IAC/Interactive: Divided We Stand

Jan.21.08 | About: IAC/InterActiveCorp (IAC)

Interactive Corp. (NASDAQ: IACI) recently announced its decision to split its whole business into five separate, listed entities. The stock lost around 24% in 2007.

The spin-off will hopefully lead to value unlocking for shareholders. It will create 5 different entities - Interactive (including Ask.com, Match.com and Citysearch), Home Shopping Network, Ticketmaster, Interval (Time share and Travel) and Lending Tree (Real Estate mortgage).

The breaking up will create a simple structure and allow investors to invest in individual business segments with transparent metrics. It will also allow the individual business segments to be nimble and pursue their own specific M&A activities. The transaction is expected to be completed by 2Q/3Q 2008.

Ticketmaster has been doing well and there are indications that its 4Q07 results will be ahead of the street’s forecast. Ticketmaster is expected to grow revenues by 11% in FY2008. EBITDA is expected to be 23% in FY2008.

HSN’s sales growth is expected to continue. It will record revenue growth in high-single digits in 4Q and in the lower single digits (4% - 6%) in the coming quarters. Interval has EBITA margins of over 40% and is among the highest margin businesses in IAC’s portfolio. Revenues at Interval are expected to grow at 14% in FY2008, but an impending recession could significantly slow down the revenue growth.

Lending Tree is experiencing softness and revenues are going to be impacted by the crash in the real estate market. Revenues at Lending Tree are expected to fall by as much as 15% in FY2008, and the EBITDA margin is expected to be -2% in FY2008.

IACI has struck a 5-year search advertising deal with Google (NASDAQ:GOOG) for consolidated revenues of $3.5 billion. This will aid Ask and other related media properties to improve their EBITDA margins. Ask has been spending heavily on advertising and technology development, and has a paltry market share of 4.6% in search. Revenues at IAC are expected to grow at 20% in FY2008.

Of the five entities, LendingTree would be the worst-performing business, and IAC and Ticketmaster would likely be the strongest.

There are rumors of IAC acquiring Flixster for $150 – 200 million. Flixster raised $2 million in funding from Lightspeed Ventures and other angel investors in February 2007. The site had 8.2 million visitors, and 139 million page views in November 2007. The social network could be easily integrated into the Company’s Ticketmaster business.

Currently the IAC/Interactive stock is trading at $24, which is close to its 52-week low. It is a reasonable bet to say that the restructuring will provide good shareholder returns, and a nice turnaround for the company.