As Barry Diller's InterActiveCorp (IAC) gets set to spin off its 80% stake in online dating giant Match Group (MTCH) to shareholders, the company is eager to highlight the strong growth registered by several other businesses.
For the second time this year, I talked with IAC CFO Glenn Schiffman about his company's various businesses, as well as its strategic thinking on a couple of topics (a June interview can be found here). Here's a recap of notable things shared.
Holding Onto ANGI Homeservices (For Now)
In addition to pursuing a Match spinoff, IAC has floated the idea of spinning off its 83% stake in HomeAdvisor and Angie's List parent ANGI Homeservices (ANGI) . However, in its Q3 shareholder letter, IAC said it isn't currently "pursuing any form of separation with ANGI," while adding that it believes "ANGI could benefit from remaining inside IAC for the time being."
When asked about the latter comment, Schiffman asserted that ANGI has a lot of "great operational initiatives" that it's pursuing, such as diversifying its traffic sources and (as highlighted by ANGI CFO Jamie Cohen in a March interview) driving more fixed-price home services transactions. As a result, IAC think it's better for ANGI's management to focus on those things than "potentially get distracted" by a spinoff process.
ANGI's Sales and Marketing Investments
Over the first 9 months of 2019, ANGI's GAAP sales and marketing spend totaled $567 million, up 36% annually and equal to 56% of revenue. Schiffman suggested (in line with past remarks from ANGI CEO Brandon Rideonour) ANGI will continue investing aggressively here, as it both grows its salesforce and spends heavily on marketing channels such as search ads.
"We're so early in penetrating this addressable market," Schiffman said, while noting ANGI only accounts for a single-digit share of U.S. home services activity. "There is just a raw need for a better solution in the home services category, and we think we are a better solution."
The comments come after IAC indicated in its Q3 letter that the performance of ANGI's paid search investments, a large chunk of which go to Alphabet/Google (GOOGL) , "stabilized" in Q3 following a rough Q2 (online travel firms can sympathize). Ridenour mentioned on the earnings call that the migration to a new ad-bidding platform is helping, and that ANGI expects to finish this migration by the end of Q1 2020.
Vimeo and Dotdash
IAC's Vimeo video services unit had a strong Q3: Its revenue rose 29% to $52.1 million, topping guidance for 25% growth. While Vimeo's recent purchase of video editing startup Magisto contributed heavily to this growth, organic growth also played a role.
Schiffman noted Vimeo currently has two main growth initiatives: Creating offerings for businesses looking to use video for purposes such as marketing and customer engagement, and providing more tools to content creators, many of whom may have historically viewed Vimeo as a mere video hosting and storage platform, to create their videos.
The Dotdash unit, which runs a number of educational and how-to sites, also did well in Q3, with revenue rising 34% to $40.3 million. When asked about which verticals were driving Dotdash's growth, Schiffman mentioned "particular strength" was seen in the health and home verticals, albeit while adding growth was generally strong across the board.
He also noted that Dotdash, which still gets much of its revenue from ads, is seeing its affiliate e-commerce revenue take off. The unit's affiliate e-commerce and performance-based marketing revenue rose 82% in Q3.
A Mobile App Playbook
IAC's Applications segment saw revenue drop 18% in Q3 to $126.1 million, thanks to a 37% drop in the segment's "desktop" (PC) revenue. But the segment's Mosaic Group, which owns a collection of mobile apps, saw revenue rise 45% thanks to 14% organic growth and the Q4 2018 acquisition of app developer TelTech.
Schiffman reiterated that Mosaic's iTranslate language-translation app and robocall-killing app RoboKiller (developed by TelTech) are important growth drivers for the unit, and also noted Mosaic has a collection of popular weather apps. In addition, he suggested IAC is interested in using M&A to add more apps to Mosaic's portfolio, given that the unit has a successful playbook for identifying promising businesses, marketing them and driving conversions to subscriptions.
"We think M&A will be an important part of the Mosaic story, because our guys are very good at it," he said.
Thoughts on the M&A Environment
In June, Schiffman said that IAC is interested in making acquisitions to strengthen all 6 of its growth engines -- specifically, Match, ANGI, Vimeo, Dotdash, Mosaic and the BlueCrew temp jobs marketplace -- and is also open to using M&A to expand into new verticals, but cautioned that elevated valuations were making it harder to find good deals. However, since then, there has been a cooling of sentiment within public markets towards many high-growth consumer Internet names (money-losing ones especially).
Is IAC now finding the M&A environment more favorable as a result? Schiffman sounded cautiously optimistic that it will become easier for his company to obtain good deals going forward, but also suggested it could take a little while for private valuations to "fully adjust" to a changed public valuation environment.
"In the private market, valuations really get set by the buyers, and there isn't an active liquid market for the sellers," he observed. "You can argue that in the private market, often the value is set by the optimists."
Schiffman also stressed that IAC doesn't buy companies with the expectation that it will be able to sell them to a third party for a premium valuation down the line.
"We have to invest in these businesses...as if we own them forever," he said. "So that forces a certain and appropriate discipline on our acquisition strategy."
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