August 09, 2011 - 5:13pm EST by
2011 2012
Price: 12.68 EPS $0.00 $0.00
Shares Out. (in M): 572 P/E 0.0x 0.0x
Market Cap (in $M): 7,260 P/FCF 0.0x 0.0x
Net Debt (in $M): 6,750 EBIT 0 0
TEV ($): 12,660 TEV/EBIT 0.0x 0.0x

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  • Media
  • Malone


*Disclaimer* - Please note that this write up was written last night before LINTA was up today.


Liberty Media Corp (LINTA)

Date:  8/09/2011

Price:  $12.68 (market open)

Market Cap:  7.26 b       

Debt:  6.75 b

Cash:  1.35 b

Enterprise Value: 12.66 b



LINTA is a long because it is undervalued on a sum of the parts basis and there is a catalyst in the next 6 months that will re-rate the shares. LINTA is worth $17.93, which is a 41% upside from its current price. The primary catalyst is a conversion from a tracking stock into a normal C-Corp, occurring sometime between Sept '11 and Jan '12.  Timing is dependent on the outcome of an appeal to stop the transaction, whose success we think is extremely low.

The separation and conversion into a normal stock structure will be positive in several ways:

       1) Increase transparency through separate financial statements as opposed to the current combined ones with the other Liberty trackers

       2) Potential investor base expands to include those firms currently unwilling to engage with the previous tracking stock structure

       3) LINTA should be added to the S&P 400 or 500

       4) Increase sell-side coverage, up from the 3 bulge brackets that currently cover the company

       5) LINTA management has said they will begin an aggressive share repurchase program after the separation


Business Description

Liberty Interactive is a holding company whose main asset is QVC, the home shopping TV channel. Other assets include several eCommerce websites and stakes in various publicly traded companies (Expedia and HSN).  Currently, LINTA is a tracking stock issued by Liberty Media LLC.  A tracking stock is an instrument issued by its parent company to track the economic performance of a particular division without having any claim to the assets of that division of the parent company.  Liberty is run by John Malone who has an extraordinary track record in the media and cable industry.

LINTA's biggest asset, QVC, has grown significantly over the past few years.   It is significantly larger than many established traditional retailers.  It is currently available in more than 98 million U.S. households.  Although QVC is best known for its on-air programming, its online counterpart,, attracts more than 6 million unique visitors each month and has helped to further grow the business.  30% of transactions are executed online, of which half are sourced through the website vs. watching the TV channel.

QVC International is another important component of LINTA, composing of 1/3 of total EBITDA.  QVC has grown into an international phenomenon.  It has built locations in Germany, Japan, Italy, and the UK, allowing it to reach more than 153.4 million homes.   Italy has been a disappointment so far with poor timing, but longer term there are potential valuable opportunities in Brazil and China.

Along with, LINTA has maintained a large, diverse e-Commerce business.  It holds stakes in a multitude of different e-Commerce businesses and websites such as:,,, and others.  LINTA is continually growing its e-Commerce business, growing top line at 20% y/y and EBITDA by 35%.   Our e-Commerce EBITDA projections get us from 7.8% of sales currently, to 10.3% of sales FY2012E.

LINTA also owns stakes in publicly traded companies.  The most important are a 25% stake in Expedia, Inc along with a 32% stake in HSN.  It also has a small stake in Time Warner Inc, AOL, Inc and a few other companies.  All of these investments have a pre-tax value of $4.3 billion.


We value LINTA on a sum of the parts basis given the non-income producing assets that comprise a material amount of the value. See below for our SOP that gets us to $17.93/share in our base case on 2012 estimates.

We expect LINTA to grow EBITDA 10% to $1.85 b in 2012. The majority of this growth comes from their eCommerce segment.  We use 7x EBITDA-Capex for QVC Domestic which is in line with brick and mortar retailers, which we think is conservative given QVC is a better business. We use 9x EBITDA-Capex for QVC International to account for the growth opportunity in Italy and future countries. We use 8x EBITDA for eCommerce to account for its 15-20% revenue growth profile for the next few years and that eCommerce comps trade for 10-12x EBITDA.

For the non-income producing assets, we value EXPE at market with no discount given the divestiture in a tax-efficient manner. We also value HSN at no discount given that we believe LINTA will ultimately purchase the rest of HSN. For the rest of the public investments we fully-tax the capital gain as if they were sold at the current quote.



       -  Appeal decision on September 14th.

       -  Spin-off of a tracking stock into a hard C-Corp Stock

       -  Management guided on an aggressive share repurchase plan post spin-off

       -  Potential buy of HSNI


       -  Spin-off is delayed - litigation on appeal is delayed and takes longer than expected.  Would cause the spin-off not to occur till at least January 2012.

       -  Retail sector performs poorly, causing LINTA's major asset, QVC, to show weak earnings. QVC is a major component of LINTA, its lack of performance, will cause LINTA to                                 underperform

       -  Europe continues to fall apart and QVC International underperforms.  QVC International makes up about 25% of EBITDA.  If more economic disasters occur and sovereign debt fears               continue to pick up, it will cause QVC International to underperform influencing LINTA as well.   

Sum of the Parts

  Low Case Base Case High Case
QVC Domestic:      
    2012 EBITDA -Capex
1,096 1,096
    Multiple of EBITDA-Capex 6.5x 7.0x 7.5x
    Value of QVC
7,124 7,672 8,220
        Note: multiple of EBITDA 5.7x 6.1x 6.5x
QVC International:      
    2012 EBITDA-Capex 413 413 413
    Multiple of EBITDA-Capex 8.0x 9.0x 10.0x
    Value of QVC 3,308 3,721 4,135
            Note: multiple of EBITDA 6.9x 7.8x 8.7x
    2012 EBITDA 167 167 167
    Multiple of EBITDA 7.0x 8.0x 9.0x
    Value of eCommerce 1,168 1,335 1,501
    Income (expense) (45) (45) (45)
    Multiple 6.1x 6.7x
    Value of Corporate/Other (278) (305) (332)
Enterprise Value 11,322 12,423 13,524
    Note: total EBITDA 1,857 1,857 1,857
    Note: total EV/EBITDA 6.1x 6.7x 7.3x
    Note: total EBITDA-Capex 1,621 1,621 1,621
    Note: total EV/EBITDA-Capex 7.0x 7.7x 8.3x
Debt and financial instruments (6,918) (6,748) (6,748)
Cash 1,350 850 350
Expedia 1,412 1,853 2,284
HSN 529 529
Other stock investments 1,041 1,041
HSNI acquisition creation - - 446
1-time capex spend (106) (106) (106)
Tax asset//liability 360 360 360
Equity value 8,990 10,202 11,680
Shares outstanding 605 569 533
Equity value per share $14.86 $17.93 $21.90
    % upside 17.2% 41.4% 72.7%
    Implied multiple of FCF 10.2x 12.4x 15.1x
Debt/EBITDA 3.7x 3.6x 3.6x
Net debt/EBITDA 3.0x 3.2x 3.4x



       -  Appeal decision on September 14th.

       -  Spin-off of a tracking stock into a hard C-Corp Stock

       -  Management guided on an aggressive share repurchase plan post spin-off

       -  Potential buy of HSNI

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