Interactive Corp (the stub) IAC
April 29, 2019 - 1:31pm EST by
juice835
2019 2020
Price: 227.55 EPS NA NA
Shares Out. (in M): 78 P/E NA NA
Market Cap (in $M): 19,079 P/FCF NA NA
Net Debt (in $M): 4 EBIT 0 0
TEV ($): 19,083 TEV/EBIT NA NA

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Description

In a world with not very many statistically cheap stocks, it is a good time to try to “create” one in
the form of a publicly traded stub. I believe the Interactive Corp stub at current levels presents a
favorable risk reward proposition where one gets significant assets for a negative implied value
and also allows investors to potentially benefit from whatever rabbits IAC can pull out of the hat
in the future. This last point I believe has been historically overlooked given the company’s
incredible record of finding new winners to bet on.
 
Specifically, today the idea is to take a long position in IAC offset by short positions in its two
largest assets which are each publicly traded: Match Group, Inc (NASDAQ: MTCH) and ANGI
Homeservices Inc. (NASDAQ: ANGI). Of the two ANGI represents the more difficult to borrow
though there is availability at reasonable rates generally speaking.
 
IAC has an 82% ownership stake in MTCH which owns a variety of subscription-based online
dating websites including Match.com and Tinder. IAC also has an 87% ownership stake in
ANGI, which owns and operates HomeAdvisor and Angie’s List. ANGI’s platforms act as an
online marketplace, connecting homeowners with service professionals for home improvement
projects. Beyond these public stakes, IAC owns and operates assets in video sharing/editing
(Vimeo, CollegeHumor, Daily Burn) and publishing/applications (Ask, Dictionary.com,
Investopedia, Daily Beast, Apalon).
 
Backing out IAC’s stakes in MTCH and ANGI, the implied market value for the rest of IAC
(“the stub”) is approximately negative $3 billion dollars. However, the stub has substantial
positive value that the market is clearly not crediting IAC for. The company’s publishing and
applications segment is a high cash flowing asset that should contribute approximately $120
million of EBITDA in 2020.
 
In addition, Vimeo, the company’s video sharing and editing segment might be even more
valuable. This segment should generate $225MM of recurring subscription revenues in 2020,
growing significantly moving forward. Further, the company’s Dotdash business, which is one of
the top-20 largest content publishers on the Internet (per comScore) and reaches 30% of the
population, could be worth another $150-300MM to IAC.
 
Importantly, IAC management has a long history of successful capital allocation and corporate
restructuring. The company has previously developed and spun off eight internet businesses
since inception including Expedia, TripAdvisor, Home Shopping Network, and Ticketmaster.
We believe that a spin-off of MTCH is possible within the next twelve months, which could
serve as an important catalyst to highlight the underlying value of the IAC stub. In the meantime,
we believe that the company will continue to use its strong balance sheet position and free cash
flow generation to repurchase IAC stock and look for new internet assets to buy and develop.
 
Based solely on the public valuations of its stakes in MTCH and ANGI, IAC would be worth
approximately $260 per share, compared to its current stock price of approximately $227. This
implies that the stub is trading at a negative $33 value per share. We believe that a sum-of-the-
parts (SOTP) valuation of the underlying assets of the stub is worth closer to positive $26 per
share.
 
In other words, based on our analysis, IAC should be trading at about $283, which implies
potential upside of approximately 25% from where the stock is trading currently. We also
believe the downside of this investment is limited given the quality of the underlying assets that
we are effectively being paid to own due to the negative value of the stub. In addition, the upside
over time could be significantly more given the company’s history of making and nurturing
numerous profitable investments as well as occasionally buying back stock at opportunistic
levels.
 
Obviously, the potential catalysts here would be spin outs of Match and / or ANGI. I have no
specific idea when these are likely to occur but I do believe that they are very likely over time.
The company, as discussed, has a long history of pursuing such transactions and has said
publicly that there is no reason why either company wouldn’t be ultimately spun into
independent entities in the futureIAC has also said, in general, that once their investment companies reach a
certain size and scale they can be more efficient and focused with their own, fully independent,
corporate structures in place.
 

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.

Catalyst

Potential spin of Match and / or ANGI

Share buybacks

New profitable investments

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    Description

    In a world with not very many statistically cheap stocks, it is a good time to try to “create” one in
    the form of a publicly traded stub. I believe the Interactive Corp stub at current levels presents a
    favorable risk reward proposition where one gets significant assets for a negative implied value
    and also allows investors to potentially benefit from whatever rabbits IAC can pull out of the hat
    in the future. This last point I believe has been historically overlooked given the company’s
    incredible record of finding new winners to bet on.
     
    Specifically, today the idea is to take a long position in IAC offset by short positions in its two
    largest assets which are each publicly traded: Match Group, Inc (NASDAQ: MTCH) and ANGI
    Homeservices Inc. (NASDAQ: ANGI). Of the two ANGI represents the more difficult to borrow
    though there is availability at reasonable rates generally speaking.
     
    IAC has an 82% ownership stake in MTCH which owns a variety of subscription-based online
    dating websites including Match.com and Tinder. IAC also has an 87% ownership stake in
    ANGI, which owns and operates HomeAdvisor and Angie’s List. ANGI’s platforms act as an
    online marketplace, connecting homeowners with service professionals for home improvement
    projects. Beyond these public stakes, IAC owns and operates assets in video sharing/editing
    (Vimeo, CollegeHumor, Daily Burn) and publishing/applications (Ask, Dictionary.com,
    Investopedia, Daily Beast, Apalon).
     
    Backing out IAC’s stakes in MTCH and ANGI, the implied market value for the rest of IAC
    (“the stub”) is approximately negative $3 billion dollars. However, the stub has substantial
    positive value that the market is clearly not crediting IAC for. The company’s publishing and
    applications segment is a high cash flowing asset that should contribute approximately $120
    million of EBITDA in 2020.
     
    In addition, Vimeo, the company’s video sharing and editing segment might be even more
    valuable. This segment should generate $225MM of recurring subscription revenues in 2020,
    growing significantly moving forward. Further, the company’s Dotdash business, which is one of
    the top-20 largest content publishers on the Internet (per comScore) and reaches 30% of the
    population, could be worth another $150-300MM to IAC.
     
    Importantly, IAC management has a long history of successful capital allocation and corporate
    restructuring. The company has previously developed and spun off eight internet businesses
    since inception including Expedia, TripAdvisor, Home Shopping Network, and Ticketmaster.
    We believe that a spin-off of MTCH is possible within the next twelve months, which could
    serve as an important catalyst to highlight the underlying value of the IAC stub. In the meantime,
    we believe that the company will continue to use its strong balance sheet position and free cash
    flow generation to repurchase IAC stock and look for new internet assets to buy and develop.
     
    Based solely on the public valuations of its stakes in MTCH and ANGI, IAC would be worth
    approximately $260 per share, compared to its current stock price of approximately $227. This
    implies that the stub is trading at a negative $33 value per share. We believe that a sum-of-the-
    parts (SOTP) valuation of the underlying assets of the stub is worth closer to positive $26 per
    share.
     
    In other words, based on our analysis, IAC should be trading at about $283, which implies
    potential upside of approximately 25% from where the stock is trading currently. We also
    believe the downside of this investment is limited given the quality of the underlying assets that
    we are effectively being paid to own due to the negative value of the stub. In addition, the upside
    over time could be significantly more given the company’s history of making and nurturing
    numerous profitable investments as well as occasionally buying back stock at opportunistic
    levels.
     
    Obviously, the potential catalysts here would be spin outs of Match and / or ANGI. I have no
    specific idea when these are likely to occur but I do believe that they are very likely over time.
    The company, as discussed, has a long history of pursuing such transactions and has said
    publicly that there is no reason why either company wouldn’t be ultimately spun into
    independent entities in the futureIAC has also said, in general, that once their investment companies reach a
    certain size and scale they can be more efficient and focused with their own, fully independent,
    corporate structures in place.
     

     

    I do not hold a position with the issuer such as employment, directorship, or consultancy.
    I and/or others I advise do not hold a material investment in the issuer's securities.

    Catalyst

    Potential spin of Match and / or ANGI

    Share buybacks

    New profitable investments

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