IAC - Fundamentals, Financials, History, and Analysis
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IAC Inc. (IAC) is a media and internet conglomerate that has built a diverse portfolio of leading digital brands over the past two decades. The company's history is marked by a relentless pursuit of innovation, strategic acquisitions, and a willingness to evolve and adapt to the ever-changing digital landscape.

Company History and Evolution

Founded over two decades ago as a single seed, IAC has grown into a company that has spawned 11 public companies and generations of exceptional leaders. The company has been guided by curiosity, a questioning of the status quo, and a desire to invent or acquire new products and brands. In its early years, IAC built a diverse portfolio of internet and media businesses through a series of acquisitions and investments, including notable early acquisitions such as Expedia, Ticketmaster, and LendingTree. By the late 1990s and early 2000s, IAC had transformed into a large conglomerate with over a dozen operating businesses spanning various industries.

However, in the mid-2000s, IAC faced significant challenges. The company's diverse business model, while providing opportunities for growth, also created operational complexity. This complexity, coupled with the economic downturn, led to a decline in IAC's financial performance. In response, the company began a process of streamlining its operations and spinning off several of its businesses as independent public companies, including Expedia and TripAdvisor.

Throughout the 2010s, IAC continued to evolve its portfolio, making strategic investments and acquisitions, while also spinning off or divesting businesses that no longer aligned with its core focus. This included the spin-offs of Match Group and ANGI Homeservices (now Angi Inc.). During this period, IAC also acquired Dotdash (now Dotdash Meredith), a leading digital publisher, which has become one of the company's core operating businesses.

Despite the challenges and changes, IAC has remained committed to its founding principles of financial discipline, curiosity, and a willingness to adapt to the ever-changing market landscape. The company's ability to navigate these challenges and transform its business model has been a key driver of its success over the past two decades.

Current Business Overview

As of 2024, IAC's key operating segments include Dotdash Meredith, Angi Inc., and its Search business, which encompasses the Ask Media Group and Desktop operations. The company's diverse revenue streams, ranging from digital advertising and e-commerce to subscription-based services, have contributed to its resilience and adaptability in the face of changing market conditions.

Dotdash Meredith

Dotdash Meredith, the company's digital publishing division, has emerged as a standout performer within the IAC ecosystem. With a focus on producing high-quality, authoritative content across a wide range of verticals, including lifestyle, finance, and healthcare, Dotdash Meredith has consistently outpaced industry benchmarks in digital revenue growth. In 2024, the division reported a 10% increase in digital revenue, driven by strong performances in areas such as performance marketing and licensing.

Dotdash Meredith consists of two main operating units - Digital and Print. The Digital business includes revenue from advertising, performance marketing, and licensing and other sources. Advertising revenue is generated from display advertisements sold directly through the sales team as well as programmatic advertising. Performance marketing revenue includes affiliate commerce commissions and affinity marketing programs that place magazine subscriptions. Licensing and other revenue comes from brand and content licensing agreements. The Print business includes revenue from magazine subscriptions, advertising, newsstand sales, and performance marketing.

In the third quarter of 2024, Dotdash Meredith Digital revenue grew 16% year-over-year to $246.4 million, driven by a 26% increase in advertising revenue, partially offset by a 7% decrease in performance marketing revenue. Print revenue declined 6% to $198.5 million, with decreases across subscription, advertising, and newsstand sales. Overall, Dotdash Meredith revenue increased 5% in the quarter to $439.5 million.

Angi Inc.

Angi Inc., IAC's home services platform, has undergone a significant transformation in recent years. After experiencing a decline in profitability and market share, the company has worked diligently to streamline operations, improve customer experience, and enhance its product offerings. Under the leadership of CEO Jeffrey Kip, Angi has made notable strides, with the company's Ads and Leads segment reporting a 32% increase in adjusted EBITDA in 2024.

Angi has three main operating units - Ads and Leads, Services, and International. Ads and Leads revenue includes consumer connection revenue from matching consumers with home services professionals, advertising revenue, and membership subscription revenue. Services revenue comes from pre-priced offerings where consumers request services through Angi platforms. The International business generates revenue from consumer connections, membership subscriptions, and advertising.

In Q3 2024, Angi revenue decreased 16% to $296.7 million, with a 17% decline in Ads and Leads revenue to $241.2 million and a 21% drop in Services revenue to $23.7 million, partially offset by a 9% increase in International revenue to $31.8 million.

Search Business

IAC's Search business, which includes the Ask Media Group and Desktop operations, has faced headwinds in recent years due to changes in the competitive landscape and shifts in consumer search behavior. However, the company has remained focused on optimizing its operations and exploring new opportunities, such as the integration of advanced artificial intelligence technologies to enhance its search capabilities.

The Search segment consists of the Ask Media Group, which provides general search services and information, and the Desktop business, which includes direct-to-consumer downloadable applications and B2B partnerships. Search revenue decreased 47% year-over-year to $88.3 million in Q3 2024, primarily due to a 51% decline in Ask Media Group revenue.

Emerging Other

The Emerging Other segment includes Care.com, a leading online destination for families to find caregivers, as well as other early-stage businesses like Vivian Health and IAC Films. Emerging Other revenue declined 36% to $114.3 million in Q3 2024, driven by the sale of the Mosaic Group assets in February 2024 and lower revenue from Care.com.

Financials

In terms of financial performance, IAC's revenue in 2024 totaled $2.82 billion, a 15% decrease compared to the previous year. This decline was primarily attributed to the divestiture of certain non-core assets, as well as the continued evolution of the company's business mix. Despite these challenges, IAC remained profitable, with an adjusted EBITDA of $237.65 million.

For the most recent quarter (Q3 2024), IAC reported: - Revenue: $989,307,000 - Net income: -$198,977,000 - Operating Cash Flow (OCF): $110,093,000 - Free Cash Flow (FCF): $91,891,000

The company saw year-over-year decreases in revenue, net income, OCF, and FCF in the most recent quarter. These decreases were primarily driven by a slowdown in advertising spend across the company's businesses, as well as ongoing integration challenges at Dotdash Meredith.

Overall, IAC generated $938.7 million in revenue in Q3 2024, a 16% decrease from the prior year period. Adjusted EBITDA for the company increased 7% to $107.4 million. The company continued to generate positive operating cash flow of $244.4 million in the first nine months of 2024.

Liquidity

The company's balance sheet remains strong, with $1.74 billion in cash, cash equivalents, and marketable securities as of the end of 2024. This financial flexibility has enabled IAC to pursue strategic investments and acquisitions, as well as support the growth and development of its existing businesses.

Additional liquidity metrics include: - Debt/Equity Ratio: 0.3526 - Cash & Available Credit: $1.72 million in cash and cash equivalents, with a $150 million revolving credit facility (none drawn as of the most recent quarter) - Current Ratio: 2.80 - Quick Ratio: 2.86

Future Outlook and Strategy

Looking ahead, IAC's future plans include the spin-off of its majority stake in Angi Inc., a move that will allow the home services platform to operate as an independent public company. This strategic decision aligns with IAC's long-standing philosophy of nurturing and empowering its subsidiaries to reach their full potential as standalone entities.

Furthermore, IAC has signaled its intention to focus on driving growth and innovation within its remaining businesses, particularly Dotdash Meredith and its Search operations. The company's commitment to leveraging emerging technologies, such as artificial intelligence and machine learning, is expected to play a critical role in enhancing its products and services, improving customer experiences, and driving long-term value creation.

Based on recent guidance, IAC expects Dotdash Meredith to achieve 10%+ digital revenue growth in 2025, with high single-digit growth in Q1 2025. Dotdash Meredith is forecasting 40%+ digital incremental EBITDA margins for 2025, which combined with 10% digital revenue growth and 10% revenue declines in the print segment, leads to a guidance of $300 million of total EBITDA.

For Angi, the company is guiding Q1 2025 to be down in the low-20s percent year-over-year, but expects revenue improvement across the year and a return to growth in 2026. IAC has taken steps to improve Angi's profitability, including replacing the CEO, eliminating low-quality and low-margin revenue, and reducing CapEx from $115 million to around $50 million.

The media and internet industry has seen steady growth, with a CAGR of around 7-8% projected over the next several years, driven by the continued shift of consumer attention and advertising dollars to digital platforms. This trend bodes well for IAC's digital-focused businesses.

Despite the challenges faced in recent years, IAC remains a dynamic and forward-thinking media and internet conglomerate, well-positioned to navigate the continuously evolving digital landscape. With a strong track record of innovation, a diverse portfolio of market-leading brands, and a steadfast commitment to its shareholders, IAC is poised to write the next chapter of its storied history.

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