In our Q4 2019 letter we wrote about our rationale for investing in Match Group (MTCH). Early in the third quarter we used market confusion over the mechanics of the Match Group spinoff to build a position in IAC/InterActiveCorp (IAC) at a discount to IAC’s stake in publicly traded ANGI Homeservices (ANGI) and the cash on IAC’s balance sheet. Confusion over IAC’s debt transfer to Match Group and cash accruing to IAC from Match Group’s secondary proceeds and special dividend created a situation where we were being paid to take ownership in a host of great businesses that are set to compound shareholder value over the long term. IAC has often traded at a curious discount to the value of its businesses, but a newly simplified structure and plans to shine light on the businesses in IAC’s portfolio meant that this negative stub value was especially irrational, and ultimately short lived. Over time, we expect many of the businesses within IAC to be individually worth significantly more than the entire value of IAC today.
From the initial purchase of television station holding company Silver King Communications for $250 million in 1995, Barry Diller and IAC have multiplied their investment by over 240 times. Through a proven repeatable process, IAC identifies nascent businesses exposed to the secular trend of consumers shifting their consumption patterns from offline to online, makes long term investments to remove customer pain points on the supply side and demand side of the marketplace, and drives penetration of the category to take dominant share and to grow the total addressable market. When these category leaders grow their market to the extent that they are able to stand on their own, IAC spins the businesses to shareholders and refocuses its efforts on a new series of e-commerce marketplace businesses.
We often seek situations where proven management teams act like owners and invest through the income statement via lower margins and diminished short-term profits in order to grow market share and grow the market. These situations are inevitably judged harshly by a market myopically focused on the short term, but when executed well by proven operators, these situations create opportunities for outsized shareholder returns. We believe that this dynamic is evident in several of IAC portfolio companies, and that the outcome will be no different. With any investment we make, we look for multiple ways to win. In IAC, we see eight.
First, IAC’s largest holding, ANGI Homeservices (ANGI), is significantly undervalued relative to its earnings power today and has a long runway of high return on invested capital opportunities to take market share, grow the addressable market, and compound shareholder value. ANGI is an online marketplace for home services. Initially founded as a lead generation business, ANGI is rolling out fixed price home services which will accelerate ANGI’s transformation into a platform…
Read More: Why IAC/InterActiveCorp (IAC) Stock Could be ‘Undervalued’ in Today’s Market