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A track record of success
Barry Diller’s IAC has produced a long string of success stories, in large part because of patient, strategic capital allocation. The company has built a powerful niche for itself in taking offline businesses into the digital marketplace. Its successful spinoffs include online travel stalwart Expedia (EXPE) in 2005, ticketing behemoth Ticketmaster in 2008, and online dating pioneer Match Group MTCH (MTCH) in 2020. Last month IAC spun off Vimeo and is now embarking on its next phase where businesses such as Care.com and their investment in car sharing company Turo will hopefully capture investor’s attention now that they are out of the shadow of Vimeo.
On my podcast, “The World According to Boyar,” IAC’s CEO Joey Levin traces his investment approach back to Diller’s strategy to “always think bigger.”
“You say, ‘Look at this little business that’s doing a few million dollars of revenue. We can imagine one day if we work a lot of things out, we could do $100 million in revenue,’” Levin recalls. That might sound like quite an accomplishment, but it wouldn’t impress Diller, who would instead ask why you weren’t going after an even bigger opportunity.
“If you start with small ambitions, the best you do is achieve those,” says Levin.
The value of patience and flexibility
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Part of Boyar Value Group’s investment philosophy revolves around buying great businesses and holding them for as long as possible, allowing tax-deferred compounding to work its magic. IAC has a similar approach which sets them apart from most public companies. Levin told me the mindset of owning something forever has been a huge competitive advantage for the company. Part of that advantage comes from the ability to be indifferent about short-term performance if they see a path to superior long-term results. That mindset gives them the flexibility to be aggressive when opportunities present themselves.
During the pandemic, when many other businesses went on the defensive, IAC looked for opportunities. “We said, ‘We have a very short window to deploy capital here—let’s make sure we don’t miss this window,” Levin says.
The only problem was, that short window of time limited the types of companies IAC could buy outright to those that were either bankrupt or close to it. So Levin and his team changed tack. “We realized that if we were going to put a lot of capital to work in that window, it would have to be likely through public companies and minority investment in public companies,” Levin explains.
They eventually landed on the idea of taking a minority stake in entertainment giant MGM Resorts International by purchasing stock through the public markets. From IAC’s point of view, MGM was a leader in a well-established category and its solid cash flow offered downside protection. More importantly, IAC saw potential upside in MGM’s developing sports betting and online gambling operations—exactly the sort of offline to online opportunity that has historically been in IAC’s wheelhouse. A post-pandemic revival in travel could also provide upside through MGM’s resort business, which hurt earnings during the COVID-19 crisis. IAC’s investment in MGM is up over 140% since they purchased it less than a year ago, those short-term paper gains may not be the central focus of IAC’s investment, but they also can’t be making Levin and his team unhappy about their investment.
As opportunistic investors ourselves, we have to admire the flexibility and vision to take advantage of an opportunity of that size and scale at that particular moment.
In reference to IAC’s MGM investment Levin said,
“I’ve joked that generally, to create a billion and a half dollars of value, we’ve had to work for years and years,” says Levin. “This one happened in a few months. We didn’t have to do much work at all.”
Looking for downside protection plus upside potential
Levin’s description of MGM could easily suit his own company as well. IAC is continuing to invest in its online home-services business, Angi, which we already believe is a solid opportunity in and of itself. As discussed earlier, IAC just spun off Vimeo (VMEO), which it bought in 2006. In his latest letter to shareholders, Levin points out that IAC has recovered the $300 million in capital it invested in Vimeo over the past 15 years and expects to distribute shares representing approximately $5 billion more.
Even with those spinoffs, Levin points out that IAC’s remaining operations will still have more cash and more adjusted earnings than it had following any of its previous spinoffs. The company has its sights trained on ambitious future opportunities as well. Levin sees post-pandemic potential in Turo, a company looking to become the Airbnb of peer-to-peer car sharing, for example. And even after more than a decade of reinventing offline businesses in digital formats, large markets like temporary labor and healthcare still haven’t made the leap yet. IAC is investing in businesses like Bluecrew, Vivian Health and Care.com to take advantage of these eventual transformations.
Redefining good value
IAC is not a traditional “value stock” selling at a bargain basement price. However, it does not mean at current levels that it is not a good “value.” Shares in companies like IAC often do not become statistically cheap. For investors, the trick is to buy these high-quality businesses at a reasonable price so if the business’s future performance is not as strong as expected, (in theory) your downside should be limited. With a strong management team at the helm and sitting on nearly $3 billion in cash, it may be worth investors taking Mr. Diller’s advice and thinking bigger about IAC’s potential upside.
The author and/or certain Boyar Asset Management clients own all of the aforementioned stocks either individually or through pooled vehicles the firm manages. For additional important disclosures, please visit: www.lp.boyarvaluegroup.com/disclaimer