Description

Situation Overview

IAC is a diversified internet and media business led by Barry Diller. The company’s largest assets are an 85% stake in Angi, Inc., a digital home services marketplace; a ~21% stake in MGM Resorts; Dotdash Meredith, and a portfolio of other operating businesses and investments. Barry Diller and the IAC team have a track record of buying, incubating, growing and spinning off businesses to unlock shareholder value.

Today, at IAC’s price of $52.24 ($4.4 Bn market cap), the market values IAC for little more than the value of its cash ($1.1 Bn) and investments in the publicly traded stocks of ANGI and MGM. Excluding those assets, the implied value the “IAC Stub,” is ~$282m or $3.38 per share. The fair value for the IAC Stub is closer to ~$4 Bn or ~$46 per share. Included in the ~$282m stub are:

• Dotdash Meredith: a ~$300m annual EBITDA digital and print publishing business growing digital revenue and EBITDA in the mid-teens, with upside potential from signing future AI licensing deals to complement a recently signed deal with OpenAI.
• A ~31% stake in Turo, the leading car sharing rental marketplace. Turo has grown revenue at a 22% CAGR since 2021 and continues to grow topline at ~11%, despite recent headwinds facing the broader car rental market. The business has high FCF conversion and offers a superior consumer experience, with the largest platform of active hosts—165,000—and active rentable vehicles—365,000. Turo will warrant a premium valuation when the business IPOs or is acquired by a strategic buyer in a synergistic transaction. The recently announced partnership with Uber, making Turo cars available to rent through the Uber app, will accelerate growth in the near-term.
• Care.com: the #1 online marketplace to find and manage babysitters, elderly care, and recently, pet care providers. IAC has nearly doubled Care’s revenue and EBITDA since acquiring the business for ~$400m in early 2020.
• A host of other assets, the value of which roughly offset the capitalized cost of IAC’s corporate overhead.

The IAC Stub at ~$3.38 per share is grossly misvalued for a collection of assets expected to generate $2.6 Bn of revenue, ~$285m of EBITDA and $150m of free cash flow. The ~$50 fair value of the stub plus the ~$50 value of IAC’s cash and ANGI/MGM stakes are worth $100 per share, ~100% upside to IAC’s current price. We believe IAC will unlock value over the coming 12-18 months through the IPO or sale of Turo, the spin-off of Dotdash Meredith, and buybacks. In the meantime, the fundamentals of the stub assets (particularly DDM and Turo) and Angi should improve, driving a potential rerating of IAC’s stock and the stub assets.

What Does IAC Look Like Today?

Why Now?

IAC’s fundamentals are turning a corner with growth resuming at Dotdash Meredith (DDM), and Angi likely to return to growth in 2025. The improvement in DDM’s revenue growth and EBITDA margins, and Angi’s cash flow stabilization put IAC on a path to generate meaningful free cash flow, growing the stub value over time. Also, Turo’s growth should accelerate in the quarters ahead following the recently announced partnership with Uber that will make Turo’s rental car inventory  available on the Uber app.

DDM is poised to grow EBITDA by 10%-15% over the next two years as digital revenue grows in the 10%-15% range annually, and print revenue continues its mid-single-digit percentage decline. DDM’s growing trove of first-party data will increase in value if Google changes the prevalence of cookies in the Chrome mobile and desktop browsers, and advertisers are increasingly adopting DDM’s contextual-based advertising model (as opposed to cookie-based). DDM’s CEO, Neil Vogel, is now aiming to broaden the scope of DDM’s business to become a demand-side platform (DSP), which will allow DDM to take larger budgets from large advertisers, and help those advertisers serve ads across DDM and non-DDM third-party sites. As Neil described it at the recent Citi Global TMT Conference:

“So we can now go to Campbell Soup, who's giving us $15 CPMs to buy across our sites, like well we have another $2 million to spend more on Reach. We'd [Campbells] like to spend $7. We can say Okay. Great. We'll take your $7 CPM stuff. We're not going to place it on our sites because we're too expensive. But let us use our D/Cipher for targeting that you like, that's working, and let us do it around the internet for you. We'll hit your $7 target. Then we can go out based on our targeting, buy up and package this, and sell to them for $7, which is something that people do to us right now.”

Adding DSP capabilities will increase DDM’s overall revenue potential significantly, while increasing DDM’s margins on ad revenue (DDM will be less reliant on third-party DSPs, thereby reducing the fees DDM pays to DSPs). The DSP business is competitive, but DDM has an advantage as a new entrant with its own source of valuable first-party targeting data (other DSPs’ margins are DDM’s opportunity). In addition to the underappreciated growth potential of DDM’s core advertising business, the company is likely to sign additional AI-licensing deals like the OpenAI deal signed in May 2024 (expected to generate ~$20m in high margin annual revenue). Signing similar deals with Anthropic, Perplexity, and Gemini could significantly increase EBITDA.

Over the last two years, Angi has undergone a business model shift and a purging of low-quality consumer leads and service providers. The transition has been bitter medicine, driving down revenue significantly, but setting up the platform for improved user and service provider experiences going forward. Management has significantly reduced costs—opex is down from $1.46B in 2022 to $1.1B in the LTM period—so adjusted EBITDA is up over the last couple of years and the lowered cost structure positions the company for meaningful EBITDA growth as revenue growth improves. While Angi’s share price does not directly impact the stub’s value, Angi’s growing free cash flow will. Improvement at Angi will also likely positively impact investor perception of IAC broadly.

Finally, Turo’s growth should accelerate in the quarters ahead and margins should improve as the company begins lapping increases in insurance costs that have lowered EBITDA over the LTM period. It is difficult to quantify the potential impact of adding Turo to the Uber platform, but it will likely be a low-to-mid-single digit topline growth accelerant. With the company on a higher growth trajectory, and with EBITDA improving, Turo will be better positioned to IPO.

Continued DDM growth, the potential IPO of Turo, and the overall improvement in IAC’s prospects should drive a rerating of the stub over the next 12-18 months.

Update on Q2 2024 Results

IAC posted strong second-quarter results, with Dotdash Meredith (DDM) and Angi, Inc. both exceeding expectations. Revenue and margins improved for both segments, prompting management to raise full-year EBITDA guidance by ~3% for DDM and ~4% for ANGI. We are optimistic about IAC’s outlook for the rest of the year.

Dotdash Meredith maintained positive momentum with revenue growth accelerating to +2.7% y/y in Q2, up from +0.8% in Q1. The increase was driven by +12.3% digital revenue growth (expected to accelerate to +15% y/y in Q3), coupled with moderating print revenue declines. Digital revenue growth drove +23% y/y EBITDA growth, and EBITDA will continue to grow in Q3 with a full quarter of licensing revenue from the recently signed OpenAI deal; we still believe DDM will benefit from additional AI-licensing deals. Core sessions, a proxy for visitor traffic, grew 8.8% y/y in Q2, up from 8.1% y/y in Q1, and demand for digital ad inventory remains strong. Consequently, DDM raised its full-year 2024 EBITDA guidance to $290-$310m, up from the previous range of $280-$300m.

Turo is demonstrating strong growth, with gross bookings increasing by 8.1% y/y, days-booked rising by 9.3%, and revenue growing by 10.5%. This is in stark contrast to Turo’s traditional car rental peers, Avis and Hertz, which reported declining revenue and soft days-booked trends in Q2. In July, IAC elected to net exercise (cashless) warrants to purchase Turo shares, increasing its ownership from 29% to approximately 31%. We remain confident that Turo's promising growth prospects and favorable cash flow characteristics will justify a premium valuation, whether through an IPO or a strategic acquisition.

Angi continues to face topline headwinds, although the rate of organic revenue decline moderated in the quarter to -10.4% y/y, from -14.1% in Q1. Management’s efforts to eliminate low-value service requests and service providers have improved the platform’s health at the expense of revenue. Over the next six months, as Angi begins to lap these platform clean-up efforts, service providers and service requests should grow again. Meanwhile, cost-cutting measures have led to significant EBITDA beats, which should continue in the coming quarters.

We see potential for the Stub’s valuation to rise to $46 per share, implying a roughly ~$100 price for IAC, or 100% upside from today’s price.

Exhibit 1: IAC Financial Summary

Exhibit 1: IAC Financial Summary (continued)

Exhibit 2: IAC Sum-of-the-Parts Valuation

Exhibit 2: IAC Sum-of-the-Parts Valuation (continued)

Exhibit 3: Angi, Inc. Financial Summary

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Catalyst

• Continued revenue and EBITDA growth at DDM.
• Additional AI licensing deals at DDM.
• Growth acceleration and margin improvement at Turo leading to an IPO or potential sale of the business.
• Growth turnaround at Angi, Inc.