IACI Valuation: Tinder Is A Huge Upside.

  • IACI has been a launch pad of many great and successful internet start-ups.
  • Tinder is the fastest growing dating app in the world.
  • Given the high engagement rate and exponential growth of Tinder, It could drive the stock price of IACI higher over the coming quarters.

Tinder could drive IACI stock price

Interactive Corp  (NASDAQ:IACI), a holding company for over 150 online brands also has the reputation of being a breeding ground of some of the internet start-ups which went on to become successful online companies. Tripadvisor and Expedia are two such examples of successful companies who were part of the IACI group early in their life. Tinder the latest and fastest growing dating app is majority owned by IACI. We see a huge upside for IACI stock resulting from its investments in this small startup.

The company’s search and Match segments have assumed greater importance within the group on account of larger contributions to IACI topline as well as bottom-line.

Match and search, key drivers of IACI fundamentals

The search segment and Match segment contributed approximately 100% of IACI’s revenues for FY 2013, highlighting the importance of the two segments. The segments have been the leading drivers of topline growth at the internet conglomerate over the last two years.

IACI segmental revenue growth

2012 2013
Search segment revenue growth 40.9% 9.5%
Match segment revenue growth 37.7% 10.5%
Local segment revenue growth 6.3% -14.0%
Media segment revenue growth 134.9% 17.5%

The importance of the two segments is crystal clear once we consider the segmental operating income, which is a great metric to measure operating efficiency. The two segments have contributed a lion’s share of the total operating income in each of the last three years.

IACI operating income by segment

The match segment is central to the fundamental strength of IACI and the success of Tinder could drive this critical segment of IACI’s operations. Let’s now look at Tinder and its future potential.

Tinder: The golden egg of IACI?

Tinder, a dating app is among the latest of IACI investments.  The app has gained traction with its rapid acceptance by the online dating community. The rapidly growing popularity of Tinder can be gauged from the fact that the company hit one million profile views in august 2013 and is expected to cross one billion in April 2014. The site, according to CEO Sead Rad, Tinder has made a billion matches, which is up from 1 million in January 2013 and 500 million December 2014. The engagement rates can be gauged from the fact that an average user spends close to 60 minutes on Tinder. The latest online dating property is truly on an exponential growth path.

In a world where numbers like unique viewers and profile views and time spent are highly valued (FB’s $19 billion acquisition of Whatsapp is a case in point), Tinder could well hatch to deliver IACI a windfall through acquisition or significant revenues and profits through successful monetization.

According to a post on fiscaltimes.com, the total online dating market is worth $2.1 billion and growing while another post on telegraph.com puts the total industry size at $4 billion. In the absence of concrete unique user numbers, the best approximation of Tinder value would be to use the Whatsapp valuation as a reference point.

As per our estimates, the app has approximately 10 million unique users (close to total app downloads and all being recent), and going by the high engagement rates and increasing popularity, let’s assume they go on to achieve the numbers of match.com, which has close to 25 million unique users.

Using Whatsapp acquisition of $19 billion for a 450 million user app, the value of Tinder can be estimated at $1 billion, a conservative estimate considering that matching apps have a higher rate of engagement. IACI currently has a market cap of $5.8 billion. A majority ownership in Tinder could drive the stock price higher over the coming quarters, given the ever increasing popularity of tinder. Also IACI has already established ability to monetize dating platforms like Match.com driving revenues up to 790 million in 2013.

We reiterate our strong bullish rating on IACI. Given the current valuation levels, Tinder could significantly drive the stock higher in coming quarters.

To see Interactive corp’s current stock price, please click here: (NASDAQ:IACI)

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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