Author Topic: IACI - IAC/InterActiveCorp  (Read 12912 times)

yadayada

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Re: IACI - IAC/InterActiveCorp - Tinder
« Reply #10 on: July 27, 2015, 05:52:34 PM »
I was at Ira Sohn - wasn't impressed by the idea. The thesis was based on rather aggressive assumptions (using extremely aggressive forecasts for cash flow when at the time the app was earning nothing, using private tech companies as comps... you are going to look undervalued no matter what if you compare yourself to an extremely overvalued company etc), and didn't even consider possible downside risks (which are manifold - there is practically speaking no real moat for this app). As someone who has used Tinder before I have looked at IAC as a possible investment idea before, and I don't think there is as much upside to the story as you or Mr Ira Sohn winner thinks there is.
https://www.youtube.com/watch?v=BzAdXyPYKQo


TwoCitiesCapital

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Re: IACI - IAC/InterActiveCorp - Tinder
« Reply #11 on: July 27, 2015, 07:57:14 PM »
I was at Ira Sohn - wasn't impressed by the idea. The thesis was based on rather aggressive assumptions (using extremely aggressive forecasts for cash flow when at the time the app was earning nothing, using private tech companies as comps... you are going to look undervalued no matter what if you compare yourself to an extremely overvalued company etc), and didn't even consider possible downside risks (which are manifold - there is practically speaking no real moat for this app). As someone who has used Tinder before I have looked at IAC as a possible investment idea before, and I don't think there is as much upside to the story as you or Mr Ira Sohn winner thinks there is.
https://www.youtube.com/watch?v=BzAdXyPYKQo

I love this show.

I've used Tinder. I do think their user base gives them a moat. As others have said, it's incredibly difficult to create something that is sticky with that many people. If you have tens of millions of eyeballs on you, you'll find a way to make money off it eventually. My main problem with this is how sticky is it and how long-lived is this moat?

Consumers are fickle and they move on from these things pretty quickly. I used tinder for a few months and then haven't touched it again. Same with Plenty of Fish. Same with Hinge. Of these, tinder is probably the one that most of the people I know use - but that's because they're in their 20s and looking for a hookup. What happens when that crowd gets older and moves on to more mature dating platforms?

We already see that Facebook is struggling to keep younger users after it's been the most popular social networking site of the last decade. That's why they felt they needed to spend billions on unprofitable business ventures like WhatsApp and Instagram to keep a younger audience engaged with their product. That's my main issue with these companies - they do have a moat currently. But, will it last more than few years before it voluntarily leaves?

ni-co

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Re: IACI - IAC/InterActiveCorp - Tinder
« Reply #12 on: July 27, 2015, 10:43:05 PM »
https://www.youtube.com/watch?v=BzAdXyPYKQo

 ;D So funny but to some extent it's true.

ni-co: which strike price 2017 LEAPs are you buying?  What do you specifically see as the risk/reward on those LEAPs?

Yeah, this is always the 64k question. I bought the stock and the 125 calls as a kicker. Here's my thinking: I'm perfectly prepared to lose the premium. There are a lot of things that can go wrong with this bet. My biggest concern is plain market risk. If we get into a 50% market correction between now and 2017 you will lose your premium either way – even if you go for the "safe" at-the-money calls. Same would be true if Tinder suddenly flopped, IAC screwed up badly, aliens invading etc. Therefore, I don't want to pay up for a large premium and see the same thing happening to me. If his most optimistic scenario took place (which is a crazy +20bn for Tinder – but who knows? People go crazy a lot) you'd make 70-100x on the 125 calls. If his "bear" scenario took place, which still values Tinder at $4.7bn (!), you'd lose the premium. So will you if Wall Street is right and Tinder is only worth $1.5bn.

So, in the end I'd go for the high risk/extremely high reward bet in this case. I know it's aggressive but this is a matter of sizing it. Don't put 50% of your portfolio into it. I'd suggest to play with the Kelly Formula (here is a calculator) – the mathematically correct size for a 70:1 event with 5% (!) probability of success is 3.6% of your portfolio. More than I'd thought (also be aware that this is not an all or nothing bet which Kelly presumes. From $125 on you won't lose all your money/have a smaller payout).

I bought the stock because I think Barry Diller is a supreme capital allocator and a great entrepreneur. My thinking is that this is a good time to get into IAC at least somewhat cheaply (because of this spin-off situation). Most people aren't aware of it but if you count in the various spon-off companies Diller compounded the original $400m of IAC capital with more than 24% annually – over 20 years, with very little leverage. Though I'd guess that half of the returns is Expedia.
« Last Edit: July 27, 2015, 11:54:22 PM by ni-co »

ni-co

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Re: IACI - IAC/InterActiveCorp - Tinder
« Reply #13 on: July 28, 2015, 06:38:38 AM »
This is the winner of the Ira Sohn Investment Contest 2015 (take a look at the jury…).

If it was that great of an idea they would buy it.

Not that it's affecting the investment thesis but Greenblatt and Ackman won't hold it because it doesn't fit their approach (and it's also too small for Ackman). I don't know how the vote in the jury was but I wouldn't be surprised if Seth Klarman voted this one down. Einhorn has been holding IACI for 2 years now trading around his position. Dan Loeb – no jury member but the kind of guy I'd watch for those ideas – bought it in Q4 2014 and added in Q1 2015.
« Last Edit: July 28, 2015, 06:47:58 AM by ni-co »

ni-co

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Re: IACI - IAC/InterActiveCorp - Tinder
« Reply #14 on: October 24, 2015, 06:39:48 AM »
The Match Group (MTCH) IPO prospectus is out. Something's gotta give. This could be a real special situation opportunity, guys:

https://www.sec.gov/Archives/edgar/data/1575189/000104746915007908/a2226226zs-1.htm

Looks to me, as if MTCH will be worth at the very least $50 per IACI share. Possibly a lot more. Just some food for thought: If you want to get crazy (which Barry Diller tells you not to do) and you assign to it Facebook's EV/EBITDA (ttm) of ~40x it could be worth up to $120 per share, if you use FB's FCF/Market Cap multiple of ~75x, it could be $210 per share. In any case, online dating seems to be a really good FCF business. I really like the business model. It's cash flow oriented and large scale at the same time. Diller, by the way, is demonstratively restrained about Tinder (at the same time he's talking about hundreds of thousands of subscribers).

My biggest problem is how to value the rest of IACI. Should be somewhere between $30 and $70.

In any case, this remains a very good risk/reward bet for me. Momentarily, the best idea I have.

Nobody is talking about this. Makes me wonder why. "Tinder IPO" should be a really hot media topic. Maybe it's a bit too early for that. But I would be very surprised if this IPO wouldn't be hyped by CNBC & Co.
« Last Edit: October 24, 2015, 06:52:39 AM by ni-co »

KJP

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Re: IACI - IAC/InterActiveCorp - Tinder
« Reply #15 on: October 24, 2015, 07:46:29 AM »

Looks to me, as if MTCH will be worth at the very least $50 per IACI share. Possibly a lot more. Just some food for thought: If you want to get crazy (which Barry Diller tells you not to do) and you assign to it Facebook's EV/EBITDA (ttm) of ~40x it could be worth up to $120 per share, if you use FB's FCF/Market Cap multiple of ~75x, it could be $210 per share. In any case, online dating seems to be a really good FCF business. I really like the business model. It's cash flow oriented and large scale at the same time. Diller, by the way, is demonstratively restrained about Tinder (at the same time he's talking about hundreds of thousands of subscribers).

Dating websites/apps have different (and worse) characteristics than something like Facebook because they have significant built-in churn.  If the website/app creates a good match, you stop using it, and if the website/app doesn't, you also stop using it.  That will cause customer acquisition costs to be high relative to users' lifetime value.

Also, I doubt there are significant barriers to entry to this industry.  Tinder's rapid rise suggests there isn't.  Also, what has the historical return on invested capital been for IAC's dating businesses if you include all of the goodwill and intangibles? 

A similar take:  http://andrewchen.co/why-investors-dont-fund-dating/
 
« Last Edit: October 24, 2015, 07:48:44 AM by KJP »

ni-co

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Re: IACI - IAC/InterActiveCorp - Tinder
« Reply #16 on: October 24, 2015, 09:25:04 AM »

Looks to me, as if MTCH will be worth at the very least $50 per IACI share. Possibly a lot more. Just some food for thought: If you want to get crazy (which Barry Diller tells you not to do) and you assign to it Facebook's EV/EBITDA (ttm) of ~40x it could be worth up to $120 per share, if you use FB's FCF/Market Cap multiple of ~75x, it could be $210 per share. In any case, online dating seems to be a really good FCF business. I really like the business model. It's cash flow oriented and large scale at the same time. Diller, by the way, is demonstratively restrained about Tinder (at the same time he's talking about hundreds of thousands of subscribers).

Dating websites/apps have different (and worse) characteristics than something like Facebook because they have significant built-in churn.  If the website/app creates a good match, you stop using it, and if the website/app doesn't, you also stop using it.  That will cause customer acquisition costs to be high relative to users' lifetime value.

Also, I doubt there are significant barriers to entry to this industry.  Tinder's rapid rise suggests there isn't.  Also, what has the historical return on invested capital been for IAC's dating businesses if you include all of the goodwill and intangibles? 

A similar take:  http://andrewchen.co/why-investors-dont-fund-dating/

To your second question: I don't know. But what I do know is that Diller generated ~30% CAGR over two decades if you include all the spinoffs. That's why I don't think that they overpaid for them as your question might suggest.

I don't really see a strong counter-argument here. Nobody knows where FB will be in 10 years, either. Yes the network effects may be stronger. But Tinder et al. has far more room for growth. And MTCH throws off a lot of FCF.
« Last Edit: October 24, 2015, 04:57:59 PM by ni-co »

ni-co

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Re: IACI - IAC/InterActiveCorp - Tinder
« Reply #17 on: November 09, 2015, 04:06:07 AM »
MTCH will be valued at ~$38 per IAC share at IPO giving it a ~3.5bn market cap and ~4.9 EV.

https://www.sec.gov/Archives/edgar/data/1575189/000104746915008434/a2226458zs-1a.htm

This IPO is not expensive. Giving you a FCF yield of 5%+ and EV/EBITDA multiple of 16.
« Last Edit: November 09, 2015, 04:22:50 AM by ni-co »

ni-co

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Re: IACI - IAC/InterActiveCorp - Tinder
« Reply #18 on: November 19, 2015, 02:09:34 AM »
MTCH will be valued at ~$38 per IAC share at IPO giving it a ~3.5bn market cap and ~4.9 EV.

https://www.sec.gov/Archives/edgar/data/1575189/000104746915008434/a2226458zs-1a.htm

This IPO is not expensive. Giving you a FCF yield of 5%+ and EV/EBITDA multiple of 16.

It got even cheaper. MTCH will be priced at $12, giving it a $2,92bn market cap or ~$35 per IAC share. It's trading on an EV/EBITDA of 15 and estimated FCF yield of 8.5% (ttm, both readjusted for stock based compensation). I really don't understand why the market reaction is so underwhelming. This is not at all priced for growth.
« Last Edit: November 19, 2015, 02:28:29 AM by ni-co »

ratiman

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Re: IACI - IAC/InterActiveCorp - Tinder
« Reply #19 on: November 19, 2015, 02:35:46 AM »
Isn't the reason it's not priced for growth because Tinder is cannibalizing the other sites? You can't just look at Tinder and ignore that Tinder doesn't monetize as well as Match. Tinder is great except that the company is called Match.