IAC/Interactive: E-Commerce Done Right

by Lawrence Meyers | February 8, 2012 1:19 pm

There are few true visionaries in business. When one of them is involved in a public company, though, you want to hitch your trailer to their genius and hang on for the ride. Apple‘s (NADAQ:AAPL[1]) Steve Jobs was one example. Liberty Media’s (NASDAQ:LMCA[2]) John Malone is another. Then there’s Barry Diller, who has been involved in media for 45 years. He has always kept up with the times and has mentored several other geniuses, including Michael Eisner.

Diller is chairman of IAC/Interactive (NASDAQ:IACI[3]), which is very similar to Liberty Media Interactive (NASDAQ:LINTA[4]), a conglomerate made up of e-commerce, TV, and Internet-based businesses[5] that generate tons of cash flow. E-commerce is a tricky thing. It’s not enough to have a good idea and throw it up on the Web. You have to be a first mover. You have to have capital to advertise. And you have to have a fantastic product.

Diller excels at finding well-run businesses that own a given space because of the strength of their brands. In addition, he finds brands that may not even generate commerce revenue but have significant advertising revenues, or search functions that can leverage other e-commerce.

IAC’s Search segment provides search, reference, and content services through its destination search offerings, such as Ask.com and Dictionary.com, and aggregates local advertising and content for distribution to Web and mobile publishers. Its Match segment provides online-personals services, including Match.com, Chemistry.com, and OKCupid.com. The ServiceMagic segment offers Market Match service, which matches consumers with service professionals. The Media and Other segment operates BustedTees.com, an online t-shirt retailer; Vimeo, a video content website; Pronto.com, a comparison search engine; Shoebuy; and Proust.com, where users ask and answer questions.

IAC owns different types of websites and operates in a different arena than Liberty. But like Liberty’s sites, IAC’s are all brand names that are difficult for rivals to challenge. Like clockwork, IAC generates some $300 million in annual free cash flow, has almost $10 per share in net cash and (only $95 million in debt), and is growing at an annualized rate of 20% to 25%.

In addition to both Liberty Media and Liberty Interactive, I believe IAC is a buy. It’s probably even cheap. Earnings are supposed to grow 20% this year. A 20 P-E on $2.65 in net income suggests a $53 fair value target, and the stock trades at only $36 when you back out the net cash position. I also do not think that having both Liberty Interactive and IAC creates overlap. They complement each other very well in covering all aspects of Internet commerce.

With other Internet brand names either obsolete[6], such as EBay (NASDAQ:EBAY[7]), or substantially overpriced, such as Amazon (NASDAQ:AMZN[8]), it’s a much better move to jump on Diller’s train. As both a growth and value play, IAC fills two categories at once.

As of this writing, Lawrence Meyers[9] did not hold a position in any of the aforementioned securities.

Source URL: https://investorplace.com/2012/02/iacinteractive-e-commerce-done-right/

---