As an IAC I want to push back a bit and something I often see with SOTP. You are valuing Dotdash Meredith on current earnings. You noted they are depressed and we are in an advertising bear market. If you look further out (as you would for a normal operating business), there is value there. With IAC, you know that they are going to unlock value via spinoffs - it is their DNA. So if you can withstand the downturn and wait for ad market to turn, they are going to unlock that value. With others stories (CNNE, etc.) you aren't sure.
Great article. I view sum of parts as similar to potential energy - water behind a dam. Absent change, the potential can be inert indefinitely. If undervaluation doesn't convert into earnings growth or meaningful capital return, there is no next buyer of the shares - it will go up if/when SOTP guys get interested, then right back down again when they all try to sell.
Perhaps my favorite among your excellent posts. I get easily sucked into sum of the parts equities perhaps because they always seem analyzable. The math can work and the distinction of being within a bigger company versus trading separately is largely arbitrary. But they probably need more of a catalyst to really work as an investment (VATE quite catalyst rich so I will be right or wrong on that one with little value trap risk).
"The retail business, subscriptions, and advertising are all part of a single operation. Decisions about pricing or the intensive capital spend on logistics absolutely are influenced and informed by the high-margin revenue coming in from Prime and from advertising."
Bringing my poor poor $IAC . One of the few SOTP that I believe actually worth the play, timing of it though is hard (buy $iac and you get both Joey Levin and Barry Diller for free 😅)
Excellent article.
As an IAC I want to push back a bit and something I often see with SOTP. You are valuing Dotdash Meredith on current earnings. You noted they are depressed and we are in an advertising bear market. If you look further out (as you would for a normal operating business), there is value there. With IAC, you know that they are going to unlock value via spinoffs - it is their DNA. So if you can withstand the downturn and wait for ad market to turn, they are going to unlock that value. With others stories (CNNE, etc.) you aren't sure.
Great article. I view sum of parts as similar to potential energy - water behind a dam. Absent change, the potential can be inert indefinitely. If undervaluation doesn't convert into earnings growth or meaningful capital return, there is no next buyer of the shares - it will go up if/when SOTP guys get interested, then right back down again when they all try to sell.
Perhaps my favorite among your excellent posts. I get easily sucked into sum of the parts equities perhaps because they always seem analyzable. The math can work and the distinction of being within a bigger company versus trading separately is largely arbitrary. But they probably need more of a catalyst to really work as an investment (VATE quite catalyst rich so I will be right or wrong on that one with little value trap risk).
Thanks, an interesting article.
"The retail business, subscriptions, and advertising are all part of a single operation. Decisions about pricing or the intensive capital spend on logistics absolutely are influenced and informed by the high-margin revenue coming in from Prime and from advertising."
Very true!
Hi Vince, I'm returning from an overseas trip and catching up on reading; any update on VATE? Thanks!
Bringing my poor poor $IAC . One of the few SOTP that I believe actually worth the play, timing of it though is hard (buy $iac and you get both Joey Levin and Barry Diller for free 😅)