here that we're in. So, don't underestimate the amount of blue ocean we have here. Each of our categories have sub categories within it and each of our categories compete with much larger players who are actively taking share of it.

[Joey Levin, Chairman, ANGI Homeservices and CEO, IAC]

That's the goal and that's what everybody at Dotdash knows and understands and is aiming for right now. In our health vertical, we're going after WebMD, and we think we can; we'll be disappointed if we don't. That's a huge ambitious goal but that's what we're going after. In our beauty vertical, we're going after Vogue and Glamour, and all these big traditional brands. In our home vertical, we're going after much Martha Stewart or whatever the Elle Decor or things like that. We don't see a reason why we can't, if we keep doing what we're doing and we keep doing it well, go after those, and the others are big businesses and big markets, and that's the goal there.

[Operator]

We will now take our next question from Ross Sandler from Barclays.

[Ross Sandler, Barclays]

Hey guys. Two questions. First, an area that doesn't really get much that airtime, your mobile apps business. So, I think you got a bunch of different brands and strategies in there and we saw recently that [indiscernible] raised a bunch of money and is actually profitable. So, any color you can provide on -- is that a subscriber CAC LTV business, is it more advertising arbitrage, any brand that you're excited about within the mobile apps business, the portfolio that you have there, any color there? And then, 4Q buybacks were a little bit lower than the prior quarters. How do you think about the buyback cadence relative to the value of the course, can you just talk about that?

[Glenn Schiffman, EVP and CFO]

Sure. I am glad, Ross, you asked about the mobile product because it is a fun little area and that doesn't get a lot of attention. We -- that’s very much a subscriber business, now 90% subscription revenue. And it is very much driven by subscriber acquisition costs relative to LTV. And we think we've got those systems that back up that spend and that LTV measurement pretty well nailed right now. And products in there like RoboKiller is a fantastic product, prevents robo calling on your phone. So, not only does it stop the calls from coming in but also for the entertainment of our customers there allows the robot to talk to their robot or their -- what they call speed callers that call in and record that for everybody’s entertainment. That's a fun one. That one is growing really nicely right now.

Just one fun stat of when the government would shut down for a little while, that do not call registry was also shut down. And so, that was a great moment for RoboKiller and that they were -- a lot of things were happening in terms of -- in robo calls and RoboKiller was able to prevent that for their customers, which is fun. We then have a business called iTranslate, which does real rime translation, similar one in that vein, called Converse, which makes it really easy for two people to use their phone -- two people speaking two different languages to use their phone to speak out loud back and forth. We have Daily Burn, the fitness category, which we moved from elsewhere and really totally revamped that business inside our mobile applications around subscriber acquisition costs and LTVs. We have weather apps. We have airplane tracking app.

One thing we did miss to your point is this meditation category. And based on that fundraising evaluation, I think that was a big mistake. That's probably something we should look at. But, these businesses by the way are also profitable; they are comfortably profitable; and they're fun to build. I think we're going to keep launching product, keep digging in the existing verticals that we're in whether that's translation or call blocking, things like that. And we're optimistic for the future here which is the first time in a while inside of applications where we've said we really see a bright future, a multiyear future beyond just doing what we're doing. There was another question.

[Ross Sandler, Barclays]

Yes, buybacks, Q4.

[Brandon Ridenour, CEO, ANGI Homeservices]

It’s the same answer we always give. We're regularly considering buybacks in addition to M&A, in addition to investment through the P&L, and that's something that we'll continue to do. I don't have a specific view on buybacks in the last 90 days, nor in the next 90 days, but it's something that we'll continue to consider.

[Glenn Schiffman, EVP and CFO]

Yes. Getting back to the mobile business, it may be clouded given the acquisitions. But that business organically grew 136% in the fourth quarter that doubled from the third quarter when it grew organically 77%, and then the second quarter, it grew organically 44%. So, that has become a gem of a business here.

[Brandon Ridenour, CEO, ANGI Homeservices]

I hope we can do more M&A there because we seem to have again a system that works where we can plug things in.

[Operator]

[Operator Instructions] We will now take our next question from Ben Schachter from Macquarie.

[Ben Schachter]

Can you talk a bit more about your appetite for acquisitions and how it's evolving into ‘19? Our readable letter looks like you're getting a bit more aggressive. And if that's true, how should we expect that to manifest itself? Are you going to be doing bigger deals, more tuck-ins, specific platforms, et cetera? And then, separately, we expect the platform fees on app stores could come under pressure in some time. Yesterday, we asked your colleagues at Match about how that would impact their business. Just wondering your thoughts on it and how it might impact some of other businesses you have?

[Brandon Ridenour, CEO, ANGI Homeservices]

On the second question, I hope you are right. We would definitely be a beneficiary, if you are. And Match is the by far in a way the biggest beneficiary inside the family. But the mobile applications business, which we are just talking about, would also benefit for sure. I don't -- I can't think of anywhere else that it would matter.

The other question was M&A. I don't think we're getting more aggressive in M&A. I think that we are -- perhaps we have just more opportunities today than we did 12 or 24 months ago. Again, mobile applications we are just talking about, I certainly would not have said M&A is available in the applications business sometime ago. And now that we've got it in there, that is available. I don't think -- again maybe perhaps thinking on the word, I don't think that's more aggressive. It's just that now that fits within our acquisition criteria. I think, in the last 12 months, we've been integrating HomeAdvisor and Angie's List, which is a massive project, which I think the team there did phenomenally well. And so, now that we've digested that, again, back to the same criteria that is not -- M&A is now available again there. And maybe that defies in more places.

And I guess, I am just starting to answer the other part of their question. We certainly do favor talking and we certainly do favor smaller, I think that -- just kind of those have a higher chance of success. And we have a greater embedded competitive advantage when we do acquisitions like that.

I’d say there's a lot -- I know I'll repeat myself by saying when we do acquisitions in our existing categories, we believe we can be the smartest people in the room. Because we know that category well, because we've seen every business model in that category, because we know what metrics look like in that category. That means we can be smarter than other buyers. Sometimes that means we can know the business or the potential better than the sellers. And so, that's where we'd like to emphasize our capital. But that doesn't mean we won't -- we always have and always will look at things outside of our businesses, and we'll look for opportunities, big and small there when we can put capital to work.

[Operator]

We will now take our next question from Youssef Squali from SunTrust.

[Youssef Squali, SunTrust]

Two questions, please? One is a follow-up to the M&A question. Could you comment on the -- your thoughts on the current public, private valuations relative to where they've been in the last couple of years and relative to where you see opportunities? And then, secondly, at a high level, at the IAC-level, can you just again help us rank order maybe your investment priorities by categories, beyond -- even beyond 2019. I think the guidance you guys gave for 2019 is very helpful. But, I was just curious as to how you look at that beyond -- how we should look at it beyond 2019, just where you see the need for the most investment, lease investment, biggest opportunities, lease opportunities? Thank you.

[Joey Levin, Chairman, ANGI Homeservices and CEO, IAC]

Sure. I still think private valuations are pretty rich, more so than public valuations. I'm not sure -- we have a bunch of theories as to why that's the case but I do still think risk adjusted, they are generally pretty rich, just comparing to things that have a lot left approvals, they're in big category and they've got a little momentum that they have a lot left to prove relative to businesses that have most. They've built over 20 years and incredible cash flow and the dichotomy and price the risk there is I think up. But that doesn't mean our gems and opportunities in the private market, and those are certainly things that we look at. What was the second question?

[Glenn Schiffman, EVP and CFO]

Investment priorities -- priorities over the next several years.

[Joey Levin, Chairman, ANGI Homeservices and CEO, IAC]

Yes. Look, I hope we're in a position where we'll have investment opportunities in all of the business over the next many years. I think ANGI Homeservices is in a I think a special and unique position. That market is so big, it is so -- our penetration relative to that market is so small, and there are so many adjacencies to that business based on the core of what we've built so far. I think, it is very-easy to articulate a range of investments big and small over the next decade in that area. So, I think that that will get -- I do hope that we can put a lot of capital there. But, you saw the chart that we put at the end of the letter where in all of these markets there, multi-billion or tens of billions or in some case hundreds of billions of dollar market. Our share is single digits in all of them. And if we're executing, then we ought to be able to invest into each of them. The good news is we're also generating real cash flow along the way. So, we've got a lot more that we should be able to invest, and that's something that we think a lot about.

[Glenn Schiffman, EVP and CFO]

Look, taking a step back, 2018 was a real proving ground for a lot of our businesses and for us in total. EBITDA grew around 70 odd percent to about $1 billion across the entire family. And importantly, that was done whilst the underlying metrics were getting more solid and stronger, which is what underlies and underpins our confidence for the future. And I just want to harp on the last point Joey made. Our margin profile allows us to continue to grow profits as we invest. And other companies may not have that luxury who have to shout out in investment year, and that investment year would come at great peril to the P&L. I think, we are fortunate given the underlying power of our businesses, the diversity of our businesses. We had six growth engines. Sorry, we have six growth engines in the portfolio right now. Every single one of them grew revenue greater than 20% in the fourth quarter. That's of course Match, Angie, Dotdash, Vimeo, the mobile business inside of applications, which we've renamed Mosaic, and our small business, BlueCrew. And as Joey said, against the TAM, that sets us up for an interesting couple of years.

[Operator]

We will now take our next question from Brad Erickson from Needham & Company.

[Brad Erickson, Needham & Company]

Thanks. I just had two follow-ups on ANGI. First, where do you think your SPs are capacity-wise at the moment? Meaning while they may be paying fees on HomeAdvisor, they obviously can pause their SRs as their backlog gets full. Where do you think that we are in the cycle at the moment, sort of what expectations around that are you assuming in your guide for 2019? And then, I have a follow-up.

[Brandon Ridenour, CEO, ANGI Homeservices]

This is Brandon. As I mentioned earlier, SP capacity and the ability to monetize a consumer or homeowner request is the most important factor in driving growth for the business. And we ended the year in a stronger position than I've seen in a very long time. And there are a couple of factors that went into that. One of them was the implementation of the opt-in platform last year, which essentially created a significant expansion of capacity from just the existing SP base. Secondly, we made other optimizations to our algorithms that actually resulted in us seeing our SPs take on more consumer requests than they had been previously. And that's all really came to fruition -- opt-in platforms was earlier in the year and then in Q4 and late Q3, we made some further advancements. And so that's put us in a row of strong position at the end of the year. Let's say, as we talked about in the Q3 and talked about today, let us to really lean in starting in December on the consumer marketing front, and that continues apace now. Our assumptions for the year are based on what we see currently in terms of what's in the guide here.

[Brad Erickson, Needham & Company]

And then, just conceptually in ANGI, you're basically -- it sounds like you are spending more to sort of seemingly arrive at kind of the same point you've talked about historically in terms of top line growth. Am I stating that right or is the message should say more that you're seeing opportunities for maybe bigger growth potentially and so that's what the spending is really geared toward doing, which of those would you say is kind of more accurate?

[Brandon Ridenour, CEO, ANGI Homeservices]

Yes. It's the latter, unequivocally. So, when we announced the transaction, we said 20% to 25% go forward revenue growth. And as we realize the synergies, it may take us time to get to the top end of that range of 25%. And last quarter, and reiterating this quarter, we're going to be at 25% for 2019. And look, recall in the first quarter that this combined enterprise grew 15% and our marketplace business grew 28%, and we closed the year at 37% and 21%, respectively on our scale. So, we are definitely investing to beat our previous expectations at previous cases.

[Brad Erickson, Needham & Company]

That's very helpful. Thanks.

[Brandon Ridenour, CEO, ANGI Homeservices]

And great report on the ROI. I think, that was some real good original work. So, thank you.

[Operator]

Our next question comes from Kunal Madhukar from Deutsche Bank. Please go ahead.

[Kunal Madhukar, Deutsche Bank]

Two -- couple if I could, one on ANGI and the other one on the app side. On ANGI, given that you've been growing capacity, and Brandon you just talked about how opt-ins have helped grow capacity significantly, why -- the capacity growth isn't -- we are not seeing that translating to like revenue growth overall on the marketplace side. So, what's happening? Is it not the right time, right place, right person kind of a thing, or what's the issue there? And then, on the app side, one of the things that you mentioned was -- in your letter, was e-commerce as a potential opportunity. Wanted to get a sense of what you're thinking there.

[Brandon Ridenour, CEO, ANGI Homeservices]

Yes. This is Brandon. I'll take the first question. In Q1, we saw, as we ingested the big jump in demand from Angie's List, we saw that we didn't have enough capacity. We pulled back on some of our marketing channels and optimized margins and did that -- both optimized margins and serve our customers better. We made tons of progress throughout the year on building up capacity. At the end of Q3, we said, we saw strength in revenue growth and we said, you know what, we made a huge amount of headway on the capacity front in terms of expanding our network. We’re going to lean back into [ph] consumer marketing, which obviously drives revenue. We did that in Q4, we got to it as Joey said a little later than probably would have liked, really kind of hit it running in December. And that's kind of the story. As we get into Q1, we're obviously seeing that accelerate and flow through. But, from the time we start marketing, particularly TV, there is some time necessary to build momentum and to see that flow through to consumer demand. That's really the entire story. And Glenn, you probably have a comment on revenue growth?

[Glenn Schiffman, EVP and CFO]

Yes. Revenue growth accelerated as per my answer to the last question. Revenue growth accelerated all year. As I said, we started out marketplace growth at 28% and it was 36% this last quarter. And just like it takes time for marketing to kick into to lock -- to unlock that capacity, that capacity stays with us and that capacity will be with our SPs for 2019 if we continue to do a great job and beyond for sure. On your second question, the e-commerce business, that's inside of Dotdash. And we've talked about that on previous calls. That's our affiliate e-commerce business given the strength of our traffic and the intent-driven nature of our traffic. We think we can monetize that traffic through an affiliate e-commerce business. I think, Joey gave the example of when you're searching for scooters or the best scooter, on last call, you can serve it up a way to purchase said scooter.

[Brandon Ridenour, CEO, ANGI Homeservices]

And maybe I’m missing something, but the capacity growth is translating to revenue growth. I mean, directly accelerate to marketplace currently.

[Glenn Schiffman, EVP and CFO]

Yes, 100%. Operator, I think we have time for one more. And we'll let everyone get on other day.

[Operator]

We will now take our last question from Ygal Arounian from Wedbush.

[Ygal Arounian, Wedbush]

Hey, good morning guys. Thanks for squeezing me in. So, just a couple on ANGI, maybe one more follow-up on the marketing and on the service request side. So, I think there is a couple of things going on over the last year or so on service request. You had the ANGI integration and volume coming in from placing the whole deposit funnel there, I think that lifted the year-over-year growth a little bit. You scale back on marketing and now you're scaling it back up. Anyway you can help us kind of understand what the appropriate trajectory for growth is? Should we start to see it reaccelerate again from this 24%, now that you’re strong and spending more on marketing? And with your marketing spend, you talked about the investment next year, both to go out after service providers and to go after consumers. Anyway to help think about the split between the two, is it kind of equal between both, is it more of a focus on one over the other?

[Glenn Schiffman, EVP and CFO]

Yes. On the marketing point, yes, it's more going after consumers. We have a large sales force and we're growing the sales force not as collateral benefits when you go after consumers, service professionals see that, but it's much more weighted towards consumers to drive service requests. And it's good question on the cadence of service requests. The growth is 24%. I think, we're going to be in and around those levels. Joey mentioned this in the letter and Brandon talked about it. We've got a lot more efficient with our spend and our ability importantly to monetize every one of those service requests. So, the service requests are becoming more valuable to us. You saw that in one metric, revenue per service request. And that was actually the highest it's been since 2014. And that speaks to the efficiency of our system in terms of taking advantage of the demand we have on the platform. So, no, I don't think service requests are going to grow dramatically from here. They could, as we even get more efficient, the growth could go down, especially because you remember in the first quarter of last year, we hadn't dialed back for marketing. So the first quarter service requests grew 38% last year. So, in the first quarter, we have a difficult comp. So, I think this mid to low to maybe high 20% service requests growth for the next couple of quarters that feels about right.

[Ygal Arounian, Wedbush]

Okay. That's really helpful. And if I could squeeze in one more just on how you think about building versus buying. You have two of your kind of things you're focusing on next year, you write letter building for repeat usage and then entering adjacent categories through M&A. It feels like sometimes those things could overlap, like the warranties business [indiscernible] business but also helps with repeat usage. Just if you could help us think about how you think about building versus buying? I'll leave it there.

[Glenn Schiffman, EVP and CFO]

Look, I think what you said is exactly right. There definitely is overlap and that definitely is -- the vision for it, we think this category can go is very informative, how we prioritize M&A and putting those things together. And at any moment, we're evaluating a build versus buy. In fact, anytime we're buying something, we are usually simultaneously building that. And then, we figure out what's really hard to build and whether we want to continue building or we prepare to buy and we do that math and make a transaction. But that is -- that's how we prioritize those decisions.

All right. I think, we are out of time. I appreciate all the questions and everyone's support. And we will talk to you in next quarter. Thank you.

[Operator]

Ladies and gentlemen, this now concludes today's conference call. Thank you for participating. You may now disconnect.