IAC Earnings: Digital Advertising and Angi Are Well on Their Way to a Turnaround

We are maintaining our $135 fair value estimate for IAC IAC. After increasing more than 50% year to date, shares are down more than 10% in reaction to slightly lower-than-expected Angi revenue. We continue to view the stock as attractive.

IAC’s first-quarter results showed some recovery on the advertising revenue front, the strengthening of the supply side of Angi’s platform, and the stabilization of the search segment. We still expect a return to growth in advertising revenue from both search and Dotdash Meredith in the second half. We have modeled growth for Angi beginning in 2024. In our view, Angi’s success in attracting and retaining more service professionals will bring in more consumers, which would generate top-line growth and margin expansion given the lower service professional and customer acquisition costs. Simply put, Angi could be progressing toward creating a network effect.

Dotdash Meredith revenue declined 15% from last year to $414 million due to digital ad revenue decreasing 10% (an improvement from the first quarter’s 15% decline) and a continuing decline in print ad revenue (down 21%). According to management, digital advertising began to grow in June, and overall traffic to its properties continues to improve, which we view as an early indication of the return of growth in that segment.

Angi revenue of $375.1 million was down 27% year over year mainly because the firm now recognizes revenue on a net basis. Pro-forma revenue was down 16% due to weakness in ad revenue and leads and the discontinuance of various services, all partially offset by the 17% increase in international revenue. The supply side of the platform and the retention of the service providers continued to improve. The firm is seeing early indications of that in the U.S. market.