A report by Norris on ValueInvestorsClub provides an investment thesis for IAC Inc, a stock that is undervalued by almost 50%. We will summarize the bullish stance of the author in this article. IAC shares were trading at $52.24 when the valuation of IAC was done by Norris, vs. the closing price of $44.11 on Dec 17.
IAC operates as a diversified digital business with primary assets that include an 85% stake in Angi Inc., a 21% stake in MGM Resorts, Dotdash Meredith and a 31% stake in Turo. The management in IAC has been instrumental in turning around businesses and creating immense value for its shareholders.
The current valuation of IAC reflects only its cash position and investment in Agni and MGM shares. This implies that the market has discounted the potential value of its key businesses like Dotdash Meredith (DDM) and Turo.
DDM is the largest digital and print publisher in America whose revenue is poised to grow by 10%-15%. The company is expected to sign a number of AI licensing deals and could benefit from Google’s new cookie policy that would make DDM’s contextual-based advertising more relevant. DDM also expects a margin expansion by adopting a demand-side platform that would reduce the need to pay third-party service providers. The company revised its 2024 EBITDA guidance higher, backed up by strong ad inventory and potential AI licensing deals.
Turo, a car-sharing rental marketplace, is expected to be another key value driver for IAC. It has entered into a partnership with Uber, which is expected to accelerate its growth. Turo continues to grow and registered a revenue growth of 10.5% in Q2-24. In contrast, its peers like Alvis and Hertz have witnessed a decline in revenue. It is certainly expected to command a premium valuation if it plans to launch an IPO or is acquired by a strategic buyer.
Angi, a home service provider, has trimmed down costs and has surpassed the EBITDA estimates in its latest quarterly result. Margins continue to improve as the company focuses on high-value services. While no value addition is imminent from this business, robust financial performance is expected to have a positive influence on investor sentiment.
The fair value of IAC shares is $100 on account of value creation by businesses like DDM and Turo. The intrinsic value of these businesses is $50/share, which gets added to the $50/share contribution from cash and holdings in ANGI and MGM. At a current market price of $50, IAC appears to be undervalued and offers a potential 100% return.
While we acknowledge the potential of IAC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than IAC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
