IAC/InterActiveCorp (IAC) PT Raised to $91 at Susquehanna amid Strong Execution

November 4, 2016 7:18 AM EDT
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Price: $70.95 +1.46%

Rating Summary:
    18 Buy, 6 Hold, 1 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 0 | Down: 0 | New: 0
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Susquehanna analyst Shyam Patil reiterated a Positive rating and lifted his price target om IAC/InterActiveCorp (NASDAQ: IAC) to $91.00 (from $74.00) following strong results.

Patil noted the following highlights:


  • Thoughts going forward and upcoming catalysts. The key growth assets (ex Match) — HomeAdvisor and Vimeo — continue to perform well. Applications appears to have stabilized, while Publishing remains challenged…but IAC is managing these assets prudently and is still generating significant cash flow. This cash flow is being used in part to fund some of the key growth initiatives as well as repurchase shares (repurchased $33m in 3Q, bringing the YTD total to $250m) and M&A. We remain Positive as we expect the value creation and unlocking strategy to continue to play out over the intermediate-to-longer term. While there is no set timetable for the next monetization catalyst (keep in mind, the Match IPO just occurred in November), management has a proven track record of creating and unlocking value as it has done numerous times over the years (such as the most recent Match IPO and the previous quad spin in 2008).
  • Key assets driving 3Q strength. Revenue was $764m, 2% above our estimate of $748m and 1% above consensus of ~$756m. Solid performance from the key assets drove the upside, with HomeAdvisor revenue 5% above us and Video (Vimeo) 12% above us, partially offset by continued weakness in Publishing (8% below us). Opex was 3% below us, mainly on lower G&A expense vs. our model, and the revenue and opex beat drove EBITDA 15% ahead of us and 10% ahead of consensus.
  • Annual guidance modestly increased at the midpoint for the 3Q upside. For 2016, IAC upped EBITDA guidance by ~$1m, and expects $483m-$519m, in-line with our previous estimate and consensus; ex- Match, EBITDA guide is $97.5m, up $5m from previous guide, and 5% above our previous estimate, driven by a $7.5m increase for Applications partially offset by a $2.5m cut to Video EBITDA. For HomeAdvisor, IAC maintained its FY guidance range, but noted that it expects FY EBITDA to come in toward the high end (~$47m), 4% ahead of our previous $45m estimate. For Video, guidance was decreased 11% as IAC ramps up investment in Vimeo. Note that IAC maintained its policy of not formally guiding to 2016 revenue, as the company emphasized that its focus is on EBITDA (i.e., cash flow) vs. revenue growth (though growth is important as long as it’s tied to long-term profits).
  • HomeAdvisor (HA) had another impressive quarter, and the future looks bright. Total revenue grew 34% y/y to $134m, beating us by 5% and the Street by 3%. Despite the continued ramp up in investment (3Q TV ad spend up 48% y/y), EBITDA came in 5% ahead of us, as HA is realizing operating leverage from its previous investments in the platform. For 2017, IAC expects HomeAdvisor EBITDA to grow 50%-100%. IAC expects to complete its purchase of a majority stake in MyHammer today, and is excited about the European opportunity, as HA will now be the market leader in Germany, France, and the Netherlands. On the domestic side, IAC noted that 3Q domestic EBITDA alone exceeded FY 2015 domestic EBITDA, and that there are now 137k (48% y/y) domestic paying service professionals on the platform vs. 93k a year ago. Management continues to suggest that there is upside to the stated goal of $1b in HA revenue over the next three to five years.
  • Numerous initiatives underway at Vimeo. Video revenue was flat y/y, coming in at $60m, 12% above our estimate, and EBITDA losses of ($1m) were ahead of our estimate of ($4m). IAC focused the shareholder letter this quarter on Vimeo, and outlined several initiatives both on the consumer and supplier side that should enable the platform to capture a greater share of the video market over time. For consumers, IAC plans to ramp up investment in original content and license more high-profile content, and will offer bundled subscriptions to consumers with the new and existing content. For suppliers, IAC plans to improve and expand its existing SaaS platform to drive more content creators to Vimeo. Of note, IAC stated that run-rate revenue for the core SaaS business tools exceeded $75m and that the core business is profitable. Further, there are now 741k (13% y/y) paying subscribers on Vimeo, up from 720k in 2Q16 and 654k a year ago.
  • Publishing. Publishing revenue declined 12% q/q to ~$75m (lower than IAC’s q/q expectations), 8% below our estimate and 9% below consensus. Premium Brands revenue (About.com, The Daily Beast, Investopedia, and Dictionary) decreased as a result of declines in paid search traffic at About.com. Declines at About.com were partially offset by strong growth at Investopedia. For 4Q, the company continues to expect publishing revenue to increase sequentially and expects the segment to return to profitability.
  • Applications stabilizes. Applications revenue was flat q/q and came in at ~$143m, 5% above our estimate of $136m, and IAC noted that RPQ has begun to improve. By segment, Partnerships (B2B) revenue came in at ~$32m (-5% q/q), and Consumer revenue was $111m (1% q/q). EBITDA improved sequentially, coming in at $35m. For 4Q, the company continues to expect revenue to settle between 2Q and 3Q levels and expects EBITDA to be $25-$30m for 4Q and going forward.
  • Match. Total revenue was $316m (18% y/y), in-line with us and consensus. Relative to our model, Dating revenue was slightly higher, offset by continued softness in non-core Non-Dating. Lower opex, specifically lower G&A expense vs. our model, drove EBITDA 5% above us and 4% above consensus.
  • Other. Other revenue, which consists only of Shoebuy, declined 4% y/y to ~$37m vs. our estimate of ~$35m. EBITDA came in at a loss of ($0.8m) (on negative 2.2% margins) vs. our estimate of ($3.6m).
  • Plans for cash and outlook on M&A. IAC repurchased $33m of shares in 3Q, bringing the YTD total to ~$250m. IAC has also proposed a new class of shares (Class C) to be used for acquisitions and employee compensation, as disclosed in its proxy statement filed yesterday. On M&A, IAC continues to focus on opportunities related to the key growth assets (HA and Video/Vimeo), but noted that there is nothing currently in the NT pipeline.
  • Adjusting estimates and increasing price target to $91 (vs. $74 prior). Based on the results and guide, we are raising our 2016 revenue by 1% and EPS by 9%. We are also raising 2017 revenue by 1%, EBITDA by 1%, and EPS by 15%. Price target to $91 as we roll out our valuations to 2017.

For an analyst ratings summary and ratings history on IAC/InterActiveCorp click here. For more ratings news on IAC/InterActiveCorp click here.

Shares of IAC/InterActiveCorp closed at $65.39 yesterday.

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