IAC/InterActive Corp. began its operations in the late 1980s as the owner of the cable channel Home Shopping Network and several TV stations focused on local markets.
Media mogul Barry Diller moved that focus away from TV to the Internet in the 1990s after acquiring control of the company. As a result, IAC sold or spun off its cable and TV operations.
The company survived the dot-com bust of the early 2000s, and went on to build an impressive array of popular websites including Tree.com (formerly LendingTree), Expedia, TripAdvisor and Dictionary.com. IAC later spun off or sold those businesses as well.
To focus on improving the performance of its smaller, high-growth businesses, the company is now thinking about spinning off its two biggest operations—Match (online dating) and ANGI Homeservices (home renovations). That would help unlock even more of their value for investors.
IAC/INTERACTIVE CORP. $233(Nasdaq symbol IAC; Manufacturing & Industry Sector; Shares outstanding: 84.3 million; Market cap: $19.6 billion; No dividend paid; Takeover Target Rating: Lowest; www.iac.com) owns several online businesses that it has acquired or expanded over the past number of years, most notably Match Group and ANGI Homeservices.
IAC continues to develop its other operations, include U.S. news website The Daily Beast, web-content aggregator Dotdash, financial investing information site Investopedia, and Vimeo, a video hosting site.
Subscription fees provide most of the company’s revenue. It also earns money selling ads on its websites. International markets supply a third of overall revenue.
IAC has a long history of buying and selling Internet properties. In the past 10 years, it spent $2.7 billion (net of divestitures) to buy over 200 businesses.
That drove revenue growth in 2015, with a 3.9% rise to $3.23 billion from $3.11 billion in 2014. Revenue then fell 2.8% to $3.20 billion in 2016 before rebounding 5.3% in 2017, to $3.31 billion. It jumped 28.9% to $4.26 billion in 2018.
IAC’s earnings are also choppy. In 2014, it earned $2.43 a share (or a total of $215.2 million) before a steep 45.3% drop to $1.33 a share (or $119.5 million) in 2015. Earnings then rebounded 28.6% to $1.71 a share (or $136.9 million) in 2016 before falling 17.5% to $1.41 a share (or $123.0 million) in 2017. Thanks to the higher revenue, earnings shot up 140.4% to $3.39 a share (or $318.2 million) in 2018.
In the quarter ended June 30, 2019, overall sales rose 12.0%, to $1.19 billion from $1.06 billion a year earlier. Sales improved due to strong performances for all six of the company’s operating segments, including Match and ANGI Homeservices.
IAC made $113.5 million, or $1.19 a share. That’s down 48.0% from $219.4 million, or $2.32, a year earlier. Earnings fell due to weaker unrealized gains on investments that the company holds. Factoring out those investments, IAC would have had an earnings gain.
The company’s balance sheet is sound. As of June 30, 2019, it held cash of $3.3 billion. Its long-term debt of $3.2 billion is a low 16% of its market cap.
IAC is now thinking about handing its ownership interests in its two biggest businesses to its investors.
Specifically, those operations are its 80.4% interest in Match Group Inc. (Nasdaq symbol MTCH), which owns dating websites Tinder, Match, Hinge and OKCupid; and its 83.1% ownership interest in ANGI Homeservices Inc. (Nasdaq symbol ANGI). ANGI owns digital marketplaces Angie’s List, Handy, and HomeAdvisor.
In the latest quarter, Match Group accounted for 42% of IAC’s total revenue, while ANGI supplied a further 29%.
Both businesses are profitable, so the company feels now would be a good time to spin them off. As well, Match Group and ANGI are already publicly listed firms. That eliminates the risk of investors quickly dumping their spinoff shares just because of the stock has no trading history.
IAC will announce its final decision in a few months.
The company prefers to use its excess cash flow for acquisitions and share buybacks instead of paying a dividend. In the past 10 years. IAC spent $3.6 billion on share repurchases. It can still buy back 8.0 million shares (worth about $1.9 billion) under its current authorization. There are no time limits for those purchases.
IAC’s projected earning have risen from $4.55 a share in 2019 to $6.05 in 2020. The stock trades at a high 38.5 times the 2020 forecast.
However, that multiple is still reasonable in light of IAC’s improved earnings growth. As well, the company spends around 7% of its revenue on research. That investment reduces its earnings and increases its p/e.
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