Investors should consider placing their bets on the new
even before it has a full hand again.
holding company spun off two of its best-performing assets over the past year in the online dating company
and the video hosting and sharing platform
What is left isn’t a royal flush, but it might just prove to be a solid inside straight.
Up over 60% during the past six months, IAC shares aren’t cheap. The company typically invests in businesses looking to bring online things that have historically been offline, such as child care and home-services bookings. Its modus operandi is to incubate companies, spin them off when they have reached a certain size and start anew. That strategy has left the company with a lot of cash, which investors hope will be deployed toward share repurchases or another big bet. Until then, shareholders are looking at a portfolio of assets that have either historically underperformed or are still very small.
That doesn’t mean there isn’t hidden value. Take the home-services business
which is now IAC’s largest remaining asset, accounting for 44% of its total revenue in the first quarter. Angi is a company in transition, trying to bring home-services bookings on demand to your phone. Having rebranded from the name Angie’s List, the home-services website is trying to evolve in consumers’ minds from a listing resource to a transaction-based destination.
It isn’t there yet. After increasing revenue an average of 20% from a year earlier in the first two months of last year, Angi said it grew an average of just 3.5% in the same period this year, as Covid-19 fears tempered interest in home visits. As a publicly traded company in which IAC still holds a majority stake, Angi has been somewhat rangebound since last July, as shareholders wait and see if growth can sustainably accelerate beyond performing well against easy Covid-19 comparisons.
The hot U.S. housing market could help. Last year millennials made up the largest share of home buyers, according to the National Association of Realtors. Angi, which has been rebranded with millennials in mind, stands to be a prime beneficiary of that trend. A recent survey of millennial home buyers by Angi found that 56% of them bought a home requiring renovations. Within that, 44% said they would spend $50,000 or more on those renovations and 22% said they had renovation budgets over $100,000. That all bodes well for Angi over the next several quarters.
Some of IAC’s lesser-known investments are also worth diving into, especially if you believe travel is set to rebound quickly. IAC is the largest owner in the peer-to-peer car-sharing marketplace Turo, for example, which stands to benefit from interest in drive-to travel destinations this summer.
Trumping that in size, though, is the $1 billion minority investment IAC made last August in
MGM Resorts International.
This is a long-term bet on the growth of sports betting and online gaming, which MGM says is a $32 billion addressable market in North America that in the U.S. is less than 10% penetrated. BetMGM did $163 million of business in this area in the first quarter, which is such a small portion of MGM’s overall revenue that IAC said it essentially rounded down to zero. MGM’s first-quarter investor presentation, however, forecasts that the business will generate over $1 billion in net revenue next year.
For now, IAC is taking a big swing on the revival of Las Vegas, MGM’s largest source of revenue. IAC says MGM owns 35% of the Las Vegas Strip’s available rooms and maintains that it will see a tremendous recovery over the next several months. As of the first quarter, revenue for MGM’s Las Vegas resort business was still down 52%.
But don’t discount the value of its other gambling hubs world-wide. Volume for MGM’s Macau operations remains well below pre-Covid-19 levels, for example. And MGM’s regional operations in such cities as Detroit and Yonkers, N.Y., nearly recovered to pre-Covid-19 levels as of the first quarter, but could see more upside this year if those far from Vegas opt to stay local.
Just when you think the chips are down, Mr. Diller could have another ace up his sleeve.
Write to Laura Forman at firstname.lastname@example.org
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