Shares ofIAC/InterActiveCorp (
) rose sharply Thursday after the online media company helmed by
billionaire media mogul Barry Diller said it will turn its
Match.com online dating service into a separate business, likely
leading to a spinoff.
IAC CEO Greg Blatt will become chairman of the new business,
which will operate as Match Group. It initially includes not only
the top U.S. dating site Match.com, but also Tutor.com, workout
site DailyBurn and IAC's investment in fantasy football site
Sam Yagan, who's been the CEO of Match, now becomes CEO of the
The move lets IAC, with more than 150 media brands and
products, hone the focus of its Match business and its Search
& Applications segment. The latter includes sites such as
Ask.com, About.com and Dictionary.com on the Search side and B2C
and B2B toolbar businesses on the Applications side.
"A less centralized operating structure, pushing talent and
decision-making closer to the businesses, is now the best way to
achieve our growth objectives," Diller, IAC's chairman, said in a
Under the new structure, IAC will operate without a CEO.
Senior executives will instead report directly to Diller.
IAC stock vaulted to a six-year high of 70.44 in afternoon
trading Thursday, then closed the day up 14% at 68.49. Shares
have rebounded 29% since Oct. 30 -- when IAC's stock sank more
than 8% in heavy trading following a disappointing third-quarter
sales report and an analyst downgrade.
Google Algorithm Impact
Many investors scrambled out of the stock after IAC logged Q3
revenue of $756.9 million, up 6% from a year earlier but well
below analyst views for $804.46 million.
Worse was the reason for the miss: policy changes byGoogle (
), IAC's key search ad partner and the No. 1 seller of search
"The shortfall was fueled by search and monetization algorithm
changes by Google that negatively impacted revenue at IAC's
Search & Applications segment," Stifel Nicolaus analyst
George Askew noted in a report downgrading IAC to "hold" from
Revenue in IAC's core website segment fell 9% in the quarter
to $157 million, also below views. The shortfall was "driven
entirely" by lower cost-per-click (CPC) after Google's midquarter
change impacted the pricing environment, noted Cowen & Co.
analyst John Blackledge.
"This resulted in revenue-per-query declines of 31%
year-over-year and 13% quarter-over-quarter, offsetting 32%
search query growth," Blackledge added.
It didn't take Wall Street long, though, to renew its romance
with IAC. After the Oct. 30 decline, the firm's stock price rose
5% over the next three trading sessions and has been creeping
higher ever since.
The rebound is partly the result of greater investor comfort
over IAC's relationship with Google, says Needham & Co.
analyst Kerry Rice.
"They've gone through some challenges around some policy
changes Google has made, but they seem to have come through that
relatively unscathed," Rice told IBD before the reorganization
"There has been some slowdown in IAC's search business. But
they have a very close relationship with Google, and we expect to
see that accelerate in 2014," Rice added.
Meanwhile, he says, IAC appears poised to grab more market
share in its online dating platform.
"They have a dominant market share in online dating through
Match.com, and it continues to generate nice growth for them,"
Rice said. "Match is clearly the leader in the online personal
Match.com's revenue grew 13% year-over-year during the third
quarter. That outpaced the 10% growth posted by IAC's Search
& Applications segment.
Online dating should continue to produce solid gains as the
playing field becomes more consolidated.
"The competition has kind of floundered," Rice said. "A lot of
the other companies have either been acquired or gone away, but
Match continues to grow. They have a lot of resources, they're
innovative, and their breadth and consistent growth have enabled
them to become the dominant dating platform."
Sizing Up The Match
Match contributes a little more than one-quarter of IAC's
revenue. Its Search & Applications business accounts for more
"The Match Group, with early- and later-stage businesses,
collectively represents a significant portion of IAC's value,"
Diller said in his Thursday statement. "Our ambitions for growth
here are great."
IAC also gets revenue from its Local segment, whose properties
include the HomeAdvisor online marketplace that matches consumers
with home service professionals; and its Media segment, which
offers the video hosting platform Vimeo for creative
professionals and consumers, among other sites.
During the third quarter, revenue from the Local segment
declined 25% year to year, while revenue at its Media segment
rose 5%. Earnings came in at $1.29 a share, up 82% from the prior
year and 34 cents above consensus estimates.
Analysts polled by Thomson Reuters expect Q4 EPS to rise 12%
to 92 cents. Full-year profit is seen rising 38% this year and 6%
Part of IAC's growth is expected to come through buyouts. The
company is "very acquisitive," Rice says.
IAC's most recent deal was its $80 million purchase
ofValueClick 's (
) Owned and Operated Websites (O&O) segment.
That acquisition, announced Dec. 9, brings IAC the
Investopedia financial website as well as PriceRunner, a
price-comparison platform; and Coupon Mountain, a website that
offers deals and promotions to online shoppers. The transaction
is expected to close in January.
"The deal is a content-oriented acquisition similar to
About.com, though on a smaller scale," analyst Blackledge
IAC acquired About.com, a site with human guides on many
topics, last year in a $300 million deal.
Blackledge says IAC will integrate the ValueClick O&O
assets into its Search segment. He reckons the assets would make
up about 7% of IAC's 2013 revenue and 6% of its EBITDA on a most
recent trailing-12 month basis.
IAC is the 10th largest company by market cap in IBD's
Internet-Content industry group, which currently ranks No. 2 of
197 groups tracked. Google,Facebook (
) andBaidu (
) lead the group in size.