Media and internet company IAC/InterActiveCorp (IAC) provides digital marketplace service. Its portfolio of brands includes HomeAdvisor, Angie’s List, and Dotdash. IAC’s recent Q2 results missed top-line estimates but remained ahead on the bottom line front.
Let’s take a look at the financial performance of the company and what has changed in its key risk factors that investors should know.
Despite 26% year-over-year growth, IAC’s Q2 revenue of $829.5 million lagged consensus of $866.5 million. This double-digit growth in the top line came from 12% growth in Angi, Inc., 64% in Dotdash, and 40% each in Search and Emerging, and other verticals.
In May, IAC spun off Vimeo. In a letter to shareholders, the CEO of the company, Joey Levin, said, “In our first quarter following the Vimeo spin, we are back to building. Being small again has its benefits. Though there’s less earnings to cover the corporate overhead, smaller scale means fewer bureaucratic distractions. The natural big-company inertia toward risk avoidance reverses, and we are able to focus all our resources on expansion and taking healthy new risks.”
During Q2, IAC had an after-tax unrealized gain of $210 million related to its investment in MGM Resorts International, which, in turn, helped IAC report earnings per share of $2.02 versus a net loss per share of $1.13 a year ago, beating consensus by $2.55. (See IAC stock chart on TipRanks)
On August 6, Wedbush analyst Ygal Arounian reiterated a Buy rating on the stock and decreased the price target to $177 from $193. IAC has about $3 billion in cash and zero debt. Arounian views the company favorably and expects IAC’s next rebuild to begin soon.
Based on 10 Buys and 1 Hold, consensus on the Street is a Strong Buy. The average IAC price target of $196.20 implies 50.8% upside potential. Shares have gained 57.6% over the past year.
Now, let’s look at what has changed in the company’s key risk factors.
According to the new Tipranks’ Risk Factors tool, IAC’s main risk category is Ability to Sell, which accounts for 32% of the total 37 risks identified. Since June, the company has added one key risk factor under the Production category.
The company highlights that its Angi brand integration could involve significant costs, which also includes a continued negative impact on organic search placement. The Angie’s List brand and website have been updated as Angi. This brand makeover has resulted in, and may continue to result in, significant costs and has also adversely affected the placement and ranking of Angi websites.
In the second quarter, these dynamics resulted in lower revenue and higher costs. Moreover, this impact is expected to continue until the new brand establishes search engine optimization ranking and consumer awareness. This may not be viewed favorably by the company’s customers and service professionals and depending on market acceptance, the brand integration initiative could negatively impact Angi.
The Ability to Sell risk factor’s sector average is at 15%, compared to IAC’s 32%.
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