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Bull of the Day: Interactive Corporation

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Back in May of 2018, shares of Match Group (MTCH - Free Report) and its majority owner Interactive Corporation (IAC - Free Report) took a major hit when Facebook (FB - Free Report) announced that they would be developing their own dating app which was expected to eviscerate Match’s share of the online dating market. The concept certainly made sense at the time – if Facebook users were able to easily convert the profiles they had already created into dating resumes, demand for Match.com - and it’s most popular product Tinder, - could dry up.

But it hasn’t happened yet and Match Group majority owner Interactive Corporation continues to turn in outstanding results.

Shares of IAC closed at $162.14 on April 30th but fell to $133.33 the next day on the Facebook news. Though Interactive Corp was unequivocally bold in explaining that they were comfortable with their 20+ year head start in the internet dating game, some investors threw in the towel, expecting that Facebook - with a market cap north of $400B and 2 billion active monthly users - would soon dominate online dating the same way it had dominated social media.

Those IAC shares are now trading at $206, thanks in part to blowout Q2 report that had the internet conglometrate earning $2.32/share in net profits, more than doubling the Zacks Consensus estimate of $0.82/share.

Thanks to full year 2018 estimates that have risen from $4.39/share to $5.37/share in the last 90 days, IAC earns a Zacks Rank #1 (Strong Buy).

Founded in 1995, Match Group and its flagship product Match.com are far and away the biggest household names in online dating.  Growing both organically and through acquisitions, the group now encompasses popular sites and apps across a broad spectrum of potential daters. Match group has 7 million subscribers worldwide and 3 million of them use Tinder - the most profitable segment of Match Group’s business for advertising.

Though Tinder is the most recognizable name in the IAC portfolio, they also operate multiple smaller services aimed at a vast range of dating preferences, broken down by age, race, ethnicity, religion and even political beliefs.

Match Group, while an independent public company, is mostly owned by Interactive Corp, which holds 81% of the economic value and 97% of the voting rights in Match Group. Originally formed as a television media company, IAC owns approximately 150 brands across a wide swath of media - primarily internet sites. Though many are household names – like Dictionary.com, Investopedia and Angie’s List - IAC is most closely associated with the Match Group because Match contributes as much as 40% of IAC’s revenue and more than half of EBITDA in any given quarter.

Sometimes a big story comes out that seems to obviously seal the fate of a company that appears to be on the wrong end of an unwinnable competitive battle.  

Sometimes that narrative is simply incorrect.

Facebook has had a rough year in 2018 with user privacy issues, concerns that its services led to election interference and most recently, a major data breach. IAC has thrived.

Interactive Corp - which just a few months ago looked to be squarely in Facebook’s sights - instead quietly went about its business, growing its most profitable businesses and rewarding faithful investors with a 50% gain.

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