Poor Ad Spending Weighs Down IAC Earnings

Despite the recent downturn in the tech sector, IAC IAC +3.86% sees opportunities emerging from it, and it is on the hunt for those opportunities, and it has been impacted by the soft advertising environment for some time now.

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IAC (ticker: IAC) reported revenue of $1.25 billion in the December quarter, up 8% from a year earlier. There was an adjusted Ebitda of $99.7 million, which was above the consensus Street estimate of $92 million for earnings before interest, taxes, depreciation, and amortization. 

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Generally accepted accounting principles (GAAP) indicate that IAC lost 2 cents a share in the quarter, whereas the Street expected the company to lose 28 cents a share. It is important to remember that IAC's GAAP results are highly dependent on the shift in the valuation of its large stake in MGM Resorts MGM -0.57% (MGM), which makes it virtually impossible for the Street to accurately predict what the results will be. There is an estimated value of about $2.8 billion attached to that stake, which accounts for about 60% of IAC's current market capitalization of $4.6 billion.

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On a pro forma basis, Dotdash Meredith's revenue decreased 26% to $260 million, with digital revenue down 14% and print revenue down 36%. As part of IAC's restructuring efforts, Dotdash Meredith's staff was reduced by 7% in January. There are a number of well-known print brands that are part of Dotdash; these include People, Food & Wine, and Travel & Leisure, as well as online brands such as Investopedia, The Spruce, and AllRecipes. A loss of $8.8 million was recorded by Dotdash Meredith during the December quarter of the year.

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In the quarter that ended March 31, IAC said it had revenue of $442 million from its publicly traded Angi ANGI –6.77% (ANGI) home services unit, which was slightly below analysts' expectations of $445 million, but up 6% from the same quarter last year. Angli posted a loss in the quarter of 11 cents a share; consensus estimates had called for a loss of four cents a share for the company. It is estimated that Angi lost $60.4 million in its fourth quarter, contributing to the combined operating loss of $75.1 million for IAC as a whole.

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Compared to last year, search revenue was down by 45% to $153 million; "emerging and other" revenue fell by 16% to $177.1 million.

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There hasn't been much of a surprise when it comes to IAC's results in the last few quarters since the company adopted a policy of providing monthly updates on its various business segments to investors. After a number of years of practice, the company stopped doing this at the end of 2022, which could lead to more volatility starting with the March quarter results.

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Angi will contribute between $60 million and $100 million to the company's adjusted Ebitda for 2023, while Dotdash Meredith will contribute $250 million to $300 million. Based on the Street consensus estimates, Dotdash and Angi will generate $344 million of combined adjusted Ebitda, of which $291 million is from Dotdash and $100 million is from Angi.

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IAC CEO Joey Levin, in his letter to shareholders that accompanied the earnings announcement, said that the current economic climate was in a good state. In the current market environment, there is an attractive opportunity to deploy capital because, for the first time in quite some time, prices for growing companies with risk once again reflect an opportunity to create value when we get the thesis right.”

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It is believed that Levi sees three major areas of opportunity at the company: unloved public companies, such as former SPACs and smaller IPOs; diamonds in the rough, which are hidden by "muddled" income statements; and "smallish" private companies that face liquidity challenges in the near future.

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There was a 3.5% rise in shares of IAC by late trading Monday, with the stock closing at $53.