Is IAC/InterActiveCorp (NASDAQ:IACI) a cheap stock to buy now? Hedge funds are becoming increasingly optimistic about the stock. The number of long hedge fund bets advanced by 5 to 55 at the end of the first quarter. This is a very large number for a $6.5 billion stock. In this article we will share Corsair Capital’s views on IAC/InterActiveCorp (NASDAQ:IACI).
But why do we track the hedge fund activities? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect the hedge funds’ activities. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small cap stock picks among hedge funds also bested passive index funds by around 80 percentage points over the 34 month period beginning with September 2012 (read the details here).
Corsair Capital talked about its AICI position in its 2015 Q1 investor letter. We pay attention to Corsair Capital’s views because Corsair Select fund delivered a net return of 13.6% annually since its inception at the beginning of 2004. S&P 500 Index returned only 7.9% during the same period. Corsair Select also returned 6.1% during the first quarter, outperforming the S&P 500 by more than 5 percentage points. Here is what they said about IACI:
“IAC Corp. (“IACI”), featured in the Appendix of our Q3 2014 investor letter, gained 11% in the quarter as the company reported a reacceleration of subscriber growth at Match.com in January, reaffirmed its goal of achieving Match Group EBITDA of $500 million in 2016 and revealed that monthly active users of Tinder, a free mobile dating application, had tripled in 2014. Additionally, the company rolled out its new TinderPlus mobile application, offering paid subscribers enhanced features on top of the free version. We expect Tinder to generate significant revenue and EBITDA by 2016 from layering advertising onto the free version of Tinder and through paid subscriptions to TinderPlus. We believe IACI is worth over $100 per share and continue to expect Chairman Barry Diller, as his history suggests, to spin-off the Match Group to unlock shareholder value. IACI closed the quarter trading at a price of $67.47 per share.”