Investing in household names … without the price tag

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We’ve all heard of companies like Expedia, TripAdvisor, Live Nation (the owners of TicketMaster) and the Match Group (the parent company of dating apps including Tinder and Hinge) and Vimeo.

We’ve all frequently used them to book holidays, concerts and, well, schedule a blind date. They’re household names. But behind these household names is a company that doesn’t get spoken about too often.

IAC Holdings is an investment holding company responsible for more than 100 companies in media and the internet. It grows businesses and then spins them out to shareholders. According to Marco Anselmi, partner and senior analyst at VGI Partners, IAC Holdings is an opportunity the market has yet to consider.

In this interview, Anselmi explains the business model behind IAC Holdings and provides his thesis behind two companies currently held by the business, including one growing at 50% a year.

Transcript

Can you explain your investment thesis for IAC Holdings?

It's interesting. Many people might not be familiar with IAC because it's an investment holding company. So, it's not an operating business, but a lot of people will be familiar with the businesses that have grown out of IAC, and that have subsequently been spun out to IAC shareholders. And these include businesses like Expedia, TripAdvisor, Live Nation, which owns Ticketmaster, LendingTree, and more recently the Match Group, the dating group that owns Tinder and Hinge and other properties. So, they've had an excellent track record incubating these assets, and then spinning them off to shareholders. We really like this management team led by Barry Diller, who is arguably one of the better capital allocators of our time.

Now, why we like IAC today is because they own a couple of interesting assets, being Vimeo and ANGI Homeservices. The first, Vimeo, many people will know Vimeo as the failed YouTube competitor from many years ago. But it's interesting, the business has completely pivoted... It's pivoted away from being a consumer-facing product, into being a solution for enterprises, so businesses of all sizes. And we can touch on Vimeo in more detail later, but essentially when we were buying IAC, we're paying no upside, essentially getting Vimeo for free due to the complex structure of IAC. And we bought IAC late last year and subsequently Vimeo has gone on to report revenue growth of over 50% a year, and has been most recently valued at over $6 billion because IAC took on some external funding for Vimeo. We think the growth prospects for Vimeo are very positive, and IAC has announced that they will be spinning off Vimeo in the near term. So, we look forward to Vimeo getting more attention as an independent business.

Now, the other company within IAC that we really like is ANGI Homeservices, which is the leading digital marketplace in the US for booking home renovation or home repair jobs, so all sorts of home services. It's a business that's been around for a long time. Originally it was Angie's List and it's gone through various iterations, but it's at an interesting inflexion point of flipping the revenue model. We can touch on later, but essentially, the business has spent many years signing up all these service professionals and tradies to join the platform, which has been a slow and painful task. But now, we think this gives ANGI a very strong moat and competitive advantage in a sector that's still at a very early stage of shifting to online.

So, a lot of tradies that you book today are still done word of mouth, referrals, and not much has shifted online today, even in the US. So, we think it's a market primed for disruption. So, those are the two assets that we really like within IAC, ANGI and Vimeo. Both are leaders within their sectors, have strong competitive positions, they have a long runway for growth. And we think they are very attractively priced within IAC.

Why do you find Vimeo so attractive?

Vimeo is a solution for businesses, so for enterprises. So it's a traditional subscription Software-as-a-Service business that provides end-to-end video solutions. So that can be from services as basic as video storage, video hosting and distribution, through to more sophisticated, allowing businesses to do live streaming or even launching their own over-the-top video subscription service. 

The best way probably to think about Vimeo is that it's almost building the infrastructure for video production for businesses.

And the use cases for Vimeo vary widely, from the single yoga instructor that wants to live stream their classes to a broad audience, through to the New York Stock Exchange who's using Vimeo to broadcast their opening and closing bell ceremonies, and then even more broadly, larger enterprises that are using Vimeo to live stream their town hall meetings, or even for internal users. So, employee onboarding or employee training. So the use cases for Vimeo are very broad in what is a huge market. Now, COVID has obviously been very positive for video adoption, but we think video usage is here to stay and it has a long growth runway. We think the business is also very attractive because it's relatively well entrenched once an organisation starts using Vimeo for all these different types of services. Now, it's also interesting that from a competitive standpoint, there's no real competitor that offers the same breadth of solution, and a solution that's also as easy to use. And we've conducted various channel checks, spoken to customers, and the feedback is unanimous in terms of very positive about the product.

There is Adobe, for instance, that competes with Vimeo in certain parts of the business, and there are also niche competitors that provide specialist solutions, but no one really offers the same product that Vimeo does. And that's why we've seen their revenue growth accelerate to over 50% a year. Being a software business, it has highly attractive economics, but because it's growing so rapidly, it's reinvesting it all back into the business, which we think is the right thing to do.

The last thing probably worth noting on Vimeo is that we really like the management team. So the lady that runs the business is the one that pushed Vimeo to pivot away from being a consumer-facing product to targeting businesses. And we think that it's a very solid management team and they will push the growth forward and reinvest in the business over the years to come. And we look forward to Vimeo getting a lot more attention once it's spun out of IAC over the next few months.

Can you explain your holding in ANGI Homeservices?

ANGI is similar to Hipages here in Australia in terms of being a digital marketplace to book home renovation or home repair jobs, but ANGI is a US business, although it does also have some European operations still at an early stage. The reason we think ANGI's interesting is that it seems to be at an inflexion point because it's attempting to flip the revenue model. So what they're trying to do is move from being a lead generation based model, where, if I put in a request on the ANGI platform for a handyman, I get connected with four or five different potential providers and then I have to arrange and go back and forth to book that job.

Now what ANGI is trying to move to, is more bringing the transaction onto the platform, so that I book on the platform, I set a time, and what that means for the consumer is that I get price certainty, transparency, and it's also a lot more convenient. All these services are moving to a single button. 

Whether you're booking an Uber or Airbnb, it's all about convenience and we think that ANGI's very well placed for that market in home services. 

The other thing is that this is a market that's very attractive because it hasn't shifted much at all online and so because of that, there's a lot of white space to go into.

But coming back to what I was saying before, the flip of the business model they're doing is highly attractive to the consumer because of the transparency and price certainty, but it's also more attractive for the service professionals, so the tradie. Previously they would have had to bid for jobs that they might not necessarily get, but now they get a guaranteed revenue stream from the jobs that are booked onto the platform. So essentially, we think it's a win-win scenario for both ANGI, the service providers being the tradies, and the end consumers. So we think it's a very interesting attempt to flip the monetisation model.

Would you say it is similar to Airtasker?

In some ways it has some similarities to Airtasker, except ANGI skews to much more expensive jobs, much higher value jobs. So, what it's typically used for is jobs like kitchen remodels, bathroom remodels, so much higher value jobs, and the reason they can price these jobs more effectively through the new revenue model that they're exploring is that they've got a vast amount of data that they've collected over the years from people booking jobs through the platform.

So we think that provides ANGI with a significant competitive advantage, all the data that they've accumulated and are still accumulating to price these jobs more accurately. The other difference to Airtasker is that these are professional tradies. So on Airtasker, it tends to be the person that wants to do one-off jobs here and there in their spare time, whereas on ANGI, it's the plumber who does plumbing for a living or the handyman that does that trade for a living. So it's different, and there has been friction historically in onboarding these tradies on the ANGI platform because they don't want to give some of their margin away to ANGI when they can probably get just as much business through word of mouth, but we think ANGI's generating so much demand that ultimately the supply will have to follow the demand. And so we think that over time, taking a long-term view, that's how the market is going to shift.

One thing that's probably worth mentioning as well is that you'll see a thread here that in terms of the management that we like to back, the management that's been put in place at ANGI. Again, this new CEO was just appointed six months ago, or in recent months. He's the visionary that's pushed this change in the business model and we think it makes the business more sticky and much higher quality if they're successful in executing the transition. So we really like the management and the CEO and we think that they're at the early stage of this transition that's not really being priced by the market. The market is not attributing much chance of success at ANGI executing this.

Diversification preserves wealth. Concentration builds wealth

VGI Partners is a high conviction global equity manager, focussing on businesses with secular growth, attractive industry structures and where they believe they possess insights not appreciated by the wider investment industry. For further information, please use the contact form below. 


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