IAC Beats Estimates With HomeAdvisor a ‘Standout’ Unitby
After several years building it, 2016 was about selling it
Netflix-like service for Vimeo to be focus this year
IAC/InterActiveCorp beat analysts’ estimates for revenue and profit in the fourth quarter, an achievement Chief Executive Officer Joey Levin partly attributed to success in what he called the company’s “standout” business in online home repair and improvement services.
HomeAdvisor, the fastest growing group in IAC’s portfolio with regular sales increases of 30 percent or more, reported $123.7 million in revenue in the fourth quarter, according to a statement Wednesday from IAC. Full-year sales growth also accelerated from 2015. According to Levin, HomeAdvisor spent many years building the product and 2016 was mainly about selling and marketing it.
“This was HomeAdvisor’s proving year,” he said in an interview, adding that the positive signs came from profit increases even with boosted marketing expenses.
HomeAdvisor is seen as IAC’s next crown jewel after spinning out part of Match Group Inc. in late 2015. The company generates cash from its search and applications operations, which it then uses to fund the growth of promising businesses that could one day become independent companies. For now, Match, which operates a number of dating services including Tinder, is still IAC’s biggest business.
IAC revenue in the fourth quarter was $811.2 million, compared with the average analyst estimate of $779.7 million. Profit, adjusted for some items, was $1.38 a share. IAC expects to post operating income of $315 million to $425 million in 2017. The midpoint of that range exceeds analysts’ average projection of $366.3 million. The shares have gained 5.3 percent this year to $68.24.
HomeAdvisor’s biggest obstacle is getting the word out about its product that lets consumers find and book home-related services -- from plumbing to landscaping -- online. Most consumers still find service providers via word-of-mouth, Levin said. To solve that problem, the business has increased spending on advertising, mostly via TV. IAC plans to spend almost $100 million in offline marketing this year, Levin said. That would be an increase of more than 60 percent from 2016.
IAC expects that HomeAdvisor will post first-quarter sales growth in the low 30 percent range and a higher rate for the full year.
The company’s shares track closely with Match. Match reported fourth-quarter revenue Tuesday that missed the average analyst estimate and posted growth in paying members that slowed compared with prior quarters. IAC owned 82.5 percent of Match at the end of 2016, and Levin said there aren’t any current plans to spin out more of the dating company.
This year, IAC will also be focused on bringing its vision for Vimeo to life, a strategy Levin laid out in his letter in November. Part of the plan for 2017 is to build more tools for film creators as well as increase the number of creators and producers that launch their own subscription services on Vimeo -- known as channels. The larger part is to develop a new Netflix-inspired on-demand video subscription service under the Vimeo brand, which should be introduced by the end of 2017, he said. That will involve Vimeo spending money on nabbing unique content, which will include programming that’s edgier and more provocative. IAC’s video segment, which houses Vimeo, is expected to decline in the current quarter but return to “solid growth” for the rest of the year.
“2017 I don’t think will be the breakout year for Vimeo,” Levin said. “There’s a sort of a cycle of proving yourself as a business and your relevance in a category and significant market position in a category -- I put Vimeo a few years behind HomeAdvisor.”