Description

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:

1.  It’s an orphaned asset: Following the spinoffs of MTCH and VMEO, there has likely been significant turnover as MTCH and VMEO investors moved on to other near-term opportunities
2. Obscure financials: Financials are obfuscated by the spinoffs of MTCH and VMEO, the consolidation of Meredith and lack of disclosure on its emerging assets segment, namely Care.com. Additionally, correctly backing-out ANGI’s balance sheet, P&L and cash flow to value the Stub is complicated. 
3. Complexity: The Stub is a collection of disparate businesses with different economic drivers and earnings growth profiles.
4. The Stub does not appear on trading screens and can’t be universally owned: long-only funds without conviction on Angi can’t own the stub
5. General pain in internet/media names

Potential Catalysts

• ~$1.9B in cash remaining for additional M&A
  • IAC management team is actively looking for ways to deploy its remaining $1.9B in cash
  • It is expected they will make another large acquisition, and/or additional minority investments following its success in MGM and Turo
• TURO IPO
  • Turo just filed its prospectus with the SEC, which revealed staggering growth and profitability numbers
  • Based on its now public financials, comparable company valuations, and IAC’s stake, we expect the IPO valuation could approach $5B and generate ~$1B in after tax value to IAC
• More disclosure or segment breakout for Care.com
  • The family care marketplace for consumers and benefits service for enterprise employees has grown revenues rapidly from $57M to in Q3 2020 to $87M in Q4 2021
  • Additional profitability and KPI disclosure should help investors to get more comfortable with owning the asset
• Further breakout of other emerging assets
  • Management is excited about recent progress at Bluecrew and Vivian and has highlighted them in multiple investor/analyst conversations as of late
  • These businesses, along with IAC’s incubator, are currently small, but growing rapidly, and have potential to be worth multiples of their current implied value
• Future spinout of an integrated Dotdash-Meredith
  • Once Dotdash and Meredith are fully integrated, they represent the next opportunity for IAC to execute a spinoff

Dotdash Meredith

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

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

• IAC fixed the matching algorithm (Match.com) and made significant SEO improvements (Dotdash) for the core consumer product 
• Full integration of Homepay – Nanny payroll tax services provider
  • Users of both had very high retention and churned less on Care.com
• Cleaned up tech stack – making consistent across the business         
• Ramped efforts in other areas besides babysitting, namely senior care 
• Intensified focus on the enterprise side of business, which offers employees free access to the platform and emergency backup care
  • Acquired Lifecare to add enterprise customers and expand capabilities

Macro Tailwinds

• Enterprise sales being driven by work-from-home dynamics, which have led to higher utilizations at existing customers, elevated renewal pricing and new customer acquisition 
  • Very sticky – over 90% gross retention rate before Covid
• Important pillar to executive suite DEI/ESG initiatives
  • Product is geared towards supporting working mothers
  • In only 30% of Fortune 500

Strong Performance and Segment Disclosure

• Due to 40-50% organic enterprise growth and the LifeCare acquisition, enterprise has grown from less than 20% of total revenue to close to 50%
• As the business continues to grow, IAC has indicated Care.com segment disclosure may be broken out from “Emerging & Other,” which will help investors to better appreciate its value we believe can be upwards of $2B or 6x 2H 2021 Run Rate revenue

Turo

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:

• Outstanding financial performance has led to a valuation gap vs. Wall St. analyst SOTP estimates, which uniformly have had Turo’s value to IAC pegged at $250M
• GBV and revenue have expanded rapidly in recent quarters, driving significant operating leverage
  • GBV has grown at 94% CAGR between Q1 2019 and Q3 2021 with LTM Revenue/EBITDA reaching $373M/$65M
  • In Q3 2021, adj. EBITDA was 10.4% of GBV and 24.2% of revenue
• In a Feb 2020 capital raise, Turo was valued at $1.2B with 2019 sales of $142, implying an EV of ~8.5x LTM Rev
• The comparable ABNB (even after the massive multiple compression so far this year) currently trades at 12x 2022E sales
  • Applying a 10-12x EV/LTM Rev multiple results in a valuation of $3.7B v – $4.5B
  • This valuation implies ~$800M – $1,00M of after-tax value to IAC or a gap of ~$7 per IAC share to where analysts are valuing the asset

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.

ANGI

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.

• Management is optimistic about the rebrand and think they’ve gotten through the worst of it
  • Angi brand is now majority of the revenue
  • Angi aided awareness up to 50% - balancing with decline at HomeAdvisor
• Work-from-home / COVID lockdowns catalyzed one of the largest increases in consumer demand ever for home services
  • Service Professionals have been inundated with demand and are temporarily non-reliant on marketplaces like Angi to obtain jobs
  • Management anticipates a normalization in supply/demand dynamics is favorable to Angi
• In 2022, management is focused on Growing Angi Services, Memberships and Mobile Users
  • Each is about growing repeat rates, which translates to multiples of LTV
  • Angi Services (one-click fixed price offering) has been the biggest driver of growth, growing at a +100% y/y clip over the last six months

MGM

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.

• We believe MGM’s regional casinos are worth approximately 8x EBITDA, in line with other regional peers.
• We think the company’s dominant position on the Las Vegas strips deserves a premium multiple, ~9.5x a share.
• We then add in the company’s 56% stake in its MGM China operations, ~$3 p.s.
• Lastly, we think the company’s stake in its digital gaming JV is worth $11 p.s., or ~$5bn. We calculate this by estimating a 15% market share for BetMGM in 2025 US OSB and 25% market share for BetMGM in 2025 iGaming. We then ascribe a 3x revenue multiple.

In Summary

• The Stub is worth an estimated $105 per share, yet only valued at ~$28
• IAC’s management team has a very successful track record of building, incubating and spinning-off businesses to create shareholder value
• Dotdash Meredith is a top 10 US internet property protected from IDFA challenges
• Care.com has accelerated growth with rapid expansion of its enterprise business
• TURO is about to IPO with financials significantly better than anticipated
• ANGI has enormous upside potential as the lead player in the home services marketplace arena which exhibits an extremely large TAM
  • However, the exposure can be hedged out to abate near term growth/profitability concerns by simply creating a short position in ANGI common stock
• $1.9B for additional M&A or minority investments to deploy in a market, which has undergone significant recent multiple compression

Risks

• Dilutive use of the Stub’s cash or IAC’s equity
• Weak Angi performance proves not to be COVID related, but rather due to structural business model issues
• TURO IPO gets pulled due to market weakness
• Temporary widening of the Stub spread

Catalyst

• ~$1.9B in cash remaining for additional M&A
• TURO IPO
• More disclosure or segment breakout for Care.com
• Further breakout of other emerging assets
• Future spinout of an integrated Dotdash-Meredith