|Shares Out. (in M):||90||P/E||0||0|
|Market Cap (in $M):||9,217||P/FCF||0||0|
|Net Debt (in $M):||130||EBIT||0||0|
|TEV (in $M):||7||TEV/EBIT||0||0|
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Long History of Value Creation
Started as Silver King in 1995 with a ~$250M Market Cap, IAC and its legacy assets include now 10 public companies, creating almost $100B in value for shareholders. Investors in the stock since Barry Diller assumed control in 1996 have achieved a compound annual return of 15.3% versus 10.4% for the S&P 500. IAC has a successful track record spinning-off undervalued assets. The first major spin-off of the Barry Diller era was travel site Expedia, which subsequently spun-off TripAdvisor. In August 2008, IAC spun-off four companies. In July 2020, IAC separated from Match Group and in May 2021, IAC spun off Vimeo. We believe IAC is a significantly misvalued long term value creator, well positioned to continue its success.
Current Portfolio Implies a Drastically Undervalued Stub
Following the consecutive spinoffs of Match and Vimeo, the value of IAC’s remaining businesses, exclusive of its cash and equity stakes in ANGI and MGM, (the “Stub”) is currently trading at ~$2.5B in implied equity value. As longtime investors in IAC, we’ve tracked the Stub value closely during these rebuilding periods and have found that it oftentimes trades significantly below its fair value. Post-Vimeo spin, while understandable that chunks of the investor base may have churned off following a successful trade having played-out, we are very comfortable in thinking the Stub assets, including Dotdash-Meredith, Care.com, a 27% stake in Turo (with warrants that could get ownership to 35%), and a collection of small emerging businesses are worth multiples more than their implied market value. Additionally, we remain confident in IAC management – flush with nearly ~$2B in cash – as proven capital allocators. We think the Stub assets could be worth as much as $9.5B or nearly 4x their implied value, which represents nearly 80% upside to IAC stock in total, without assuming any upside in ANGI or MGM.
Why the Discount?
There are a handful of reasons why IAC is mispriced:
After announcing the $2.7B acquisition of Meredith Corporation's digital and magazine businesses – a strong portfolio, which includes publications such as People, Better Homes & Gardens and Allrecipes – to be folded into IAC’s Dotdash digital publishing unit, IAC stock jumped nearly 8% the day following the deal announcement.
We view the deal very favorably and anticipate the long-term value creation will turn out to be significantly greater. The $2.7B valuation of Meredith (after the sale of its local television assets to another party) translates to a LTM EBITDA multiple of ~7.5x, but even if you think Meredith’s print business is worth $0, IAC obtained the digital EBITDA (growing at a 15% CAGR) for only ~11x. Also, IAC financed the deal with $1.6B of debt, leaving management with nearly $2B in cash to pursue another transaction.
In our view, Dotdash and Meredith fit exceptionally well together. Dotdash will help to improve Meredith’s online capabilities in commerce and performance marketing, while Meredith should lend its 1P data, scale and best practices to support Dotdash in advertising and content publishing. Together, they are a top 10 US internet property, reaching 175M US consumers each month and 95% of US women. IAC indicated the combination should result in ~$50M of cost synergies and pointed towards material revenue synergies given the wisdom Dotdash’s digital brass can impart on Meredith’s brands, which have underperformed Dotdash on web traffic despite superior brand recognition. Importantly, Dotdash and Meredith brands are directed towards intent-driven audiences seeking contextually relevant content – this attracts advertisers without the need for personalized data and positions them well in post IDFA/cookies environment.
All told they guided to over $450M of pro forma digital EBITDA by 2023 – a number we believe to be quite conservative. A 16x multiple (4 turns less than NYT) on that gets you to an equity value of more than $5B, which is more than double the current total implied value of the Stub, without ascribing any value to Meredith’s print business or any of IAC’s other businesses.
Furthermore, this deal significantly accelerates the timeline for value realization events, including the spinout of an integrated Dotdash-Meredith.
Care.com is the leading global online marketplace and enterprise solution for finding and managing family care. IAC announced the acquisition of Care.com in December 2019 for $500M, representing a 34% premium to Care.com's unaffected closing stock price on October 25, 2019 ~23x 2019E EBITDA and ~2.4x 2019E Sales.
IAC Initiatives In Areas of Expertise
Strong Performance and Segment Disclosure
IAC owns ~27% (with a warrant that can improve its ownership to ~30-35%) of peer-to-peer car sharing marketplace Turo, which recently published its prospectus for IPO. Turo is the world’s largest peer-to-peer car sharing marketplace where guests can book a diverse availability of cars on demand at nearby locations. As of September 2021, they report having over 85k active hosts and 1.3M active guests engaging with their marketplace, which includes 160,000 active vehicle listings (up 88% y/y) and 1,300+ unique makes and models in tens of thousands of locations across the US, Canada, and the UK. Turo is also extremely asset light – Turo owns none of the vehicles.
IAC’s Turo stake is dramatically undervalued by Wall Street Analysts:
ANGI & MGM
Our valuation framework currently assumes no upside to IAC’s stakes in ANGI or MGM, which constitute 27% and 28% of IAC’s current market value, respectively, however we believe that there can be significant upside to both.
It’s worth noting that ANGI exposure can be hedged out by shorting the stock in the open market, however, ANGI is trading near its 52-week low and 40% below pre-covid levels. The company is currently trading 1.5x 2022 sales, which is remarkably low for an online marketplace leading its category (massive home services TAM of ~$600Bn). The current valuation reflects recent poor performance as a result of a period of reduced demand due to COVID and a strategic rebranding of Angi Homeservices and HomeAdvisor, separately, to one brand – Angi. We anticipate results will begin to improve for Angi as the rebrand matures, Covid abates and the strategy of the new CEO, Oisin Hanrahan, plays out.
Gaming has become an increasing are of focus for IAC who now has a 14% stake in MGM. While our IAC target assumes static MGM valuation, viewed on its own, we see ~60% upside for MGM on a SOTP basis. We value MGM as worth $67 a share on a sum-of-the-parts basis, or approximately 60% upside.
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