IAC/InterActiveCorp operates in four segments: Search, Match, ServiceMagic, Media and Other. The Search segment includes Ask.com and Dictionary.com. Chemistry.com & Match.com are among the several other dating sites make up Match segment. ServiceMagic matches consumers with service professionals. And Media is the segment that includes sites like Vimeo, Pronto.com and Shoebuy.
Great Earnings Streak
Over the last six quarters, IACI has five beat and one miss. That miss was in the December 2010 quarter, setting up an easy comparable for the upcoming earnings report on February 1, 2012. A year ago, analysts were expecting $0.22 and the company reported earnings of $0.06 or a miss of $0.16. The stock, however, traded higher as a result of the earnings, suggesting the market was not paying much attention to the earnings and was pleased to see the Liberty Media stake solid for cash and ownership of EVite and Gifts.com.
Analysts have been consistently move earnings estimates higher for FY 2012. In January of last year, the Zacks Consensus Estimate called for $1.28 in earnings for 2012, a number that has move higher by more than 52% to $1.95 at present. Some believe that the steady increase of earnings may make the company look again at spinning off one or more of its properties.
Getting your arms around IAC
One reason the IACI may not be properly valued is the complexity of the overall situation. ICAI acts as a holding company for dozens of web properties, including Match.com, ServiceMagic, and several search properties like Ask.com and Mindspark. The large number of holdings can make some investors just give up instead of placing a value on all of the companies.
Spin offs have spin offs
One time does not a trend make, but the spin-off of Expedia from IAC has resulted in a spin-off of its own. TripAdvisor was spun out from the online travel agency Expedia. Previous spin offs such as Tree.com and Ticketmaster have not had spin offs of their own, but the precedent has been set as IAC is an incubator for internet companies. This valuation creation cannot be overlooked.
Due to the nature of a conglomerate, it's hard to assign a single valuation to the company as a whole. Drastically different segments tend to perform better or worse than other segments, hiding both strengths and weaknesses of the broader portfolio. IACI trades at 21x forward earnings and a meager 1.8X sales. There could be expansion of those multiples with more earnings beats in the future.
IACI holds a Zacks #1 Rank (Strong Buy), in part, due to consistent earnings increases from multiple analysts. A look at the price and consensus chart below shows how higher earnings estimates have led the stock higher. The sharp drop off in 2008 was a result of earnings being re-adjusted due to a spin off.