About IAC/InterActiveCorp And Its Daughters
IAC/InterActiveCorp (NASDAQ:IAC) has a history of building businesses and spinning them off. The latest to be spun off is Match Group (MTCH), effective as of June 30, 2020. Previously, in 2017, IAC completed the combination of the businesses in its former HomeAdvisor segment with those of Angie’s List, Inc. under a new publicly traded holding company, ANGI Homeservices Inc. (ANGI), in which IAC continues to hold an 85.1% shareholding and 98.3% voting rights.
IAC/InterActiveCorp: Investment Thesis
With IAC building businesses and spinning these businesses off, shareholders will be faced with decisions on whether to retain shares received in spin-off companies or to sell and reinvest back into the mother company. Below, I describe a process to enable quantification of various known facts, together with certain assumptions and estimates, to better enable a considered choice to be made. The outcomes indicate, out of the three companies, IAC is the best option for a long-term investment, at current share price levels.
IAC/InterActiveCorp And Daughters: A Reality Check
When investors get excited about the prospects for a company, very often, any form of fundamental assessment goes out the window. I find it useful in these instances to project ahead, based on the assumptions we have some confidence in, and, by this means, determine what other assumptions necessarily flow from that. I can then make a judgement on whether those other necessary assumptions fall within a range of reasonableness. Please let me explain. In the first instance, we know the current share price at which we can purchase the shares. We should also have an expectation of the risk adjusted rate of return we are expecting from an investment in the shares of the company. This might be as simple as having an expectation of the share price doubling in 7 years, that is an average yearly return of 10.4%. Or the expectation might be for a doubling in 5 years, that is an average yearly return of 15%. There is a certainty about those assumptions, because they are a given, based on our expectations. Fortunately, SA Premium provides data on analysts EPS estimates for IAC and its daughters, going out to 2026. These assumptions are less certain than our targeted yearly return, but a range of high, low and consensus EPS estimates is provided. The assumptions/outputs we are still missing are the future share price levels and related P/E ratios. We can determine future yearly share price level by inflating current share buy price by our expected yearly return expectations. We can then divide our yearly estimated share prices by analysts’ yearly EPS estimates to arrive at our expected P/E ratio by year. We can then make a judgment whether the projected P/E ratio is a reasonable assumption, supporting our yearly return expectations. Below, I put this into practice for IAC and its daughters.
Table 1.1 Consensus EPS Estimates 10% Per Year Share Price Growth
Table 1.2 Consensus EPS Estimates 15% Per Year Share Price Growth
IAC/InterActiveCorp Is The Clear Winner For Investment Choice –
Based on the outcomes in Tables 1.1 and 1.2, I see IAC/InterActiveCorp as the clear winner for choice of investment over ANGI and Match. Match would be the least desirable out of the three. Out of the three companies, Match has the highest projected ending P/E ratio, and the lowest ending EPS growth rate, which does not pass a reasonableness test, on a comparative basis. ANGI also has a higher P/E ratio than IAC and a lower ending EPS growth rate, making IAC the preferred option. In addition, IAC still owns ~85% of ANGI, so better than analysts’ estimated results for ANGI should result in better than estimated results for IAC. But the really compelling advantage for an investment in IAC is that is where the entrepreneurial flair of Diller and Levin can be expected to be primarily employed. As I wrote in the opening summary, “Loyal shareholders appear to have a great deal of faith in management, Chairman and Senior Executive Barry Diller and CEO Joey Levin, specifically.” The saying, “The three most important considerations in any investment decision are, management, management and management”, comes to mind.
Table 2 Low EPS Estimates 10% Per Year Share Price Growth
In Table 2, I have included assumptions for EPS based on SA Premium analysts’ low EPS estimates. I believe the reliability of EPS estimates declines the further out the estimates go and also depending on how many analysts cover a stock. In addition, my observations are the analysts who are more optimistic on a stock, with high EPS estimates, are also likely the ones who project out the furthest. ANGI and Match each have only one analyst covering 2025 and 2026, with the result, high, low, and consensus EPS estimates the same. I have included the detail from SA Premium of the analysts estimates per Figures 1.1 to 1.3 below. The detail shows the number of analysts covering each company year by year. Table 2 outcomes tend to confirm IAC as the best investment choice out of the three. Even with the lower EPS estimate, IAC P/E ratio at end remains well below Match and only slightly above ANGI, which should be reasonably expected.
Figure 1.1 ANGI Analysts’ EPS Estimates Per Seeking Alpha Premium
Figure 1.2 IAC Analysts’ EPS Estimates Per Seeking Alpha Premium
Figure 1.3 Match Analysts’ EPS Estimates Per Seeking Alpha Premium
IAC/InterActive/Corp: Summary And Conclusions
Based on the foregoing analyses, if a decision is to be made between buying or holding shares in either IAC or one of its daughters, ANGI or Match, IAC appears to be the best option. At current share buy prices, all three can be expected to have high P/E ratios for some years to come. Analysts’ consensus EPS estimates indicate IAC share price can grow as fast or faster than either ANGI or Match, and still finish up with a comparable or lower P/E ratio. In addition, IAC should be able to warrant a higher P/E ratio due to it being where future entrepreneurial activity will likely be concentrated.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. I do not recommend that anyone act upon any investment information without first consulting an investment advisor and/or a tax advisor as to the suitability of such investments for their specific situation. Neither information nor any opinion expressed in this article constitutes a solicitation, an offer, or a recommendation to buy, sell, or dispose of any investment, or to provide any investment advice or service. An opinion in this article can change at any time without notice.