ComparisonEngines

From the Scripps earnings release:

Interactive media revenue [Shopzilla, uSwitch, UpMyStreet] was $86.6 million for the fourth quarter compared with $63.2 million in the fourth quarter 2005.

On a pro forma basis, as if the company had owned uSwitch during the fourth quarter 2005, Scripps Interactive Media revenue was up 21 percent.

From the conference call (paraphrased, not from a trascript):

Internet sites like HGTV.com DIY.com – consistently top 10 websites in their categories

We affirm our belief that these specialized online shopping comparison engines will contribute to the long term growth of the company[Scripps]. Shopzilla was the only comparison engine to rank among the top 10 internet retailers during Cyber Monday, Black Friday (sites like BestBuy, and Walmart were the others). November – December, with cross promotion (cable, TV, newspapers) – the name Shopzilla was the highest searched term among the shopping comparison engine [names]. Great indicators of strength of the brand. Brand building = free traffic. For 4th quarter free traffic grew 60% y/y. About half of Shopzilla’s traffic is free, up from about 33% 2 yrs ago.

Shopzilla faced a competitive keyword bidding environment and chose not to chase expensive traffic. Traditional retailers stepped up search engine marketing (SEM) and drove up prices…led to too little yield on many keywords . We’re closely monitoring the situation. If keyword prices don’t settle down, we’ll accelerate our brand building strategy to drive free traffic. We’ll be making big improvements to the site’s UI and overall look and feel.

Segment profit for the interactive division in the 1st quarter is expected to be $9m.
Still in investment mode, as we secure our competitive position. Increased spending in marketing at uSwitch. Concentrating on customer experience @ Shopzilla, so there will be increase in employee cost.

Interactive media segment profit, which includes Shopzilla and uSwitch, was $28.3 million in the fourth quarter 2006 compared with $20.3 million in the prior year.

Revenue for interactive unit was up about 20% to $86.6m y/y. Segment profit was $28.3m.
Pro forma revenue growth reached about 60% for 2006.

Analyst questions (most of the Answers provided by Tim Peterman (SVP Interactive), but Rich (COO) also jumped in a couple times):

Brian Shipman f/UBS Q: interactive profits down y/y…what are your assumptions for the underlying growth of Shopzilla? How much is uSwitch diluting the guidance? Would have expected revenue growth to be stronger in Q4.
A: Slowdown in the profit in Q1 2007 = $10m marketing launch for uSwitch (new products in personal communication and finance). In Q4 saw increase in SEM marketplace, but it was absolutely anticipated as well. At the same time, we’re trying to push up the free traffic side. SEM was more competitive, but that’s not where we’re trying to be over the long run anyways. Bottom line looked good, but revenue was slower due to competition in the SEM market. We really did focus on driving free traffic.

John Janedis f/Wachovia Q: As it relates to the growth here, do you still think Shopzilla is taking share? Can you give us some sense what did the comparitive shopping vertical saw in terms of growth?
A: Yes, we believe it’s holding or even taking share. We look at the universe as the big shopping engines (Shopping.com, PriceGrabber, Yahoo! Shopping. We also look at all the other upstarts. We look at some of the other retailers trying to provide some of that similar functionality. Shopzilla continues to outperform in our view.
John Janedis Q: So you think the industry grew below 20% for the quarter?
A: In terms of revenue, it’s hard to predict as the only real metric is unique visitor, but we think we were at the top end of the performance.

Peter Appert f/Goldman Sachs Q: Are you re-thinking the profit potential of interactive business. You were showing 30% margins in some quarters. Now with spending more on keywords, marketing, etc. is it a lower margin business?
A: No, we don’t think so. Are we investing in the business. Yes and that’s because we believe the profit potential is still there. uSwitch is a $10m offline marketing campaign to launch into new categories. One time marketing launch which will pay great dividends. With Shopzilla, our investment thesis from the beginning, use the traditional brand building techniques and assets to build loyalty and free traffic, SEM is not the long standing, dominant strategy to build the business. Functionality that we’ll be improving this year on Shopzilla which relates to what to buy – they are currently solving where to buy.
Q: Is this a 30% EBITDA margin business.
A: Sure, it could be there.

Steven Barlow f/Prudential Q: Had $80-85m segment profit for interactive division (guidance in December). Got $9m in the first quarter. Does that guidance still hold?
A: Yes it does [Steven added a nice chuckle when he heard that.]

William Berg f/Citigroup Q: Any particular factors that contributed to the moderation in interactive revenue growth at Interactive besides SEM costs rising significantly?
A: The primary reason for 20% rev growth in Q4 was we saw more expensive rates in the SEM marketplace. With this business, you can drive the revenue just by buying more keywords, but are you getting keywords in at a price which you think is profitable for the business and then improve the experience for the user? We’re the biggest in terms of scale in providing leads to these merchants. We believe we’re a dependable source of leads for the merchants that have a high conversion rate. You have to balance a variety of things in determining how aggressive you’re going to be in the SEM marketplace. At a certain point when they exceeded those things we were comfortable with in terms of pricing we decided not to participate. Our Q4 was focused on driving free traffic (smart shopping segments, newspapers, etc.). We think the end game is through superior loyalty traffic – bringing people back, getting people to type Shopzilla into the browser, not being taken there through some other place.

Lauren Fine – Merrill Lynch Q: How dependent are Shopzilla & uSwitch on online ecommerce vs. total retail sales? Jupiter study said that online ecommerce is slowing…impact?
A: For some time comparison shopping has been focused on online opportunity, but we will also meander into what to buy (offline sales). If we fulfill where to buy as well as what to buy, it’s difficult to pinpoint one side vs. the other. Right now it’s heavily focus on online. This is something that is impacted across the company. For example on our Fine Living Network, we’re doing a show called American Shopper in conjunction with Shopzilla and taking a hard look, not only at driving free traffic, but is there a connection between showing products on the shows then allowing people to then move to the internet to get more product information and possibly purchase. We’re seeing some ups and downs in this division, but I remember we saw some of the same ups and downs early on in our cable networks business when we were trying to grow it, invest in it. We’re still early on in the comparison shopping business and how it relates to all the others. We think it will not only be a good division for us long term, but there’s a lot of learning going on throughout the whole company.

Lisa Monaco f/Morgan Stanley Q: Q4 Pro forma rev growth is 20% (Interactive), can you break out (Shopzilla v. uSwitch). Unique visitors was down in December for Shopping.com and Shopzilla, how are revenues growing and how do you get comfortable that general user trends aren’t moving away from price comparison sites going directly to retail sites?
A: We’re not breaking down revenue by line of business.
A: The information we see internally as well as outside metrics (unique visitors from Hitwise, ComScore, as well as talking to merchants and talking to consumers) we don’t think the trend is moving away from comparison shopping. Just as the general search engine didn’t provide enough feedback to shoppers, we think the consumers want more – a deeper answer and a quicker answer and that’s what we’re focused on answering…European comparison shopping engines do that well (where to buy and what to buy). Users want more.

Alexia Quadrani f/Bear Stearns Q: Will investment spending in Interactive peak in the first quarter?
A: Yes, it will peak in the first quarter.

[I think it's time for me to get on the call]

This entry was posted on Sunday, February 4th, 2007 at 3:03 pm and is filed under Comparison Engines. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.