IAC Cash Hoard Provides Downside At $15 Per Share

The sale of Jupiter Shop Channel for $493mn plus comments from Barry Diller that IAC will have $2.2bn in cash on the balance sheet by end of 1Q09, values IAC’scash stake at $15 per share. Deutsche Bank analyst Jeetil Patel raises his price target to $22 from $20, implying a 40% upside to the shares and thinks the Ask.com is a strategic asset within the portfolio, which is benefiting from its relationship with Google as well as a premium value due to the search battles between Microsoft and Google.

From Deutsche Bank:
IAC announced after the close that affiliates of Sumitomo have
acquired IAC's 30% equity stake in Jupiter Shop Channel, a Japanese
TV shopping company, for $493mn (46bn Yen) or $325mn after tax ($2.32
per share). This has been an IAC investment long valued at book value
under long term investments, but street estimates value Jupiter in
the range of $350mn-$400mn. The sale should boost shares of IAC as it
further bolsters its existing cash hoard of $1.6bn (or $11.50/share).

* Core business undervalued – Ask.com represents a strategic asset

The carrying value of Jupiter Shop Channel under IAC's long-term
investments stood at $11mn, implying to a 45x return on investment at
$493mn at the end of 2008. Even at $325mn after tax, a 30x return
represents an impressive return. Post this transaction, IAC will have
almost $14 in net cash per share, while the core operations Ask.com,
Evite and ServiceMagic are worth $206mn, or 0.9x 2009 EBITDA.
Additionally, CEO Barry Diller recently indicated in a Reuters
interview that the company may have $2.2bn in cash on the balance
sheet (or $15 in net cash/share) by the end of March, implying that
the core business may be undervalued at current share price levels.
Note that the Ask.com operations may be considered a strategic search
asset, particularly as search battles between Microsoft and Google
could potentially result in an acquisition premium for Ask longer
term.

* Raising Price Target to $22 vs. $20 previously

We remain buyers of IAC shares, especially as the cash position
provides for significant downside support and the strategic nature of
the search asset (and visibility from Match subscriptions) present
substantial upside from current levels. Our new $22 price target is
based on 5x our 2009 EBITDA of $236mn plus $14 in cash/equivalents.
This multiple is in-line with its Internet media peer group. While
we think the Google contract with Ask provides incremental
visibility, we think the recent slow down in its search business,
combined with lower margin businesses in its emerging business
segment, warrant only an in-line multiple at this point. Risks
include competition, business execution, and general macroeconomic
slowdown.