Table 122: GOOG Annual Income Statement $ in millions - Source: Company reports and J.P... IAC, Neutral, $15.77 We expect IAC’s growth to moderate in 2009 due to weakness in the Media &
Trang 1Table 122: GOOG Annual Income Statement
$ in millions
-
Source: Company reports and J.P Morgan estimates
Trang 2Table 123: GOOG Quarterly Income Statement
$ in millions
Q1 -07 Q2-07 Q3-07 Q4-07 Q1 -08 Q2-08 Q3-08 Q4-08E Q1 -09E Q2-09E Q3-09E Q4-09E
Net Revenues 2,538.9 2,722.0 3,010.4 3,386.9 3,700.0 3,893.2 4,046.4 4,049.2 4,167.9 4,334.2 4,394.1 4,700.3
Operating Income 1,221.2 1,104.6 1,317.8 1,440.7 1,546.2 1,578.0 1,742.7 1,654.6 1,728.1 1,799.8 1,805.4 1,951.4
Pro Forma Operating Income 1,405.1 1,346.1 1,515.8 1,686.0 1,827.0 1,850.7 2,022.7 1,939.6 2,013.1 2,084.8 2,100.4 2,251.4
EBITDA 1,610.1 1,569.5 1,765.2 1,976.0 2,163.5 2,242.3 2,409.0 2,327.6 2,423.1 2,516.8 2,548.4 2,721.4
Tax Benefit > Stock Comp & Foundation 26.8 43.0 31.0 42.3 50.7 47.8 63.1 67.5 65.6 65.6 67.9 67.5
Trang 3Table 124: GOOG Annual Balance Sheet
$ in millions
Total Current Assets 15,116.5 16,576.2 22,173.8 30,211.6
- -
Total Current Liabilities 2,035.6 2,275.8 2,559.4 3,275.9
- -
Total Stockholders’ equity 20,517.1 27,072.8 33,894.8 42,716.2
- -
Total Liabilities & Equity 23,163.2 29,560.1 36,665.7 46,203.5
Source: Company reports and J.P Morgan estimates
Trang 4Table 125: GOOG Annual Cash Flow Statement
$ in millions
Net Cash provided by Operating Activities 4,674.6 7,516.0 8,781.8 11,224.8
Net Cash used in Investing Activities (3,681.6) (4,302.6) (3,000.0) (3,300.0)
Net Cash provided by Financing Activities 403.1 76.5 - -
Source: Company reports and J.P Morgan estimates
Trang 5IAC, Neutral, ($15.77)
We expect IAC’s growth to moderate in 2009 due to weakness in the Media &
Advertising group, likely pressure on personals pricing increases, and exposure to foreign currency effects (19% of the business is in int’l markets, and currency is not hedged) However, we do feel the company is better positioned than some of its competitors, with only 4% of its business tied to display advertisements and a cash balance of ~$2B IAC trades at 3.6x our F’09 EBITDA estimate of $234M We are introducing a $16 December 2009 price target and reiterating our Neutral rating
• We think Ask.com revenue will grow only 1% Y/Y in F'09 We think the
Ask.com business will be significantly impacted by a combination of lower commercial oriented query volumes, CPC declines, and the anniversary of the new Google contract We also note that the Media & Advertising segment has international exposure, which will likely be negatively impacted by the strengthening dollar
• We are concerned that the growth in Personals revenue is unsustainable In
F’08, we estimate that a little over half the revenue growth was due to pricing increases Given the weak consumer environment, we think it is unlikely that IAC can continue to raise prices in 2009, and it may have to start being more promotional
• We believe management will begin to allocate its large cash reserve We
think it is likely that management will take advantage of low valuations and the frozen credit market through strategic acquisitions in search, local, and content as well as possible share repurchases of IAC stock
• 2009 drivers In our view, the following factors will drive EXPE shares in 2009:
(1) possible share buybacks, (2) reduction in the emerging businesses investment, and (3) paid-click growth
• Adjusting 4Q’08 estimates We are maintaining our 4Q’08 revenue and
EBITDA estimates of $381M and $52M, respectively, but are lowering our pro forma EPS estimate to $0.23 from $0.26 to account for lower-than-expected interest rates
Our current and newly introduced 2010 estimates are in the table below:
Table 126: IAC Financial Snapshot
$ in millions, except per share data
IACI 4Q'08E F'08E F'09E F'10E F'08E Y/Y F'09E Y/Y F'10E Y/Y J.P Morgan
Consensus
Source: J.P Morgan estimates, Company data, and Bloomberg
Trang 6Our Estimates and Outlook for 2009
We are slightly adjusting our F’09 revenue, EBITDA, and pro forma EPS estimates
We are now modeling F’09 revenue, EBITDA, and EPS of $1.55B, $234M, and
$1.02 vs our prior estimates of $1.54B, $234M, and $1.11, respectively This represents Y/Y growth of 5%, 33%, and 203%, respectively
We are looking for 1% Y/Y revenue growth in the Media & Advertising segment, as
we think it will be significantly impacted by a combination of lower commercial oriented query volumes, CPC declines, and the anniversary of the new Google contract We are looking for 2% Y/Y OIBA growth, as we think there will be some residual benefit of the new Google contract in the first quarter
Table 127: Media & Advertising Growth by Type
$ in millions
F'08E F'09E
Source: Company reports and J.P Morgan estimates
We think the Match business will decline 4% Y/Y to a revenue base of $357M We feel this business will be pressured by both lower demand in a weak economic environment and pricing pressures, as the environment could potentially become more promotional
Table 128: Match Business Metrics
$ in millions
Source: Company reports and J.P Morgan estimates
Finally, we expect ServiceMagic to grow F’09 revenue by 25% Y/Y, a deceleration from F’08 expected growth of 36% Y/Y
Our Estimates and Outlook for 2010
We are introducing F’10 revenue, EBITDA, and pro forma EPS estimates of $1.69B,
$258M, and $1.10, which represent Y/Y growth of 9%, 10%, and 7%, respectively
Our estimates assume the beginning of an economic recovery and flat foreign currency exchange rates Thus, we see revenue growing 6% Y/Y in the Media &
Advertising segment, as we think increases in ad spend will be slightly offset by
Trang 7We Are Introducing a Price Target of $16
In introducing price targets for our coverage, we have derived multiples based on 5-year forward EBIT CAGRs We believe the historical record does not provide a meaningful guide to valuation as (a) the majority of the companies in our coverage did not have a track record as public companies through the previous recession and (b) even the public companies were still in their early-growth (and, for some, rapid growth) stage during the last economic downturn
As such, given our projection for IAC of a ~8% F’09 - F’14 EBIT CAGR, and our view of the beginning of a possible economic turnaround in 2H’09, we believe the stock can achieve a 8x EV/EBIT multiple to our F’09 EBIT estimate (in line with the current valuation of 8x our F’09 estimate) and thus arrive at our December 2009 price target of $16
The parameters of our EV/EBIT multiple analysis are in the table below:
Table 129: Growth Outlook
$ in millions
2009E 2010E 2011E 2012E 2013E 2014E Revenues 1,548.1 1,687.3 1,805.4 1,895.7 1,990.4 2,090.0
Less: Operating Expenses 1,517.4 1,652.0 1,765.7 1,854.0 1,946.6 2,044.0
As % of total revenues 98.0% 97.9% 97.8% 97.8% 97.8% 97.8%
Operating margin 2.0% 2.1% 2.2% 2.2% 2.2% 2.2% Source: Company reports and J.P Morgan estimates
Table 130: EV/EBIT Multiple Analysis EV/EBIT Multiple Analysis
Source: Company reports and J.P Morgan estimates
Valuation and Rating Analysis
On an EV/EBITDA basis, IACI trades at 4x our $234M FY09 EBITDA estimate, vs its e-commerce peer group which trades at 6x Although we think IAC deserves a similar multiple as the group, we see greater upside potential in other stocks in our coverage universe, hence the Neutral rating
Risks to Our Rating
Shares could outperform those of other companies in our coverage universe if the company is able to sustain growth in its Media & Advertising business and in the Personals business despite a competitive search market and international pressures or
if the company introduces a large share buyback program The company’s shares could underperform if the company is unable to achieve higher query volumes from Ask.com, macroeconomic pressures impact ServiceMagic more than expected,
Trang 8and/or international weakness weights on Personals Strategic acquisitions could also weigh on the company’s performance
Trang 9Table 131: IACI Annual Income Statement
$ in millions
Discontinued operations
Gain Loss on sale of discontinued ops net tax
Source: Company reports and J.P Morgan estimates
Trang 10Table 132: IACI Quarterly Income Statement
$ in millions
1Q'07 2Q'07 3Q'07 4Q'07 1Q'08 2Q'08 3Q'08 4Q'08E 1Q'09E 2Q'09E 3Q'09E 4Q'09E Revenue 299.8 318.6 335.4 378.9 370.7 354.2 369.3 381.4 391.0 377.4 380.1 399.7
Net income 60.7 94.6 70.5 (369.9) 52.8 (421.6) (14.8) 14.5 11.6 17.4 20.6 14.7