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:
Follow Jay Petschek And Steven Major's Corsair Capital Management
“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.”
Keeping this in mind, let’s check out the recent action encompassing IAC/InterActiveCorp (NASDAQ:IACI).
What have hedge funds been doing with IAC/InterActiveCorp (NASDAQ:IACI)?
At the end of the first quarter, a total of 55 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the previous quarter. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were upping their stakes considerably.
According to hedge fund experts at Insider Monkey, Luxor Capital Group, managed by Christian Leone, holds the biggest position in IAC/InterActiveCorp (NASDAQ:IACI). Luxor Capital Group has a $181.2 million position in the stock, comprising 2.9% of its 13F portfolio. On Luxor Capital Group’s heels is Greenlight Capital, led by David Einhorn, holding a $171.7 million position; the fund has 2.2% of its 13F portfolio invested in the stock. Some other peers with similar optimism consist of Dan Loeb’s Third Point, Eric Bannasch’s Cadian Capital and Zach Schreiber’s Point State Capital.
Now, some big names were leading the bulls’ herd. Point State Capital, managed by Zach Schreiber, initiated the most valuable position in IAC/InterActiveCorp (NASDAQ:IACI). Point State Capital had $81.9 million invested in the company at the end of the quarter. Doug Silverman and Alexander Klabin’s Senator Investment Group also made a $67.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital, and Michael Barnes and Arif Inayatullah’s Tricadia Capital Management.
Hedge funds collectively own nearly 30% of IACI’s outstanding shares. There is a consensus among hedge funds that IACI is a good long-term bet that will probably outperform the market. Corsair thinks the stock had a 50% upside potential at the end of the first quarter. IACI shares went up more than 20% since then. We believe the stock will continue to outperform the market in the near term.
