Jeff Kip - EVP and CFO Greg Blatt - Chairman, Match Group Joey Levin - CEO, Search & Applications.

Ross Sandler - Deutsche Bank John Blackledge - Cowen & Company Jason Helfstein - Oppenheimer & Company Mark Mahaney - RBC Capital Markets Peter Stabler - Wells Fargo Securities Heath Terry - Goldman Sachs Kevin Rippey - Maxim Group Chris Merwin - Barclays.

Good day, and welcome to the IAC Reports Q3 2014 Results Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Jeff Kip, Executive Vice President and Chief Financial Officer. Please go ahead, sir..

Thank you, operator. Good morning everyone and welcome everyone to our third quarter earnings call. Joining me today is Grég Blatt, Chairman of Match Group and Joey Levin, CEO of our Search & Applications segment.

Before we get to our results, outlook and general business overview, I’d like to remind you that during this call, we may discuss our outlook and future performance. These forward-looking statements typically maybe preceded by words such as we expect, we believe, we anticipate or similar statements.

These forward-looking use are subject to risks and uncertainties, and our actual results could differ materially from the views expressed today. Some of these risks have been set forth in our third quarter 2014 press release and our periodic reports filed with the SEC.

We’ll also discuss certain non-GAAP measures, which, as a reminder include adjusted EBITDA, which we will refer to today primarily as EBITDA for simplicity during the call. I’ll refer you to our press release in the Investor Relations section of our website for all comparable GAAP measures and full reconciliations for all material non-GAAP.

To briefly recap our consolidated results, in the third quarter IAC returned a year-over-year revenue growth with revenue of $783 million up 3%. Third quarter adjusted-EBITDA was $135 million, down 18% from the third quarter of 2013.

However it was down only 1% when excluding approximately $14 million in net gains related to asset sales in the prior year and the impact of roughly $13 million of acquisition related differed revenue write down for the Princeton Review, FriendScout 24 and Slimwear in the current period.

Now I'll turn it over to Greg Blatt to discuss the Match Group and then to Joey to discuss Search & Applications before I wrap up with the few comments on the Media and e-Commerce segments.

Greg?.

Thanks Jeff. Lots of exciting things happening across the Match Group. Today I'm going to focus on Dating in the prepared remarks but happy to hit on Q&A some of the other businesses. We just got a lot to talk about in Dating. When we look back 2014 is clearly going to be a transformative for the Dating business.

User growth has been phenomenal, MAUs up 60% year-over-year and looking back over a longer period, 600% since 2010. So really just great expansion of the category. Additional what’s great is that within that growth we've had significant mixture both in favor of the younger user and mobile users, both very valuable.

Talking first about the youth piece, it’s really a critical group and this has been moved mostly by OkCupid and Tinder where we have had lot of growth in this area. Let’s just look at North America as illustrative of the world. It's not precisely but it’s directionally -- it’s just much easier to get hands around these numbers.

But if you look back at the year 2000 and you look at Match’s numbers, 60% of our users were under the age of 35 with 8% over the age of 50. You fast forward to 2010 and that changes dramatically with increased comfort with older demos, with the internet with the launch of OurTime, with marketing that became more sort of targeted to older demos.

We have really grew the older demo and by 2010 we were roughly evenly split in users between sort of what we call our three main buckets, which is under 35 years old, 35 to 49, and 50 plus. So it's really sort of equally distributed across them. Fast forward to 2014 and 65% of our users are now under 35.

Now that’s not coming at the expense of the two older buckets. Those buckets have grown as well, but we've just had such growth in that youth demo and that’s incredibly valuable for us for a number of reasons. First, although least direct is that youth adoption has a huge trickle up effect on the category.

The society and most societies are sort of youth oriented, aspirational et cetera and when youth culture adopt these products, it has a stigma busting effect all the way up sort of the chain. Additionally this is an LTV business, a Life Time Value business, and when you get early engagement on a product, it leads to a longer life time on the product.

And that’s really important. Additionally it leads to a longer life time value within the category itself. We know that users of any given Dating product are three times more likely to use another Dating product than somebody who has never used one at all. And sort of the converse of that is only 30% of people have only tried one Dating product.

Sorry 30% of people who tried a Dating product have only tried one Dating product. So it’s sort of the youth products active gateways to the broader category and that’s really important to us given that our meaningful position in the category.

We know that anybody who joins the site, whether ours or somebody else's is that much more likely to ultimately be on one of our products. Sort of the youth thing both helps within that product and helps the broader category and therefore us as well. And we don’t also leave that to chance.

We've started to get pretty good at actively cross selling among our portfolio.

2014 alone 10% of the registrations for the Match and People Media sites came from cross marketing to other sites within that group, and we think when we start adding OkCupid and Tinder down the road, we're going to increase that meaningfully and we think we've got smart ways to do it where sort of you know when people are stopping engagement, you know why they're stopping engagement and you know how and when to put different products in front of them.

So I think you see -- in a macro perspective, you see this funnel -- the wide part of the funnel just really broadening out as people are coming into the category in hordes at a younger age. Also a huge shift to mobile. In 2010 only 8% of our North American users accessed products via mobile. In 2014 that 8% has become 81%.

Now Tinder drives a big part of that, but even excluding Tinder, that number is up to 67%. So you're seeing huge shift to mobile and even though as we talked about last time, we're not where we want to be on mobile in a bunch of products. You still have this incredible migration which to us sort of rings of opportunity.

We recently hired a new person to be the GM of Match U.S. [indiscernible] Bharadwaj [ph] who comes from Store Mate, before that Zynga, before that Microsoft, long history in mobile and we're really making a big push in this area cross our products and it is clearly a category made for mobile, and we're capitalizing on that across all our products.

All those things are great, long term, couldn't be more excited but certainly they bring with them some near term challenges, which has led our results to not be this period as great as we expected them to be and as we hoped to be. So let me walk through some of those.

First is the shift to mobile, which has happened just faster than we expected, has some near term challenges both in terms of acquisition and conversion, meaning right now although the gap is narrowing, our mobile products do not convert at the same rate as our desktop products.

So sort of -- if all you had was a one-to-one shift from desktop to mobile, that absolutely hurts us. That gap is narrowing on our mobile app as opposed to mobile web. We've already increased over the last five months since it launched, we've increased conversion by I think 40% or 50% and the gap has almost closed.

On mobile web it's a little further behind due to things like credit card entry and that sort of thing, but through product changes that gap is narrowing and pretty soon we're confident that that will go away. On the customer acquisition side, it's a macro issue, which is that users have migrated to mobile quicker than advertising dollars.

And you always hear about that from a publisher perspective, but obviously there's an advertiser on the other side of that and there just aren't many ROI positive opportunities per sort of user on mobile as there is on desktop. Now that's also changing.

In the last year alone we've taken mobile advertising with Facebook so that mobile advertising on Facebook is actually meaningfully bigger than our desktop advertising on Facebook. They are obviously publisher who is nailing mobile advertising, and I think as other publishers' sort of catch up, I think that opportunity's going to reverse itself.

So the shift to mobile is great for us and our ability to do it, but it definitely -- at the pace it's going, it challenged us a bit this period. Additionally I talked a little bit last time about technology and our product development process.

Due to sort of the multiple acquisitions we've had and the rapid expansion of mobile, things are just slower than we want them to be.

An example of that -- just a concrete example is we launched a feature in I guess in January on Match desktop, great feature for us, took us much longer to launch than it did on OkCupid and we still haven’t been able to launch it on our mobile products or in People Media and that should happen instantaneously.

That cost has meaningful and discreet revenue. And as I said last quarter we're going to fix it. Over the course of '15 and probably into early '16 we're going to streamline a lot of things. It will be a big project but when we're done we expect to see meaningful margin expansion and positive revenue impact.

Again margin expansion is through streamlining and the revenue impact is through being able to launch on these multiple products and devices simultaneously, which we just can't do right now. And it's holding us back. We'll comment at a near term cost.

We're still working through all the alternatives that we can't precisely predict the amount, but we're going to have sort of one-time cost in the tens-of-millions-of-dollars that we'd expect.

We'll call out the impact each quarter and give you as much visibility in the timing in advance as we can, but it's a no brainer and is going to sort of really-really improve performance.

For Q4, we expect the cost to be low single digit millions with probably similar impact in Q1 and then we'll next quarter sort of update you with more visibility going forward. In general, when I speak about numbers going forward, I'm going to be excluding these costs because A, they're discreet and B, we're not sure of the exact timing of them.

Then you've got the use impact, which is great as I said. The rapid growth of Tinder was phenomenal, up in MAU 7 times year over year. So just huge growth. Long term fantastic but short term there is definitely some cannibalistic impact. That's not new. We always believe that the category would expand through new products and product development.

That's why in 2009 we had two Dating brands and today we have 39. So from 2 to 39 in the last four years and the new brands always cannibalize. The issue is whether they're net accretive. We went through this at our time, big growth in the over 50 market but certainly impacted Match's growth rate in that area but it was overall very accretive.

So that’s a common dynamic. The one difference here is that while user growth from Tinder is overwhelmingly accretive, the small cannibalistic effect has a real financial impact, because we’re not yet monetizing Tinder. So that’s fundamentally different and the experiences we've had before, but long-term it doesn’t matter.

As we said we’re starting to monetize Tinder and in the very near-term that will reverse itself and be hugely accretive to earnings, but certainly in 2014 had an impact. So looking at full year 2014, while the numbers were solid on an objective basis, not where we thought it would be at the beginning of the year.

For the Match Group we expect to see low double-digit revenue growth, EBITDA flattish versus last year. If you back out Princeton Review and FriendScout, we expect mid-single-digit revenue and EBITDA growth, we stated high single-digit EBITDA growth.

The impact for most of the dynamics we just talked about plus a couple of other discrete items, we had credit card failures from security breaches, cost us about $5 million in EBITDA and we had the Yahoo! dynamic which we've talked about before, but it accelerated faster than we thought.

So for instance Yahoo! regs declined by 90% from their height in 2011 going from literally 25% of Match U.S. reg down to 4% this year, happened faster than expected but it's bottomed out. Don’t have that comp issue going forward next year. And finally Tinder, since last we spoke we’ve gotten extra $10 million of EBITDA investment in Tinder.

That’s really related to three things, increased scale technology to keep up with the scale. We did delay monetization. It will be starting very shortly. But when we talked last time, we thought it would be little earlier and we had some legal cost that also went into that number.

So again the results solid but we presently expected through -- I want to emphasize driven by positive developments sort of business and things we’re very excited about.

So looking long-term, we're a year older, wiser and closer to 2016, but we still are very bullish on the $500 million as a reasonable expectation for EBITDA in the Dating business in 2016.

Our existing business forecast is similar to last time where sort of we see PMC growth in the low double-digit range annually, modest rate declines due to mix-shift partially offset by rate increases in most of the businesses, which we’re seeing play out now; and EBITDA margin expansion to the low 40% range in Dating driven primarily by mix shift and the tec [ph] project.

So that's sort of the businesses excluding Tinder. You then look at Tinder to get to the $500 million and look, it's hard to predict quarter-to-quarter results for early stage companies like Tinder. Things move much quicker in - and you don’t always have the resources when you expect in all there.

So, it's hard to predict quarter-to-quarter but longer-term we think it's - we think that the trends are amazingly positive. We’re going to start monetizing very shortly. You don’t just flip a switch on monetization. There is a playbook.

You have a bunch of things to try, With OkCupid for example, the first couple of things we did didn’t work and then it took off. So I won’t say that in two weeks it will be perfect, but we have high degree of confidence in the multi-year monetization of Tinder.

So, we sort of -- rather than predict Tinder preciously, we sort of look at it this way, which is if you double MAUs over ’15 and ’16 versus the 7X that you've had over the last four quarters, then you get to $500 million if all you do at that point is monetize Tinder users in the North America and Europe at two-thirds the rate that OkCupid monetizes today, and then the rest of the world at 10% the rate that OkCupid does today.

So our internal goals are frankly much higher, both for MAU growth and for monetization. But consider that sort of the over underline on 2016. You get a double MAUs and you got to monetize it two-thirds and one-tenths the OkCupid rate.

And I want to be clear, that’s the OkCupid rate today, meaning OkCupid's monetization continues to increase every year. So by 2016 we expect OkCupid to be monetizing even better than it is today. That also doesn’t include any ad revenue for Tinder either by the way and we’re quite confident there will be ad revenue.

We just sort of left that in as a cushion. So -- I don’t know maybe we end up with $479 million, maybe it's $526 million and we said that before, but $500 million still feels like a very, very solid bogie for us, given solid performance in our non-Tinder businesses and really explosive growth at Tinder. So, we feel really good about it.

In terms of ’15, we’re still very much in the annual planning process. So things could change, but we are looking forward to Dating having double-digit revenue in EBITDA growth, Match Group meaningfully higher driven by Princeton Review acquisition, organic growth in the non-Dating businesses and decreased losses for the non-Dating businesses.

So we’ll be little more precise next time but we’re still in the planning process. It could be little choppy next year just for the dynamics I talked about and the Tinder monetization will invariably not come on a straight line, the way sort of you model it.

It will either be faster or slower than that at the beginning, but we’re confident that it will ultimately sort of hit the levels that we expect. So, in summary look we couldn’t be happier, again we set out in this portfolio strategy in Dating four, five years ago. It is clearly paying huge dividend.

This business has never been this poised for great sustained growth. Incredibly exciting things happening and we're really excited about it. And again I'm happy to cover fitness and education either in Q&A or next quarter.

Joey?.

I will try to be a little briefer to allow some time for questions. Thanks Jeff. Thanks Greg. We meaningfully exceeded our expectations on both revenue and EBITDA, driven by better than anticipated success in adjusting to the recent changes in the Chrome browser and the strong revenue for query.

And we also had continued sequential growth in our websites business. So in combination we held nearly flat sequentially and revenue should be growing again by Q4, which in context feels pretty good. We have spent a lot of time this quarter focusing on the changes in Chrome which went live in July.

We expected a negative impact to our performance in that channel, which we clearly saw, but moments like these in the download software space can also open up opportunities for the stronger players. We were prepared well in advance and our team did a spectacular job across the board. As a result we ended up performing better than we anticipated.

In our direct to consumer business, we successfully mitigated a portion of the expected impact and Q3 turned out to be another record quarter in profit for that business. Our new products in Chrome are streamlined and working well under the new framework and we have been increasing our marketing accordingly.

The underlying search metrics have also been favorable. We have seen increased revenue per visit in this business thanks to continued improvements to our user experience and general strength in CPCs. Our desktop audience just continues to perform well for advertisers.

We're also making progress in subscription revenue products as SlimWare, where we're adding subscribers and narrowing the losses as we rebuild the deferred subscription revenue. We've also now fully integrated that operation into our marketing machine and we should start to see a nice small but growing contribution from subscription revenue in 2015.

In our B2B business we have more challenges. I think we are generally maintaining or growing our share of the market for branded software partners, looking for a search solution and we continue to win new accounts and expanding distinct relationships in the portion of the market where we're competing.

But that slice of the market has been shrinking since the middle of last year and I expect that to continue. At some point soon the B2B market will settle and will flat enough sequentially, hopefully within the next few quarters. But in the meantime we're just staying focused on the part of the market we like.

So overall, we are pleased with the quarter on the Application side and in Q4 we expect to be flattish again sequentially on revenue, benefiting in part from seasonally high revenue per query.

As we look to next year we'll the weak B2B market and browser changes work their way through the P&L in the first half of the year and we'd like to see return to sequential revenue growth by the second half of next year. Meanwhile we're putting lot of energy into our websites business, which grew sequentially for the third straight quarter.

Revenue was up 2% from Q2 and remains on pace to grow nicely year-over-year by Q4 as we finally lap the pricing changes that added from last call. On the content property of loan excluding ad, we remain on track to deliver over a 100 million of EBITDA in the year.

At about -- in Q3 we began to reap the benefit from the investments we have been making in the team and platform. We released major product updates at every level to our consumers who are experts and to our advertisers. We launched the redesign of the website in the quarter to wide spread acclaim. It really looks good.

Our audience demonstrated their appreciation with a 4% increase in time on site, which makes a difference, and our experts are thrilled. Our expert network is this amazing and elite group of enthusiasts and we hosted a few hundred of them in New York a couple of weeks ago. I was blown away by the passion and excitement coming out of the event.

This is a group of people who love to teach, love to write and have an endless stream of knowledge in their respective fields of expertise. We just need to continue empowering them with the right tools to help them get that knowledge out to the world. We still get most of our traffic on about from search.

It's a quality source of internet based users but it has also been and continues to be volatile. So we started ramping our efforts to tap new sources of traffic, especially social where we're meaningfully under indexed relative to peers.

The redesign made it easier for our users to share content across social platforms and for our experts to promote on social and engage their fan basis. That slice of our traffic coming from social is still small but growing and we have an incredibly long way to go.

We've completely revamped our e-mail channel too and we have seen engagement with our first-e-mails on our new platform up over 4X and we're still only scratching the surface on how we can better connect experts to their audiences. And the results from our initial efforts are very encouraging.

To give you sense of it, we can track over 90 attributes that we used to help expert to understand and improve their performance. And the set of integrated tools we provide to help on content production, topic research and distribution all continue to get better.

The redesign also included the rollout of new native ad formats and ad packaging that’s been well received by advertisers who are increasingly looking to position their brands in a seamless way against the intent driven content we have in abundance.

We reengaged the multiple Fortune 500 advertisers who hadn’t brought premium advertising from us in years. The average size of our top 10 ad deals for Q3 was 18% above the same period the prior year and this trend is accelerating in Q4. I'm also pleased with the rest of the portfolio. Integration of the invest to PD and PriceRunner is going well.

We're still very early in our work there but this properties remain leaders in their respective categories and geographies and we're excited about our plans. And Urban Spoon and dictionary.com continue to drive big audiences across the board, well over half of which is mobile.

On top of all that, we added ask.fm to the group in August for a very modest capital outlay. Ask.fm is the largest Q&A social network on the planet reaching an audience of over a 150 million monthly uniques in 150 different countries in 57 languages. Ask.fm generates around the 20,000 questions per minute and over 20 million answers are posted a day.

Their mobile app has been downloaded more than 40 million times with 45% of its mobile active users logging in daily. The engagement underscores what we see as the unique value Ask.fm brings to the table as a social network combined with an intuitive Q&A format. Using the service is as simple as answering a question about yourself.

There is plenty of work ahead and we've made big strides of new management in the first few months and I think we have a great shot at building something big here.

So for search and applications overall, we've got a clear and exciting path forward on the content businesses and some interesting bets on the table, and the applications business continues to deliver nice profits.

I anticipate EBITDA margins for Q4 closer to what we saw in Q1 due to small investments in the recent acquisitions and the sun-setting of some legacy components of the ValueClick assets we bought earlier in the year.

For 2015 overall, I expect to be flattish to maybe down a little on revenue and continued strong cash flow, although margins will be a little lower given the changes in the applications business and the modest investment as discussed. But remember 2015 is a long way away in this business and plenty of things can change between now and then.

With that, I'll turn it back to Jeff..

Thanks Joey. Combined revenue in the media and e-commerce segments grew 9% versus last year, with total EBITDA losses of approximately $4 million in the two segments. Revenue growth was principally driven by strong growth in both Vimeo and home advisor, increasing over 30% and 20% respectively versus the prior year.

Looking at the fourth quarter, we expect continued solid revenue growth from media and e-commerce and again expect a comparable combined low single digit million EBITDA investment. Turning to our media segment, the third quarter was another strong quarter for Vimeo.

Unique users and subscribers continue to grow significantly with both up 33% in September. Total subscribers recently surpassed 540,000. Vimeo on demand continues to scale with September gross revenue almost doubling the second quarter average. The catalog continues to expand as well currently approaching 14,000 titles.

One title reached nearly 25,000 views and well over 200,000 in sales in September. We're very excited about the potential for this business. We're also seeing momentum at our other media businesses including the Daily Beast which continues to see strong traffic growth, increasing over 40% on average during the third quarter.

Additionally our films business produced two films that are being released before the end of the year. Top Five directed by and starring Chris rock and Inherent Vice directed by Paul Thomas Anderson.

In the e-commerce segment home advisor revenue growth continues to accelerate, increasing over 20% year over year, up from 12.5% in the second quarter and 10% in the first quarter. Domestically service request and service success increased 70% and 14% respectively and paying service providers were up nearly 30% year-on-year in the third quarter.

We continue to be very happy with the progress in that business.

Looking to 2015, we expect solid revenue growth from the combined media and e-commerce segments to continue for the full year and EBITDA losses to be on the mid to high single digit millions range, a level somewhat reduced from our 2014 investment and we're going to continue to invest in our early stage businesses.

With that we'll take your questions. Operator..

Thank you. (Operator Instructions). We'll go first to Ross Sandler at Deutsche Bank..

Great, thanks guys. I want to drill in on the Match segment. Grég you mentioned the cannibalization effect of Tinder versus the core Match properties and this cycle is a little bit different than prior when you had OkCupid or People Media whereas those were like -- they were vertical or desktop sites in terms of their evolution.

It was easier to see how all of them would grow in tandem but with Tinder you not only have a new and exciting business, but you've also got a platform shift to mobile. So can you talk about what you expect for -- I think you mentioned low double digit growth or core PMC growth ex-Tinder.

How comfortable are you with that and would you expect that to be longer term. And then on Tinder specifically Shawn [ph] mentioned that that premium is going to get rolled out pretty soon.

What is that pricing going to look like? How are those products going to evolve? And then the second question is, EBITDA for Match would've been about $70 million excluding the differed write-down that you guys mentioned. So even if we kind of normalize that, I think we're down 300 basis points year-on-year.

So as you see this mix shift to the kind of free and mobile or at least lower monetization in mobile happening over the next couple of years, what do you expect the longer term EBITDA margin profile to look like for the group? Thanks..

Okay let me and try and get those. On the cannibalization question, I think -- I actually don't -- I don't think of it a sort of a different platform I mean. Again, even ex-Tinder you're looking at 67% of our usage on mobile and the rest of our products. So, I think everything is sort of shifting in that way.

I think the different cannibalism dynamic is simply that it's a -- any user you lose because of this product, regardless of how many gain on the other side is just a net dilution to your current period financial result. So I don't see the dynamic being different because of mobile. It's just that. And again we're going to reverse that with monetization.

OkCupid is a good example. When we bought OkCupid, I think that the contribution per MAU on OkCupid compared to Match was something like 1-to-20. So it contributed 5% of the rate. It's now basically up to 25%.

So, you went from sort of a 20-to-1 trade-off between users to now 4-to-1 trade-off on OkCupid and we see something very similar like that happening and when you look at the huge MAU growth on Tinder, sort of virtually any monetization rate you do, you offset the dilution.

And I want to be clear that when you look at our businesses ex-Tinder, in the under 35 age group, they were still up year-over-year. They just weren’t up as much as they would have been without Tinder. So it's not like -- even with the explosive growth of Tinder in that under 35 demo, we still had growth in rest of our businesses under 35.

So I think that underscores the fact that there is huge expansion here up from a category perspective. In terms of the sort of low double-digits, look we feel pretty good about it. Tinder is still sort of very much a youth product. I think a lot of the dynamics that we’re seeing this period are going to reverse themselves.

Again we don’t have the Yahoo! Trend. A lot the acquisition and conversion challenges that we had this year due to the shift in mobile are reversing themselves. Again as I said, we’ve already narrowed the conversion gap between mobile and desktop over the course of this year by more than 50%.

And by the end of next year we expect it to be eliminated we think all together and we think actually the native app should actually can work better than the desktop product. We’re going to have a year of anniversary.

We launched a new marketing campaign in July, which has had a good pickup, but the pickup comes in the soft marketing spend part of the year. We’re going to get that for sort of the heavy part next year. So we feel pretty good. We actually feel like it's not overly ambitious to have low double-digit PMC growth among sort of the non-Tinder product.

And again a lot of that will come in mobile and desktop. It could be a mix thing, but increasingly on mobile. So we don’t see that mobile distinction as a real -- a real paradigm shift in terms of these dynamics.

In terms of Tinder Premium, Tinder Premium is going to launch soon, but it's going to launch in a variety of ways, in a variety of prices, in a variety of markets. This stuff is not religion. This is stuff you optimize your way into, which is sort of what I've said before.

So it's not like you’re going to wake up one day and there is going to be sort of this big premium feature launched globally across all geographies at a common price point. This stuff gets innovated and tested throughout and that’s going to start very soon. I think you asked a question about margins. I think there is two different issues.

There is margin for the Group and there is margin for the Dating business. I think -- you’ve got Tinder -- investment in Tinder this year bringing down the Dating margin. I think if you back out Tinder, I think the margin for the Dating business is comparable to better than what it's been. I'll leave Jeff to tell me whether that’s right or not.

But over time as I said, even at Tinder we expect margin to expand into the low 40% over the next couple of years and Tinder is a margin accretive business because it will have -- should have an over 50% margin. So, we think the margin story is a very good story for us.

The same obviously holds true on the Group level, which is we expect investment in our non-Dating businesses to come down and to become positive. We’re still working through Princeton Review. That’s a big integration project. So we’re not ready to give you the exact numbers for next year that we expect.

But certainly the combined business will be less an investment business than Tutor was on a phone beforehand and the investment will be coming down in DailyBurn as well we expect. So, overall we expect margin expansion. Jeff is there anything you want to, okay? Yes, I am not starring at any numbers, but just that’s my -- that’s our expectation..

Okay. And then one last one. This will be a quick one. Just a clarification. There is some articles about advisors joining the Tinder team et cetera that came out yesterday.

Can you just remind us on the record what - I see the ownership of Tinder as 100%, correct?.

Yeah, IAC owns the business plus management has a stake and now Benchmark has a small stake. So there are no outside investors. The Benchmark transaction, which is what you’re referring to I think was not a typical fund raising transaction. It was more analogous to sort of a executive compensation type deal, though not exactly that either.

But they got a small equity stake and management has an equity stake that you might expect in a business like this. But even with that on a fully diluted basis IAC owns the vast majority of it and there are no outside investors..

We’ll move next to John Blackledge with Cowen & Company..

I think I’ll stick with the Match Group. So, just questions.

First could you give us an update on the $25 million to $30 million in 2014 investments at Tinder, Tutor and DailyBurn, what the updated number is? Second, Greg can you provide some more detail on the streamlining initiatives at Match and what the intended outcome is for the various properties Match.com, OkCupid, Tinder et cetera and then also maybe clarify the $5 million impact on credit card, security breaches.

Was that in 3Q '14? Any lingering impact in 4Q? And then Tinder 7X last 12 months, what’s the base number? Thank you. .

Okay, hopefully someone was taking notes beyond me, but I'm going to try and get them. On the investment number I think that the total number is now looking like -- it’s about 45 -- now you've got Princeton Review in there, plus you've got the increased investment in Tinder that I highlighted earlier, that that basically is the mix of it.

In terms of….

The streamlining initiatives at Match that you refer to, just give us some more clarity on that?.

So we're looking at a number of different alternatives. So I can’t tell that what it would look like. But right now what basically happens is we have got in virtually every one of our product lines, People Media, Match our international business, me take [ph] et cetera.

We have got independent development teams who have to develop everything for desktop, then everything for each mobile device. So you've got repetition across lots of different things. And a lot of these features are common.

And we're looking at a variety of different approaches to streamline that dramatically, so that you have more modern API plugging into common databases that basically reduce the friction in the process, should bring down cost and meaningfully increase speed to market. Again that feature I mentioned earlier is a great example.

Literally if we've been able to sort of snap our fingers and roll it out on desktops -- sorry on mobile and People Media at the same time as we launch it on Match, we'd have literally an extra $5 million or $6 million of EBITDA this year and that’s just an example of the kind of opportunities that we are leaving on the table.

Finally within the Tinder question, we are not giving you the base number there. A variety of competitive reasons why we don’t want to do that. But Tinder as a whole right now is a meaningful business. In North America alone -- it's approaching 50% of our business in terms of users. So it’s a big business and it is growing -- continues to grow fast.

Downloads are up each month. MAUs continue to grow like wildfire and there is still so much to do on the product and the brand that we feel really, really good about it..

And then clarification on the credit card. .

Sorry. That number was a full year number. So we talked about -- there was sort of -- what I'll call the target reaches early in the year.

Lately there's been the Home Depot breach and basically what you see is you see an increase in sales credit card renewals, which you got sort of a steady straight stream of failed credit card renewals and then you see a spike in you can easily attribute it to those events and easy quantify and that was about a $5 million hit year for the year. .

And just to be a 100% clear in case anybody missed it, these were really only the Target and Home Depot breaches. There is nothing in Match, just in case anybody misheard that. .

Yes. That's right. It was just failed credit card renewals which are precipitated by those external events. .

We will take our next question from Jason Helfstein of Oppenheimer & Company..

Thanks. One more on Match and then a question on Search. So could you just comment on the slowdown in international ARPU and do you see that rebounding back any kind of -- what impact do you think if any, currency has on international ARPU in the fourth quarter.

On the Search business, is it fair to say that you are benefitting on the B2C side from your beneficial relationship with Google? There's a lot of discussion about does Google want kind of toolbar applications to exist long term and it seems like you guys benefited at least from that early in this quarter.

And then lastly, maybe you talk about the overall value in the market of like the application types businesses. There was a report back in August that private equities buying out answers.com. That valuation hasn’t been disclosed but I'm pretty sure it's more than the value that the market attributes to you are website business sorry.

And then just talk about, perhaps what you see as the mismatch between the value of the markets applying to your destination websites versus what maybe the value in the private market? Thanks. .

I think on the ARPU stuff -- I think domestically you have seen ARPU increase sequentially every quarter and we expect that to continue. That’s what we said would happen at the beginning of the year. We're doing a bunch of pricing effects and we said the beginning of the year would be sort of the low point and it would climb and it's done.

We expect it to continue to do that in Q4. Internationally Q3 is a really a blip. We expect Q4 to be back, effectively consistent with Q2 and Q1. Basically you have -- these PMC numbers are quarter end numbers and we bought FriendScout in the quarter, which led to an increase in PMC without any associated revenue.

There are also FX effects, that the euro against the dollar that are hurting us, both on a rate basis and international performance, which was another factor that I didn’t throw into the mix. But that's the ARPU story.

The ARPU story is actually a good story, even with mix shift to lower price product like OkCupid and true, overall ARPU is going up because we’re driving up rate in each individual business line.

Joe?.

So in terms of the relationship with Google -- we're a large partner with a lot of scale and I think that we have a good deal with Google but the - as it relates specifically to the Chrome issues and the performance this quarter relative to our expectations, we don’t get any benefit in terms of how things operate in Chrome or how we operate in Chrome relative to the rest of the market.

Those things are very separate. So there is decidedly no benefit in terms of the relationship there. But we have good deal and I think that we are a strong -- always have and continue to be a strong operator in the space and we’re generally on principle aligned with Google on where they want to be.

We said in the past that the changes that they've made to some of the downloadable applications are not the changes that we would have made. But in spirit and principle we’re generally looking for the same things in terms of user experience.

In terms of valuation on the website side of business or the application side of the business, I can’t really comment on that -- on the valuation that other people are paying for other assets or even really where value add is in.

I see -- I know that people don’t like volatility and we’ve seen some volatility certainly over the last year, year and a half or so, and people tend to focus on the negative volatility in that, and as you pointed out this quarter, that’s particularly in terms of revenue per query this quarter was positive, that volatility.

And so it's good and in generally we operate within a band on these things and it's a diversified group of assets and properties and so the hit somewhere might be a benefit somewhere else. So overall it's been a relatively stable business in the context of everything, but sometimes people can over react to the volatility.

I don’t know, Jeff, if you want to add to that in terms of valuation?.

No, just to add onto what Grég said, I think we saw $1 million to $2 million of impact on currency in the third quarter and we think that’s going to expand with the volatility you’re seeing in the fourth quarter, maybe another $1 million..

On the FX side. But I think -- just want to be clear. On a local currency basis there is no downward pricing going on of any measure in general that pricing is going up across the board..

Operator:.

We’ll go next to Mark Mahaney at RBC Capital Markets..

I knew you had lot of Dating brands. I didn’t know you had 39. Any thoughts on rationalizing any of those? And then secondly just comment briefly about share buyback activity; your thoughts on the environment here and then what you did or did not do in the quarter? Thanks a lot..

Well just to take the share buyback question quickly, there was none in the quarter. As our policy is, we do it opportunistically from time-to-time and we announce it when we do it. So there is no change in policy..

As for the 39 brands, we certainly don’t have a target number. I think that the key is really in the project that we’re talking about, which is not so much to rationalize the number of brands, it's to rationalize the infrastructure that underlies them so that the incremental brands don’t create incremental complexity and cost.

And not that we’re focused on I think -- there are certainly brands we start and brands we stop and they tend to focus on - they are ones you haven’t heard of and they tend to focus on this market and they tend to be driven whether or not they are sort of positive marketing opportunities for groups that want to be in a particularly focused site.

Again those shouldn’t -- we should be in a place where there is not meaningful incremental complexity and cost to those and not that we’re working towards..

We’ll go next to Peter Stabler at Wells Fargo Securities..

A couple for Grég. Thanks for providing the cohort data over time. That’s really helpful to understand the mix shift and use. Question related to that.

As you look out over the next couple of years, would you expect a significant change in the revenue mix between advertising and subscriptions as products like Tinder start monetizing or - and do you think that could be if so related to a mix shift in the youth segment just curious about that?.

I certainly getting -- we’re going to -- Tinder is going to monetize in three ways, effectively the same as all the rest of our products do, which is a combination of what I’ll call subscription revenue, ala carte revenue and advertising revenue. We then optimize the mix.

I think that Tinder lends itself to a particular type of sponsorship in advertising that I think some of our products don’t, that we’ve now. I think we’ll see where that goes.

My instinct is that Dating continues to be a category where even in the freemium model, there is real value to certain features and there is a meaningful number of people who will pay extra for those features. And so, while I think that advertising may well become a meaningful part of it, I wouldn’t sit here and forecast any particular mix shift.

It may happen, but the overwhelming majority of our revenue right now is non-advertising and my expectation is that that continues to be the case for the foreseeable future but the mix shifts a little bit -- I don't know -- of course I could be wrong.

We might come up with the greatest native ad unit ever and it may change the world; and there are certainly people focused on doing that. But it's not -- certainly not built into our numbers or our long term expectations..

And our next question comes from Heath Terry at Goldman Sachs..

Grég, when you talk about cannibalization -- how much of that is taking the form of Match subscribers, individuals actually leaving to go to Tinder, OkCupid versus just a mix shift in the incremental growth on those other platforms is faster than what you're seeing at Match.

And then Joey, if you could give us a sense of what drove the B2C growth, how you would say it breaks down between applications downloads increasing; and if so if there are any specific applications that you're seeing getting traction versus queries for application or revenue per query..

Sure Heath. On your first question, it's the latter, meaning we're not seeing increases in churn or anything like that and as I said, I think when you exclude Tinder in the younger demo, we're still seeing growth year-over-year.

It's just when you compare the overall performance in that youth demo against the overall performance in the older demos, you can see a differential that is somewhat new in terms of sort of the positive year-over-year performance and it's impossible to know precisely, but our best guess is this is actually a mix of both, Tinder cannibalization and the fact that in some of those products we're not as good in mobile as we need to be.

And those -- both those things impact the youth demo primarily. As I said we launched our app at Match in April. We've already improved conversion by 50% in a five month period over -- on a desktop site that takes years to do. So as we continue to make those improvements, I think that will narrow and I think that will help mitigate it.

But right now it's a differential in sort of go forward performance as opposed to any sort of churn or increased exit or anything like that..

And in terms of what drove B2C growth, so really the -- first of all there is definitely RPQ. RPQ is very strong in the quarter and that was some things we did on our side and some things that Google did, which definitely helped.

But the substance of the Chrome change, as it related to B2C business was when we would offer a product we would make multiple search offers with multiple search assets, when we would distribute the product and the change to Chrome was to limit that that to basically one search offer.

And so when we did our forecasting, which is hard to do in advance of these things until they’re live and you test as much as you can but it didn't really come out until we saw it fully in the wild [indiscernible] happening was we certainly didn’t make offers for those other search assets. So we didn't get them obviously.

But what we saw on the flip side was an increase in conversion and an increase in retention. So the friction presented by some of those offers was -- in the previous framework was eliminated and that helped on conversion going forward.

And then again I think could be a bunch of things but that also users are keeping the product longer, which is leading to more queries and higher retention. So it's those combinations of things that while net not as much margin as there used to be in Chrome, not as much LTV as there used to be, it's still a good business..

We'll go next to Kevin Rippey at Maxim Group..

Can you give us a sense of the breakdown between international and domestic in terms of the 7X growth in Tinder MAUs?.

Sure, international -- non-North America is -- makes up about two-thirds of the total MAUs right now. Tinder -- so start in the U.S. So sort of growth was faster there and so now growth is a little faster internationally than it is domestically, although still great growth in both places.

But the current mix is about two-thirds -- one-third international, North America..

Appreciate it.

And then just to move to Vimeo briefly, can you give us a sense of what your long term EBITDA margin objectives are?.

Can you just repeat that again?.

Oh sure. On Vimeo, the long term EBITDA margins, any objective or any color you can give there would be really helpful..

Look, I don't think we have a specific objective in mind. We think that it's a great business that's got a great trajectory in front of it, and a huge addressable market. I think we'd love to see solid margins out of it but we're going to manage this thing for growth and ultimately a nice margin over time and I don't want to put a target on it..

I appreciate it, thanks..

One more question..

Alright and we'll take that question from Chris Merwin at Barclays..

For Tinder Premium, is a single digit penetration rate of your user base still the right way to think about the opportunity there and I know for Tinder also you can talk about the user base, but is there anything you’re willing to share on engagement metrics whether it's the ratio of DAUs to MAUs or something else? And then a second one on Vimeo, YouTube has talked about the possibility of maybe implementing a subscription model that could remove advertising, kind of similar to what Pandora has today.

You've got an enormous audience now for Vimeo. Is that something that you'd ever think about doing in a future? Thanks..

So on the Vimeo question, yes I think we would and probably will soon think about a subscription offering or one sort or another. We think that that’s something that you see more and more out in the market. We think some of the consumers and then so yes..

Yes, and I'm sorry, my brain must be a little fried. I got your first question, but not the second question. On the first question penetration rate, yes look, I think we'd love it to be higher, but I certainly in sort of the straw men I lay out for you, it is very much a single-digit penetration rate.

And I would think that getting into the double-digits is not happening quickly. You don’t know what -- you don’t know what will happen over time but when we’re talking about sort of coming at a two-thirds -- the OkCupid rate North America and Europe and one-tenth that rate rest of world, you’re very much on the single-digits.

In terms of engagements, I don’t want to give precise numbers, but I would say the DAU to MAU numbers have remained constant and very solid. I would -- we’ve often described Tinder as sort of the cross between a Dating product, a social network and a gaming product.

Now I would say that the engagement numbers are stronger than a regular Dating product and much more in the social sort of -- social network range than in the traditional Dating range..

Thanks everyone for joining the call and let us know if you have questions..

Talk to you all next quarter..

And that does conclude today’s conference. Again thank you for your participation..