Thanks everyone for being here on our day one of our 44th Annual Growth Conference. My name's Michael Graham, I'm one of the internet analysts here at the firm. Super excited to have Steve Yi, co-founder and CEO of MediaAlpha, out here from the West Coast. Thanks for traveling all this way.
Of course.
You just reported Q2 results that I wrote down here, I can only describe as ginormous. Your P&C revenue tripled year-over-year. Congratulations.
Thank you.
I know you've been in a downturn.
Yep.
We've come to a good upturn. Maybe for people who aren't as familiar, just kinda talk about your business at a high level, and then maybe what were the key things that stood out from that Q2 report?
Yeah, so, at a high level, you know, we've created an advertising marketplace, two-sided. One, on one side is really the buyers or the media buyers, who are the insurance carriers, you know, companies like Progressive, GEICO, Allstate, et cetera. And on the other side are, insurance websites, personal finance apps, insurance carrier websites, where a lot of insurance-related media is being sold. And so... And a good example of one of our publishers would be someone like Credit Karma, who has a large install base. They rotate in insurance offers to their consumers. Let's see, another one would be a company here in Cambridge, actually, a company called Insurify, which is a private company that's building a business model that's like KAYAK for auto insurance.
And so they advertise on TV, users come to their site, they get you know, they fill out a form, they get rates, and then they also have advertisements from a lot of national carriers on their site. And we're doing a lot of the ad serving and monetization for those types of ads, for those types of insurance-specific publishers. Within this marketplace, again, we're both in property and casualty insurance, which is really auto and homeowners, and then we're also in health insurance. For this year, with the recovery of the property and casualty market, we'll be about 80% property and casualty, and about 20% health insurance. Really, what's happened in this market's been an interesting story, to say the least.
You know, what you saw happen during the second half of COVID is that people started to drive again after the pandemic-related lockdowns ended. They started to get into a ton of accidents, 'cause people drove like crazy. Maybe some of you in this room did that. Okay. And what the insurance industry realized was that claims costs had gone way up, by, like, 40%, right? A lot of supply chain-related issues led to increase in prices for parts, auto parts. Used car prices spiked because there was a chip shortage, again, because of supply chain-related issues. So this new car shortage that led to a spike in used car prices, which are used to determine, you know, what an insurance company has to pay out when a car is totaled, right?
Labor costs went up, right, so the time to repair went up, and then the auto rental costs that the insurance companies had to cover also went up because car rental companies ditched their fleets during the first half of COVID. And so it was this weird, perfect storm that drove up claims costs for auto insurance carriers, which led to severe profitability issues, actually, some of the most severe profitability issues in 30-40 years. And if you know the auto insurance industry, what happens during periods like this is they have to increase their prices, but it's not that simple. They have to increase their prices and get these price increases approved by 50 insurance commissioners, and so it takes 1-2 years for this to happen.
And during periods like this, the auto insurance industry really pulls back from marketing because, you know, every new policy they sell, they lose money on. And so the market, auto insurance market went through this type of cycle over the last 2.5 years, beginning in the second half of 2021, and really kind of started to end about now, right? And it was the mother of all, you know, underwriting cycles, because it was pandemic-related, and because the rate increases that they needed to become profitable were so steep. So a lot of you probably had your rates increased by 30%, 40%, even 50%, right?
And so what that's creating now is a real rebound, both in terms of consumer-heightened consumer shopping behavior, 'cause people had the rates increases, so they're shopping around for new policies. And for a lot of the carriers who were early to get their rates in line and become profitable again, companies like Progressive. And I'm not giving anything away. You look in their public filings, you see that they're really putting the foot to the gas on the pedal, right, to market again and grow policies again. What you're seeing is a pretty rapid recovery in the overall auto insurance advertising market that we're benefiting from. Because we have a marketplace model with hundreds of publishers, we're able to really scale up, and again, scale up really exponentially, as the auto insurance advertising demand comes back online.
I think that's really, I think, been the hallmark of, you know, how we've grown in this cycle, and how we've been able to outgrow a lot of the other competitors in our space, which have more traditional lead generation models. Where they're one site, advertising that site, generating leads from that site, just not as scalable during times like this. Whereas we work with hundreds of websites, personal finance apps, insurance carriers, and ability to for us to handle that additional volume, I think, is unparalleled, and one of the reasons we're really outgrowing much faster than, most of our competitors, if not all of our competitors.
Yeah, great, great backdrop. I know, like, this cycle, as you mentioned, it was the mother of all cycles.
Yes.
It lasted, you know, much longer than the prior couple, and, you know, definitely was a steeper trough and, it looks like a steeper ascent happening now, which is great.
Yep.
I want to, you know, double-click into a couple of things you said. So your P&C transaction value for Q2 was $255 million. It tripled year-over-year, as I mentioned, and it was far and away a quarterly record for you.
Mm-hmm.
And then your guidance for Q3 was for 40%-45% sequential growth, $360 million at the midpoint transaction value, which is, you know, just an incredible amount of, like, upside from anything you've ever done before-
Right
... in the business. So it's like, okay, why is this happening? And it's some mixture of, you know, the market for insurance advertising is really ramping, those advertisers are shifting to digital more quickly-
Yep
... or you're just gaining tons of share. And you talked about a little bit how you think you're gaining share, but like-
Yeah
... how do you rank order those factors, and just what do you think?
Of
... is driving your outsized growth right now?
Yeah. I think the biggest factor is really just the early carriers who have gotten the rates right and are stepping on the gas, how quickly they move to take advantage of a partially dislocated market. What I mean by that is, there's still a lot of carriers who aren't advertising or aren't advertising heavily, right? And so some of the early carriers who came back into the marketplace, we were surprised by how quickly they wanted to market, and really start to grow their policies in force. And I think that's because we underestimated just the pent-up growth demand that I think existed in the industry with some of these carriers. Because they really have been sitting on the sidelines, largely not growing policies in force for the last three years.
And so I think the speed with which and how quickly these carriers really went from 0 to 60 was, I think, what surprised us, and I think it's driving, you know, our first half growth. I think going forward, it's really gonna be about the additional carriers and the other carriers who are gonna become rate adequate, right? Get their profitability in line, have good line of sight to getting rate increases. I think them coming back online and investing in policy growth and investing in channels like ours, I think is gonna continue to fuel growth into next year as part of the recovery story. There's still some geographies, by the way, who've been slow to approve rate increases, including my home state of California, where the media pricing is still well below previous peak levels.
And they happen to be some of the bigger states, like California, New York, New Jersey, and Michigan. And so those in combination probably represent about 20% of premiums nationwide, which I think still... So as we start to see those geographies come back online, as rate increases are improved, I think we should continue to see growth, again, I think into 2025. And then you actually start to see even the carriers that are back, in some of the, some of the earnings presentations that they had and some of the deep dives they have, they still have room to grow. They still have room to actually pay more to acquire customers 'cause they're really not tapped out yet.
And so I think what you'll see is pricing start to go up as there's more competitive pressures that come in from later carriers who get rate adequate, start to lean into growth again. And as additional states come back online, I think you'll see pricing or media pricing reflect the overall growth in premiums that we saw during the pandemic of between 40%-50%. 'Cause it costs 40%-50% more to insure your car now than it did back in 2019. And what you're gonna see... Yeah, I know, you look surprised, but yeah, you should look at your bill sometimes. I mean, I don't, but, so what you're gonna see-
City dweller without a car.
There you go. Exactly.
Yeah, that's-
And so what you're gonna see is the willingness of carriers to pay for media to acquire customers also go up by the same percentage, and I think you're gonna see us approach that level in terms of media pricing in our marketplace gradually from now until, you know, through the end of next year.
That's amazing. Are you seeing media costs go up as well? Like, for you know, because you're out there, you know-
Right
... trying to kind of bring traffic in, in addition to your publisher ecosystem, so-
Right
... are you seeing those costs go up as well?
Yes, absolutely.
'Cause a couple of other players have mentioned that.
Absolutely. So now, I think that because we're a marketplace, and particularly within P&C, we do own a lead generation website where we buy traffic to that and generate leads and clicks on our own, right? It's, don't quote me, and I think it's, like, the 20th largest. It's one of the smaller publishers within our marketplace. Now, so we are seeing pricing go up for that, and I think we're starting to see that reflected in some of the publicly traded companies like in EverQuote and LendingTree and QuinStreet. And I think that's where you see the differences in our business model. Because we're a marketplace, you know, for the vast majority of transaction value that goes through our P&C marketplace, we don't have a traffic acquisition cost, right? Because that's traffic from third-party publishers.
And so you're not seeing our gross margins get pressured by the higher upfront media costs that those companies are incurring. And so to explain what they do is, they're buying media from, like, Google and Facebook, just as an example, driving it to their lead generation sites, and then selling media from those lead generation sites to agents and carriers. And so now that carrier budgets are back or starting to be back, they're making more money off of that traffic. But because those carriers are also buying traffic on Google and Facebook, their upstream media costs and the traffic acquisition costs that they're incurring are also going up, which is squeezing their variable media margins. And so we're not really subject to that within the P&C space because, again, our owned and operated business is such a small part of that.
But the overall value of, like, an ad unit is going higher.
Ab-
That's just benefits your-
Absolutely
... your marketplace.
Absolutely.
That's really interesting. Can you... You touched on the publisher model a few times or your publisher ecosystem.
Mm-hmm.
How concrete is your plan to, like, expand that ecosystem? Do you have, like, a well-worn pathway? Are you adding a lot of publishers? Like, just talk about that for a second.
Yeah, we do. I think so, I think you, I think you really weren't seeing a lot of movement with publishers, and I think, I would say that we had a very, very strong market share with regard to third-party publishers in our marketplace. You know, when, when media dollars really, like, that spigot turned off during the hard market, you just didn't see a lot of market movement there. Now that the media dollars are flowing back in, I think you're starting to see that, and I'm optimistic, and based on a lot of the discussions we have, that I think that a lot of those market share shifts are gonna come our way.
I think when it comes to the marketplace for third-party publishers, it's hard to quantify the advantage that we have, but I'd venture to guess that we're several times the size of our nearest competitor when it comes to aggregating and pulling together third-party publishers in our marketplace to make them all available for our advertiser partners.
So going back to your platform and how it's differentiated, you also have a demand partner turning into a supply partner-
Mm-hmm.
dynamic to your platform.
Yeah.
Can you just maybe describe that, and is that becoming more prominent or less prominent in this wave?
Right, this is the favorite part of the business for me to talk about and so, so we work with over 50 insurance carriers to help them monetize traffic to their site. Okay, so these are insurance carriers who are actually buyers in our marketplace, right? They're advertisers, but we work with them on the other side as well, and so the way we do that is that when a user goes and is shopping for insurance policy on one of those carriers' websites, those carriers will often know that a given consumer shopping for a rate, that gets a rate from them, is not gonna actually buy a policy. And so in those instances...
And I would say the industry average is that 95% of shoppers who get a rate on an insurance carrier's website don't actually convert into a policy sale, okay? That's the industry average. And so using data science, they can predict, like, who's very likely one of the 95% who's not gonna buy a policy, and instead of just losing them and having that user go back to Google and click on another carrier's ad, they'll actually display ads on their own site. And if they can accurately predict who their non-converting shoppers are, they can generate a lot of ad revenue by pivoting to becoming essentially a media company or a comparison media company, in that instance, when they determine that a given shopper is not gonna buy a policy from them.
And so, actually, our very first publisher was Esurance, which was, which is owned by Allstate, who had this exact model, and so it, it's, you know, we're doing this with about 50 insurance carriers. I think that in this market, where the media costs are gonna go up for carriers, I think the ability to actually really out-monetize their competitors, both by doing a policy sale and maximizing policy sales, but also generating media revenue for non-converting user, I think is gonna be really important for insurance carriers to be competitive for that upstream media, right, in this upcoming soft market cycle, where everyone's gonna be fighting for market share.
just to put a fine point on that, the net result of that is, like, my media costs are going down 'cause I'm getting basically a rebate or a refund-
Ex- exact-
... on some of my spend
... exactly.
So, yeah.
Exactly. What I tell people is that, "Hey, if you're insurance carrier A, and you're spending, let's say, $100 on Google to acquire a shopper, and a shopper comes to your site, searches for a policy, and gets a quote from you, right? If they're not gonna convert, and you know and you can accurately predict who they are, and you can serve them ads from other carriers, well, there's about a 30%-40% click-through rate on those ads, typically. And you're typically able to recoup about, like, $30, right, to offset that $100 upstream media cost that you incurred to get the user to your site.
Mm.
The ability to really subsidize your traffic acquisition costs that way, I think is critical for a lot of carriers.
That's pretty cool. When states come back online in auto, do all the carriers tend to come online in that state at once, or is it staggered? And the related question is, to put it, a baseball analogy around this-
Mm.
... What inning are we in, in this recovery in the auto market?
Yeah. I'd say we're probably in the fourth inning-
Okay
... or so. Fourth or fifth.
Okay.
I'd say that the, in terms of media price increases, they won't be as fast as what we saw, you know, going from 0 to 60 over the first half of this year. I do think that, you know, having these big states come back online... And I think that, I would say that it's something in between in terms of, not all carriers come back online at the same time, but typically, what happens in some states is that one big carrier gets a big rate increase approved, and that provides some air cover for other carriers. And so they are related, but it tends not to be, like, completely synchronized.
So as some of these big carriers, I mean, so some of these big states come back online, yeah, we do expect overall pricing to be up because pricing in those big states are still pretty depressed compared to prior level peaks.
Okay, that sounds good. So, so P&C, and within P&C, auto is, like, the star of the show right now.
Right.
That's fantastic. That all seems to be going really well. Let's flip into talking about some other parts of the business.
Mm-hmm.
And first, let's talk about the health insurance market.
Yeah.
Health insurance was 17% of your transaction value in Q2. It grew at 9%, which is not anything compared to P&C-
Sure
... but it's still pretty nice, solid growth.
Right.
Describe the health insurance market from your perspective. How is your platform positioned, and how do you kinda think about that differently from P&C?
Yeah, and so, so we think about the health insurance market in a couple different ways. One is the over-65 market, which is really Medicare Advantage, which is privately administered Medicare as an alternative to, I guess OG Medicare or Med, and so original Medicare. So that's a significant part of our marketplace, and then we have the under-65 market, which are essentially ACA plans, and then short-term insurance for obviously, people who are under 65. And so I think overall, with the health insurance vertical, I think we're expecting those levels of growth rates for the remainder of the year.
I would say that the difference between that vertical and auto insurance is really, you know, to use another baseball analogy, if auto insurance in terms of adoption of direct-to-consumer distribution and adoption of online advertising channels is maybe, again, I'll say in the fourth inning or so, and maybe the fifth inning, I think health insurance is really like, they're like playing catch in the outfield and actually warming up. I mean, I think particularly with Medicare Advantage, where you have a lot of carriers paying attention to it because it is, you know, the reimbursements from these Medicare Advantage plans that are being sold, right, by these private health insurance companies are upwards of $500 billion a year. So it's a big marketplace, and over half, over 50% of seniors are opting into Medicare Advantage.
So it's a growing marketplace for these health insurance companies, and oftentimes the most profitable product that these health insurance companies are selling. So these big health insurance companies, like UnitedHealthcare, Cigna, Aetna, are really focused on this channel, and I think they're belated- not belatedly, but they're really only now starting to invest in direct-to-consumer capabilities. And so we see a ton of long-term opportunities there, and a lot of actually technology partnerships that we can engage in with these carriers to help actually host and facilitate, like, greater parts of their enrollment channel, in a way that doesn't exist within the auto insurance space because it is a bit more advanced. But we do see, in health insurance, particularly the Medicare Advantage space, really evolving the way we've seen the auto insurance space, evolve.
I think we have greater opportunities there in some ways, you know, because the technology advantages that we can help bring to the table for a lot of these carriers who are really new, like, very new, to online customer acquisition and direct-to-consumer marketing.
Okay, that makes sense. You know, a huge... Like, health is very seasonal because Q4 contains the open enrollment period. We're actually modeling from Q3 to Q4 90% sequential growth-
Mm-hmm.
which is pretty typical seasonality.
Mm-hmm.
As we get close to Q4, have you been able to innovate, like, year over year so that your share can go up in Q4? Or like, is it how easy is it to innovate in health and sort of like gain share, and just maybe talk about how you're thinking about Q4?
Yeah. Yeah, so we're not, we're not guiding to Q4 now, as, as you know. Good try. I'm just kidding.
Yep, always.
But ...
Always trying, always trying.
I think we don't have. I mean, we're just now starting to get visibility into Q4, what the carrier budgets look like there. I would say with the innovation, I think we have, like, significant market share within health insurance. I'd say that the real innovation, I think, is gonna come from a lot of what we've talked about, the technology partnerships that we have and want more of with these health insurance companies, who again, are very, very new to direct-to-consumer marketing, online enrollment, our ability to host parts or all of that experience. The ability to actually enable them to become very active online advertisers and active advertisers in our digital marketplace, I think that's really where the growth is gonna come from, and our ability to really expand the market opportunity by doing that.
And so in a lot of ways, even though health insurance, particularly with Medicare Advantage, is a smaller vertical for us, it actually has perhaps the most exciting partnership opportunities because it's so early in that space's evolution to, you know, becoming like what we all think it should be, right? Where people are shopping online, able to buy policies online, not have to talk to anyone. Again, you know, the health insurance space is really in the very early innings there, even as compared to auto insurance, which also has a ways to go.
And so, because health is early, is it, is it less profitable for you than, than P&C, or is that even a valid?
It's a great question. It's actually a vertical that's a little bit more profitable for us, in part because our owned and operated properties are bigger in that vertical than in the P&C vertical. And because there's vertical integration, and we're actually incurring media risk, we tend to have higher margin in that space.
Got it. Okay, life insurance-
Mm-hmm
... seems to be fading. You know, just over 2% of transaction value in Q2. How should investors think about life insurance?
Let's see. It's a good question. I think that's gonna remain relatively steady. You know, I think that we don't... What we don't have there is a really, that overwhelming, that powerful secular story, right? Within auto insurance, it's really the direct-to-consumer model that's really winning, right? The Progressives and GEICO is really taking a ton of market share from, like, the State Farms and Allstates, right? The traditional agent-based distribution companies. And so, and so the market shift, that secular shift to direct-to-consumer model that's happening within auto insurance, within Medicare Advantage, just the growth and of Medicare Advantage as a product and carriers coming online to market that directly, you don't have that kind of a compelling secular story within life. I think you're seeing some interesting insurtech companies within life insurance coming to play. I think that could change some of that.
I do think you're seeing some innovative user experiences there. Honestly, I kind of hope we don't have that secular story that we had during COVID, which is that I think mortality became an issue for a lot of people, and a lot of people started to buy more life insurance.
We did see a spike during COVID for our life insurance vertical. Again, part of me hopes that that doesn't happen again.
Yeah, same here. Okay, so profitability, you generated $19 million in EBITDA in Q2, a 10.5% EBITDA margin. How should investors be thinking about what should happen to your profit margin structure over time?
Yeah, sure. Listen, I think what you're, what you should reasonably expect is our EBITDA to grow at a decently faster clip than our transaction value. The reason for that is we have a lot of operating leverage within the business. One way to think about it is our technology, really, investment in our technology, we don't need a lot of incremental investment in our technology as the marketplace scales, right? Our P&C business is 3x what it was a year ago. Our team managing that business is still largely the same. Maybe we've added, you know, a couple of incremental headcount. And so we have an inherently scalable business because we focus on carrier spend, right? And carrier spend comes from, you know, largely the top 25-30 carriers.
We hope it's more, and that we have to add headcount to support a longer tail of advertisers to be sure, but with the existing base right now, you know, we can support that with the team that we have. And while we make incremental investments in technology, we're hiring incremental, you know, headcount into technology and our sales teams. It's gonna come at a much slower rate than how much, how fast we expect to grow transaction value. So long way of saying our bottom line's gonna grow probably significantly faster than our top line.
That was, like, literally perfect timing 'cause the clock says 0, 0, 0. So thanks, great job.
You're welcome.
Yeah, appreciate it.