Description

The long pitch is a very simple one.  Namely, IAC will continue to disaggregate assets which has two effects:  1. The valuation of these assets is no longer clouded by the conglomerate that owns them (as evidenced by the history of previous spin-offs, especially EXPE/TRIP);  2. Diller has smaller vehicles within which he could make value destroying capital allocation decisions.

• IACI is an attractive sum of the parts story especially as the company continues to disaggregate valuable assets from a conglomerate that has weighed on implied multiples that the market would pay for these businesses 

• The company is made up of several small businesses but the primary segments of the business are Search and Match

• Match is an online dating focused business comprised of a subscription business (the majority of revenue) and social media business

  • Match’s social media business (Tinder) is growing at a remarkable rate current user based of ~28 million and growing at a 140% annualized rate

  • Match has grown revenues at a 24% CAGR over the past five years and has EBITDA margins of 33%

  • The segment is poised to grow EBITDA at a 30% CAGR over the next two years as it begins to monetize Tinder. Because the company is not monetizing Tinder yet, Match is effectively under earning currently vs its normalized true potential

  • Match is a very attractive business with meaningful exposure to social media and a high level of growth, as such it will garner a very high multiple once it is separated from the search business

  • The company’s activist share holder base will ensure that the company carries out a spin off over the next 12 months

  • With the acquisition of both web-based competitors and Tinder, I think that the time is ripe for IAC to monetize their dating properties

• The Search (Ask.com / About.com) business is currently facing challenges (revenue down mid single digits y-o-y) because of recent changes to the Chrome browser

  • This is a recurring trend where the Search business experiences declines when Google first releases new versions of its browsers and then the segment regains lost revenue as it releases an updated version of its software (browser tool bars)

  • The segment has demonstrated consistent revenue and earnings growth over time but the volatility and concerns that Google will somehow disrupt this segment’s business model are reasons this segment will be ascribed a low multiple

With regard to capital allocation, Diller has both his detractors and his defenders.  Diller has become a little more receptive to unlocking value by reshuffling assets over the last 5 - 10 years.  Post split of this assets, Diller will likely have fewer dollars to allocate to "pet projects" that had previously been too small to agitate shareholders. Irrespective, a spin-off would represent another step in dissemantling the colossus that Diller assembled approximately 1 decade ago.

Sum of the parts

Catalyst

Spin-off or more clarity on strategy with dating properties

Pressure from activist shareholders