Interactive Corp. (Nasdaq: IACI)
Current Price: $71.67│ Price Target: $165
• Interactive Corp (IACI) is a leading media and Internet company. The company is organized into four segments: The Match group, Search & Applications, Media, and eCommerce.
• The Match Group: Online Dating including Match.com • Search and Applications: Ask.com, About.com, Investopedia
• Market Cap: ~$5.9B • Enterprise Value: $5.9
• Media: Vimeo
• 2014 EBITDA: $544M
• eCommerce: HomeAdvisor
• 2015E FCF: ~5-6%
Investment Thesis • Sum of the Parts analysis that is used by the street does not acknowledge the value of Tinder, giving us a free option
(In Millions) Search & Applications The Match Group (ex-‐ Tinder) Media eCommerce Sum of the Parts EV Current Enterprise V alue
• Morgan Stanley: “There is no Tinder upside” Clearly, they have been living under a rock.
Tinder changed the way people look at online dating. It’s now cool. Very cool. And it is changing the way we date.
2015 EBITDA 322.0 264.9
Revenue
203.5 481.7
2018 EBITDA
Multiple 5.0x 10.0x 2.0x 2.0x
1,610 2,649 407 963 $5,630 $5,900
Investment Thesis • Tinder has grown to ~50 million users, and grew 300% last year • International users represent 2/3 of user base • Tinder is 50 times larger than the next app or dating website
• Online dating is here to stay. In words that it may be easier to understand for investment professionals: it brings liquidity to the market. • Once you use Tinder you will always use dating sites to find someone • The question is: which app or website will win? Spoiler alert: IAC dominates the market
Why This Opportunity Exists? • Analysts are extremely short-sighted and are valuing Tinder on 2016 EBITDA • Analysts are afraid of other free dating websites • Tinder was created in an IACI incubator, and has never had VC backing •
IACI recently bought back 10% of Tinder, which explains why they’ve been modest about its potential
Keys To Investment Thesis • Singles Landscape: Over the past 25 years the marriage rate has gone down 40%. There are more single adults than married ones in the U.S. According to Pew Research Center, only 13% do not want to marry • Network Effect: Although barriers to entry seem low for online dating, the number one problem is getting enough people on board. You can go through over 100 profiles on Tinder, but you only get one match per day on competitor’s Coffee Meets Bagel • Unrecognized EBITDA: Tinder has cannibalized Match.com and OkCupid’s growth by ~20%; remarkably revenue is up 11% YoY. Competition is extremely severed. Both competitors Zoosk and Ashley Madison are rushing to IPO
Source: U.S. Census Marriage rate per 1000
4 Ways IAC Will Monetize Tinder 1.- Users will buy Tinder Plus for their unlimited swipe feature: • Tinder is a numbers game • 2.5% of Tinder’s MAU will subscribe • Tinder Plus tiered pricing. Tinder offers tremendous value for what millennials refer to as COGL
Tinder Plus Revenue for #1 North Americans on Tinder International users Total revenue from segment 1
2015 59.7
2016 95.5
2017 127.1
2018 148.4
133.4 $193.1
241.8 $337.3
360.2 $487.3
480.6 $629.0
4 Ways IAC Will Monetize Tinder 2.- Individuals that will purchase Tinder Plus for “Tinder Travel” (Hint: they may not be single). There are three types of users that will use Tinder travel: • People wanting to have affairs: Tinder Passport gives you the perfect opportunity for an out of the city rendez-vous • Millenials who want to date and travel: Never again travel the world alone. Traveling will never be the same. • People looking to travel, having their expenses paid by someone Tinder Plus Revenue from "Tinder Travel" Market Size % who will use Tinder plus Total revenue for segment 2
2015 61 3% $219.6
2016 108 3% $389.6
2017 159 3% $570.9
2018 206 3% $741.4
Note: The 3% will join Tinder for the sole purpose of Tinder Travel. I.e. Cheating Chad will only download Tinder for his escapades and not part of the normal user base. This is a huge base that no analyst has mentioned.
4 Ways IAC Will Monetize Tinder 3.- Tinder will make money by members transferring to Match.com, OkCupid and 37 other websites: • Although as a percentage more IAC paid subscribers will migrate to Tinder, as an absolute number more subscribers will turn onto IAC’s other dating websites and apps • Tinder is referred to as the gateway of online dating • Not every member will want casual dating, some will turn to other options • The most likely option is Match.com and OkCupid. eHarmony is completely opposite to Tinder – turns people off
Member transfer (in millions) Tinder > Paid s ubscribers Paid s ubscribers > Tinder Net s ubscribers to match Total revenue for member transfer
2014A 533 771 (238)
2015 1,220 836 384
2016 2,165 906 1,259
2017 3,172 982 2,190
2018 4,119 1,064 3,055
($54.8)
$86.7
$284.0
$494.1
$689.2
4 Ways IAC Will Monetize Tinder 4.- Tinder will start introducing ads: • Tinder users log in 11 times a day and spend 77 minutes on Tinder. To compare, the average Facebook user spends an average time of 40 minutes in the U.S. • Tinder has access to your FB account which means that they know what you like, your age, your school, your location, marriage status, and who your friends are. This is extremely valuable • FB ARPU is ~$26 in North America and ~$10 worldwide. If Tinder monetizes at 20% of FB per ARPU, Tinder is worth ~$3-5B Total revenue from ads ARPU
2015 $0.33
2016 $1.00
2017 $1.50
2018 $2.25
Total revenue from ads
$25
$126
$258
$485
Valuation • Most likely there will be a mix between bull, base and bear case in several categories •
Growth expected to double in 2015
• Tinder is having even more success internationally
(In M illions ex. %) Current number of users % who want more s wipes Tinder Travel Transfer Match > Tinder Transfer Tinder > Match Ad Revenue /ARPU 2 018 2018 EBITDA 10X Multiple 75% owned IACI Probability Tinder + Cross-‐selling (in millions) North Americans on Tinder International users
[email protected]
2013 4 9
Bull
Base
50 3.6% 4.0% 18% 3% $3.00 2,361 23,613 $17,710 20%
Estimated Number of Users 2014 2015 13 25 27 57
Bear
40 2.5% 3.0% 22% 2% $2.25 1,272 12,722 $9,542 40%
2016
30 1.4% 2.0% 25% 1% $1.50 476 4,762 $3,572 40% $8,787
2017
2018
37 97
46 136
52 177
Total number of users
13
40
82
134
183
229
NA Growth International Growth
~700% ~700%
300% 300%
85% 115%
50% 70%
25% 40%
12% 30%
Can anybody find me somebody to love? −Queen
