Corner of Berkshire & Fairfax Message Board

General Category => Investment Ideas => Topic started by: ni-co on July 27, 2015, 11:27:15 AM

Title: IACI - IAC/InterActiveCorp
Post by: ni-co 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 (http://www.valuewalk.com/wp-content/uploads/2015/05/IACI-presentation-Sohn.pdf).

I have nothing to add but these 3 points:
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: berkshire101 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!
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: jay21 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 (http://www.valuewalk.com/wp-content/uploads/2015/05/IACI-presentation-Sohn.pdf).

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… (http://www.sohnconference.org/contest/)).

If it was that great of an idea they would buy it.[/list]
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: ni-co 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.
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: ZenaidaMacroura 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.
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: Picasso 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.
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: berkshire101 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.  ::)
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: ni-co 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.)
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: greenbriar 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?
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: Picasso 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.
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: yadayada 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
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: TwoCitiesCapital 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?
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: ni-co 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 (http://www.albionresearch.com/kelly/default.php)) – 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.
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: ni-co 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… (http://www.sohnconference.org/contest/)).

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.
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: ni-co 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.
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: KJP 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/
 
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: ni-co 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.
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: ni-co 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.
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: ni-co 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.
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: ratiman 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.
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: ni-co on November 19, 2015, 03:05:09 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.

This assumes that the established dating sites and Tinder cater to the same market which is quite obviously not the case. Naturally, there is some overlap but if analysts really took a step back used their brains and thought whether all the people using the other sites would be just fine switching to Tinder they would soon discover that this theory is mostly nonsense. Tinder's market is far bigger to begin with and its user base is much younger. I'd bet that most of them wouldn't even have thought of online dating before Tinder became a thing.

I've read several times that high churn rates were the problem of dating sites. My question here is: If they were such a problem wouldn't free cash flow be impacted by it? Well, it is not and what that tells me is that customer acquisition costs are still far cheaper than the money you earn from the new/retained customers. We are not talking about a GRPN problem here. There is plenty of FCF.

On a larger scale, people really seem to overdo it with disruption theory. They are so afraid of disruption that they mostly ignore how cheap a price they pay for companies with very good business models and large cash flows.

Here, you can buy the (seeming) disruptor in a package with the incumbents, together yielding 8.5% free cash flow (4% earnings) with 15% top and 8% annual bottom line growth over the last 4 years and Mr Market's reaction is: meh. I'd rather own MTCH than buy the S&P 500 at a highly levered 4.5% earnings yield or 30y treasuries at 3%.
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: ZenaidaMacroura on November 19, 2015, 04:08:29 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.
I'm a bit behind on this one but after they IPO do they have any longterm plan for the portion still held by IACI?  To be spun out etc?
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: ratiman on November 19, 2015, 04:21:34 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.

This assumes that the established dating sites and Tinder cater to the same market which is quite obviously not the case. Naturally, there is some overlap but if analysts really took a step back used their brains and thought whether all the people using the other sites would be just fine switching to Tinder they would soon discover that this theory is mostly nonsense. Tinder's market is far bigger to begin with and its user base is much younger. I'd bet that most of them wouldn't even have thought of online dating before Tinder became a thing.

I've read several times that high churn rates were the problem of dating sites. My question here is: If they were such a problem wouldn't free cash flow be impacted by it? Well, it is not and what that tells me is that customer acquisition costs are still far cheaper than the money you earn from the new/retained customers. We are not talking about a GRPN problem here. There is plenty of FCF.

On a larger scale, people really seem to overdo it with disruption theory. They are so afraid of disruption that they mostly ignore how cheap a price they pay for companies with very good business models and large cash flows.

Here, you can buy the (seeming) disruptor in a package with the incumbents, together yielding 8.5% free cash flow (4% earnings) with 15% top and 8% annual bottom line growth over the last 4 years and Mr Market's reaction is: meh. I'd rather own MTCH than buy the S&P 500 at a highly levered 4.5% earnings yield or 30y treasuries at 3%.

You're right, it does look like a good business. The real genius of the business is that it spends only around 6% on r&d, whereas most tech companies are in the 10-20% range (look at Linkedin for completely out of control tech spending - and Match and Linkedin are the same business!) And Tinder could have a lot of interesting ways to monetize with advertizing and so on. It's just not that clear right now, and the customers actually paying are aging out of the dating market, as you point out. On the other hand, the land rush days in dating are probably over - I wouldn't want to compete with Tinder or Match at this point.
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: ni-co on November 19, 2015, 04:41:41 AM
I'm a bit behind on this one but after they IPO do they have any longterm plan for the portion still held by IACI?  To be spun out etc?

Greenblatt once said in one of his classes that when they only IPO a small part of the company the goal is almost always to achieve a higher price for the whole thing. Spinning the 85% off would be far more tax efficient, but in the end it depends on IACI's cash needs.

What they should have done from a tax perspective is the Malone model: First create a MTCH tracking stock - that's tax free and you get almost all the advantages of an IPO (except the cash, obviously) and then, later, do a full spin-off.
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: ccplz on November 19, 2015, 01:22:04 PM
Tinder: http://www.vanityfair.com/culture/2015/08/tinder-hook-up-culture-end-of-dating

Interesting read: https://stratechery.com/2015/selling-feelings-follow-up-match-coms-ipo-and-tinder-the-sean-rad-interview/
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: ni-co on November 20, 2015, 07:44:27 AM
IACI sum of the parts is getting more and more interesting. Funny that the MTCH gain seemingly doesn't translate to IACI, even though its MTCH ownership is no worth ~$40 per IACI share.
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: ZenaidaMacroura on February 04, 2016, 07:55:02 PM
IACI sum of the parts is getting more and more interesting. Funny that the MTCH gain seemingly doesn't translate to IACI, even though its MTCH ownership is no worth ~$40 per IACI share.

Any thoughts on IACI here nico?
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: ni-co on February 05, 2016, 01:35:45 AM
IACI sum of the parts is getting more and more interesting. Funny that the MTCH gain seemingly doesn't translate to IACI, even though its MTCH ownership is no worth ~$40 per IACI share.

Any thoughts on IACI here nico?

Well, it's cheap.
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: wachtwoord on February 05, 2016, 03:20:26 AM
They have quite a bit of debt. Do you have information about their capability of servicing that?
Title: Re: IACI - IAC/InterActiveCorp - Tinder
Post by: ni-co on February 05, 2016, 04:02:43 AM
Who has quite a bit of debt? IAC? Have you netted out the cash?
Title: Re: IACI - IAC/InterActiveCorp
Post by: wachtwoord on February 05, 2016, 04:17:16 AM
Sorry I thought this topic switched to MTCH after the spin off. It has 1.23B of debt versus 99M of cash on a 2.34B market cap according to yahoo finance (I'm just quickly gauging whether this needs more research for now).

IAC's debt isn't visible on yahoo finance.

Do you think IAC/InterActiveCorp is more interesting for investment than MTCH?
Title: Re: IACI - IAC/InterActiveCorp
Post by: ni-co on February 05, 2016, 04:33:29 AM
I'd always take such data out of the latest report.
IACI: http://ir.iac.com/secfiling.cfm?filingID=891103-15-16&CIK=891103
MTCH: http://ir.matchgroupinc.com/phoenix.zhtml?c=254224&p=irol-newsArticle&id=2134995

Yes I think IAC is the better deal since you're getting 84.6% of the MTCH market cap plus the rest of IAC very cheaply when you deduct the 1bn in net cash.
Title: Re: IACI - IAC/InterActiveCorp
Post by: wachtwoord on February 05, 2016, 04:45:36 AM
I'd always take such data out of the latest report.
IACI: http://ir.iac.com/secfiling.cfm?filingID=891103-15-16&CIK=891103
MTCH: http://ir.matchgroupinc.com/phoenix.zhtml?c=254224&p=irol-newsArticle&id=2134995

Yes I think IAC is the better deal since you're getting 84.6% of the MTCH market cap plus the rest of IAC very cheaply when you deduct the 1bn in net cash.

Okay, but they own 84.6% of MTCH, so what do you think about Match's high amount of debt?
Title: Re: IACI - IAC/InterActiveCorp
Post by: ni-co on February 05, 2016, 04:55:42 AM
I'd always take such data out of the latest report.
IACI: http://ir.iac.com/secfiling.cfm?filingID=891103-15-16&CIK=891103
MTCH: http://ir.matchgroupinc.com/phoenix.zhtml?c=254224&p=irol-newsArticle&id=2134995

Yes I think IAC is the better deal since you're getting 84.6% of the MTCH market cap plus the rest of IAC very cheaply when you deduct the 1bn in net cash.

Okay, but they own 84.6% of MTCH, so what do you think about Match's high amount of debt?

I think they'll survive it. It's ~4.5x EBITDA. But if you don't like the risk, short it out. Then you'll be paying 800m or so net cash for the rest of IAC, that's ~4x its current EBITDA – for this you get a business like e.g. HomeAdvisor that's been growing 27% Y-Y top-line.
Title: Re: IACI - IAC/InterActiveCorp
Post by: Liberty on May 01, 2018, 10:41:12 AM
If you're wondering why it's tanking, along with MTCH (-17%):

https://www.cnbc.com/2018/05/01/facebook-is-launching-a-dating-app.html
Title: Re: IACI - IAC/InterActiveCorp
Post by: Liberty on July 11, 2018, 08:56:32 AM
Presentation by Elliot Turner about IAC and its subs:

https://moiglobal.com/elliot-turner-201806/

Slides: https://38cjxsde635anttomvn6z8h-wpengine.netdna-ssl.com/wp-content/uploads/moat18-elliot-turner.pdf
Title: Re: IACI - IAC/InterActiveCorp
Post by: Bluedevilvalue on November 07, 2018, 01:50:50 PM
Anybody following IAC still? Seems really cheap here.

Match, which they own 81% of, is down 17% on guidance "reduction" from $454m to $440 to $450. However, results from Q3 beat. Tinder added another 300k subscribers and increased revenue 100% y/y. ARPU also grew by 24%. Tinder also released Tinder U for colleges and the "feed".

The feed is really interesting to me. 75% of tinder users don't use FB login -- younger demo's are increasingly distrustful of our zuckerberg overlord. Engagement and retention on the feed is supposedly high. People also are craving real world connection. The online to offline component is compelling. Could the feed pose a challenge to FB? Instead of the vacuous clickbait driven FB feed, feed actually provides some real connection. IDK

Operating leverage is starting to kick in given high retention and flat lining to falling marketing spend. Rev at Match group 30% y/y -- EBITDA grew closer to 40%.

They announced a $560m or $2 per share special dividend, which the market didn't love -- clearly. Seems really odd from my perspective. Any ideas why they'd do this? Are they trying to attract income investors?

Looks like they'll hit their top end of their EBITDA guidance of $650mm, and that theyre flexing marketing up in 4q as well.

All in all, MTCH is trading at 19x EBITDA, despite growing 40% last year. Not too shabby.

ANGi is growing a bunch too. But for brevity, I won't touch on that here. I really like the vimeo business as well. It's peanuts compared to the other businesses from a financial perspective, but has 40m unique visitors / mo, and growing subscriptions. They have >80million subs with around 900k paying. They broke $100m in rev with 50% international, on just a fraction of marketing spend that they plan to ramp up. They're also targeting enterprise clients which much larger ACV. Retention has been strong -- average lifetime is 5 years. And there's a really interesting OTT oppty here too. Theyre showing real traction with the SaaS product. And the best part is, you're getting this biz for free.

All in all, IAC is trading at a 15% discount to the public subsidiaries alone -- ANGI and MTCH. They're buying back shares. So you're effectively getting Vimeo, which is growing rapidly, and the publishing business -- which is surprisingly growing too -- for free. There's also around $200m of VC investments.

Diller has > 3 commas in this puppy ($1bn) and a great track record to-boot.

My perception is that the market is skeptical that the Tinder growth is sustainable. Across the board it seems like investors fear FB and AMZN will take over every industry. That just simply won't be the case. There's something to be said for focus.

Would love your guys thoughts.
Title: Re: IACI - IAC/InterActiveCorp
Post by: Jerry Capital on November 08, 2018, 05:37:50 AM
I am long $MTCH and a little bit of $IAC as a tracker. One of my concerns with IAC is capital allocation over a 10-year time frame. Barry Diller is 76 with a great track record. Who do we have as a potential replacement, and has succession ever been discussed?

The long thesis on IAC (unless you are trying to capture SOTP discount with a short on the publically listed entities, $MTCH $ANGI; a none-ergodic process, i.e. stupid) must include a succession risk and a potential for misallocation of capital.

This is one of the reasons $CSU $BAM are great longs, the great capital allocators still potentially have two decades left...

Does anyone have thoughts on the succession? Thanks.
Title: Re: IACI - IAC/InterActiveCorp
Post by: Jurgis on November 08, 2018, 05:58:03 AM
I am long $MTCH and a little bit of $IAC as a tracker. One of my concerns with IAC is capital allocation over a 10-year time frame. Barry Diller is 76 with a great track record. Who do we have as a potential replacement, and has succession ever been discussed?

The long thesis on IAC (unless you are trying to capture SOTP discount with a short on the publically listed entities, $MTCH $ANGI; a none-ergodic process, i.e. stupid) must include a succession risk and a potential for misallocation of capital.

This is one of the reasons $CSU $BAM are great longs, the great capital allocators still potentially have two decades left...

Does anyone have thoughts on the succession? Thanks.

It's a good question, but I'll counter that people still invest into BRK... (And I'm personally in the camp that Buffett is irreplaceable and his succession however well chosen is going to be subpar for a lot of reasons).

So maybe Barry can do a Buffett and be there for 2 decades?
Title: Re: IACI - IAC/InterActiveCorp
Post by: Jerry Capital on November 08, 2018, 06:09:54 AM
Of course he could live another 20 years, but conditional mortality tables put his life expectancy at around what another 5 to 6 years (maybe higher because he is a billionaire...).

I would disagree re Buffet. Don't get me wrong he is the GOAT, but he underperformed over the last 10/15 years because he didn't bet on the internet. The next capital allocators at Berkshire I think will do better.

Also, I am confident the Berkshire culture can be passed down from generation to generation, not sure I know enough about IAC to say the same thing.
Title: Re: IACI - IAC/InterActiveCorp
Post by: Jurgis on November 08, 2018, 06:14:20 AM
Of course he could live another 20 years, but conditional mortality tables put his life expectancy at around what another 5 to 6 years (maybe higher because he is a billionaire...).

I would disagree re Buffet. Don't get me wrong he is the GOAT, but he underperformed over the last 10/15 years because he didn't bet on the internet. The next capital allocators at Berkshire I think will do better.

Also, I am confident the Berkshire culture can be passed down from generation to generation, not sure I know enough about IAC to say the same thing.

OK. We have completely opposite views on Berkshire, but that's OK. Best.  8)
Title: Re: IACI - IAC/InterActiveCorp
Post by: Bluedevilvalue on November 08, 2018, 06:48:32 AM
Do you guys not think Joey Levin can take the reigns? Seems like he's been doing a good job since 2015.
Title: Re: IACI - IAC/InterActiveCorp
Post by: Jerry Capital on November 08, 2018, 06:55:46 AM
I don't think it's possible to judge his abilities when you have someone like Barry Diller essentially making all the capital allocations decisions above him.

With BRK you can get a feel for Ted/Todd with their autonomy from Buffett.

Would be happy to be proven wrong though, if anyone can't point me to some information that suggests so.
Title: Re: IACI - IAC/InterActiveCorp
Post by: Bluedevilvalue on November 08, 2018, 03:05:56 PM
An unclear succession plan is far from a dealbreaker for me. Given it's trading at a 15% discount to the public co's alone -- not counting the fast growing publishing, mobile app biz and vimeo -- I look at the capital allocation side as pure optionality (unless you think their capital allocation is -EV).

Their existing businesses alone are enough to make IAC exciting in my opinion. Barry Diller has some say there, but each company's performance will more-so be predicated on their distinct CEOs.

Don't get me wrong, I'm a big fan of Barry. Which is why I'm excited to get the capital allocation side of the business for below nothing
Title: Re: IACI - IAC/InterActiveCorp
Post by: zen on November 12, 2018, 01:15:33 PM

They announced a $560m or $2 per share special dividend, which the market didn't love -- clearly. Seems really odd from my perspective. Any ideas why they'd do this? Are they trying to attract income investors?


The dividend was likely forced on Match by IAC, otherwise it makes little sense and puts them in a tough spot. The likely reason is a MTCH spin for IAC shareholders. IAC gets some cash before letting it go. As for that cash, they could be gearing up for an acquisition but that seems unlikely given the environment and commentary. They could try to reduce the valuation disconnect via a big IAC buyback. However that gap has closed recently with the sell off (was $3b about a month ago, ~1.7b now). Management did not address it on the most recent call as they have in the past 2 or 3, perhaps a tell.

I think IAC overplayed their hand. The market clearly didn't like the MTCH dividend and it exacerbated whatever hit MTCH was going to take for every so slightly down guidance. ANGI turned in a nice quarter, but the stock has been trading all over the place. It gapped up 15% and by the end of the day was down quite a bit and now over 20% from that post earnings high.

I like all 3 companies and own IAC. I am not worried about a succession plan for Diller, it's Joey Levin and he's excellent. Read his quarterly letters to get a feel for his style, very shareholder friendly.

Couple of other variables with regard to MTCH, very high short interest and the upcoming dividend, float increasing if remaining shares are spun out.