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Interactive Corp.

(Nasdaq: IACI)

Current Price: $71.67 Price Target: $165

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.

The Match Group: Online Dating including Match.com


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

Market Cap: ~$5.9B


Enterprise Value: $5.9

Media: Vimeo

2014 EBITDA: $544M

eCommerce: HomeAdvisor

2015E FCF: ~5-6%

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

(In Millions)
Search & Applications
The Match Group (ex- Tinder)
Media
eCommerce
Sum of the Parts EV
Current Enterprise V alue

Morgan Stanley: There is no Tinder


upside
Clearly, they have been
living under a rock.

Tinder changed the way people look at online


dating. Its now cool. Very cool. And it is
changing the way we date.

2015 EBITDA
322.0
264.9

Revenue

203.5
481.7

2018 EBITDA

Multiple
5.0x
10.0x
2.0x
2.0x

1,610
2,649
407
963
$5,630
$5,900

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 theyve 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 competitors Coffee Meets Bagel
Unrecognized EBITDA: Tinder has cannibalized
Match.com and OkCupids 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 Tinders MAU will subscribe
Tinder Plus tiered pricing. Tinder offers
tremendous value for what millennials refer to as
COGL

Tinder Plus Revenue for #1


North Americans on Tinder
International users
Total revenue from segment 1

2015
59.7

2016
95.5

2017
127.1

2018
148.4

133.4
$193.1

241.8
$337.3

360.2
$487.3

480.6
$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"
Market Size
% who will use Tinder plus
Total revenue for segment 2

2015
61
3%
$219.6

2016
108
3%
$389.6

2017
159
3%
$570.9

2018
206
3%
$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 IACs 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)


Tinder > Paid s ubscribers
Paid s ubscribers > Tinder
Net s ubscribers to match
Total revenue for member transfer

2014A
533
771
(238)

2015
1,220
836
384

2016
2,165
906
1,259

2017
3,172
982
2,190

2018
4,119
1,064
3,055

($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
ARPU

2015
$0.33

2016
$1.00

2017
$1.50

2018
$2.25

Total 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

(In M illions ex. %)


Current number of users
% who want more s wipes
Tinder Travel
Transfer Match > Tinder
Transfer Tinder > Match
Ad Revenue /ARPU 2 018
2018 EBITDA
10X Multiple
75% owned IACI
Probability
Tinder + Cross-selling
(in millions)
North Americans on Tinder
International users

mangelo@Wharton.upenn.edu

2013
4
9

Bull

Base

50
3.6%
4.0%
18%
3%
$3.00
2,361
23,613
$17,710
20%

Estimated Number of Users


2014
2015
13
25
27
57

Bear

40
2.5%
3.0%
22%
2%
$2.25
1,272
12,722
$9,542
40%

2016

30
1.4%
2.0%
25%
1%
$1.50
476
4,762
$3,572
40%
$8,787

2017

2018

37
97

46
136

52
177

Total number of users

13

40

82

134

183

229

NA Growth
International Growth

~700%
~700%

300%
300%

85%
115%

50%
70%

25%
40%

12%
30%

Can anybody find me somebody to love?


Queen