IAC/Interactive Corp (NASDAQ:IAC), the Internet content conglomerate put together by onetime broadcast executive Barry Diller, is getting a lot of love from analysts while other, bigger Internet stocks are getting the back of their hand.
All but two of the analysts currently following IAC have it on their buy lists and the share price has more than doubled over the last year, bringing its market cap to $13.4 billion.
Over the years, IAC has owned many online companies, from Ticketmaster and CitySearch to AskJeeves and CollegeHumor. If you were a long-term holder, you got the spin-out that became Expedia Inc (NASDAQ:EXPE), now worth $16 billion. Match Group Inc (NASDAQ:MTCH), with a market cap of $12 billion, Lendingtree Inc (NASDAQ:TREE), worth $4 billion, and ANGI HomeServices Inc (NASDAQ:ANGI), with a market cap of $900 million, are also products of the IAC stable.
IAC Is a Unique Company
IAC’s ability to trade sites, spinning-out winners and closing losers, makes it unique among Internet companies. But it has only recently exceeded its all-time high levels near $160 per share, achieved back in 2003 when it was a completely different outfit and before its many stock splits.
The units that tickle Wall Street’s fancy change over time. These days they’re talking up Match and its Tinder unit, ANGI and its HomeAdvisor site and Vimeo, the video-sharing web site acquired in 2006. The company also owns The Daily Beast and Investopedia.
For all the chopping-and-changing, IAC’s financials are surprisingly stable. Its 2017 revenue of $3.31 billion is not much better than 2015’s $3.23 billion, although its 2017 net income of $304 million was well ahead of 2015’s $119 million.
What’s most exciting to analysts is the recent momentum, December revenue of $950 million compared to the March quarter’s $761 million, and operating income of $94.4 million against March’s $37.6 million.
IAC Is Not Facebook
But there is something else behind the recent run-up, in my view.
IAC is not Facebook, Inc. (NASDAQ:FB).
IAC doesn’t own a bunch of data centers, so it doesn’t have a huge capital expense. IAC is also not a single “platform,” rather it’s a collection of discrete sites. It’s not trying to rule the world, just a bunch of little fiefdoms within it. If something bad happens involving an IAC site, the problem is contained, and there are people from corporate who can cauterize the corporate wound.
IAC has made some bad deals over the years. Citysearch? Ask Jeeves? Gifts.com? Daily Burn? PriceRunner? Diller also backed Aereo, which streamed broadcast content to smartphones until the Supreme Court shut it down in a 6-3 decision.
The point is that in all these cases, the problems were isolated, bad assets were sold or closed, and new things came to take their place. It’s the contrast between this New York approach and the Silicon Valley practice of building huge cloud-based platforms that may be attractive right now.
The Bottom Line for IAC
Joey Levin, a former investment banker who was made CEO in 2015 after running the “search and applications” segment that included a lot of IAC’s dogs, like About.com (rebranded as Dotdash), Ask Jeeves (which became Ask.Com) and PriceRunner, says his stock is still undervalued by $1.5 billion, as analysts don’t account properly for the value of its partial spin-offs.
He told Barron’s he’s looking for a “step-function” moment, a point where IAC can do a deal that lets it, and investors, capture some of that value. The partial spin-offs of Match and ANGI are examples of that. Meanwhile, he says, he’ll try to maximize the value of each business in the portfolio.
This is the language Wall Street likes to hear. They don’t want to believe that Silicon Valley knows tech better than they do. But it does. All the deal-making and tweaking in the world doesn’t change the fact that IAC and all its spin-offs may share a $50 billion valuation, a minnow in a Silicon Valley world of $500 billion giants.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
