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Why IAC Holdings (IAC) Stock is a Compelling Investment Case

Alex Smith
·5 min read

Greenhaven Road Capital recently released its Q2 2020 Investor Letter, a copy of which you can download here. Greenhaven’s estimated returns for the second quarter exceeded +50%, more than markets have returned over many five-year periods. Both funds are up single digits for the year, comparing favorably to the Russell 2000, which ended June down -13% year to date. You should check out Greenhaven Road 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, Greenhaven Road Capital highlighted a few stocks and IAC Holdings, Inc. (NASDAQ:IAC) is one of them. IAC Holdings, Inc. (NASDAQ:IAC) is a media company. IAC Holdings, Inc. (NASDAQ:IAC) stock lost 1.8% in the trailing five day period and on July 28th it had a closing price of $125.96. Here is what Greenhaven Road Capital said:

"IAC Holdings (IAC) could be the first great company/management team that we invested in during the pandemic. If such monuments existed, Chairman Barry Diller would be on both the Mount Rushmore of business builders and the Mount Rushmore of capital allocators. Since 1995 he has compounded capital at higher rates than Berkshire. To be fair, Warren Buffett has the burden of large numbers; growing a $400B enterprise like Berkshire Hathaway by 30% means generating an incremental $120B of value, which is the approximate combined market capitalization of the bottom 30 companies of the S&P 500 – no small feat in any year, let alone every year.

Media and internet conglomerate IAC has a long history of acquiring and nurturing companies. Past IAC spinoffs include Expedia, Ticketmaster (now part of Live Nation), LendingTree, Interval Travel (acquired), HSN, and Tripadvisor. IAC’s market capitalization is still hovering around $10B because the company keeps spinning off their valuable assets. Thus, the company is still sufficiently small that high rates of compounding are possible.

On July 1, IAC shrunk again by spinning off Match.com (which also owns Tinder) to shareholders. Prior to that date, the Match.com shares represented approximately two-thirds of the value of IAC, so investing in IAC required a positive view on Match/Tinder. Now IAC is a much smaller company and therefore much more of an investment in Barry Diller and IAC’s brands, including an ownership stake the ANGI Homeservices (ANGI) platform, which matching property owners with home improvement contractors. We began buying before the spin-off and grew IAC into a top five position on July 1.

Our cost basis is approximately $103/share, which was less than the value of IAC’s ANGI shares, cash, and exposure to Care.com on July 1st.

But wait, there is more. By investing in IAC, we also receive Vimeo – a global video sharing platform with ~1.3mm paid subscribers, Dotdash – an online publisher with 90mm+ monthly users, and Applications, which is comprised of 40 mobile applications and 155 browser extensions. The Applications basket includes Apalon (mobile development company with 25M monthly users), Ask Applications (distributor of desktop applications with 60M monthly users), Daily Burn (membership-based fitness platform with 1.7K curated videos), iTranslate (more than 100M app downloads), Mosaic Group (3.8M paying subscribers), and RoboKiller (blocks over 1.1M telemarketers).1 IAC also owns a $250M investment in car-renting platform Turo in 2019. This currently may be worth less than the original investment because of reduced demand for travel, but Hertz is in bankruptcy and we have effectively paid zero for this lottery ticket. Various sell side firms put IAC’s “sum of the parts” value at $150+. Unlike many “sum of the parts” situations where cash is largely static, given the disruptions in the economy and funding markets, now is an interesting time to ride shotgun with Barry Diller and billions of dollars in cash, especially given his history of turning cash into enterprises that are valued on multiples of sales. The smaller company size, level of talent, and large cash balance provide a lot of optionality, while the cash and valuation provide downside protection."

Business Ideas with Low Investment and High Profit
Business Ideas with Low Investment and High Profit

Rawpixel.com/Shutterstock.com

In Q1 2020, the number of bullish hedge fund positions on IAC Holdings, Inc. (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 Holdings, Inc. (NASDAQ:IAC) isn't ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds' poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. You can subscribe to our free enewsletter below to receive our stories in your inbox:

Disclosure: None. This article is originally published at Insider Monkey.