down more than 30% over the past 12 months, almost every tech stock is cheaper than a year ago, and there is temptation to bottom-fish. There’s a big difference between cheap and cheaper, though. With earnings estimates likely to sink further in the weeks ahead, multiples based on forward profit forecasts are probably understated. In other words, things are more expensive than they seem, and chances are that we haven’t hit the bear-market bottom.
But there are bargains to be had if you look hard enough and have a little patience. I would suggest that internet and media company
(ticker: IAC) is a textbook case of an undervalued stock that deserves more attention.
Founded in 1986 as a TV station owner called Silver King Broadcasting, IAC has bought, built, revamped, and sold companies in the media and internet business, over and over again. It’s a holding company, and the nature of its portfolio changes significantly over time. In a 2006 interview with Barron’s, IAC’s longtime chairman and former CEO, Barry Diller, laid out his philosophy on running IAC, which still applies 16 years later.
“We’re a conglomerate,” Diller said at the time. “We’ve stopped being shy about that. We’re a multi-business business, full stop….We allocate capital. We’ve proven that we’re really pretty good at operating businesses.”
Diller, now 80, gave up the CEO title in 2010. Since 2015, IAC has been run by Joey Levin, who joined IAC’s mergers and acquisitions team in 2003 and worked his way up. The IAC portfolio has changed significantly since Diller was chief, but the approach remains the same: wheel and deal, allocating capital to generate solid returns for shareholders.
The list of former IAC properties is long. When we ran the 2006 story, IAC’s largest asset was TV shopping channel HSN, and the portfolio included
Ticketmaster, and Ask.com. Most have been spun off, merged, or sold. Over the years, IAC has completed 11 spins, including Match,
and Live Nation.
The current IAC portfolio is dominated by a handful of assets. IAC owns a 17% stake in casino operator
MGM Resorts International
(MGM), worth $2.4 billion. It also holds 84% of home-services provider
(ANGI), a stake valued at $850 million. That comes to about $3.3 billion, or $3 billion once subtracting the company’s $300 million in net debt. With IAC’s market value sitting at $4.2 billion, that means the rest of the company—stub IAC—is being valued at just $1.2 billion.
But the stub is a substantial pile of assets, which almost certainly is worth much more.
The biggest remaining asset is a bet on publishing, online and off. A year ago, IAC acquired the magazine publisher Meredith—parent of People, Food & Wine, Better Homes & Gardens, Southern Living, and other titles—for $2.7 billion. IAC combined Meredith with financial site Investopedia, health-focused Verywell, home design–focused The Spruce, and other sites. That business—Dotdash Meredith—generated $2.1 billion of revenue over the 12 months through September.
IAC also has a search business—what’s left of Ask Jeeves; a 27% stake in car-sharing service Turo (which would have been public by now, if not for the weak IPO market); Care.com, a marketplace for nannies and other home-care providers; and a majority stake in Vivian Health, a marketplace for healthcare jobs. There are some other odds and ends, too, like the Daily Beast and a portfolio of app businesses called Mosaic Group.
IAC shares are down 64% this year, due largely to operating issues at both Angi and Dotdash Meredith. “On both of those, we have some things to prove in terms of execution,” Levin told me this past week. “But underlying both of those are a significant revenue base, an ability to generate free cash flow, great competitive positions, and unique products and brands.”
The Dotdash Meredith business is feeling the pain of the downturn in the ad market, and Levin admits that the timing of the Meredith deal was terrible. In November, IAC saw pro forma revenue from the combined business fall 27% from a year ago, a trend that has been dragging on for 12 months, and which lately has worsened. Levin also noted that IAC had issues integrating Meredith onto the Dotdash digital platform earlier this year. Those issues are resolved—and at some point the ad market will rebound.
In October, Levin expanded his portfolio, taking on the additional role of Angi’s CEO, replacing Oisin Hanrahan. “We needed to make changes in the business,” Levin says. “Expenses were too high relative to our profit growth.” He adds that the Angi website experience was too complicated for both consumers and service providers. “We needed to refocus,” he says.
Levin says Angi is narrowing its focus to a tighter list of tasks that are easier to price, and avoiding more complicated projects. Gutter cleaning? Sure. Kitchen remodels? Maybe not.
The most fascinating thing about Levin’s current hand is that he has so many options. IAC could buy the rest of Angi—or fix it, and then spin it out. It could create a tracking stock for the MGM stake. At some point, Dotdash Meredith almost certainly will be spun, once the ad environment improves. And there is $1.6 billion in cash on the books, so the company could buy back stock in IAC, snap up the modest position in Angi it doesn’t already own, or go shopping for new stuff. Whatever IAC chooses, the risk level seems low. IAC shares trade at just 0.8 times projected 2023 revenue.
For now, IAC is a tail of two turnarounds. But the stock is cheap, and Levin’s trigger finger is itchy. He says that while it was hard to find attractive investment options in 2021, there is now “an abundance of opportunity, for the first time in a long time.”
In the previous environment, Levin says, you could analyze companies, get all the fundamentals right, and still lose a lot of money given inflated valuations. Get things right now, he says, “and you’ll definitely get rewarded.”
Write to Eric J. Savitz at email@example.com