IAC/InterActiveCorp (IACI: Nasdaq)
By Morgan Joseph TriArtisan ($38.64, Oct. 10, 2011)
We are raising our price target for IAC/InterActiveCorp to $42 from $38 and reiterate the company at Buy.
We believe IAC’s (ticker: IACI) key units performed well during third-quarter 2011 and are well-positioned as the company moves into 2012.
IAC’s strong performance has been marked by effective cash generation and strategic acquisitions. Free cash flow in the first six months of 2011 beat last year’s level by 28% at $137.8 million. In the second quarter, the company repurchased 7.2 million shares of common stock worth approximately $262.6 million.
Since then, the board of directors authorized the company to repurchase an additional 15 million shares of common stock. Management has also indicated that it will continue its acquisition efforts, though nothing significant is likely in the near term, in our opinion.
IAC’s efforts to develop its dating business in Europe should reach fruition following the consolidation of Meetic, Europe’s largest dating website. The final tender offer included the settlement and delivery of 808,115 shares. Following this transaction, [IAC unit] Match.com should hold approximately 17.6 million shares, representing approximately 81% of the share capital of Meetic.
When the company reports later this month, the accounting for deferred revenue related to the transaction could cause some confusion under U.S. GAAP though we expect management to clearly clarify the affects.
IAC recently announced that Match.com acquired a 20% interest in Zhenai Inc. in China. As a leading provider of Internet and telephone matchmaking services, Zhenai should help Match.com broaden its subscriber demographics.
At the end of the second quarter, Zhenai had 30 million subscribers. We are optimistic that Match’s strong operating history will help its strategic acquisitions achieve strong growth.
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