2023-04-20 14:13:15 ET
Summary
- IAC acquires and operates a variety of online media and services properties.
- The firm continues to redesign its ANGI offering set while dealing with an advertising slump.
- I'm on Hold for IAC until its Dotdash Meredith advertising revenue improves and management hones its ANGI addressable market.
A Quick Take On IAC
IAC (IAC) operates a variety of online media properties in various industry verticals.
The firm has continued to re-work its ANGI business in response to changing market conditions.
I'm on Hold for IAC as it figures out one of its major segments in ANGI and has advertising revenue headwinds for its Dotdash Meredith business.
IAC Overview
New York, NY-based IAC was founded to acquire and operate digital content websites and related service offerings in a number of industry verticals including:
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Search
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Home Services
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Shopping
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Senior Care
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Jobs
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News
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Software
The firm is headed by Chief Executive Officer Joseph [JOEY] Levin, who was appointed to the position in 2015 after serving in other roles within the company.
The Dotdash Meredith segment and ANGI home services segments produce the largest revenue contributions to the company.
IAC's various segments generate revenues from a variety of sources, subscription, advertising, and e-commerce activities.
IAC's Market & Competition
According to a 2023 market research report by Verified Market Research, the U.S. market for home services was estimated at $106 billion in 2018 and is forecast to reach $1.2 trillion by 2026.
This represents a forecast CAGR of 35.8% from 2019 to 2026.
The main drivers for this expected growth are 'augmented marketing by home services platforms, a growing number of service providers, increasing GNI per capita' and others.
Also, the global online on-demand home services market size was forecasted to grow at a CAGR of 16.7% from 2022 to 2030, according to a research report by Grand View Research.
The chart below shows the historical and projected market size trajectory in the U.S. from 2020 to 2030, with the mobile platform type producing the most forecast growth potential:
Major competitive or other industry participants include:
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Amazon.com, Inc.
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Handy
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Helpling
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HouseJoy
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Task Easy
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TaskRabbit
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Thumbtack
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Urban Company
IAC's Recent Financial Trends
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Total revenue by quarter has produced the following trajectory:
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Gross profit margin by quarter has dropped followed by a rebound:
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Selling, G&A expenses as a percentage of total revenue by quarter have trended lower recently:
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Operating income by quarter has turned sharply positive in the most recent quarter:
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Earnings per share (Diluted) have returned close to breakeven:
(All data in the above charts is GAAP)
In the past 12 months, IAC's stock price has fallen 43.6% vs. that of the iShares Expanded Technology-Software ETF's ( IGV ) drop of 3.5%, as the chart indicates below:
For the balance sheet, the firm ended the quarter with $1.66 billion in cash, equivalents and short-term investments and $2.0 billion in total debt, of which $30.0 million was categorized as the current portion due within 12 months.
Over the trailing twelve months, free cash used was a hefty $222.6 million, of which capital expenditures accounted for $139.8 million. The company paid $123.5 million in stock-based compensation in the last four quarters.
Valuation And Other Metrics For IAC
Below is a table of relevant capitalization and valuation figures for the company:
Measure [TTM] | Amount |
Enterprise Value / Sales | 1.2 |
Enterprise Value / EBITDA | NM |
Price / Sales | 0.8 |
Revenue Growth Rate | 41.5% |
Net Income Margin | -22.4% |
GAAP EBITDA % | -0.8% |
Market Capitalization | $4,460,000,000 |
Enterprise Value | $6,110,000,000 |
Operating Cash Flow | -$82,790,000 |
Earnings Per Share (Fully Diluted) | -$13.50 |
(Source - Seeking Alpha)
The Rule of 40 is a software industry rule of thumb that says that as long as the combined revenue growth rate and EBITDA percentage rate equal or exceed 40%, the firm is on an acceptable growth/EBITDA trajectory.
Although the firm has a wide variety of properties with varying revenue models, IAC's most recent GAAP Rule of 40 calculation was 40.7% as of Q4 2022's results, so the firm has performed well in this regard, per the table below:
Rule of 40 - GAAP | Calculation |
Recent Rev. Growth % | 41.5% |
GAAP EBITDA % | -0.8% |
Total | 40.7% |
(Source - Seeking Alpha)
Future Prospects For IAC
In its last earnings call (Source - Seeking Alpha), covering Q4 2022's results, management highlighted the scope of services offered by its ANGI service, which was a combination with Home Advisor, and how the scope of services makes it effectively a 'one-stop-shop' for service providers and for customers.
Notably, the firm has moved 'out of the complex services business' where it had difficulty being profitable even though complex services produced higher average order sizes.
Also, management said that only about 25% of service professionals that try out the platform continue with the platform beyond one year, so the company has significant room for improvement in that regard, and more opportunity.
For its Dotdash Meredith business, the company saw a significant advertising drop-off in late 2022, which has only recently begun to stabilize; management expects digital revenue to begin growing again in the second half of 2023.
Looking ahead, management guided 2023 adjusted EBITDA to be $335 million at the midpoint of a wide range and total operating loss to be $122.5 million at the midpoint, with stock-based compensation an estimated $130 million.
The company's financial position is reasonably strong, with enough liquidity for over seven years of runway at its current trailing twelve-month free cash burn rate.
Regarding valuation, the market has pummeled IAC's stock since the second half of 2022 on declining traffic and advertising revenue.
When the advertising industry sneezes, IAC catches a cold as a large portion of its revenue is advertising-based.
The primary risk to the company's outlook is a continued advertising market in the doldrums combined with slowing consumer demand as the economy weakens due to interest rate hikes and reduced credit availability.
While management appears to be experimenting and learning with its ANGI business, its total addressable market may be dropping as a result of learning which parts of the home services business it can't make money on.
So, in the near term, I'm on Hold for IAC as it figures out one of its major segments in ANGI and has advertising revenue headwinds for its Dotdash Meredith business.
For further details see:
IAC Reboots ANGI Segment While Dotdash Meredith Advertising Softens