• Revenue: Not specifically quantified in the introduction.

• Net Income: Not specifically quantified in the introduction.

• Free Cash Flow: Mentioned as having grown during the quarter.

• Profit Growth: Indicated as having increased.

• Capital Deployment: Company in a solid position for future capital deployment.

• AI Ecosystem Participation: Newly announced financial participation and collaboration with OpenAI.

• Warning! GuruFocus has detected 5 Warning Signs with IAC.

Release Date: May 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• IAC Inc (NASDAQ:IAC) reported a strong quarter with significant progress in growing profit and free cash flow, positioning the company well for future capital deployment.

• The company announced a new partnership with OpenAI, expected to enhance the ChatGPT experience and drive incremental users to IAC properties, potentially opening new opportunities in the AI ecosystem.

• Dotdash Meredith digital revenue grew by 13%, led by a 19% increase in digital advertising, indicating robust performance and effective monetization strategies.

• Licensing revenue returned to growth at 9%, driven by strong performances at Apple News and syndication partners, transitioning from a previous headwind to a potential tailwind.

• The appointment of Jeff Kip as CEO of Angi Inc. is seen positively, given his deep involvement and successful track record with the business, which is expected to focus on delivering high-quality service and driving growth.

Negative Points

• Performance marketing only grew by 3% in the quarter, pulled down by a 30% decline in services such as financial products, indicating challenges in this segment that need addressing.

• The company faces ongoing challenges with traffic declines from Facebook, which has aggressively shifted to retain more audience on its platform, impacting referral traffic to IAC properties.

• Despite strong profitability, Angi Inc. continues to experience revenue declines, necessitating further strategic adjustments to stabilize and return to growth.

• The broader advertising market, while strengthening, is not described as 'hot' or 'on fire', suggesting that there may be limited upside potential in the short term.

• There are ongoing macroeconomic factors affecting segments like childcare in the Care.com business, which could impact growth and recovery in these areas.

Q & A Highlights

Q: Could you unpack the growth within DDM digital revenue across advertising performance and licensing? How should that trend going forward? A: (Christopher P. Halpin - IAC Inc. - Executive VP, CFO & COO) Digital revenue grew by 13%, led by a 19% increase in digital advertising, attributed to 8% core session growth and improved monetization. Performance marketing grew by 3%, pulled down by a 30% decline in services. Licensing returned to growth at 9%, led by strong performance at Apple News. Looking forward, a 10%+ revenue growth is anticipated each quarter, with advertising expected to lead.

Q: Could you discuss the high-level terms of the DDM, OpenAI deal, including expectations for similar deals with other LLMs like Google, Anthropic, Meta? A: (Joseph M. Levin - IAC Inc. - CEO & Director) The OpenAI deal includes displaying DDM content in ChatGPT responses, using DDM content to enhance model performance, and partnering on D/Cipher ad solutions. It's a multiyear deal with financial compensation and is not exclusive, allowing for potential similar deals with other companies.

Q: Why was now the right time for the Angi CEO transition, and what are your strategic priorities as CEO? A: (Joseph M. Levin - IAC Inc. - CEO & Director) Transitioning to a full-time CEO improves business fitness and customer centricity. Jeff Kip's deep involvement in Angi's international business and his focus on delivering quality service are key for future success. Jeff aims to continue focusing on customer-centric strategies and improving service delivery.

Q: Can you provide an update on Angi's revenue expectations for this year and discuss the need for reinvestment to return the business to growth? A: (Christopher P. Halpin - IAC Inc. - Executive VP, CFO & COO) No additional investments are deemed necessary to stabilize and grow Angi's revenue. The focus remains on improving the consumer and professional experience, with a guidance of $120 million to $150 million in adjusted EBITDA for the year.

Q: Given the stronger Q1 EBITDA, why not raise the full-year guide? Are there concerns affecting the outlook? A: (Christopher P. Halpin - IAC Inc. - Executive VP, CFO & COO) The full-year guidance remains cautious due to the seasonality of the business, particularly with Dotdash, where significant revenue is expected in the second half of the year. Investments in strategic areas like content and marketing are planned, which will impact the EBITDA margin growth expected in subsequent quarters.

Q: How are you thinking about the evolution of IAC and potential areas for M&A, especially with the changes in the internet landscape and AI? A: (Joseph M. Levin - IAC Inc. - CEO & Director) Focus is on capital allocation for both existing and new opportunities, with a keen interest in AI. While pure-play AI valuations may be high, opportunities exist in businesses that can leverage AI. IAC remains open to exploring various sectors, including marketplaces and travel, for potential M&A.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.