Replacing equity exposure with options + USDC on Voyager
The investment strategy laid out in this post utilizes USD Coin (USDC), a cryptocurrency known as a stablecoin and pegged to the US dollar, and Voyager, an app-based digital asset trading and financial services platform.
USDC is issued by Circle, a US-based company which is currently expected to go public in the US via SPAC combination with Concord Acquisition Corp (NYSE: CND). USDC is fully backed by USD and treasuries and is seen as the most stable, reliable and resilient stablecoin in the market, but is potentially subject to unknown risks stemming from the crypto economy and/or regulators. For example, in a worst-case scenario, one might conceive of regulators freezing and/or confiscating crypto assets, including USDC.
Voyager (TSE: VOYG | US OTC: $VYGVF**) is a publicly traded company on the Toronto Stock Exchange and US OTC. If you’re unfamiliar with different crypto platforms, you can think of it like Coinbase.**
USD deposits on Voyager are FDIC insured. However, USDC and other digital asset holdings are not FDIC insured, and in the event that Voyager were to go bankrupt, depositors of digital assets might lose some or all of their deposits.
Read more about Voyager and USDC here and here.
I highlight these risks upfront because other stablecoins, most recently Terra (UST), which was an algorithmic stablecoin not fully backed by USD, have lost their peg and gone to effectively zero. USDC’s primary competitor and the stablecoin with the largest market share currently, Tether (USDT), is another “fully backed” stablecoin but there have been doubts about the nature and quality of the assets backing USDT.
While Voyager doesn’t support algorithmic stablecoins, they do support USDT. If USDT were to lose its peg, it’s not clear to me what the ramifications would be Voyager as a company. As such, I consider the risks to include bankruptcy and potential customer forfeiture of some or all of their digital assets on the platform.
I consider these tail risks, perhaps of the nature inherent to almost any investment. As such, I do not recommend putting 100% of your capital in this trade, even though I will refer to aspects of the trade below as risk-free for simplicity of communication. Owning USDC is not risk-free in the sense that owning USD is risk-free, and some (but surely not all!) of the risks specific to USDC have been covered above.*
NOT INVESTMENT ADVICE!!!
Now, on to the fun part :)
If you’re like me, in between pondering if you’re just completely wrong about everything recently you might have been pondering how to take advantage of Voyager’s high interest rates on USDC without reducing your exposure to stocks or crypto after a 60% drawdown.
Currently, you can get paid interest on USDC held on Voyager according to the following tiers:
Just straight selling everything and investing $100k at a risk-free* blended 7.69% is not a bad option. In fact, it’s a really, really good option. The long-run average annual return for the S&P 500 is ~8%.
In hindsight, this would have been a great option in, say, November 2021. But punching out of the stock market now after the S&P 500 just suffered its worst start to the year through April since World War II might not be best time to find religion with respect to your investments (or maybe it is!).
But what if I told you you could have your cake and eat it too? Retain all of your equity exposure and protect your capital in the event we are in a multi-year bear market and stocks still have much lower to go?
Imagine you own 100 shares of SPY at today’s closing price of $412.93 for a total investment of $41,293. By using long-dated call options and utilizing Voyager’s interest rates on USDC you can retain 100% of the upside of owning 100 shares of SPY and limit your downside to +4% over the next 2.5 years.
Yep, that’s right. Your risk " is +4%.
If the S&P 500 falls by 50%, you make 4%.
If the S&P 500 gains 50%, you make 54%.
All of the reward and none of the risk.
Here’s how (prices reflect 5/31/2022 last traded prices):
- SELL: 100 shares SPY @ $412.93 for $41,293
- BUY: 1 $410 (at-the-money) strike SPY call option expiring 12/20/2024 for $6,380
- BUY: $34,913 USDC on Voyager
By replacing your stock portfolio with options, you limit your losses to the premium paid, in this case $6,380.
Of course, typically the trade-off for limiting your downside by using call options is a commensurate reduction of your upside. It’s like buying insurance. It only pays off if shit hits the fan.
A typical call option payoff profile looks like this:
The y-axis is the portfolio % return. The x-axis is the % return of the underlying equity.
The blue curve represents the % return of the option + cash portfolio. It’s losses are capped at -15.5% (the flat left half of the blue curve), which represents the premium paid to acquire the option ($6,380 loss). No matter how low the underlying equity goes, you can only lose what you paid for the option. But on the upside the option + cash portfolio underperforms by the cost of the option (illustrated by the blue curve being below the orange line for all positive returns of the underlying equity).
The orange line represents the % return of the all stock portfolio. The orange line is just y = x.
Here’s the same payoff profile using portfolio $ value for the y-axis instead of % returns. Remember our starting portfolio is $41,293, indicated by the intersect of the orange line at 0% return.
Options are a capital efficient way to get exposure to financial asset prices. Said differently, they have embedded leverage.
In the trade above, you gain exposure to $41,293 worth of SPY but only have to put up $6,380 to do it. Now you’ve got SPY exposure and $34,913 in cash laying around.
The payoff profiles above assume you don’t earn any return on that cash. For the better part of the last 15 years, that has been an accurate assumption and thus this trade hasn’t been as exciting. The unique opportunity we are presented today arises from the fact that we can invest a stable, dollar-pegged, risk-free asset in USDC at advantageous interest rates of up to 9%.
Let’s look at these payoff profiles again, this time assuming we invest the $34,913 in USDC on Voyager at the tiers offered above.
Notice that the blue “options+cash” curve is now permanently above the orange “stock” line. The rates we can get on USDC are so good that we can more than recoup the premium paid for the call option in interest paid on USDC over our holding period, which is determined by the expiration date on our option, 12/20/2024 (2.56 years from now).
The blended interest rate on $34,913 invested in USDC on Voyager is 8.5%. $34,913 compounded at 8.5% for 2.56 years = $43,026 for a $8,113 gain on investment.
This $8,113 gain more than pays for the $6,380 premium on our option!
Thus, by replacing our 100 shares of SPY with a 12/20/2024 $410 strike call option and cash invested in USDC on Voyager, we can create a portfolio with more return for less risk.
We effectively get paid to take on an insurance policy. We lock-in a minimum 4% portfolio level gain over the 2.56 year holding period while retaining all of the upside if the market takes off.
Reward: check. Risk: none*.
Absent tax consequences or an inability or aversion to holding options and/or USDC on Voyager (fair!), or a view that the interest rates on USDC are going to imminently collapse (also fair!), there’s not a good reason in my mind to continue holding SPY exposure when implied volatility is this low in this environment and you can earn 9% on cash.
The Other Trade
Let’s say you actually have a view stocks have bottomed and expect decent returns from here over the next couple years. You’re willing to take on a little downside risk for some more upside exposure.
By purchasing two options contracts instead of one, you can juice your returns and get a more convex payoff curve.
- SELL: 100 shares SPY @ $412.93 for $41,293
- BUY: 2 $410 (ATM) strike SPY call options expiring 12/20/2024 for $12,760
- BUY: $28,533 USDC on Voyager
Now you’re risk is truncated at -14% since you’re spending twice as much on premium and have less cash left over to invest in USDC.
Notice now we also have some area where the blue payoff curve is below the orange payoff line of simply owning equity. If SPY returns all in a range of -14% to 12% from now until 12/20/2024, we will have performed worse than if we had just continued to hold SPY.
But notice also how we start to outperform more and more for higher returns of the underlying SPY. If SPY gains 50% from here, this portfolio returns a whopping 87%, as opposed to the 54% in our risk-free* portfolio construction above. With a 50% gain in SPY during our holding period, this portfolio grows to a nominal $77,265 vs. the prior portfolio’s $63,955. This turbocharged portfolio has better returns for all returns of the underlying SPY 18% or greater.
What we have created is functionally a way to maximize returns on the view that the stock market is going to rebound strongly from current levels over the next 2.5 years, while keeping a parachute in our back pocket in case we’re totally wrong. In a sideways market, we end up leaking capital.
A Few Considerations…
- Your actual returns won’t precisely match the payoff curves above due to other factors that influence the price of your option, namely time to expiry and volatility. But if you hold all the way to expiry (when time value and volatility = 0) your payoff curve will match the graphs above.
- Why the 12/20/2024 expiration date? It’s simply the longest-dated option available currently. We want to utilize the longest-dated option available to us because the time-value decay on the option will be the slowest. If you do this trade, you’ll want to keep an eye on the options chain and probably roll your exposure into the longer dated expirations as they are listed, absent any tax consequences or an updated view (e.g. more bullish or bearish).
- This trade only works as advertised if Voyager continues to offer the same interest rates on USDC for the duration of the trade. If the rates adjust down (or up!), the model inputs need to change and the trade reconsidered. Here is a google sheet with the model that produces the payoff curves above. The inputs, including interest rates on USDC, are in blue. Change the static blue inputs and the payoff curves should adjust dynamically.
- Taxes! Before you run out and sell all your equity exposure to buy options, consider taxes. If you sell equity you might have a taxable event (if you have a gain). If you have a loss, replacing exposure with options may be considered a wash sale. If it is a wash sale, your cost basis on your new position is adjusted upwards by the amount of the loss (i.e. you don’t lose your capital loss in a wash sale, you just don’t incur it yet - it remains unrealized).
- One disadvantage of holding options instead of equity is you have a forced taxable event when the option expires. Simply holding SPY, in the example above, might be more tax efficient depending on your tax status.
- You can do this with any stock or ETF that has listed options! I just used SPY for illustrative purposes. One caveat though - options cover 100 share lots of the underlying, so you need to have at least ~100 shares of the underlying in order to accurately replace your exposure with options. If you have 200 shares of the underlying, you buy two options contracts to match the exposure; 300, three, etc. As such, replicating this trade is probably only feasible for most retail investors with either large index positions or positions in individual stocks with lower nominal stock prices. Not too many people can afford 100+ shares of AMZN or GOOG (pre-split).
- This trade is most attractive on a relative basis for equities that have low volatility, since options premiums on low-vol stocks are lower.
- For example (considering points 6 and 7) I’m executing this style of trade in my portfolio right now on DBX, ANGI, ATUS, and KRBN. I modeled it for ARKG and SNAP, but the implied volatility on these equities is so high that the option premium costs more than the potential gain on investment in USDC, making this a less attractive trade for continued ARKG or SNAP exposure.
- If you like this trade in theory but don’t want to fux with anything on crypto rails right now, Series I Savings Bonds are currently yielding 9.62%. It’s a 30 year bond redeemable with no penalty after 5 years and with a 3-month interest penalty after 1 year. The rate is linked to CPI inflation and resets every 6 months. The maximum investment is $10,000 per individual per year.
Thanks to Harley Bassman (@convexitymaven on Twitter) for the idea that inspired this trade. Here’s a link to his piece from November 2021 where he explains what I try to explain above, but way better. If I only I’d have listened to him then…
Disclosure: I own USDC, DBX+calls, ANGI+calls, ATUS+calls, KRBN+calls and ARKG
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This is awesome, thanks for sharing all this! Loved the point about how "options are a capital efficient way to get exposure to financial asset prices.--> They have embedded leverage."
Question though, why is Voyager offering such a high rate on USDC? Isn't that a little suspect since you can't get that high of a rate on USDC elsewhere? Sticks out to me as unsustainable 👀
But love the idea and how you laid it out, especially all the considerations you added.
$ANGI Earnings Review
$ANGI reported earnings after the bell yesterday. The earnings results were okay, but the guidance was extremely reassuring which is why the company is up over 20% today. It is important to note analysts had a good idea of what revenue was due to their monthly metrics.
During the first quarter of 2022, revenue only grew 13%, but Angi services maintained their >100% growth rate. Angi Services is now running at a $450 million run rate. In order for this investment to work out, Angi will need to materially accelerate its revenue growth rate.
Most concerning from their earnings report was the severe decline in underlying metrics. Service requests were down 13% and transacting service pros were down 4%. I believe Oisen had good reasons behind this decline.
Oisen blamed tough comps from last year as Angi had a significant tailwind at this time due to macro effects. He also mentioned the lapping of the Angi rebrand. Both of these reasons make sense and should allow for revenue acceleration later this year.
Oisen guided to revenue acceleration in the back half of the year. He stated, “we feel very good about organic growth and services accelerating”. While it has taken longer than many would’ve liked, the bull thesis of acceleration seems intact.
Management also mentioned they hit peak investment for services in March. As they back off the investment, Services should be less of a drag and eventually turn profitable. It is reassuring to hear about their path to profitability.
Would like to hear what others think about Angi and their earnings results.
My original Angi thesis can be viewed here
Add a comment…
At first glance, $ANGI monthly metrics look really bad. When you dig into it and see what they are being compared to, they had extremely tough comps and this report seems fine. Wish $ANGI reported numbers instead of percentages to make their reports more transparent.
@borrowed_ideas shared this chart on Twitter illustrating their tough comps.
Also, Angi's management team guided this in their Q4 earnings call. Nothing to panic about in this month's monthly metrics imo.
My original Angi thesis is here.
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Services YoY is severely inflated by the roofing acquisition, would be more concerned about the demand destruction in service requests.
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$ANGI released their monthly metrics today. Angi services accelerated from 91% to 132% which is their fixed price offering. Angi management stated on their earnings call that they will have easier comps starting in March. The brand transformation is looking a lot more promising!
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Are you concerned by the 2% decline in ads and leads revenue? For now that is their main revenue source, right?
$ANGI Risk Reward is Worth It
$ANGI is going through a brand transformation to its fixed pricing model. Demand has been strong and growth was 120% YoY. 27% of Angi’s 4th quarter revenue came from their fixed pricing model up from 15% the prior year.
The home services industry has a massive 500bn TAM. Angi only has 5% market share, but they are leading the online industry in revenue, service requests, and they are the only national platform to offer a fixed pricing model.
Angi’s competitive advantage comes from its scale and the complexity of pricing these different tasks. Their strong cross-platform network effects between the number of homeowners and service pros and Angi’s dominant market position gives them a competitive advantage.
Angi management has stated the goal of pricing 500 different tasks in ~42,000 different zip codes. This is an extremely complex undertaking and Angi’s data advantage from their scale will give them the ability to accomplish this.
For the full report, click here https://youngmoneycap.substack.com/p/angi-riskreward-is-worth-it?utm_source=url
Angi Earnings Reaction
Angi ($ANGI) reported earnings yesterday and had their call today. The stock has sold off over ~20% as of this writing so let’s dive into the earnings report. Let’s first go over the items the market was not pleased with.
Service requests were down 5% YoY and Angi reported weak growth in January. Management blamed Omnicron as “we saw a pretty significant uptick in Omicron call offs, customer call offs, pro call offs, we saw an 8x increase in January versus a normalized number for the year”
The other major concern is the deceleration in Angi Services growth. Angi services were growing well over 100% in earlier months but decelerated to 91% in January. This deceleration is troubling for investors and investors should continue to monitor.
On the revenue side management guided “We obviously rebranded the business in March of last year. We will have easier comps after that, particularly in the ads leads business so that will be a natural tailwind.” They also guided that “adjusted EBITDA is similar to last year.”
Management did have two interesting comments on their moat. In terms of matching supply and demand, “we do some modeling to make sure that we match consumer demand with pro supply… the rate at which we fulfill it continues to go up…It gets harder as you add more categories as you cover more geographies”
In regards to partnerships “Walmart is the first we expect to rollout into other retailers for context.” These comments show the complexity of their business and the scale needed to succeed. This is very tough for another firm to come in and replicate.
My next substack article will be on ANGI. Subscribe here to get it in your inbox https://youngmoneycap.substack.com/?r=z9r6j
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This for me is one of those companies that always begs the question, "they're still in business?" Albeit in a slightly different form, they've been around since 1995 and still don't seem to have figured out a real business. I also have never heard of any friends or family members using them.
IAC/InterActiveCorp ($IAC) Deep Dive
- What Attracted Me To The Company?
- Short History
- Past Performance
- Bull Case
- Bear Case
- Personal Touch
- Guru Holdings?
- Margin of Safety Price?
- Price Target?
- Holding Period?
Disclaimer is at the end.
IAC is home to dozen of popular online brands and services used by millions of consumer each day. I think of IAC as Internet Version of Berkshire Hathaway, except instead of always keeping all of the companies under their wing IAC lets the “mature” companies spread their wings and fly away via spin offs.
So I guess it’s not really like Berkshire…
- What Attracted Me To The Company?
The whole idea of building, making mistakes, admitting them, and learning from them, really resonates me with me and after I read all of the letters that Joey Levin put out (and re reading some of them) I got hooked on the idea that this company has the most amazing moat ever!
What is that? (you might ask me)
Moat of courage.
Courage to not being afraid of creating something that no one else has done before or wants to do and at the same time keep evolving (and adapting to the new challenges/technologies/competitors), learning from mistakes, and at the same time thinking long term.
Maybe I wouldn’t call it a moat if company only did it once or twice, but IAC has been able to do it time and time again, showing that its not luck but hard work and willingness of management to be open minded and determination to do what needs to be done (no matter how long that might take as long as at the end the shareholders will be greatly rewarded)
All because of the right way of building “from the ground up” the business and the culture that was created with the help from Mr Diller.
- Short History
IAC started as Silver King Broadcasting Company in 1986 and by 1992 was spun off to Home Shopping Network (HSN) shareholders under the name of Silver King and in 1995 Barry Diller acquired control of Silver King.
The deal was backed by largest shareholder Liberty Media.
"Take a quick break to point out that already from the start of IAC’s journey, company developed the roots of spinning off and was given blessing by Liberty Media (AKA John Malone)"
Through out the 1995-2000 company went through many changes via M&As (into the Internet Age) from physical assets into online assets and in 2004 was (again for the millionth time) renamed into what we now know as IAC (IAC/InteractiveCorp).
Currently IAC has four business segments.
Which are Angi, Dotdash, Search, and Emerging+Other.
ANGI Homeservices Inc. or simply Angi (trades under $ANGI) is a market place that connects quality home service professionals across 500 different categories, from repairing and remodeling to cleaning and landscaping, with consumers. Over 240,000 domestic service professionals actively sought consumer matches, completed jobs or advertised work through Angi’s platforms and consumers turned to at least one of our brands to find a professional for many projects.
Within Angi there are two operating segments: (1) North America (United States and Canada), which primarily includes the operations of HomeAdvisor, Angie’s List, Handy, and HomeStars, CraftJack and (2) Europe, which includes the operations of Travaux, MyHammer, MyBuilder, Werkspot and Instapro.
Angi’s revenue is primarily derived from consumer connection revenue, which consists of fees paid by HomeAdvisor service professionals for consumer matches (regardless of whether the service professional ultimately provides the requested service) and revenue from completed jobs sourced through the HomeAdvisor and Handy platforms.
Dotdash is one of the largest and fastest growing content publishers on the Internet, reaching over 100 million people each month (that's more than 35% of the U.S. online population). Dotdash brands are verywell, Investopedia, the balance, the spruce, Simply Recipes, Serious EATS, BYRDIE, BRIDES, MYDOMAINE, Lifewire, tripsavvy, Liquor.com, Treehugger, and last but not least ThoughtCo.
-The Verywell family of brands, including Verywell Health, Verywell Fit, Verywell Family, and Verywell Mind, take a human approach to health and wellness content and are a welcome alternative to hyper-clinical health sites. 38.5 million people in the. U.S. use Verywell sites each month to feel better and be healthier.
-Investopedia simplifies complex financial information and decisions so that its readers have the confidence to manage every aspect of their financial life. Investopedia reaches nearly 20 million people each month.
-The Balance family of brands, including The Balance, The Balance Careers, and The Balance Small Business, deliver clear, practical, and straightforward personal financial advice to 17 million people in the U.S. each month.
-The Spruce family of brands, including The Spruce, The Spruce Eats, The Spruce Pets, and The Spruce Crafts combine inspiration with how-to advice to help users create homes they love. Collectively, The Spruce sites reach over 33 million people in the U.S. each month.
-Simply Recipes, one of the original food blogs, helps over 9 million people each month get easy, delicious food on the table for themselves and their families.
-Serious Eats delivers trustworthy recipes, rigorously tested techniques, and food science content to over 4 million hungry readers each month.
-Byrdie is dedicated to all things beauty, inside and out. From hair and makeup to health and wellness, Byrdie takes a fresh, no-nonsense approach to feeling and looking your best.
-Brides inspires and guides over 4 million monthly users as they make decisions from pre-engagement through the honeymoon. Brides is committed to bringing you an inclusive look at the world of weddings, with every type of couple, every type of wedding, and every type of celebration.
-MyDomaine makes an aspirational life achievable - and affordable - with curated home-design inspiration, quick and fresh recipes, and healthy relationship advice that awaken a life well lived. MyDomaine reaches 1 million people each month.
-Lifewire provides helpful, actionable tech tips, advice, and answers, without confusing jargon. Lifewire helps over 5 million people in the U.S. each month get the most out of their technology.
-TripSavvy delivers curated expert advice for family and vacation travelers. We help nearly 4 million people in the U.S. each month have the best travel experiences.
Liquor.com is dedicated to good drinking and great living. We inspire, entertain and educate anyone - and everyone - interested in what happens in the glass and out of it.
-TreeHugger is the leading media outlet dedicated to driving sustainability mainstream. TreeHugger provides its users a one-stop shop for eco-friendly news, solutions, and product information.
-ThoughtCo is one of the largest and most comprehensive learning, information, and education sites online. ThoughtCo helps over 6 million people in the U.S. a month become lifelong learners.
I highly recommend checking each individual website one by one.
Dotdash revenue consists principally of display advertising revenue and performance marketing revenue.
Search segment consists of two parts Ask Media Group and Desktop business (Ask Applications).
Ask Media Group primarily provide general search service. Ask Media Group’s websites include, among others, Ask.com, Smarter.com, Consumersearch.com and Shopping.net, each of which contains a mix of search services and/or content targeted to various user or segment demographics.
Desktop business is a provider of advertising-driven desktop applications.
Ask Media Group revenue consists principally of advertising revenue generated principally through the display of paid listings in response to search queries, as well as from display advertisements appearing alongside content on its various websites and, to a lesser extent, affiliate commerce commission revenue.
Desktop revenue largely consists of advertising revenue generated principally through the display of paid listings in response to search queries.
Whenever IAC talks about paid listings via search queries they are most likely talking about Google paying them via ads.
EMERGING & OTHER
E&O mainly consists of Bluecrew, Care.com, Mosaic Group, Daily Beast, Vivian and NewCo.
Bluecrew is the first hourly workforce-as-a-service (WaaS) provider: combining W-2 labor, a workforce management platform, and data + analytics for workplaces who have hourly workers and fluctuating demand. Unlike typical gig platforms, all Bluecrew Members are W-2 classified workers, eligible health benefits and protections such as sick leave and workers compensation.
Care.com is the leading online destination for families to easily connect with caregivers for their children, aging parents, pets and homes and for a wide variety of caregivers to-easily connect with families.
Mosaic Group is a developer and provider of global subscription mobile applications. Mosaic Group's portfolio of 40+ mobile apps span fitness, lifestyle, entertainment and utility categories and include popular titles like Daily Burn, RoboKiller, iTranslate and NOAA Weather Radar Live: Clime.
The Daily Beast
The Daily Beast is a website dedicated to news, commentary, culture and entertainment that publishes original reporting and opinion from its roster of full-time journalists and contributors. With over a decade of breaking impactful stories, the Beast’s multi-media reach includes chart-topping podcasts, millions of engaged social followers, a dedicated app, heavily consumed newsletters, an expansive membership program, and much more. The Daily Beast reaches more than 1 million readers a day.
Vivian (previously NurseFly) is the first transparent healthcare job marketplace via browser or app. Vivian offers all kinds of healthcare jobs - permanent, per-diem, local contract, and travel - for all kinds of healthcare workers: registered nurses, therapists, and allied professionals. Big factor with Vivian is the transparency, Salary Insights - see the average pay for your discipline, specialty, and location.
Vivian changes the game.
Apple App Store reviews
Google Play Store reviews
For employers, Vivian helps fill roles 50% faster than traditional recruiting practices and at a fraction of the cost, saving them millions of dollars and helping alleviate labor shortages in healthcare. Currently facilitated over 1 million job applications through its marketplace with 300,000+ qualified healthcare professionals, actively looking for work.
Newco is IAC’s incubator platform based in Brooklyn (side note I should probably try checking it out). It’s kind of a secret right now, not much is know except that Newco has five discrete early stage products and that portfolio spans social gaming, telemedicine, home services, social networking and online recruiting.
> Both Wilson Gibbons and Casey Gibbons founded and ran ran Friends & Family, an innovation studio that partnered with corporate clients like Nike, Ikea, Lowes, Starbucks, and the LA Dodgers to test and build new ideas. So pretty much anything is possible with this one.
For IAC, I will separate “Management” into two segments:
- 1) Operators
- 2) Business Management
Barry Diller is the Chairman and Senior Executive of IAC. From 1995 to late 2010, Mr. Diller served as the Chairman and the Chief Executive Officer of IAC. From October 1984 to April 1992, Mr. Diller served as Chairman and Chief Executive Officer of Fox, Inc. and was responsible for the creation of Fox Broadcasting Company in addition to Fox's motion picture operations.
Barry Diller, his spouse, and his stepson collectively hold 5,789,499 shares of Class B common stock representing 100% of the outstanding shares of Class B common stock. Together with shares of common stock holdings collectively represent approximately 41.4 % of the total outstanding voting power of IAC and on November 5, 2020 Mr Diller and his family went into voting agreement to basically give Joey Levin the right to do whatever is necessary as long as its in the best interest of the shareholders (I left out all of the lawyer talk out).
Barry Diller owns about 6.80% of total outstanding shares
Don’t get this wrong, Mr Diller still “runs the show” and must approve of everything before it gets executed but he trusts Joey to make the right decisions.
Which brings us to Joseph M. Levin (Joey Levin). Joey Levin is the Chief Executive Officer of IAC. Prior to this, Mr. Levin held many positions all in or around IAC which gives him great understanding what IAC is all about.
Mr. Levin is present Chairman of the boards of Vimeo and Angi Inc. and currently serves on the Board of Directors of Match Group Inc., Turo and MGM Resorts International. All important seats, as we will see later on that Joey has his hands around everything that IAC touches!
Joey Levin owns about 3.68% of total outstanding shares.
2) CEOs/Founders of IAC’s Businesses
All of the companies that are under IAC’s umbrella are ran by either founders or are carefully selected for the CEO job of that company because IAC believes those individuals are best/greatly suited for the task.
- Oisin Hanrahan - Angi
- Neil Vogel - Dotdash
- Timothy Allen - Care.com
- Zachary Roseman - Mosaic Group
- Heather Dietrick - The Daily Beast
- Stephen Avalone - Bluecrew
- Parth Bhakta - Vivian Health
- Marissa Wilson Gibbons & Casey Gibbons - Newco
- Shane McGilloway - Ask Media Group/Ask Applications.
Since IAC has many different companies under it’s wing that means there are many competitors that they must “defend against”, which could sound problematic until you really dive deep into what is going on…
Since that’s what everyone is talking about plus that is the one IAC is focusing on as the major with the biggest problems.
Competitor’s of Angi are (and we will dive in on each one afterwards) Google, Facebook, Other Tech Companies (OTC), “Word of Mouth” (WoM), and “Failure to Execute” (FtE).
First Google (Google is a friend and a foe of IAC) or more specific google’s search and ad segments. Google makes money via ads and many service professionals (SPs) could and are just place ads on google and not even worry about Angi and basically cut Angi out. The problem with that is SPs don’t know if and when they will receive any customers (via ads) and since Google is also not in the niche the way Angi is. Google’s whole passive approach is to provide ads and not actually help anyone in the nitty gritty level like what Angi is trying to do. Another minor concern is that Google could challenge Angi and take away the market, but as I mentioned before (just to be sure) Google is not this market, it is just not that lucrative for them to do.
SPs could (and are) easily just use both Angi and Google ads to get more customers (Angi is actually try to remove this pain point but this we will discuss later on).
Second competitor that I’m personally more worried about is Facebook. More specifically its Marketplace and network. SPs could also use FB’s Marketplace to show their services to local FB users and advertise this way (Dealers sell cars so why not plumbing and roofing?) and with combination of WhatsApp chat and Instagram, basically get much better deal for the “buck” via FB than Angi. The problem with this is (for now) SPs must be tech savvy and most are not so much. But the next generations are and will be and so SPs can implement IG, FB Marketplace, Google ads, TikTok or whatever the next big passive thing that uses algorithms will be in the next five plus years and doesn’t really require a lot of time but does require desire to get on the social platforms and advertise (which I believe will be critical for survivor of future generations).
Next on the list are OTCs, there are many OTC’s like NextDoor, Yelp, or other tech companies that are a threat but not a major one because I believe Angi is way ahead and way more committed on solving this pain point than the likes of NextDoor.
Next one is also very important Word of Mouth. Once SPs get the lead via Angi, they can easily just give phone number or business card to the client and for the future references clients don’t need to use Angi but can just directly call that SP. Angi acknowledges this issue and is currently working on solving this by being a true intermediary by providing needed services to customers and paying for this services to SPs.
Last but not least is the one that not too many talk about and that is Failure to Execute this ginormous project. It is hard enough to satisfy one party (and it doesn’t really matter what that would be) but when you try to satisfy two parties and when does two parties want to basically “rip off” or “get the best deal” from the others IS A GINORMOUS pain point, that Angi might not be able to fulfill…or maybe it will.
The reason I think it’s 50/50 because it’s one thing to build an app that connects two people to “fall in love” but its also was a big project to connect one person with their destination and via hotel, flight, and a rental car and lets just say IAC took care of that.
When it comes to Dotdash, it’s competitors are other online (web) publishers and advertisers, so anything everything that takes away eyeballs of the readers/customers. You could say the whole internet, but not really since there are plenty of TAM for everyone on the web.
Ask Media Group’s major competitors are Google, Yahoo!, and Bing.
> But let’s be honest it’s pretty much only Google when it comes to competition…who uses Bing? right? Just kidding…not really.
Since E+O is really not the major segment, I wont be going into details of the competition here, simply because there is just way too much of it and some businesses are constantly evolving or have similar competitors as other already developed segments/companies.
Really too much unknown to speculate on potential major competitors.
When it comes to IAC and it’s businesses, the theme is usually the same around advertisements, eyeballs, or taking business concept from offline to online.
"It is well known that past great performance is in no guarantee for future profitable results and yet when you look at IAC it’s hard to argue that with ten plus successful businesses executed in different sectors with the same theme of some kind of marketplaces, they will most likely (not guarantee) will create another great marketplace company."
Over the last twenty plus years IAC has build and spin out companies like Match Group ($MTCH), Expedia ($EXPE), LendingTree ($TREE), TripAdvisor ($TRIP), and Live Nation ($LYV)
If it’s hard to see here is a written breakdown:
- EXPE - 480.42% (19.20% CAGR over 10 years)
- TREE - 3,147.34% (41.58% CAGR over 10 years)
- TRIP - 41.66% (3.54 CAGR over 10 years)
- MTCH - 55.56 (4.51% CAGR over 10 years)
- LYV - 960.10% (26.60% CAGR over 10 years)
I’m not including $ANGI and $VMEO because it hasn’t been 10 years (or even five ) so they still have time to prove themselves (although not looking so great right now).
"As said before no guarantee they will be able to execute in the future, but I would say based on the past, probability of them executing well into the next 10 years are pretty good."
IAC have a few options when it comes to unlocking hidden value, those are Angi, Dotdash, Emerging+Other (wild cards), and on top of that stakes in Turo and in MGM.
Let’s take a look at all by one by.
is trying to do the impossible, by trying to keep both frugal buyers and SPs happy and while also keeping them in their system, and with the implementation of the new business model (fixed price model) they actually have a shot, it just might take much longer than everyone believes and so it’s not exciting and “hot”.
With all of the data they have, if anyone has a chance in creating the marketplace (as of right now) it’s Angi but they are fighting an upwards battle. (This is one of the reasons I’m not long $ANGI but I' am long $IAC).
I also see a possibility of IAC just selling $ANGI’s stake or shifting to something new. I love the fact that IAC is not scared of pivoting or changing things around when they don’t work, if they are willing to keep doing it at some point something great should happen, I just don’t have any time frame on it.
is starting to make money and with so many good/great brands (Investopedia and verywell) I think it’s a potential to replace “Search” as the FCF generator that can/will power future expansions and risk taking from E+O segment. Dotdash prioritizes quality over quantity and in the long run that pays dividends.
is where it’s at. I can’t (and I wont) say I know which company out of the E+O will succeed but they are all very promising and different (thats the good part).
Many people on twitter are trying to put a price tag on everything that is in E+O but I think it’s pretty silly thing to do since most numbers are unknown and there is a lot of chances to come for sure that most will not foresee.
All of the companies in the E+O have a great chance at (if needed) replacing $ANGI for the IAC’s stock to re-rate and be much higher then where it is right now. If you ask me to name, I would say Bluecrew, Care.com, and Vivian could potentially get their own segment.
Daily Beast maybe gets moved into Dotdash?
Newco is the unknown beast.
Turo is the world's largest peer-to-peer car sharing marketplace.
Turo did not want to sell itself to IAC, so IAC became the largest shareholder with rights to expand its ownership over time by investing $250 million in Turo.
Pre-pandemic Turo was growing 2x YoY, with its newest international markets (UK and Germany) growing even faster at 8x YoY. Due to pandemic things have not been as smooth and as of August 2021 they are no longer in Germany. But company did have its first ever profitable quarter for Q1 of 2021. They increased their revenue by seven percent during the coronavirus pandemic as travel habits shifted away from long, cross-country and international trips to shorter, more local getaways.
Turo did file for confidentially for IPO, so end of 2021 or at some point 2022 should be interesting. There are buzz around that Turo potentially worth billions of dollars, I don’t know about any of that but again definitely adds to the bull case.
IAC invested in MGM Resorts International via open markets in 2020 at the price of $19 (as of September 2021 $MGM is trading at $42).
As always IAC is playing long term game, looking past pandemic (whenever that might be) MGM looked like a good opportunity and with IAC’s knowledge of online business, I think there is definitely potential for something interesting to happen.
And if not, IAC can always sell their publicly traded shares of $MGM and buy back their own shares or take over/buy into other publicly traded companies (we now know they are not afraid to do so).
(But thats more like extreme case)
"Time after time, when opportunities knock IAC opens the door."
Not as many as in bull case, but there are some concerns when it comes to the future of IAC those are…
- Angi is number one and I have discussed in some length regarding execution and competition from likes of Google and Facebook in “Competition” segment. If Angi will become sole focus of IAC, we will have a problem. Yes its a hard challenge but if IAC can’t find solution maybe its best to move on, if they can move on that’s good and if not well thats the bear case (with addition to everything else that’s been mentioned).
- Google is part of #1 and it’s also #2. Generally IAC relies on google search/ads for profits and if there is something to happen with the relationship or major change in algorithm there could be a problem that IAC just won’t be able to solve just in time.
- Although Joey has signed contract for another 10 years with IAC, there is a double possibility (although very minor) that with passing of Barry…Joey will play some kind of wild card and resigns or worse something happens to both Barry and Joey and which point company wont really know what to do (again minor and unlikely but the chance is still there)
- Failure in investments via Turo/MGM or anything in E+O segment that will make company start burning too much cash or put on more unnecessary debt to keep it self alive is although unlikely is still a possibility.
Again the biggest bear case for IAC (right now) is $ANGI and the failure to execute on the promises that come with Angi with Google/FB worries as a cherry on top.
I’m not 100% sure what everyone would like to see in “Financials” segment, so I will put what I think is “useful” but I would definitely appreciate some feedback and guidance to make this segment better.
> As I said before I don’t have any degrees or financial background (except for what I learned myself) so not sure what everyone usually look at. I DO UNDERSTAND the usual stuff like Income Statement, Balance Sheet, and Cash Flow Statement, but I don’t understand why I need to share it here if it’s usually will be outdated and also it’s easily available for everyone to go and check out.
> But I might be wrong and everyone would like that to be included. Feedback is critical in this part! Thank you.
For now here is what I got…
Something else to add?
- Personal Touch
Currently none of the gurus that I follow own any significant amount of $IAC shares.
-Margin of Safety Price?
For me personally anything below $130 is when I would really like to start going “heavy”.
Currently I do not have price target for $IAC, lots of things need to develop to unlock more value.
Currently for me personally I’m looking to hold for at least three to five years (to let as many things play out as possible) but preferable “holding time forever”
To wrap this all up, I think that IAC is one of those companies that will keep on giving as long as the management keeps it to their roots.
"You don’t survive by being the same, you survive by constantly changing/evolving and not being afraid of trying new things."
I really wanted to go in more depth of each individual companies that Angi holds and also in more details into Dotdash’s companies but unfortunately I feel like that would post pone this deep dive for another few weeks of which I did not want to do, but other then that I think I included everything I wanted to (I think).
Also I do eat my own cooking so you can follow my journey via my portfolio at www.from100kto1m.com where I will discuss things in more details as the future unfolds…
I’m looking at IAC as one of the core holdings that I would like to hold for many many years and be amazed at how they evolve and what they will be able to create.
Otherwise thank you for reading and please share, like, and comment below. Your feedback is very important especially since this is the first post.
This was taken from my deep dive substack
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Great details, I love the research, I definitely agree $ANGI is bearish long run.
In addition to all the points you have made Angi doesn’t have a mechanism to satisfy SPs because it doesn’t provide any utility services for this SPs at the end of the day why would they stick around? There are no payments thru Angi App, No dispatching, Work Order tracking, time sheets, it’s basically what it is , Yelp for SPs
Now Angi recognized this problem and tried to build service softwares for SPs so they can’t do business outside of the app, however Oisin, new Ceo, doesn’t believe in that effort and believes Fix Price is the future of the company so he gutted this effort.
Another very important point is Angi has a lot of competition, Houzz App, Home Depot started their own Conteactor App, and Amazon has a terrible Competitor App to Angi, and plus everything you said above.
Only good thing is going on for Angi is actually the Pandemic, because demand is sooo high for SPs they can still funnel leads to SPs.
But my personal opinion is both Angies List and Home Advisor couldn’t find a solution for this problems while they have millions $$ in their disposal last 20 years, and they have been around since 90s , 2000s, there is no way they can return this ship around. ✌🏻
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