Is This Stock Your Perfect Match?
If you've ever searched for love online, odds are you've used one of IAC/InterActive Corp's (Nasdaq: IACI) many matchmaking sites. Match.com, Chemistry.com, and OKCupid are just a few of the heavy hitters in a portfolio of mainstream and demographic-specific websites helping their users become more interactive, online and off. And IAC has enough long-term potential to make it worth a serious look.
Fools shouldn't categorize IAC as just a collection of dating sites. Vimeo, CollegeHumor, DailyBurn, and the search engine Ask.com are part of the company's offerings, as are reference sites Dictionary.com, Thesaurus.com, and the aptly named Reference.com.
If all IAC's network counted as one site, it would be the seventh most heavily visited on the Internet, with 994 million total monthly visits and 3.9 billion page views per month. Currently, 50 sites are included under the IAC umbrella, many with individual brand awareness. The company's history of acquisitions means 50 might just be a fleeting number.
Work down your checklist of characteristics of your ideal stock, and see how IAC measures up.
- Enough cash on hand to pay off its liabilities.
- Zero short-term debt.
- Revenue and gross profit growing quarter over quarter.
With cash and short-term investments of $912 million and a total debt of just $96 million, IAC's cash flow consistently exceeds net income. Simply put, the company has more than enough to keep it in the lifestyle to which it's become accustomed.
Although search comprises a quarter of IAC's businesses, its main search site, Ask.com,has never truly been able to compete withGoogle's (NAS: GOOG) eponymous search engine or Microsoft's (NAS: MSFT) Bing. Late last year, IAC returned Ask to its original question-and-answer algorithm ("Jeeves, where can I buy left-handed golf clubs?") and abandoned its search-only attempts. Facebook and Google also have question-and-answer capabilities, which could essentially shut down the Ask portion of IAC's portfolio. Bing doesn't have an explicit Q&A function.
But even though IAC hasn't been able to dominate search, it knows how to drive traffic. From quirky studies ("Top Ten Cities with the Messiest Sock Drawers in America") that bring visitors to its sites, to the consistent development of mobile apps and customized advertising, IAC is not content to sit back and let the sites run themselves. As with all economies of scale, developing a technology for one site helps IAC easily roll out that feature to other sites.
OK, so no stock is perfect, and IAC is no different. At 22, its P/E is higher than I'd like, but that's not necessarily a deal-breaker. And for the industry, it's not too shabby. Yahoo! (NAS: YHOO) has a P/E of 17, and AOL's (NYS: AOL) common stock has a P/E of 6.
IAC is a leader in online dating with plenty to offer beyond matters of the heart. And if you like your stocks steady, strong, and with unlimited growth potential and little risk, you and IAC might get along famously.
Most of our CAPS players think IAC will outperform the market, and so do I. I've given it a thumbs-up.
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At the time this article was published Fool contributor Molly McCluskey doesn't own stock in any of the companies mentioned. The Motley Fool owns shares of Google, Yahoo!, and Microsoft.Motley Fool newsletter serviceshave recommended buying shares of Google, Yahoo!, and Microsoft and creating a bull call spread position in Microsoft. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.