Vimeo: The Hidden Gem Inside IAC
In my article "The Anti-Conglomerate," I describe how media and internet titan Barry Diller and his vehicle, IAC/InterActiveCorp, created $60 billion of shareholder value out of a $250 million company over 25 years.
IAC exists to buy and incubate companies in their early stages. Once those companies are profitable, IAC spins them out to shareholders. IAC's progeny includes Expedia, Ticketmaster, Tinder, and numerous other brands.
That value-creation story is far from over.
IAC's Businesses
The IAC of today consists of a hodgepodge of businesses in varying states of growth. Some, like its desktop applications business (recently in the news over a spat with Google) are in decline, but continue to spit out a lot of cash. Its media properties, including Investopedia, TreeHugger, and Serious Eats, face competition over the long-term for advertising.
IAC's biggest business is ANGI Homeservices, where it holds an 84% stake worth about $5 billion. Management holds high hopes for ANGI, although as I wrote in a recent analysis for Seeking Alpha, that may be a difficult proposition.
IAC purchased Care.com last year for $500 million. The company also holds a $1.3 billion position in MGM Resorts stock, as well as a $250 million investment in carsharing service Turo.
And we haven't even gotten to the best part...
Vimeo
Now we come to what I think is a seriously overlooked gem in IAC's portfolio.
When most investors think of Vimeo, they think back to what was once the hipster version of YouTube. Diller bought the brand in 2006 to compete in videosharing, although it withered away into relative obscurity as YouTube came to dominate the space.
By 2017, Vimeo had reinvented itself as a company that creates video-making tools for content creators. Video has been growing in importance for how brands communicate with consumers, but the pandemic put that need into overdrive. This year Vimeo is projected to generate $300 million in revenue from its subscription-based business model.
Earlier this year, IAC conducted a small valuation test by raising $150 million in equity for Vimeo at an implied valuation of $2.75 billion. With revenue of $300 million, that represents a multiple of 9 times sales.
Yet the average sales multiple for a software-as-a-service company today is 17.9. The highest-quality SaaS businesses have commanded staggering valuations; Salesforce just purchased Slack at a multiple of 43 times revenue.
Consider that at 17.9x sales, Vimeo would be worth $5.3 billion; at 43x sales, it would be worth $12.9 billion - more than the entire market cap of IAC.
No wonder IAC suddenly announced that it was "contemplating spinning off" Vimeo in November.
Why the discrepancy in valuation? Part of the reason is that Vimeo's remarkable transformation from wannabe YouTube to growing SaaS business hasn't penetrated the public consciousness. IAC is banking that a spinoff would bring more attention to this fact.
Note also that according to management, Vimeo was profitable in the latest quarter. IAC is targeting a monstrous 70% gross margin and 20% EBITDA margin for Vimeo over the long-run. Many SaaS businesses going public today aren't even making a profit, which surely puts Vimeo into the upper echelon of such companies.
Of course, anything could happen between now and when (if) Vimeo goes public. IAC hasn't made a final decision on an IPO. Preparing for a spinout would likely take about six months post-decision, according to IAC CEO Joey Levin.
Even if market conditions become unfavorable, IAC's massive cash pile of nearly $3 billion and its diversified collection of businesses provide some downside protection. Overall, the risk/reward profile looks favorable.
Stay tuned as I continue developing the IAC theme here at the Tycoonist.