- IAC/InterActiveCorp spins off its match division, which consists mainly of dating services.
- Spin-offs are part of IAC’s business model, and previous examples showed very prominent post-spin-off performance for the standalone stock.
- Need to wait for the official documents to be filed to quantify the opportunity in this spin-off.
After a long period of anticipation, IAC (NASDAQ:IACI) finally announced its intent to spin-off its Match division, which is known as The Match Group (will be referred to as “TMG” from now on) and pursue an IPO to get the standalone company publicly traded. TMG has some of IAC’s most attractive assets within the dating, education, and fitness businesses, like Match.com, OkCupid, Tinder, The Princeton Review, and DailyBurn. The public offering of TMG is expected to take place in the fourth quarter of 2015 and unlock the incredible value TMG holds.
For IAC and its chairman Barry Diller, spinning off successful divisions is part of the business model and is frequently the same as acquiring new business to rebuild IAC’s value after each spin-off. The most famous spin-offs IAC has completed includes Expedia (NASDAQ:EXPE), LendingTree (NASDAQ:TREE), TicketMaster, now Live Nation Entertainment (LYV), and The Home Shopping Network (NASDAQ:HSNI) – all of which yielded significant return to investors as shown in Chart 1 below.
The Match Group
IAC’s Match group consists of 14 brands split between dating and non-dating businesses. In the dating businesses, TMG has 11 brands that operate mainly in North America but also have a strong international presence. The non-dating businesses include education and fitness brands, like Tutor.com, which acquired The Princeton Review in August 2014 and the fitness app DailyBurn that was acquired in May 2010. Dating revenue is principally earned from subscription fees for our subscription-based online personals and related services, with additional revenue generated from online advertising. Non-dating revenue is primarily earned from fees received for in-person and online test preparation classes, access to online test preparation materials, and individual tutoring services.
The dating businesses account for the vast majority of TMG’s revenues, with more than 87% of revenues generated by online dating apps, sites, and services, leaving only 13% for TMG’s education and fitness businesses. As shown in Chart 2 below, earlier, non-dating businesses accounted for 1% to 3% of TMG’s revenues; however, after IAC’s Tutor.com acquired The Princeton Review at Q3’14, the non-dating portion of revenues rose to 13%.
The slow growth rate of the dating businesses is driven by the mix of companies included within that vary from slow-growing businesses, like Match.com, Ourtime, and Meetic, to fast-growing businesses, like Tinder, Twoo, and Chemistry. Many investors fantasize on a follow-up spin-off of Tinder, similar to the TripAdvisor (NASDAQ:TRIP) follow-up spin-off after IAC spun off its travelling business under Expedia. However, for now it seems unrealistic as it is probably TMG’s most valuable asset right now and attracts most of the investors’ interest.
Post Spin-Off Performance
As the official spin-off documents have not been filed with the SEC yet, it is hard to assess exactly the magnitude of such spin-off on TMG. Currently according to IAC’s filings with the SEC, TMG has an impressive operating margin of around 30% which decreased to an 11% low in Q1’15 and EBITDA margin above 20%. However, the new company will have to acknowledge its portion of the inter-segment expenses that are currently kept at the corporate level, which will drive TMG’s operating margin of 11% and EBITDA margin of 20% further down. Small margins might make TMG standalone company less attractive to investors, so it will probably try to change the companies mix within TMG, and sell some of the low growing, low profiting, dating companies that damage TMG’s growth.
Following IAC’s previous spin-off that followed in an amazing price appreciation for the stocks of the standalone companies as presented in chart 1 above, IAC usually spin-off business that have the ability to continue growing. This will probably be the case also with TMG, and its impressive portfolio supports it. However, we will need to wait for the official documents before I can quantify the impact.
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Also see: Amigobulls' IACI stock analysis video for a quick look at the company's key fundamentals.