Is IAC/InterActiveCorp (IAC) a Smart Long-term Buy?
Maran Capital recently released its Q2 2020 Investor Letter, a copy of which you can download here. The fund returned approximately 5.4% net in the second quarter and approximately -13.1% for year-to-date. Over the past three years, Maran Partners Fund is up 28% net while the Russell 2000 total return index is up just 6% during the same period. You should check out Maran Capital's top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.
In the said letter, Maran Capital highlighted a few stocks and IAC/InterActiveCorp (NASDAQ:IAC) is one of them. IAC/InterActiveCorp (NASDAQ:IAC) is a media company. IAC/InterActiveCorp (NASDAQ:IAC) stock returned -5.8% in the last five trading days and on August 12th it had a closing price of $123.05. Here is what Maran Capital said:
"IAC is the internet conglomerate chaired by Barry Diller. Over the years, it has nurtured and spun off such stalwart properties as Expedia, LendingTree, Ticketmaster, and Match.com. IAC has always utilized a holding company structure, comprised of both controlling stakes in public companies and fully owned businesses. Despite a great track record of capital allocation and organic growth, IAC has at times traded at wide discounts to not only conservative estimates of its net asset value (NAV) but also to the value of its public securities portfolio alone.
I have followed the company closely for years, and in early 2018 implemented a special-situation position in the IAC “stub” – that is, we were long IAC and short both Match.com (MTCH) and Angie’s List (ANGI) at the ratio in which IAC owned them. There was no catalyst at the time, but as I wrote in our 1Q 2018 letter to partners, I felt that we were buying $15-20/sh of net assets for negative $28/sh (IAC traded for around $162/sh, while its MTCH position was worth $122/sh and its ANGI position was worth $68/sh).
Two years later, the market once again provided what I thought was an attractive opportunity to set up the IAC “stub” trade – this time with a firm catalyst in place! IAC had announced that they were planning to spin off MTCH during 2Q 2020 (and “spin” doesn’t quite do the transaction justice – it was a fairly complicated set of maneuvers that required significant study to fully understand). Prior to the spin of MTCH, IAC had a ~$25bn market cap. The MTCH position accounted for perhaps ~$21bn of value, ANGI another ~$5bn or so, and fully owned businesses another couple billion. It was a “90 cent dollar” at best – not that interesting on the surface.
But following the MTCH spin, IAC would become a leaner, more focused, very cash-rich mid-cap company, at a larger discount to NAV. I thought that it had a good chance of re-rating higher as analysts and investors focused on it.
There were various moving parts to the transaction right up until the end, but this chart shows the “perfect hindsight” IAC stub value year-to-date (given the ratios ultimately announced at deal close).
It is worth noting that IAC, following the transaction (which closed on June 30th), has approximately $46/sh in cash. Net of the ANGI position and this cash, the new stub enterprise value (IAC less ANGI and less net cash) is still trading very close to $0/sh (the market cap is currently around ~$10.7bn against ~$6.4b of ANGI, ~$4bn of cash, and wholly owned companies that I value, net of capitalized corporate expense, at $2bn+).
I believe investors will spend more time focusing on the fully owned businesses at the new IAC. These include Vimeo (online video), Dotdash (online content), Care.com (online childcare marketplace), and many other smaller digital businesses. Looking forward, I believe that many of these businesses will continue to grow in value, and that the discount to NAV at which IAC trades will continue to narrow either organically, due to share buybacks or other smart capital allocation, or due to the eventual spin off of ANGI or IPO of Vimeo."
Antonio Guillem/Shutterstock.com
Last month, we published an article revealing that Greenhaven Road Capital is bullish on IAC/InterActiveCorp (NASDAQ:IAC) stock. The investment firm said that IAC is one of the best companies that it invested in during the pandemic.
In Q1 2020, the number of bullish hedge fund positions on IAC/InterActiveCorp (NASDAQ:IAC) stock decreased by about 20% from the previous quarter (see the chart here), so a number of other hedge fund managers don't seem to agree with IAC's growth potential. Our calculations showed that IAC/InterActiveCorp (NASDAQ:IAC) isn't ranked among the 30 most popular stocks among hedge funds.
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Disclosure: None. This article is originally published at Insider Monkey.
