Like many others, we are not quite sure what to make of IAC Interactive (IACI). IACI incorporates a range of interactive businesses including: Ask.com (the number four search engine property), the Home Shopping Network (HSN), Ticketmaster, Lending Tree and Realestate.com as well as travel business Interval International. IACI announced in November 2007 a plan to split the business into five separate listed entities. We decided to have a look at the company using the Valuecruncher interactive tool. The approach we have taken is to look at the value of cash flows being produced by the combined entity – to see where the current share price comes out. This is not a sum-of-the-parts valuation where we try to place a value on the component parts of IACI. We are in-effect assuming the break-up does not occur and the business continues as usual.
IACI grew revenues from US$5.0 billion in 2004 to US$7.4 billion in 2008 – a 12.6% compound annual growth rate. Our assumptions of revenues for the next three years are US$6.6 billion in 2008 growing to US$7.35 billion in 2010 – a 4.9% compound annual growth rate. We have projected EBITDA margins to grow from 11.0% in 2008 to 12.0% in 2010. We have used a terminal growth rate of 3.5%. We used a terminal capital expenditure number of US$250 million. We have used a WACC (discount rate) of 12%.
Our analysis incorporates the cash and debt on the IACI balance sheet – Valuecruncher calculates a net debt number.
Our analysis gives a valuation of US$21.89 which is 17.9% above the current share price of US$18.57.
Based on our analysis, IACI shares look cheap. The total looks like less than the sum of the parts. What happens with the breakup will be interesting to watch. Play with our assumptions – what does your analysis say?