IAC/InterActiveCorp (IACI): Uncertainty Over Separation Engenders Caution

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Canaccord Genuity analyst Michael Graham rates IAC/InterActiveCorp (NASDAQ:IACI) as a Hold as the company announces mixed 4Q results and shows signs of a possible business separation.

IAC/InterActiveCorp (NASDAQ:IACI) reported mixed Q4 business results. Search declined sequentially and y/y, while Match showed slightly decelerating growth, partially driven by a strategic decision to move subscribers towards longer term plans (which also come with lower ARPU). Overall revenue missed consensus by ~2.5%, with expense controls leading to a slight OIBA beat. With little in the way of a formal update, signs of a possible business separation are accumulating, including a slow ramp in potentially return-enhancing debt. We believe the stock partially reflects this possibility, while the sluggish Search segment keeps us at HOLD.

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Key points

  • Bullish: Match’s developing business is seeing dramatic subscriber growth of ~140% and revenue growth of ~69%; the share buyback turned back on, with the company repurchasing 1.6 million shares over the past 3 months.
  • Bearish: Search and Applications revenue weaker than expected, down 8% y/y; Match segment was slightly below expectations mostly driven by lower ARPU (driven by longer-term subscriptions); FY14 guidance is lighter compared to consensus.
  • Estimates changes: We are lowering our estimates. Our FY14 and FY15 revenue/OIBA estimates go to $3,165M/$586M and $3,425M/$685M from $3,357M/$642M and $3,618M/$710M.

InterActive Corp valuation

We increase our price target for IAC/InterActiveCorp (NASDAQ:IACI) to $62 from $52. We are rolling over our valuation to FY15. Our new price target is based on 13.5x (up from 12.0x) our lower 2015 EPS estimate of $4.58 (down from $4.86).