Interactive Corp. (Nasdaq: IACI)

•  Interactive Corp (IACI) is a leading media and Internet company. The company is organized into four segments: The Match group, Search & Applications, Media, and eCommerce.

•  Market Cap: ~$5.9B •  Enterprise Value: $5.9

•  2014 EBITDA: $544M

•  2015E FCF: ~5-6%

Current Price: $71.67│ Price Target: $165

•  The Match Group: Online Dating including Match.com

•  Search and Applications: Ask.com, About.com, Investopedia

•  Media: Vimeo

•  eCommerce: HomeAdvisor

Investment Thesis

•  Sum of the Parts analysis that is used by the street does not acknowledge the value of Tinder, giving us a free option

•  Morgan Stanley: “There is no Tinder upside”

(In  Millions) 2015  EBITDA Revenue 2018  EBITDA MultipleSearch  &  Applications 322.0 5.0x 1,610The  Match  Group  (ex-­‐  Tinder) 264.9 10.0x 2,649Media 203.5 2.0x 407eCommerce 481.7 2.0x 963Sum  of  the  Parts  EV $5,630Current  Enterprise  Value $5,900

Clearly, they have been living under a rock.

Tinder changed the way people look at online dating. It’s now cool. Very cool. And it is changing the way we date.

Investment Thesis

•  Tinder has grown to ~50 million users,

and grew 300% last year

•  International users represent 2/3 of user base

•  Tinder is 50 times larger than the next app or dating website

•  Online dating is here to stay. In words that it may be easier to understand for investment professionals: it brings liquidity to the market.

•  Once you use Tinder you will always use dating sites to find someone

•  The question is: which app or website will win?

Spoiler alert: IAC dominates the market

Why This Opportunity Exists?

•  Analysts are extremely short-sighted and are valuing Tinder on 2016 EBITDA

•  Analysts are afraid of other free dating websites

•  Tinder was created in an IACI incubator, and has never had VC backing

•  IACI recently bought back 10% of Tinder,

which explains why they’ve been modest about its potential

Keys To Investment Thesis

•  Singles Landscape: Over the past 25 years the

marriage rate has gone down 40%. There are more single adults than married ones in the U.S. According to Pew Research Center, only 13% do not want to marry

•  Network Effect: Although barriers to entry seem low for online dating, the number one problem is getting enough people on board. You can go through over 100 profiles on Tinder, but you only get one match per day on competitor’s Coffee Meets Bagel

•  Unrecognized EBITDA: Tinder has cannibalized Match.com and OkCupid’s growth by ~20%; remarkably revenue is up 11% YoY. Competition is extremely severed. Both competitors Zoosk and Ashley Madison are rushing to IPO

Source: U.S. Census Marriage rate per 1000

4 Ways IAC Will Monetize Tinder

1.- Users will buy Tinder Plus for their unlimited swipe feature:

•  Tinder is a numbers game

•  2.5% of Tinder’s MAU will subscribe

•  Tinder Plus tiered pricing. Tinder offers tremendous value for what millennials refer to as COGL

Tinder  Plus  Revenue  for  #1 2015 2016 2017 2018North  Americans  on  Tinder 59.7 95.5 127.1 148.4International  users 133.4 241.8 360.2 480.6Total  revenue  from  segment  1 $193.1 $337.3 $487.3 $629.0

4 Ways IAC Will Monetize Tinder

2.- Individuals that will purchase Tinder Plus for “Tinder Travel” (Hint: they may not be single). There are three types of users that will use Tinder travel:

•  People wanting to have affairs: Tinder Passport gives you the perfect opportunity for an out of the city rendez-vous

•  Millenials who want to date and travel: Never again travel the world alone. Traveling will never be the same.

•  People looking to travel, having their expenses paid by someone

Tinder  Plus  Revenue  from  "Tinder  Travel" 2015 2016 2017 2018Market  Size 61 108 159 206%  who  will  use  Tinder  plus 3% 3% 3% 3%Total  revenue  for  segment  2 $219.6 $389.6 $570.9 $741.4

Note: The 3% will join Tinder for the sole purpose of Tinder Travel. I.e. Cheating Chad will only download Tinder for his escapades and not part of the normal user base. This is a huge base that no analyst has mentioned.

4 Ways IAC Will Monetize Tinder

3.- Tinder will make money by members transferring to Match.com, OkCupid and 37 other websites:

•  Although as a percentage more IAC paid subscribers will migrate to Tinder, as an absolute number more subscribers will turn onto IAC’s other dating websites and apps

•  Tinder is referred to as the gateway of online dating

•  Not every member will want casual dating, some will turn to other options

•  The most likely option is Match.com and OkCupid. eHarmony is completely opposite to Tinder – turns people off

Member  transfer  (in  millions) 2014A 2015 2016 2017 2018Tinder  >  Paid  subscribers 533 1,220 2,165 3,172 4,119Paid  subscribers  >  Tinder 771 836 906 982 1,064Net  subscribers  to  match (238) 384 1,259 2,190 3,055Total  revenue  for  member  transfer ($54.8) $86.7 $284.0 $494.1 $689.2

4 Ways IAC Will Monetize Tinder

4.- Tinder will start introducing ads:

•  Tinder users log in 11 times a day and spend 77 minutes on Tinder. To compare, the average Facebook user spends an average time of 40 minutes in the U.S.

•  Tinder has access to your FB account which means that they know what you like, your age, your school, your location, marriage status, and who your friends are. This is extremely valuable

•  FB ARPU is ~$26 in North America and ~$10 worldwide. If Tinder monetizes at 20% of FB per ARPU, Tinder is worth ~$3-5B

Total  revenue  from  ads 2015 2016 2017 2018ARPU $0.33 $1.00 $1.50 $2.25Total  revenue  from  ads $25 $126 $258 $485

Valuation

•  Most likely there will be a mix between bull, base and bear case in several categories

•  Growth expected to double in 2015

•  Tinder is having even more success internationally

Can anybody find me somebody to love? −Queen

(In  Millions  ex.  %) Bull   Base BearCurrent  number  of  users 50 40 30%  who  want  more  swipes 3.6% 2.5% 1.4%Tinder  Travel 4.0% 3.0% 2.0%Transfer  Match  >  Tinder 18% 22% 25%Transfer  Tinder  >  Match 3% 2% 1%Ad  Revenue  /ARPU  2018 $3.00 $2.25 $1.502018  EBITDA 2,361 1,272 47610X  Multiple 23,613 12,722 4,76275%  owned  IACI $17,710 $9,542 $3,572Probability 20% 40% 40%Tinder  +  Cross-­‐selling $8,787

(in  millions) 2013 2014 2015 2016 2017 2018North  Americans  on  Tinder 4 13 25 37 46 52International  users 9 27 57 97 136 177Total  number  of  users 13 40 82 134 183 229

NA  Growth ~700% 300% 85% 50% 25% 12%International  Growth ~700% 300% 115% 70% 40% 30%

Estimated  Number  of  Users

mangelo@Wharton.upenn.edu