IAC/InterActiveCorp Plans To Spin-Off Vimeo In 2Q21
On December 22, 2020, IAC/InterActiveCorp (NASDAQ IAC : IAC, $185.06, $15.8 billion) announced that the company’s Board of Directors has approved a plan to spin off its entire stake in video software company Vimeo. Through its cloud platform, Vimeo provides a one-stop solution for all business needs of local SMBs as well as global companies. Post spin-off, Vimeo will continue to provide cloud-based Software as-a-Service (“SaaS”) offerings through its global video platform to creative professionals, small and medium businesses (“SMBs”), organizations and enterprises to create, host, stream, monetize, analyze and distribute videos online and across devices. On the other hand, IAC would continue to operate Dotdash, Search, Mosaic Group, Care.com and other businesses, along with majority ownership in ANGI Homeservices, which includes HomeAdvisor, Angie’s List and Handy.
IAC expects to hold shareholder meeting in the first quarter of 2021 to review and approve proposal to implement the spin-off. If approved, the spin-off is expected to be completed by 2Q21. The proposed transaction is expected to be effected through reclassification of IAC shares, wherein IAC shareholders are expected to receive proportionate shares of Vimeo. The transaction is expected to be tax-free to IAC and its shareholders.
Vimeo provides cloud-based Software-as-a-Service (“SaaS”) offerings through its global video platform to creative professionals, small and medium businesses (“SMBs”), organizations and enterprises to create, host, stream, monetize, analyze and distribute videos online and across devices. Vimeo offers tools for livestreaming, screen recording, video creation, collaboration, distribution, storage, and monetization.
Previously, on November 5, 2020, IAC and Vimeo entered into an investment agreement to raise $150 million of equity investment from Technology DXC investment firm, Thrive Capital and Singapore’s sovereign wealth fund GIC at an enterprise value of ~$2.75 billion (~14x of FY19 revenue). On November 10, 2020, the investors acquired an aggregate of 8,655,510 shares of Vimeo’s common stock at price of $17.33 per share. The company said that proceeds from the capital would be invested in R&D, sales and international expansion.
MORE FOR YOU
In the last 25 years of the company’s history, IAC has spun-off several businesses after they achieved sizeable scale and maturity, including Expedia, LendingTree TREE , HSN (now part of Qurate Retail Group QRTEA ), Interval Leisure Group (now part of Marriott Vacations Worldwide VAC ), Ticketmaster (now part of Live Nation Entertainment LYV ), Match Group MTCH , and ANGI Homeservices Inc. amongst others.
Spin-off Details (Match Group)
Earlier, on November 19, 2015, IAC completed the initial public offering of Match Group, Inc, creating the 8th public company. Match Group offered 38.3 million shares in the IPO. At the IPO price of $12.00 per share, Match Group raised net proceeds of $460 million, which was used to repay indebtedness it owed to IAC. Later, on July 1, 2020, IAC completed the spinoff of Match Group from the remaining businesses of IAC.
As part of its strategy, IAC acquires small online companies and grows them through a series of acquisitions, followed by their spin-off. In 2006, IAC acquired Vimeo as part of a deal to purchase comedy website CollegeHumor. The acquisitions of Livestream (live category), Magisto (creation) and VHX (Over-the-top) expanded Vimeo’s offerings and scale.
In the past, any consideration of Vimeo’s spin-off was hampered by concerns over scale and profitability, especially since it was a money-losing unit. We believe that management wanted Vimeo to either improve its performance or have enough capital for sustainable growth investments as a stand-alone entity. In the recent past, Vimeo has been able to generate robust revenue growth, improve profitability and raise capital, thereby paving the way for a potential spin-off, in our view. During the COVID 19 pandemic Vimeo’s subscriber and top-line growth skyrocketed amidst accelerated demand for its video creation, editing and storage software as well as for its live streaming platform. Prior to the pandemic, the momentum in Vimeo’s organic bookings growth (1Q19: +11%, 4Q19: +27%) reflected expansion of customer base to include even small businesses. During the pandemic organic bookings growth surged (1Q20: +41%, 2Q20: +79%, 3Q20: +56%). The recurring SaaS subscription revenue model and recent trends of growth in bookings outpacing that of revenues, offer solid revenue visibility to Vimeo. Although management acknowledged that 3Q20 positive adjusted EBITDA was more a result of lower product development and marketing costs, we reckon that Vimeo will continue to improve its profitability going forward.
Given the robust investor interest, IAC was able to raise capital for Vimeo at substantially higher valuations compared to IAC. In our opinion, the fund raise not just allayed concerns over the adequacy of capital at Vimeo, but also offered a deep market perspective to IAC’s management that Vimeo was capable of surviving as a stand-alone unit. The widening valuation gap between the parent firm and Vimeo probably prompted IAC’s management to seek further value creation through a spin off of Vimeo. Given the investor appetite for SaaS companies and Vimeo’s growth trends, IAC’s management believes that going forward, Vimeo could raise capital at a lower cost as an independent company than as part of IAC. Moreover, Vimeo could utilize its own equity capital for expenses related to research and development, hiring new employees or acquisitions. In conclusion, the separation should enable investors to value the units independently, thereby unlocking value for shareholders. In the past, IAC had mulled a spin-off of ANGI as well; however, the current weakness in its operating environment may have probably led to the move being postponed. In contrast, with Vimeo outperforming expectations and likely to gain the desired level of scale and desired profitability at an accelerated pace, we reckon that IAC may have fast-tracked spin-off of the unit.
The spin-off will provide IAC and Vimeo with the flexibility to independently implement their business plan and determine factors such as the optimal capital structure, capital raising for growth and the management team. Both businesses can focus on building scale, pursuing targeted strategic acquisitions, driving long term profitability and value and developing a growth strategy based on their distinctive strengths.
IAC evaluates its portfolio on a regular basis for the possibility of separation of units to ensure improved future prospects and value creation. Moreover, IAC’s management has explicitly stated that their investment philosophy is tilted towards being an anti conglomerate. In its long history as a publicly listed company, IAC has spun-off many businesses after they achieved sizeable scale and maturity, including Expedia, LendingTree, HSN (now part of Qurate Retail Group), Interval Leisure Group (now part of Marriott Vacations Worldwide Corporation), Ticketmaster (now part of Live Nation Entertainment) and Match Group, amongst others. IAC’s latest completed spin-off is that of dating app provider Match Group (June 2020). Despite the macroeconomic and social challenges due to COVID-19, Match Group’s business performance remained resilient, with robust Direct revenue YOY growth (1Q20: +18%, 2Q20: +12%, 3Q20: +18%). High user activity and engagement levels across the portfolio helped the company generate growth in new subscribers and ARPU. Moreover, Match Group expects to continue the growth momentum in the next quarter as well and achieve its FY20 revenue guidance, which was set at the start of the year. The company’s share price has risen 42% since regular way trading, thereby creating value for IAC shareholders post spin-off.
IAC is one of the leading media and internet companies globally and is known for incubating businesses and spinning them once they have grown in scale. We believe this strategy enables the company to create shareholder value.
Currently, IAC operates through five segments: ANGI Homeservices, Vimeo, Dotdash, Search, Emerging & Other segment. IAC will continue to invest in companies as they envisage attractive opportunities in the current environment. The company invested more than $1 billion in MGM Resorts for ~12% stake and completed other smaller acquisitions for Dotdash and Care.com recently. We believe such investments will be vital for IAC as they will determine the company’s future growth trajectory. Besides, the company’s strong cash position enables it to invest in organic as well as inorganic growth opportunities.
Vimeo has been witnessing accelerated growth across all products, with the largest and fastest growing category, enterprise (~25% of revenue), likely to drive future growth trajectory for the unit. Vimeo intends to leverage the success of enterprise from the self-service channel (35% of enterprise bookings) through investments in marketing channels and enterprise focused research and development to address the global market opportunity. Moreover, the price point for enterprise ($15,000 20,000/customer) should help Vimeo meet its investments, while remaining earnings positive in the long-run. However, the momentum in conversions from self-service channel in a post-pandemic world will be crucial. Nonetheless, with the onset of the second wave of the pandemic, Vimeo may continue to reap benefits from the increased adoption of its video software by small and medium organizations (Vimeo’s monthly revenue growth clocked at least 40% YOY in each month from April to November, 2020) . The COVID-19 pandemic has brought into focus the case for Vimeo to operate successfully as an independent entity.
Despite improved performance at various businesses, we believe that IAC needs to deliver consistent and sustainable profitable growth at different businesses. The resurgence in investor interest in the stock stems from the faster-than-expected decision to spin-off Vimeo. We acknowledge that the Vimeo spin-off and improved performance at ANGI could offer opportunities for value creation. However, we do not foresee many catalysts remaining for the stock at such heightened valuations.
IAC’s businesses such as Vimeo have largely benefited from increasing adoption of online platforms, although the weakness at ANGI has been a concern. Having said that, IAC has witnessed a marked improvement in sales performance across all units in November 2020, including ANGI. At the end of 3Q20, the company had $3.8 billion in cash and cash equivalents, which offers sufficient cushion to navigate the multiples uncertain times of the pandemic. Our raised valuations mirror the breakneck pace at which management is progressing on the Vimeo spin-off, which could lead to incremental shareholder value creation much earlier than expected. Moreover, the recent improvement in top-line growth across businesses could portend potential accelerated improvement in sales and profitability at a sustainable rate.
We retain our 2021E Sales and Adj. EBITDA of $3.46 billion and $185 million, respectively and continue to value IAC using blended EV multiples. We compare IAC with other listed companies engaged in similar internet and media services. We have substantially raised our 2021E EV/Sales and 2021E EV/ Adjusted EBITDA multiples to 4.0x and 75.0x, respectively, reflecting optimism surrounding the sudden announcement of Vimeo spin-off and improved growth in November 2020.
Accordingly, we arrive at an average Enterprise Value of $13.8 billion on the stock. After adding net cash of $3.1 billion and deducting non-controlling interest of ~$0.6 billion, we arrive at an equity value of $16.4 billion on IAC. Considering the diluted share count of 86.8 million, we significantly raise our target price to $189.00 per share (previously: $140.00 per share). Given the recent surge in the stock price post the Match Group spin-off completion and Vimeo spin-off announcement, we believe that the near-term catalysts might already be priced in. Accordingly, we retain our Hold rating on IAC and prefer to remain on the sidelines. We await the company’s quarterly results performance, before revisiting our rating and target price.
IAC, incorporated in 1986, is a hybrid media/electronic retailing company with the name Silver King Broadcasting Company, Inc. After a series of transactions and name changes, the company has transformed itself into a leading media and Internet company. The company’s portfolio of websites is one of the largest in world comprising of more 150 brands and products reaching users in 100+ countries. IAC also has a majority ownership in ANGI Homeservices.
The company operates through following five segments:
ANGI Homeservices consists of a portfolio of digital homeservices brands including HomeAdvisor, Angie’s List and Handy which primarily operate in the USA. The company also has home services online marketplaces in France, Germany, Netherlands, United Kingdom, Canada, Italy, and Austria. Through these platforms the company connects homeowners to home service professionals, collect reviews and allow homeowners to research, match and connect on-demand to the network of service professionals online.
Vimeo is a video platform for creative professionals, marketers and enterprises to connect with their audiences, customers and employees. Vimeo currently has more than 200 million members across 150 countries and is the largest ad-free open platform. Through its Platform business, Vimeo offers cloud based software products to stream, host, distribute and monetize videos online and across devices. The company also provides premium video tools on a subscription basis. Through its Livestream business, the company sells live streaming accessories.
Dotdash is a portfolio of digital brands which provides expert information in select vertical content categories to over 100 million users each month. The segment currently consists of Verywell, The Spruce, The Balance, Investopedia, Lifewire, TripSavvy, ThoughtCo, Byrdie, MyDomaine, Brides, Liquor.com and ThoughtCo. Through these brands, the company offers original digital content through articles, illustrations, videos and images.
Search Segment consists of Ask Media Group, which is a collection of websites that provide general search services and information and Desktop, that includes the company’s direct-to-consumer downloadable desktop applications and business-to business partnership operations.
Emerging & Other segment includes the company’s investments in early stage companies as well as more mature IAC businesses. The segment includes, BlueCrew, The Daily Beast, College Humor Media, IAC Films and Care.com.
For FY19, consolidated revenue was up 6.8% YOY to $2.7 billion driven by Dotdash, Vimeo and ANGI Homeservices segment that grew 27.9%, 22.8% and 17.1% respectively. The revenue growth was offset from Search and Emerging & Other segments that registered declined growth of 9.9% and 4.4% respectively. Adjusted EBITDA declined 38.1% to $207.3 million and the corresponding margins were also down ~556bps. Operating loss for the period was $50.4 million (FY18: gain of $35.8 million). Net income attributed to IAC shareholders was $22.9 million (FY18: $246.8 million) and GAAP diluted EPS was $0.27 (FY18: $2.9).
Revenue increased 8.0% YOY to $2.2 billion owing to broad based segment growth. Revenue from Emerging & Others, Vimeo, Dotdash and ANGI Homeservices were up 58.9%, 41.0%, 24.6% and 10.3% respectively. Growth in revenue was offset by decline in Search segment (-25.1%). Adjusted EBITDA declined 72.2% to $41.9 million and the corresponding margin were down ~551bps to 1.9%. Goodwill impairment of $265.4 million resulted in the company reporting an operating loss of $548.0 million (9M19: loss of $34.0 million). The company reported net loss of $239.4 million (9M19: net income of $16.0 million). GAAP diluted EPS was $(2.81) (9M19: $0.19).
Incorporated in 1986 and headquartered in New York, IAC is a leading media and Internet company comprised of some of the world’s most recognized brands and products. The company operates through Vimeo, Dotdash, Search, and Emerging & Other segments. The company has majority ownership in ANGI Homeservices, which includes HomeAdvisor, Angie’s List and Handy. IAC/InterActiveCorp serves customers across the globe.
Vimeo is one of the world’s leading video platform with >200 million members across more than 150 countries. Vimeo helps grow business by making it easy to create and market high-quality, impactful videos. Vimeo is headquartered in New York City with offices around the world and is an operating business of IAC.