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DJ IAC Stock Rally Continues. The Vimeo Show Picks Up More Fans. -- Barrons.com

· 02/05/2021 12:37
By Eric J. Savitz

There's a fascinating story unfolding at IAC/InterActiveCorp, the internet holding company built by the one-time movie mogul Barry Diller.

For many years now, the company has been following the same script. Incubate small online businesses, build them into bigger businesses, and eventually spin them out to the public market, in whole or in part. And then repeat.

The list of IAC (ticker: IAC) alumni is long and growing: Match Group (MTCH), Expedia (EXPE), TripAdvisor (TRIP), LendingTree (TREE), Live Nation Entertainment (LYV), and others. The company still owns a majority of publicly traded ANGI Home Services (ANGI), and some day that one will be spun as well. Right now, though, the focus is on Vimeo, a provider of cloud-based video hosting and tools, which IAC will spin off by early in the second quarter or sooner.

Earlier this week, IAC posted better-than-expected results for the fourth quarter, driven in part by Vimeo, which had revenue of $83.8 billion, up 54% from a year ago. There were other positive developments. The company is also sitting on a gain of about $700 million on a $1 billion investment in casino operator MGM Resorts International (MGM). IAC will likely book another gain when the car-sharing service Turo goes public, which is reportedly coming later this year -- IAC is Turo's largest investor. IAC has another budding success story with Dotdash, a growing group of financial and lifestyle content websites, which had 33% growth in the quarter.

While Vimeo has raised $450 in outside capital over the last few months, IAC owns a stake of about 88%, and will distribute all of its shares to IAC holders. So in effect, while it owns an assortment of other valuable assets, IAC has become a proxy for betting on the public market valuation of Vimeo.

For IAC investors, the current situation feels remarkably similar to a year ago, when the company was prepping to distribute what was then a majority stake in the dating site Match to shareholders; the Match stake was such a large percentage of IAC's valuation that the stock became a proxy for Match.

On Friday, at least a half-dozen analysts lifted their price targets on IAC stock -- and what they're mostly doing is adjusting their sum-of-the-parts calculations to raise their estimates on the value of Vimeo.

Oppenheimer analyst Jason Helfstein repeats his Outperform rating, lifting his target price to $265 from $210, mostly to reflect his view that the market is undervaluing Vimeo versus peers in the software-as-a-service sector. At Thursday's close, he writes, the market's implied valuation for Vimeo was about 12.5 times 2022 estimated revenue -- compared with peers at about 21 times. Projecting 2022 revenue for Vimeo of $482 million, he notes that a multiple of 18 times sales, IAC's 88% stake in Vimeo would be worth $7.6 billion.

Likewise UBS analyst Eric Sheridan, who has a Buy rating on Vimeo shares, takes his target price up to $270 from $225. He estimates the value of the company's Vimeo stake at $7.9 billion, using a multiple of 20 times sales on his estimate of 2022 revenue at $449 million.

Truist analyst Youssef Squali repeats his Buy rating on IAC shares, lifting his target to $250 from $200. "IAC management highlighted Vimeo's enterprise revenue growing at a pace of more than 100% per year, fueled by tailwinds created by the pandemic," he writes in a research note. "We agree with management's sentiment that demand for video services will settle above pre-pandemic levels as enterprise use cases continue to evolve."

Wedbush analyst Ygal Arounian, who keeps an Outperform rating on IAC, raises his price target to $262 from $237. "It's become clear that Vimeo's opportunity has become much larger since Covid," he writes. "Trends strengthened in January, with Vimeo's sales pipeline being stronger than even during the peak of the pandemic in March. Vimeo's sales cycles remain short, and the highest price-point tiers on the self-serve side are seeing 200%-plus year-over-year growth in bookings. Management also noted that it is receiving requests from organizations asking for features that Vimeo doesn't offer yet, indicating a large market for multiple use cases over time."

IAC stock on Friday is up 5.1% to $247.86. Since announcing the Vimeo spinoff in November, IAC has rallied 90%, increasing the value of IAC by close to $10 billion.

Write to Eric J. Savitz at eric.savitz@barrons.com

(END) Dow Jones Newswires

February 05, 2021 12:37 ET (17:37 GMT)

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