IAC: HomeAdvisor to Tinder

04/28/2017 2:50 am EST

Focus: TECHNOLOGY

Igor Greenwald

Chief Investment Strategist, MLP Profits

Unlike the better known technology giants, IAC/Interactive (IAC) hasn’t built a famous brand around its name, notes Igor Greenwald, editor of Breakthrough Tech Profits.

Instead, it’s bought, nurtured and sold a long string of Internet success stories, Ticketmaster, Expedia (EXPE) and TripAdvisor (TRIP) among them.

The current bread winner is the dating empire centered on Match.com and fueled by Tinder. The next biggish thing is the fast-growing HomeAdvisor service matching homeowners with home repair contractors.

All the buying, selling and nurturing has treated shareholders pretty well. IAC shares have quintupled in value over the last eight years, handily outperforming the Nasdaq-100.

After rolling out the Match Group (MTCH) tracking stock in late 2015, IAC is widely expected to spin off its dating cash cow later this year.

Even if the separation doesn’t provide an immediate boost to the share price it should do so over the long run by letting value investors follow the spinoff’s cash flow while growth fans focus on the barely tapped potential of HomeAdvisor.

Beyond HomeAdvisor, IAC’s stable includes the video sharing platform Vimeo and a stable of online media properties starting with About.com, which remains under renovation.

Publishing costs have been cut to stop the bleeding in the wake of a restructured advertising deal with Google, and the dependence on that revenue reduced.

The company generates healthy free cash flow, and used all of it and more last year to repurchase 8% of its share count at a hefty discount to the current price. Net debt is minimal and valuation reasonable at 12x the adjusted EBITDA based on enterprise value.

Barry Diller is now IAC’s chairman rather than CEO, but this is still his company in ways that transcend the 7% ownership stake. I’m adding IAC to the portfolio with a buy limit of $85.

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