Thank you guys for joining the MediaAlpha presentation. Adam Klauber, just quick, if you want to see our disclaimers, they'll be on our website, please. MediaAlpha is potentially the top player in a very cool and developing market as it's ups and downs sometimes, but right now it's a lot more up than down, right Steve?
By some metrics, yeah.
And, you know, I think what's really interesting in, you know, Steve being on the leading edge, will give us some insight that, you know, I think there's a lot of potential changes in different ways this market can go in the next two, three years or so. So, I think it's a great presentation to listen to.
Well, great. Listen, we'll try to go through the presentation pretty quickly. Please feel free to interrupt me with any questions or we'll have Q&A at the end. So, let's see. Great. So a quick word about our mission. Our mission is really just to connect insurance carriers with online shoppers. It sounds like a really simple mission, but when we started the company 15 years ago, I think you just have to keep in mind that these carriers were just very old, had antiquated technology, very few were actually leveraging the internet to acquire customers. It seemed like a basic thing at the time. But the reason we started the company was we figured that, hey, there's a lot of money being spent in advertising for, particularly with personal lines insurance, like personal auto and homeowner's insurance, by companies who primarily would close policies offline. But we saw early companies like Daiko and Progressive obviously selling policies online, enrolling consumers entirely on an online basis, starting to really lean into online advertising. And in our space, in particular, lead generation advertising to acquire customers. And we figured, hey, the state farms and farmers and American family all the legacy carriers will eventually start to direct adopt direct-to-consumer channels and then hence you know online customer acquisition channels and you know fast forward like 15 16 years later they're finally starting to do that and so we're very happy that we picked this mission it's certainly working out for us very well and things are unfolding for us as we expected probably like 10 years later than we thought they would you know so the industry doesn't move lights it does not move at light speeds absolutely not So just at a quick glance, I mean, fast forward from, you know, when we founded the company in 2011, we did about $1.2 billion in revenue over the last 12 months. P&C advertising spend has gone from, I think we don't, you know, when we started maybe like three or four billion a year to about $14 billion last year. And so that's just personal auto, I think personal lines advertising. So Geico and Progressive, the general companies like that. The thing is that even though they spend a lot of money in advertising, a couple of things. One is that they severely under index for digital channels. And so even though across all industries about 80% of all ad dollars are spent online, within the personal lines auto insurance space that's only about 40%. And then in addition to that, something we'll touch on a little bit later too, there's about 20 to 25 billion dollars in commissions that are paid out to agents that as carriers like farmers and state farms start to adopt direct-to-consumer channels and pay less in commissions the policies that they're acquired directly, you're gonna start to see a conversion of a lot of those commission dollars into ad dollars to put in to provide tailwind into the overall ad spend in the space. I'll say that you know we generated you know over a hundred billion hundred million dollars in adjusted EBITDA over the past 12 months and as Pat will address our CFO I'm sorry I didn't introduce myself I'm Steve Yee co-founder CEO I just jumped right in, sorry. We have given a lot of this capital back to shareholders this, particularly this past year because of, you know, where our stock price is. We feel like that's the best use of our money right now. Very happy to be able to do that and show faith in our company and our future cash flows. I think the metric that I'm most proud of here is that we're still 160 or so people. We were 80 people when we went public six years ago and so our LTM, you know, LTM Q126 revenue, about seven and a half, almost seven and a half million dollars per employee. So it's a number that we're really proud of. To recap some of the market opportunity you're seeing here, just the growth in overall TNC insurance advertising spent from 21 to 25, it's been close to 10% a year. As I mentioned before, it's an industry that really under indexes the digital channels. And again, as the legacy agent-based carriers start to go direct to consumer, you're gonna increasingly see a lot of advertising spend going from sports sponsorships and billboards and TV channels to really online digital customer acquisition channels. In terms of our overall ecosystem, you know, what we do is we create a marketplace for publishers, which we call supply partners here, or demand partners, which we also call advertisers. And so on the supply side, what you have our like insurance comparison sites companies you might be familiar with like insurify and the zebra which offer a rate based comparison experience for auto insurance and so think of them as kayak for auto insurance you have fine financial apps like Credit Karma financial websites like nerd wallet that offer insurance shopping experiences again typically personal auto but also home as well you have lead generators that will buy traffic on Google or social media converted into a form you know someone filling out a form and then match them to advertisers and then you also have carriers who we work with who will make an intelligent decision when someone's on their site looking for a policy if they feel like hey Sam's not going to convert into a policy sale well I'm going to show him ads from some of my competitors to make fifty or sixty dollars from Sam being on my website because I know I'm not going to close him and so I'm not going to sell him a policy so either he goes back to Google and clicks on another ad or he clicks on an ad on my site and so So that's a business model that we've pioneered and we work with over 50 carriers to do. And so that's sort of the, I guess, the suite of publishers that we work with. And we work with several hundred publishers. And we aggregate the insurance shopping inventory that they have on their sites and their apps. And then we connect them through one marketplace and one media buying platform, mainly to insurance carriers. And so, you know, Progressive is a big fire, Allstate is a big fire, State Farm, etc. We also work directly with brokers and agents as well. We work with several thousand state farm agents, all state agents, and not recently farmers agents to sell them mostly leads and calls in media that they can work with because they don't have websites where they can convert a policy sale so they can't buy clicks. But predominantly our marketplace is cost per click media that the big carriers are buying from all of the publishers in our ecosystem. Any questions about that? My favorite key pillars of our technology platform. So massive scale, we're the biggest player in the industry by multiple factors, and so we have just a ton of data. We have millions of shoppers coming in every month, transacting, clicking on ads, getting a quote from an insurance carrier, buying a policy from an insurance carrier, and we have access to all of that data across the whole ecosystem. Really what that means is we can apply AI to optimize carrier span to the nth degree better than anyone else in the industry can. One thing about our channel is that this is about real-time customer acquisition. So your carriers are able to reach consumers right at the point of sale. And so I mentioned to you that use case where insurance carriers will have someone shopping for insurance on their site, and they make a real-time determination that, hey, this person's not going to buy a policy from me because my rate's too high, or I can't underwrite this consumer. you know they're at the point of purchase and that's when an ad is being served to that consumer and so it's very bottom-of-funnel traffic very high intent very transactional intent consumers that we're creating a marketplace for multiple touch points I touched up on that already carriers typically who can sell policies and enroll consumers directly online they're buying click traffic and that's what 90 85 percent 90 plus the media value within our marketplace but increasingly we're working directly with insurance agents and brokers who typically will require a lead or a call because they need to close a consumer on the phone usually and so we have multiple touch points to all carriers and brokers depending on exactly how they want to interact with consumers then trust and transparency we started off as a transparent advertising exchange where progressive coming onto or a site could buy traffic from, again, one of several hundred publishers, but then they could do so transparently knowing exactly which part of a site from a publisher, from which part of a publisher's site that they were buying from. And before we created that transparency, it was all just one black box. You were just buying traffic from a network like Quinn Street and you were able to maybe differentiate pricing based on state, but that was really about it. You couldn't pay a different price for a consumer coming from Connecticut who is a homeowner coming from NerdWallet versus someone who's coming from Insurify or someone who's coming from an insurance carrier site and as you can imagine the intent is very different from consumers depending on what website they're coming from and what the upstream media channel was to acquire that consumer to that original publisher site and so where that consumer is coming from and what website it's coming from and what part of the website they're coming from it's a really important intense signal so it's a really important pricing signal that we introduced to the industry and one of of the reasons that our overall ecosystem has multiplied over the 15 years that we've been in business. And that's really what the transparency brought to the space. In addition to that, that also happened to engender a ton of trust in us as an intermediary. And so typically, because we're the largest player, we end up getting a lot of partnerships, proprietary partnerships, from large insurance carriers that no one else can match. And so for example, farmers recently, earlier this, last year picked us as the exclusive click find platform for all of farmers direct buying so whether they're buying media a click from ever quote or within our marketplace they're using our technology platform to do so in addition to that we power the farmers lead marketplace for their agents and so we're really a multi it's a multifaceted exclusive partnership with farmers that's really because of the trust that we've engendered within the industry through our transparent approach you know one of the hallmarks of our channel is really the amount of data that's available for targeting purposes and for pricing purposes and so because these consumers are shopping for insurance you know a lot about them because to shop for auto insurance for example you need to enter like 35 pieces of information right on a lead generation site or on a carrier site on a price comparison site so all of that data is available for pricing purposes and so versus Google where you bid for a keyword like auto insurance quotes right versus cheap auto insurance yeah there's a different price for those right the level of granularity that you have versus Google is so much superior in our channel because you can pay a different price for someone who's married who's between 35 and 45 who's a homeowner you don't know those things when you're being on Google typically you also know exactly what you know what publisher site or app that user got a quote or did a search and so you can price based on any number of those things you can actually pull in third party data and use that for targeting purposes and pricing purposes so the ability to actually leverage all the data that you have access to because the user is in the middle of buying or or deeply researching an insurance policy is unparalleled at this channel versus any other channel and that's why when insurance carriers want to acquire new policies this is really where they come right in increasingly with all this data what we're able to do is apply AI to do optimizations across all of this data and so and so right now is really when we're able to leverage our scale advantage and the fact that we have more data than any other marketplace to our advantage to really extend our lead over other competitors who have a fraction of the data that we do and what that means is more efficiency for advertisers and then higher yield for publishers and and it's a virtuous cycle that's really happening now, and it's really taken afoot over the last year or so. We're focused just on insurance primarily because that's where so much of the advertising spend is, is in property and casualty insurance, which primarily is within personal lotto and some personal home, or homeowners. We do have an important presence within the health insurance vertical with Medicare Advantage, which is a half a trillion dollar vertical with you know major carriers like UnitedHealthcare, let's see I guess Molina and Humana who are just starting to actually come online just starting to go direct to consumer not just relying on brokers to sell their policies. We see that as potentially a huge market opportunity that's gonna rival the size of the auto insurance opportunity maybe in five to seven years. Right now it's a difficult market within Medicare Advantage but what we're investing in is really the evolution of that vertical to becoming something like what auto insurance is now and because of our experience within the auto insurance vertical and knowing exactly sort of the online customer acquisition I guess adoption cycle that these auto insurance carriers have gone through we can really predict what those needs are that a UnitedHealthcare is going to have and so we can pilot programs like an online enrollment platform program that we have with UnitedHealthcare where we're not just like selling them a click and a consumer from our marketplace we're actually providing them the technology infrastructure to help them convert that user into a policy sale and ultimately managing that process and ultimately with the partnership like that we can probably get paid on a per policy basis you know once we actually finish our pilot program with them and so it's really about understanding where the marketplace is going from our experience within auto insurance to really provide much more of the customer acquisition technology platform-based solution to carriers like UnitedHealthcare and Humana in a way that we're not doing to a progressive or an all-state. That type of an opportunity also exists with a lot of secondary and tertiary carriers within auto insurance. Again we you know we can convert policies or we convert a consumer from a click to vote far better than most carriers can themselves other than like a progressive or all-state. so we're also increasingly working with these carriers to host parts of the conversion process and so we're excited about those opportunities and really the depth of partnerships that we believe that we can form with a lot of carriers so again our newer to online customer acquisition than an Allstate and a Progressive R. So did you have a question? That's a very good question let's see I I think first it's negotiated with publishers, and typically we have a much higher margin on our open exchange, which is where we're actually optimizing and managing the advertising spend on behalf of carriers, and the carriers aren't working directly with some of our largest publishers through a private marketplace where we're much more of just a technology platform, And so to the extent that these additional services keep those carriers in our open exchange and buy more through our open exchange because these types of services are only available through our open exchange, we're naturally going to get several times the economics than if that carrier was executing that spend outside of our open exchange in our private marketplace. but it's a really good question as we do these partnerships it will be it'll be interesting to figure out like how we how we get the value that we deserve by adding by taking on a lot of the conversion risks etc you know some of these partnership we see as being structured on a back-end payment and so for hosting the enrollment experience for let's say UHC they're gonna pay us and we're gonna negotiate a cost per policy based payment then we can actually bid whatever we want for the media even within our own marketplace or outside of our marketplace there would then we'd be able to set really effectively our own margins right because we're buying media and then arbitraging that to an ultimate you know cost per policy payout that one of our carriers is going to give us and so we'll be able to control whatever level of margins that we're able to uh to keep and that will be dependent upon how good we are at media buying both within our marketplace and outside of our marketplace and how well we can convert that consumer it depends on the partnership but like a partnership like farmers where I think we have we have a lot of influence there and so I think the deeper the closer we work with a lot of our carrier partners then the more influence we have and keeping that spend within the open exchange because they know just a lot of the services that we offer aren't going to be available if they work directly with one of our large large publishers I think the private marketplace is a very good offering for a small number of advertisers who spend a lot with a handful of our largest publishers. I think for the vast majority of other advertisers and publishers it's really not the ideal product and they need us through the open exchange to really help make an efficient market between those sets of participants. Anything to add there?
No, I think it was going to answer and a good question.
Yeah, it's a great question. You know this is the last slide, this is at least in my section. This just gives you an overview of really where the industry's been. So essentially what happened in 21 and 22 is that you had an erosion of combined ratios as inflationary pressures really increased, it really spiked the cost of auto repair. And so as people started to drive again after after pandemic lockdowns, they started to get into more accidents and those accidents became far costlier to address or fix than before. And so auto insurance rates, I think, went up since pre-COVID, maybe 50% or so across the board. And of course, when repair costs go up by that much, car insurance companies, their profit margins start to get eroded. And they can't instantaneously increase their rates. It takes time for them to increase their rates. And so in a period like that, which is referred to as a hard market cycle, they tend to pull back on advertising. And you see here the hard markets of 21, 22, and 23 and the impact that it had on the advertising span. And so now that profitability has been restored and the industry's in a good spot, you see that advertising span is starting to go up again and that's really where we are. Now, you know, we're certainly happy about the soft market cycle and the tailwinds that it's creating, but ultimately it's getting us back to where we really should have been and had there not been this third-generational hard market that severely depressed advertising spend at 22, 23, and parts of 24. And if you see what the growth rates were between 2017 and 21, online auto insurance advertising spend went up by about 11% a year. If you look at 21 to 25, that's actually, even though it feels like it's been a tremendous tailwind over the last two years, and it has been, and we've certainly been the beneficiary of that and taken market share in this upcycle, it's still just getting us back to where we would have been had there not been this disruptive three-year hard market. And so if you look at the Kager between 21 and 25, it's actually lower than what it was in 17 to 21. And so certainly we're appreciative of the tailwinds that we have and the cyclical turnaround that we've seen. But what it really means is that all the secular trend and that carriers have to really adopting online advertising and pouring more into advertising and lessen the issue into commissions for agents and brokers, that is what's gonna continue to provide tailwinds over the next several years.
Yeah.
So I think that, I mean, ultimately, just to pull back a little bit, I think that the fears that people have, not fears, but the prediction, the fiction, I would say, you can see where my answer's gonna go, that people see about what AI's gonna do to insurance shopping is that everyone's gonna use ChatGPT just as a shorthand for LLMs to pull quotes from every single carrier and you're gonna be able to compare rates from Geico and Progressive and State Farm and everyone else all in one place, this magical solution. That's just not gonna happen, right? The most you can do, I think most you'll be able to do is maybe pull in rates from independent agency carriers, which are carriers who distribute the policies through independent agents. And what that excludes is State Farm and Allstate, Geico, Progressive, either the direct to consumer carriers or the carriers who sell policies through captive agents. And you're not gonna be able to aggregate rates from most of the major carriers out there, only the ones, again, who sell through independent agents who are typically the secondary and tertiary brands in this space. And so... Steve, can I cut you off to the big point?
Why is that? Why can't ChatGVT call State Farm?
Sure, because the carriers won't let them, right? And so this is a new technology. There have been companies that have tried to say, hey, we're gonna be the kayak for auto insurance and show you every single rate that's out there. We're gonna, you're gonna put in your information once or we're gonna crawl every carrier's website and pull in the rates. Well, there have been dozens of those types of startups and they've all failed. They've all failed because the carrier shut them down almost immediately if they get any kind of scale. And that's because Geico, Progressive, Allstate, State Farm and other carriers invest billions of dollars on brand advertising and the last thing that they want to do is have you know State Farm with $150 per month rate show up next to some carrier no one's ever heard of who's offering $145 because every any consumer is going to typically go to that no-name carrier and buy the cheaper policy. State Farm knows this, Gryco knows this, Progressive knows this and so they'll never let their rates be shown next to other rates on a comparison site like that and so that's sort of fiction number one and that's one of the fears that people have about AI which is that it's gonna enable this perfect price comparison unfortunately as a consumer I would love that all right but unfortunately because of the vested interest that most of the major carriers have and not allowing for that type of just pure rate comparison it's just never gonna happen other than with a secondary set of carriers and that experience is already available directly on Insurify and Zebra and other price comparison sites. Does that make sense? Yes, they have a Drive product. Progressive has a different product called Progressive Drive where those rates are able to be shown on those types of websites and quoted through independent agents, but it's, I don't know, it's not as good of a product maybe as what they sell directly. It's a little less than half, but it's probably not the best price that you can get from progressive and so you're absolutely right about that okay but the reality you're never gonna get progressives direct rate you're never gonna get Geico you're never gonna get USAA State Farm Allstate and we've just named carriers that represent about 75 percent of the universe right there so well I think so if you if you look at how a company like Insurify and Zebra monetize all the traffic that they're they're sending to their website. That's exactly, what the consumer sees are rates from a lot of these independent agency writers, like a Dairyland and other carriers like that. And then you're seeing ads from a lot of these national carriers that won't let their rates be shown but are happy to advertise on these, like in those rate tables, in and around those rate tables. And so what you'll see is, you'll see a progressive ad, no rate. You'll see a Geico ad, no rate. You'll see a State Farm ad, no rate. Those ads are served by us, right, for Insurify and Zebra, and then you'll see like Dairyland and some other secondary tertiary carriers with their rates, and, you know, they'll make most of their revenue from clicks that consumers make on those non-rated ads, and we can see or see that the LLMs would move to an experience like that, right, where the ad platform is going to be a much more important revenue source than anything they can sell through the rates that they show through the LLMs.
Yeah. And to add to that, I think ChatGPT has put numbers out there publicly around $100 billion ad business and the like. And while insurance isn't the largest vertical in search in terms of monetization, it is a meaningful one. And I just can't imagine they wouldn't try to capitalize on it because it's obviously a fertile business for Google today. And so I'm sure they know that.
Well you normally know Google tried to do this like five or maybe six or seven years ago like Google compare they said hey we're gonna be like kayak for auto insurance we're gonna pull in every rate from everyone the major carriers told them to pound sand and so they showed some rates from independent you know the independent agency writers but it just took up too much real estate and they were just losing too much money from insurance advertisers and so that was a maybe a six to nine month experiment known of the agents the independent agents or independent like the independent agency carriers say that one more time sorry I'm sorry Oh goose head insurance yeah I mean if they do that'd be great because they'll be advertisers in our marketplace so insurify is is both a publisher and a major advertiser within our marketplace and so they need to get traffic to those digital experiences that replicate what they're able to do through whose head agents and so so we would love for who said to actually have that digital rating system and a digital binding system, because that would mean that would just be another major advertiser within our marketplace. The problem is on the binding side, the insurance, the independent agency carriers are just technologically, it's tough to have a seamless online buying process. So typically after you get those rates, there's a quoting system, you're gonna have to call in to actually buy that policy. So Insurify has a big call center of agents. People have to call in to actually buy a policy from one of the rates that they see on Insurify and Zebra. And so unfortunately, that online experience isn't quite as seamless, but once it is, that'll just mean that those independent agents become really good online advertisers or can become more productive online advertisers. So ultimately, I think that's a good thing for us.
When you're talking about these carriers, are you?
We are, I mean, because there's homeowner traffic within our marketplace and auto traffic as well again most consumers are shopping for auto and so the way that the whole the way that it goes is that they'll buy auto and then the carriers will pay a lot more when it's an auto policy being purchased by someone who's a homeowner because there's a bundling opportunity there that makes that expected lifetime value much higher than someone who's just a single renter well they're kind of both so Quinn Street I would say is as more of a direct competitor because they work with third-party publishers and try to create their own marketplace I think our market share is far far far higher than theirs and and they were the legacy advertising network the black box network that we worked at this intermedia when we first came into space Evercourt is different because they are a lead generator and so they don't create a marketplace they just they buy media acquire consumer have consumers come to their website and they convert that consumer into a click for a carrier or lead for one agent they have their own agent network and work with carriers on the cost per click side on their own and so they're kind of like their own ecosystem and we do work together in a few ways they're in theory a competitor but more more kind of like a partner what's that word where they're both the competitor at the front of me for enemy, sure, yeah, more friend than enemy, though.
The session is ending, but great discussion, we'll continue in the breakout room.
Okay. Steve Pat, sorry to get you up here.
That's all right. Thanks, everyone.