Author Topic: IACI - IAC/InterActiveCorp  (Read 12962 times)

ni-co

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IACI - IAC/InterActiveCorp
« on: July 27, 2015, 11:27:15 AM »
Ok, this is not a "classic" value investment but it's a classic spin-off story:
http://www.valuewalk.com/2015/05/interactive-corp-long-tinder/ – pdf download.

I have nothing to add but these 3 points:
  • This is the winner of the Ira Sohn Investment Contest 2015 (take a look at the jury…).
  • IACI's price has risen only about 10% from there.
  • Risk/reward of the IACI LEAPs looks very interesting to me…
« Last Edit: February 05, 2016, 04:05:05 AM by ni-co »


berkshire101

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Re: IACI - IAC/InterActiveCorp - Tinder
« Reply #1 on: July 27, 2015, 01:09:40 PM »
Well... I met my girlfriend on Match.  And met other great girls on Tinder, OK Cupid, and Match too. 

I only paid for my Match subscription.  I didn't spend a single penny on the other sites.  Plus, I had ad block running so no ads were shown on OK Cupid.  There was the occasional pop-up add on Tinder.  Plenty of Fish wasn't a good experience since it didn't have features like who did you messaged.  Match and OKC did.

As a user, there's a lot of value to be had.  You can't put a price on love.  But as a business, I'm not sure how OKC, POF, and Tinder make money.  The audience tends to be much younger, late 20s and younger.  And most are pretty cheap.

Girls I went on dates told me they got bombards with tons of messages by guys.  One would get like 100 messages per day.  So for them, they put up like a shield and wouldn't even read most messages.  It's competitive out there for guys.  Since you have tons of guys all messaging the prettiest girl. 

I don't see girls upgrading to the extra features on the free sites.  They're not the ones usually sending out messages.  It's the guy that does all the message so maybe they'll buy the extra features to see if their messages were read or not.  But most people I talk say they don't care because they'll just message another girl.

With Match, it's a more mature crowd that's willing to folk over the extra dollar for features. 

That's my understanding of the online dating stuff.  It's surprising that all these websites are owned by one company!
« Last Edit: July 27, 2015, 01:11:13 PM by berkshire101 »
The key to happiness is to have low expectations.

jay21

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Re: IACI - IAC/InterActiveCorp - Tinder
« Reply #2 on: July 27, 2015, 01:14:18 PM »
Ok, this is not a "classic" value investment but it's a classic spin-off story:
http://www.valuewalk.com/2015/05/interactive-corp-long-tinder/ – pdf download.

I have nothing to add but these 3 points:

If it was that great of an idea they would buy it.[/list]
@jay_21_

ni-co

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Re: IACI - IAC/InterActiveCorp - Tinder
« Reply #3 on: July 27, 2015, 02:31:25 PM »
This is more or less the kind of response that I thought I'd get. This is an unorthodox investment idea in that it's at the crossroads between special situation and VC.

The unique thing about this situation is that it's the rare chance to invest in an extremely high growth start-up in a phase in which you normally can't invest. And it's not that dating apps/sites don't have business models. This is not a complete puff bag.

As a user, there's a lot of value to be had.  You can't put a price on love.

This is exactly it. If dating services work, they can be very valuable for the people using them.

Why is there no moat? Because there are other (completely) free alternatives? Keep in mind that Tinder is and will likely remain free for 98% of its users. This is about the difficulty of getting traction and especially about the network effect. Why do you think FB paid $1bn for Instagram and $17bn for Whatsapp? And those apps don't even have valid business models. They paid those sums because it's not easy at all to create an app or service that is so compelling that it gains traction immediately. And it's even extremely difficult for established players to simply clone such a service. Well, Tinder quite obviously has traction. And this is why I agree with the author that Wall Street is using completely false instruments to measure the attractiveness of Tinder. You can't value a company that's growing like crazy (and is earning money!) like an established publicly listed company. – The math just doesn't work. How do you project 2017 EBITDA in a company that grew 300% last year? Having such traction with users and, at the same time, having a business model is quite rare. Therefore, yes, those are aggressive EBITDA assumptions but private valuations are exactly the right comps in this – very special – case. This is a "late stage VC"-like investment and carries the same risks but it also has the same payouts. And VCs normally don't get call options.

What matters to me in the end is risk/reward and the ratio of the LEAPs is extremely good. I don't need +50% confidence in a valuation when my payout can be 10-70x.

It's surprising that all these websites are owned by one company!

Surprising maybe, but you'd bet that it's not chance. Barry Diller is a very smart guy and he is buying those services left and right because they have a moat. You need a very large critical mass of willing people to get a dating service to work.
« Last Edit: July 27, 2015, 02:56:44 PM by ni-co »

ZenaidaMacroura

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Re: IACI - IAC/InterActiveCorp - Tinder
« Reply #4 on: July 27, 2015, 02:52:39 PM »
Met my gf of almost a year on tinder as well...

It's a pretty convenient app but I also feel like it's no moat.

Picasso

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Re: IACI - IAC/InterActiveCorp - Tinder
« Reply #5 on: July 27, 2015, 02:56:31 PM »
This is more or less the kind of response that I thought I'd get. This is an unorthodox investment idea in that it's at the crossroads between special situation and VC.

The unique thing about this situation is that it's the rare chance to invest in an extremely high growth start-up in a phase in which you normally can't invest. And it's not that dating apps/sites don't have business models. This is not a complete puff bag. If dating services work, they can be very valuable for the people using them.

Why is there no moat? Because there are other (completely) free alternatives? Keep in mind that Tinder is and will likely remain free for 98% of its users. This is about the difficulty of getting traction and especially about the network effect. Why do you think FB paid $1bn for Instagram and $17bn for Whatsapp? And those apps don't even have valid business models. They paid those sums because it's not easy at all to create an app or service that is so compelling that it gains traction immediately. And it's even extremely difficult for established players to simply clone such a service. Well, Tinder quite obviously has traction. And this is why I agree with the author that Wall Street is using completely false instruments to measure the attractiveness of Tinder. You can't value a company that's growing like crazy (and is earning money!) like an established publicly listed company. – The math just doesn't work. How do you project 2017 EBITDA in a company that grew 300% last year? Having such traction with users and, at the same time, having a business model is quite rare. Therefore, yes, those are aggressive EBITDA assumptions but private valuations are exactly the right comps in this – very special – case. This is a "late stage VC"-like investment and carries the same risks but it also has the same payouts. And VCs normally don't get call options.

What matters to me in the end is risk/reward and the ratio of the LEAPs is extremely good. I don't need +50% confidence in a valuation when my payout can be 10-70x.

I would argue that Whatsapp and Instagram do in fact have valid business models.  If they don't have business models then I can't say that Tinder would have one.  But that aside...

It seems like the typical Wall St response to this is that Tinder is like Twitter and difficult to monetize.  I'm not so sure about that.  It seems like the barrier to create this kind of network effect is extremely difficult and the simplicity of the Tinder process creates less reason to use another service.  It also seems like a good platform to create extra streams of revenue without a lot of risk to create a run from the network to alternatives.  Seems like a ton of operating leverage to be had here.

I like the story on this stock but would like to spend more time on it.  I bought a fairly large position in the $60's with the purpose of doing more work before buying more.  But it's gone up and I've been spending more time on other positions that haven't worked as nicely.

I would like to see a better bear response than "I used Tinder and was able to nail a few girls/guys for free and don't see how they'll make any real money."  Perhaps a view on capital allocation if Tinder does become a gravy train for the parent company.

berkshire101

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Re: IACI - IAC/InterActiveCorp - Tinder
« Reply #6 on: July 27, 2015, 03:00:50 PM »
"I used Tinder and was able to nail a few girls/guys for free"

That sums up tinder.  ::)
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ni-co

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Re: IACI - IAC/InterActiveCorp - Tinder
« Reply #7 on: July 27, 2015, 03:03:30 PM »
It seems like the typical Wall St response to this is that Tinder is like Twitter and difficult to monetize.  I'm not so sure about that.  It seems like the barrier to create this kind of network effect is extremely difficult and the simplicity of the Tinder process creates less reason to use another service.  It also seems like a good platform to create extra streams of revenue without a lot of risk to create a run from the network to alternatives.  Seems like a ton of operating leverage to be had here.

I like the story on this stock but would like to spend more time on it.  I bought a fairly large position in the $60's with the purpose of doing more work before buying more.  But it's gone up and I've been spending more time on other positions that haven't worked as nicely.

I would like to see a better bear response than "I used Tinder and was able to nail a few girls/guys for free and don't see how they'll make any real money."  Perhaps a view on capital allocation if Tinder does become a gravy train for the parent company.

This is exactly my line of thinking. I'm not worried about capital allocation at all because I think Diller has proven to be a very good capital allocator. If he is ready to IPO this company I'm confident that it's ready and he's willing to release it into the wild. If you look at what he did with Expedia in the travel segment – this is what I think he plans to do with Tinder/Match in the dating segment.

I think you can get a feeling of how he ticks when you watch those two interviews:
http://video.cnbc.com/gallery/?video=3000377984

http://finance.yahoo.com/news/yahoo-finance-exclusive--barry-diller-on-match-ipo-and-more-162152938.html

(Keep in mind that IAC was in the process of buying back 10% of Tinder when he did the interviews.)
« Last Edit: July 27, 2015, 03:17:40 PM by ni-co »

greenbriar

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Re: IACI - IAC/InterActiveCorp - Tinder
« Reply #8 on: July 27, 2015, 04:21:57 PM »
ni-co: which strike price 2017 LEAPs are you buying?  What do you specifically see as the risk/reward on those LEAPs?

Picasso

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Re: IACI - IAC/InterActiveCorp - Tinder
« Reply #9 on: July 27, 2015, 05:48:30 PM »
'create extra streams of revenue without a lot of risk to create a run from the network to alternatives.  '

How much do you value this 'extra stream of revenue'? what is the down-side risk to the story?

Well it seems like the market is not valuing it for very much, so I don't see how you get a lot of downside risk.  That said, when I last looked at the stock it would historically trade at a discount to the SOTP so if Tinder is a flop then it might pull a Softbank and people will sell IACI and the discount will widen out.  So that is some risk but I think the Match segment will hold up pretty well.  Don't hold me to that though because I haven't spent enough time on this as I mentioned.
My concern would be to see monetization efforts that cause the user base to fall and never recover.  But by then you don't have a viable competitor with the scale across an entire country.  It makes sense to use the largest service (like Uber) even if it means paying a little.  It's also a really compelling value proposition because how else do you spend very little to get to effectively speed date?  If there are cheaper ways of doing this I would like to know.

I also believe that dating in Tinder form will become more prevalent over time.  I'm pretty sure of that trend.  It just becomes so much more work to go to the club and spend a few hundred dollars to hopefully impress someone enough to take home for the night.  You get to actually control a lot of the things that someone in a loud dimly lit club would never be able to appreciate. 

So it is my belief that whoever wins this category will probably be profitable.  I think it was Ackman who said the whole world revolves around sex.  No wonder why he probably upvoted this thesis.

Oh, forgot to answer your question about how do you value it.  I don't know but I think the idea is to not value it for very much and hope it turns into something.  That seems to be the case today.
« Last Edit: July 27, 2015, 06:15:24 PM by Picasso »