IAC (IAC)

Digital media conglomerate IAC (NASDAQGS:IAC) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 38.6% year on year to $570.5 million. Its GAAP loss of $2.64 per share was 30.1% below analysts’ consensus estimates.

Company Overview

Originally known as InterActiveCorp and built through Barry Diller's strategic acquisitions since the 1990s, IAC (NASDAQ:IAC) operates a portfolio of category-leading digital businesses including Dotdash Meredith, Angi, and Care.com, focusing on digital publishing, home services, and caregiving platforms.

AI-driven content creation, personalized media experiences, and digital advertising are evolving, which could benefit companies investing in these themes. For example, companies with a portfolio of licensed visual content or platforms facilitating direct monetization models could see increased demand for years. On the other hand, headwinds include growing regulatory scrutiny on AI-generated content, with many publishers balking at anything that gets no human oversight. Additional areas to navigate include the phasing out of third-party cookies, which could make traditional ways of tracking the online behavior of consumers (a secret sauce in digital marketing) much less effective.

IAC's businesses face competition across multiple sectors: Dotdash Meredith competes with major digital publishers like Hearst, Condé Nast, and BuzzFeed; Angi faces competition from HomeAdvisor (which it now owns), Thumbtack, and Yelp in the home services market; while Care.com competes with UrbanSitter, Sittercity, and traditional caregiving agencies.

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $3.45 billion in revenue over the past 12 months, IAC is a mid-sized business services company, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale. On the bright side, it can still flex high growth rates because it’s working from a smaller revenue base.

As you can see below, IAC grew its sales at a decent 6.3% compounded annual growth rate over the last five years. This shows its offerings generated slightly more demand than the average business services company, a useful starting point for our analysis.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. IAC’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 16.3% over the last two years.

This quarter, IAC missed Wall Street’s estimates and reported a rather uninspiring 38.6% year-on-year revenue decline, generating $570.5 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 3.6% over the next 12 months. Although this projection implies its newer products and services will spur better top-line performance, it is still below average for the sector.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Although IAC was profitable this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 5.5% over the last five years. Unprofitable business services companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

On the plus side, IAC’s operating margin rose by 11 percentage points over the last five years, as its sales growth gave it operating leverage. Still, it will take much more for the company to show consistent profitability.

This quarter, IAC generated an operating profit margin of 6.3%, up 12.6 percentage points year on year. This increase was a welcome development, especially since its revenue fell, showing it was more efficient because it scaled down its expenses.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

IAC’s earnings losses deepened over the last five years as its EPS dropped 23.1% annually. We tend to steer our readers away from companies with falling EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, IAC’s low margin of safety could leave its stock price susceptible to large downswings.

In Q1, IAC reported EPS at negative $2.64, down from $0.52 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street is optimistic. Analysts forecast IAC’s full-year EPS of negative $9.67 will flip to positive $1.09.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

IAC has shown poor cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1%, lousy for a business services business.

Taking a step back, an encouraging sign is that IAC’s margin expanded by 3.5 percentage points during that time. We have no doubt shareholders would like to continue seeing its cash conversion rise as it gives the company more optionality.

IAC broke even from a free cash flow perspective in Q1. The company’s cash profitability regressed as it was 6 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

IAC’s five-year average ROIC was negative 3.8%, meaning management lost money while trying to expand the business. Its returns were among the worst in the business services sector.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, IAC’s ROIC has increased. This is a good sign, but we recognize its lack of profitable growth during the COVID era was the primary reason for the change.

IAC reported $1.16 billion of cash and $1.46 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $387.5 million of EBITDA over the last 12 months, we view IAC’s 0.8× net-debt-to-EBITDA ratio as safe. We also see its $22.96 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results. Its revenue missed significantly and its EPS fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock remained flat at $35.26 immediately after reporting.

Updated: June 15, 2025 at 12:07 AM EDT

Before deciding whether to buy IAC or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

We see the value of companies helping their customers, but in the case of IAC, we’re out. To begin with, its revenue has declined over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its rising cash profitability gives it more optionality, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its declining EPS over the last four years makes it a less attractive asset to the public markets.

IAC’s P/E ratio based on the next 12 months is 28.8x. This valuation tells us a lot of optimism is priced in - we think there are better investment opportunities out there.

Wall Street analysts have a consensus one-year price target of $51 on the company (compared to the current share price of $35.75).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.