#ANGI Archives - Boyar Value Group

Jonathan Boyar on The Virtual Value Investing Q&A Speaker Series at Brown University

Date: June 09, 2022

Boyar Value Group

In a recent edition of The Virtual Value Investing Q&A Speaker Series at Brown University (where previous guests have included Howard Marks, Wally Weitz, and Arnold Van Den Berg) Jonathan Boyar discuses:

Our stock selection method(s)
Two of Boyar Asset Management’s largest positions: Home Depot and Microsoft and the importance of holding stocks for long periods of time
His views on the current media landscape
His thoughts on Uber, IAC, and ANGI
How Boyar is investing in the cannabis industry
His thoughts on portfolio diversification
And much more…

To listen to the interview in its entirety, please click here.

Click Here to Read the Interview Transcript

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Interviewer: 0:03 We’re absolutely glad to have Jonathan Boyar here with us today. Jonathan Boyar is president of BIVR, an independent research boutique established in 1975 that counts some of the world’s largest sovereign funds, hedge funds, mutual funds and family wealth offices as subscribers.
0:21 He is also principal of the Boyar investment management which has been managing money utilizing a value-added strategy since 1983.
0:26 He has been interviewed in Barron’s, Welling on Wall Street and Guru Focus. He spoke at the 2017 London Value Investor Conference, the 2017 Guru Focus Value Conference and the 2017 International Value Investing Conference. He is also a contributor to the latest edition of Harriman’s Book of Investing Rules of the do’s and don’ts of the world’s best investors. He is a senior contributor to Forbes as well as the host of the World According to Boyar podcast.
0:50 Thank you for joining us today Mr. Boyar
Jonathan Boyar: 0:52: Thank you for having me today it’s an honor to speak for your organization, and I’m happy to just chat and I look forward to getting some great questions later. I first thought I’d start by just telling you who we are, what we do and how we come up with stocks for four clients. We’ve been doing this for quite some time and the slide up here says unlocking value since 1983 that’s somewhat true.
1:27 We actually started as a research boutique; my father started the business in 1975
to sell independent research to hedge funds, mutual funds, family offices, that type of thing utilizing what we like to call a business person’s approach to stock market investing and then in 1983 we established four-year asset management where we manage money for family offices, high net worth individuals and institutions.
1:58 I’m not sure why the slide’s not working but here, let’s do it this way.
2:09 Here’s a disclaimer. You have that.
2:15 So first, I thought I talked a little bit about what we do. We’re very different than your traditional value investors and, I’ll talk about value investing in general, a couple slides from now, but what we do is we take every company whether it’s Walt Disney, Microsoft, any big, huge company or a tiny 2:39 one like Town Square Media and we look at it through the lens of an acquirer and we say or what we try to do is we can buy it at a significant discount to what we think it’s wort.
2:56 That’s something we will consider, that’s the first, you know first criteria it has to meet and then the second criteria is it has to have a 3:08 catalyst. I have to have a reason for the stock to go up over a reasonable period of time and we’re much more patient than most people. You know, Barron’s once called my father the world’s most patient investor.
3:20 We look at catalyst that could take two or three years to unfold. We don’t mind waiting that long because patience is generally rewarded.
3:34 I love this quote and I think it’s as true as when Sir John Templeton was investing as it is today: “I think that you can’t be afraid to be different.” If you’re buying the same stocks as everyone else is as Sir John says you’ll get the same results so what you want to do 3:57 is find stock that you believe in that are believed to be intrinsically undervalued, stocks that you want to own for long periods of time to allow the magic of tax-free compounding to work.
4:17 So personally I dislike the term value investing. I think it’s a term that’s really kind of used by consultants and other institutions to try and style box people, put everyone in a neat little corner.
4:36 I like to say I don’t think any growth investor wants to overpay for a stock
4:41 So, value investor is the same thing. There are lots of different schools of value investing and some people like to buy traditional value stocks where mediocre businesses that are just very very cheap and that’s really the deep value camp and that’s something we rarely do anymore. It worked really well when my father started the business in the 70s and in the 80s when having a calculator was a kind of a big advantage and a big technological thing. It doesn’t really work as well anymore.
5:28 If you’re doing deep value investing, you’re going to end up probably with a lot of broken retailers.
5:34 There’s special situation investing where there’s an event that’s going to occur that you think you can analyze better than others. There are asset plays like Madison Square Garden that own extremely, that don’t look statistically cheap but if you sum up the value of all the assets they have, the stock price significantly discounts that value.
5:58 So there’s lots of different ways to approach value investing and what we like to do is we like to invest in in high quality businesses selling at a significant discount to
what an acquirer pays and has a catalyst for capital appreciation.
6:17 Having that high to medium good business is critically important.
6:23 We don’t want to rent stocks we want to own them, we want to own them for
very, very long periods of time.
6:35 If I look at where we have made the most money, probably our two largest positions are Home Depot and Microsoft where I think we bought them starting in2006 and 2007 and sold very little of it and they’ve come to become outsized positions. I think it cost us then30 dollars a share and now they’re significantly better than that. And when we bought them, they were good businesses. We could never imagine that they would have compounded the way they have and 7:14 Microsoft would have the renaissance that it did, but we knew we were buying a high-quality business and we kind of just let stuck along for the ride.
7:27 One of the things I like to tell people is doing nothing is an action. You don’t need to be turning your portfolio over every day. If you do that, you’re gonna miss the jump from in Home Depot from $30 to $300 and change and you’re gonna be paying taxes
along the way.
7:50 Just briefly gonna talk about our investment process. We look at how much cash flow a company can generate, we like to look at recent comparable transactions that’s extremely important to us as they’re the best judge of a business value.
8:09 To us, the most important thing is protecting the downside, the upside takes care of itself. We want to buy businesses where we have the chance to make a fair amount of money but most importantly not lose a lot of money so that’s something that’s critically important to us.
8:34 It’s also to have that. Buffett and Hunger call a circle of confidence. There are things that we like to invest in and they’re things that we don’t.
8:48 We like the businesses, a lot of consumer-oriented businesses, media businesses things that you can touch, feel, analyze, and really understand. We don’t like commodity-oriented businesses and over a long period of time that has helped us. And the thesis behind not wanting to own a commodity-oriented business-like oil and gas company or something to that effect is your whole thesis or a large part of it is predicated on the price of oil which is out of your control, and I have no idea how to value what oil is and where it’s going. So, if I’m looking at buying an entire business which is what I do when I buy individual stocks and looking at it if I’m buying the whole company, I wouldn’t want to own a business that is solely dependent or largely dependent on a commodity price that is outside of our control.
9:54 Over the long run that’s helped us. 2019 it was great when oil stocks and energy stocks did terrible. 20 or 21 we suffered and so far, it’s March 3rd we’re suffering this year, but I think over the long run it’s the right thing to do
10:17 We have lots of different approaches. We look for stocks as I said we like looking for hidden values, hidden assets that are not properly reflected on the balance sheet. We like looking at the 10:34 franchise approach rate, consumer franchises especially when they’re masked by a corporate name. That’s actually a really great way to find value.
10:47 If I told if I asked most people and I actually did this when I was on a trip when we were actually allowed to travel, do you know what Acushnet was? No one really knew what it was, and these were sophisticated investors and I said, well they own Titleist
golf balls and golf gloves and other really great brands and that’s actually it stops people from looking at it and they see Acushnet, what’s this and they go on to the next thing. So, it’s actually a great way to find value.
11:28 We love when an industry falls out of favor and that can happen really quickly
You’re seeing so far, the early signs of it with the technology share so far this year.
How low that goes is anyone’s guess but when an industry comes out of favor, they throw the baby out with the bath water and we try to find the best of breeds, the ones that are going to survive and thrive over the long run and that’s been a successful approach for us over time.
12:04 You look at things like capital allocation, decisions financial strength and again prices for what other companies have been acquired in the recent past is critically important.
12:21 Hidden asset approach is also something that’s great and that we love and one of the reasons that we love it is no computer screen in the world or artificial intelligence
is going to tell you that something’s not valuable. Something that’s valuable is not reflected on the balance sheet and I’ll just give you a very quick example. Madison Square Garden has been a holding of ours for a long period of time and we’ve had a decent amount of success with it.
12:57 When we first started analyzing it Wall Street assigned zero value to the air development rights where you can actually sell your pair to neighbors but what we saw was the real estate that was located near Penn Station. That’s equal to the enterprise value of the entire company, so essentially at that price you were buying Madison Square Garde’s business for zero costs. So, a lot of times because of accounting rules and things like that great assets are obscured.
13:34 The classic example I gave you, my father told me one of the first stocks he ever
looked at was Tiffany and company and at the time you could have bought the whole
company for 24 million dollars in 1975. The building it owned on 57th street and in fifth avenue which wasn’t reflected on the balance sheet was worth more than the entire
market cap of the company. So, you’re getting the Tiffany name, all the jewelry etc. for free. These things still work, and it still happens you just have to be patient and pick your spots.
14:11 I talk about you know consumer franchises before, we also like fallen angels, we love looking at the one starlings of Wall Street or that are now unwanted, unloved.
What’s critically important is not falling into a value trap. You have to look at the reason why the stock has gone down and look if there’s a long-term business there that’s not in secular decline and that’s obviously a business judgment that you have to make and that’s something that you get with time.
14:56 We also look at spin-offs that’s a fruitful area to define things. That’s been pretty well documented.
15:08 We also sometime look at companies emerging from bankruptcy so it’s just basically we’ll look anywhere there’s value that we can understand, and you know I’ll just say one more time: being inexpensive stock is only halfway there. You need to have that catalyst otherwise you have a significant danger of falling into a value trap which is one of the biggest problems that investors fall into.
15:40 I promised I would be brief, and I think this was about 18 minutes or so. if you have any questions, feel free to contact me. I’d also encourage you; I have a podcast called The World According to Boyar. That’s available anywhere. We
have really interesting guests, that’s a good way to get some business lessons and you can sign up for everything if you go to boyarvaluegroup.com. Thank you for your time.
Interviewer: 16:14 Thank you so much, that was a really excellent presentation and I’ll send you the questions.
16:19 Our first question is how do you see the media streaming space going forward?
Jonathan Boyar: 16:25 The media industry obviously is undergoing a tremendous amount of change and you’re trying to find the winners is very difficult.There’s a lot of smart people chasing this. You know, there’s an old adage: content is king and to me the ones with the best content are the ones that are gonna win and looking at a company like Disney they’re gonna be winners. They’ve already I think have 130 million subscribers to Disney plus. They’ve priced it competitively they still haven’t rolled it out to the rest of the world. I see them being big winners.
17:07 We really like the AT&T deal with Discovery. That’s going to happen early in this sometime in the second quarter. It looks like that’s where it will uh occur and you’re marrying lots of different type of content. It’s a lot of overlap, not a lot of overlap so there’s a lot of synergies there so I think these it’s going to be a game of scale and there are these things called free radicals. Companies like that that John Malone calls free radicals like AMCX and others that’ll probably be gobbled up so it’s gonna be a very interesting space to monitor over the next couple of years. I think there’s a lot of value there you have to be patient. It’ll be very interesting to see what happens when Discovery and AT&T consummate the merger. There’s going to be AT&T shareholders are going to be given Discovery stock and most are a lot of their shareholder base is retail. We probably don’t want to own a levered media company so is there going to be a lot of force selling. I don’t know it’s probably been the most telegraphed thing I’ve seen in a long time. So it’s quite an interesting space to be in.
Interviewer:18:28 Absolutely and let me ask you another question about the sectors. One of the players that you have right now is Apple TV and I think you know the
marketing cap and the size of the company compared to some of these other players is much much much larger um and they have quite a lot of uh quite a large cash balance but they’ve been going more through an organic raptor they’ve been developing their own content. Do you think we will see them go more and then we’re gonna graft at some point and buy one of these other major players?
Jonathan Boyar: 18:54 I wouldn’t rule anything out. I don’t know, I mean it’s interesting. They said if you know Steve Jobs had lived they would have probably bought Disney. Now Disney’s too big and it made a lot of sense for a lot of reasons. I think it would make sense for Apple. You know it’s very difficult to replicate, to create original content. These production studios cetera cost a lot of money it would make sense for them to buy something. I mean they have a lot of other issues that they have to contend with they have government regulations you have to contend with, so I don’t know.
It’s always puzzled me why they haven’t done that and what their real true intentions are, but you know time will tell.
Interviewer: 19:48: Can you speak about your thesis on UBER and I mean do you have any sort of forecast for when you think they will reach profitability?
Jonathan Boyar:19:53 Over the next couple of years they should. I think UBER is extremely undervalued. I think it’s a terrific re reopening play and what we really like about UBER is the competitive advantage. I mean they literally spent billions and billions of dollars to have this network. It reminds me in some ways a PayPal. Five, six, seven years ago or what not where it didn’t get the respect it deserved from the from this from Wall Street and this network is extremely valuable. Some people like to complain about UBER and drivers aren’t happy, that passengers aren’t happy. Bottom line is people are using them and demand is picking up and I think with the reopening
I think the rides business is going to really surprise. On the on the upside, the CEO, they have a great CEO, former IAC Expedia guy, just bought 10 million dollars’ worth of stock. It’s a name that we like it’s not in your traditional value camp but it has things that we think are of value which is that network.
Interviewer: 21:14 And so you think them reaching profitability will be more related to revenue growth and economies of scale or do you think it’s going to be more related to them having such a large market share just being able to jack up the pricing of rides?
Jonathan Boyar: 21:25 I think the more of the first and then in the second I mean they were subsidizing a lot more rides in the in the beginning than they are or now. I just think it’s the economies at scale. They’re going to be, listen, Disney’s great at this too with their new um park system where they’re able to maximize revenue. It’s great to be able to do that but you also do want to keep your customers happy to some degree.
Interviewer: That makes sense and can you please speak about your thesis for ANGI home services as well?
Jonathan Boyar: 22:02 In terms of ANGI it’s more looking at IAC in general which owns 85 of ANGI home services so essentially if you’re buying IAC you’re also making a bet on ANGI that’s probably a better risk reward way of doing it.
22:17 ANGI’s a great business and they’re pivoting in a really unique way. They want to you know the company is controlled by Barry Diller who’s been this type of person you want to invest alongside with he’s had returns that were you know compounding at 15 a year since 1995 or so.
22:42 He’s been very shareholder friendly and what he’s really good at doing is taking
offline businesses that traditionally were done in person. Ticketmaster for example, Expedia, online dating, all of these things that I for you you’re a little younger you’ve grown up with this online your whole life, but it hasn’t obviously always been that way and they’re really good at that making that transition and they’re looking at making that transition to for home services which is a huge total addressable market and they want to be kind of the one-stop shop where they have something called ANGI services where let’s say you needed your gutters clean you go on your phone, you say what the job is and then basically they say okay they’ll cost sixty dollars whatever it is someone will be there um in two days. And they take care of everything and that’s what they’re trying to do it’s a very very difficult thing it’s it’s hard to do but if anyone can do it’s Barry Diller and his team there so they’re making that transition which is just quite difficult to do but it’s faith in the management team, it seems like they’re making the right progress um you know. Probably shouldn’t be a public company probably should be part of IAC as it was growing but I think IAC with owning matched uh I’m sorry owningcare.com having a 27 stake in Turo which is about to go public having a whole host of other valuable businesses: Dotdash Meredith. They just bought Meredith late last year it’s it’s a really great hodgepodge of businesses that makes a lot of sense.
Interviewer: 24:50 I spoke about Tesla in the past. How do you see Tesla today both from let’s say evaluation perspective but also from a business perspective? Let’s say, do you think in 10 years Tesla world you know have maybe a similar market share in the spaces they have today or do you think they’re going to really be competed away by some of these legacy players or some other Startups?
Jonathan Boyar: 25:09 Listen, I I’ve been the wrong person to listen to when it comes to Tesla. I don’t understand as a value person how it’s afforded such a high multiple.
I know people say it’s more than a car company, I get that thesis I just don’t necessarily believe it. I think that they’re in for a rude awakening when GM you know they’re coming out with a whole host of great other cars there’s going to be other competition with Ford. I mean it’s a very very difficult space and traditionally hasn’t been the best business to be in so not really sure why because it’s electric. I realized there it’s a little bit different but it’s to me at these levels it makes no sense.
26:02 Wouldn’t bet against it I think Elon Musk, I admire what he’s done and what he’s accomplished some of the ways he’s done I questioned but, he is certainly a controversial person, but he’s revolutionized an industry. But will he be the ultimate winner?
26:25 And even if he is you know should it be uh top 10 S&P 500 companies. I think it’s worth more than Berkshire Hathaway or roughly. I don’t have a marked caps in front of me but if someone said John for your birthday, I’m either going to give you Tesla or I’m going to give you Berkshire Hathaway. You get Geico you get a huge steak and Apple and Bank of America, you get all these wonderful businesses, I’ll choose Berkshire.
Interviewer: 26:58 It makes sense. Also, you have some at least one investment that’s related to the cannabis industry maybe. Speak a little bit about that and how you view the cannabis industry today.
Jonathan Boyar: 27:13 You know we’re valued investors and as I mentioned before margin of safety downside protection is extremely important to us. We kind of got into the cannabis business by happenstance. We own a company called Scott’s Miracle Gro. James Hagedorn was a guest on my podcast and certainly a very interesting fellow.
27:36 He’s done a great job and they’re in the home and garden space you know anyone who gardens and even if you don’t garden you know what Scott’s is. They’re by far, they’re Coca-Cola like market share in what they do.
27:53They’re sold at Home Depot, Lowe’s, their pricing power, they’ve raised prices three times in the past year. About 10 years ago or so they 28:05 decided to get into the cannabis space but to do it in a different legal way. So, they’re kind of it’s a pick and shovel like during a gold rush event where or situation where they are providing lighting and filtration and all the other anything that a grower would need. And they are by far number one in in their field on this. It’s a billion-dollar business growing rapidly. The stock was $254 in April of 2021 it’s currently $140. And if you chart uh Scott’s Miracle Gro next to a cannabis ETF it looks very similar it’s not solely gone down because the
cannabis business is down in the dumps uh temporarily but it it it’s really been a huge factor and at these levels the way I look at it is I’m buying Scott’s traditional business which is at a full multiple of what it would go in a transaction and essentially getting their fast-growing hydroponics business for free. That also has valuable stakes or will have
29:30 valuable stakes in other consumer branded cannabis companies so it’s a really interesting play. They’re great capital allocators., they give it a special dividend when their stocks expensive they, buy back stock and their stock is cheap. They pay decent they have a decent yield and I think at some point in time they’re probably going to split the company in two.
Interviewer: 30:02 That makes sense. Also, can you speak please about how important do you think either an MBA or a CFA is in the investment management industry especially in regard to value investing?
Jonathan Boyar: 30:16 I’m sorry I didn’t hear the question.
Interviewer: 30:23 Sorry, can you please speak about how important you think either a MBA or a CFA is in uh the investment management industry especially in regards to value investing?
Jonathan Boyar: 30:29 I would say um that I came from a different path. I was a litigator um and then went to this which is I wouldn’t recommend anyone to do. If you’re thinking of going to law school call me, I’ll talk you out of it. I actually love law school. Being a litigator, I didn’t. I would say it’s different. You’re getting a tangible you’re getting a qualification with the CFA, you’re getting you know that you have a very good quantitative background and certainly is impressive on any resume. I think that’s something that especially while you’re in college if you can try and do it and get that you know MBA
31:21 it’s it depends. I mean it’s been weird; I don’t know how it works over the last couple of years with covid and a lot of the MBA is the people you meet if you go to Harvard Business School or some of these other prestigious institutions. That’s part of what you get with an MBA.
31:38 I think you have to take costs into a factor and look what your return on investment is. Certainly can’t hurt but you’re paying a lot. All these studies, people going out of school hundreds of thousands of dollars in debt so it’s something nice if you can afford it but it’s really not necessary. CFA is you have to pay for the test but it’s essentially free
Interviewer: 32:10 Absolutely. You spoke a little bit about your background there so why do you prefer investment management to when you’re a litigator?
Jonathan Boyar: 32:18 It was night and day. I mean, I don’t like looking at my watch and trying to figure out how I’m gonna bill something for a project. I love to read, I love to become curious, I like learning about industries, I like speaking with people. Litigation to me it’s an adversarial field it’s a process, it’s just what didn’t suit my temperament. I really enjoy investment management; I like looking at companies that other people
aren’t looking at. I like finding these hidden gems and working with, we have a fantastic team of analysts at Boyar and hearing their insights. So, it’s you have to do what’s you know a preference for you, know yourself. To me it was hands down a fantastic choice.
Interviewer: 33:16 Speaking of spoilers, what sort of uh backgrounds or previous experiences are you looking for? Let’s say, college students who dream of one day working at Boyar as an analyst.
Jonathan Boyar: 33:27 We typically don’t hire people right out of school just because we’re a small shop and I think people can get you know it’s it takes a lot to train people and we’re very specific at what we do. But I think it’s just a love of value investing, a love of writing, a love of coming up with ideas, being analytical. It’s a whole host of things but having that enthusiasm for value investing is critically important and value investing is something either you get, or you don’t.
34:05 We’ve hired analysts in the past who you know we’re really growth analysts. You can tell that they just didn’t speak our language that they didn’t understand why you should buy a particular stock because they have so much real estate that you’re essentially getting the business for free. They’re looking at the growth rate of the business. You have to have to be something that you’re comfortable with.
Interviewer: 34:35 Absolutely. Can you speak a little bit please about diversification and how you look at that in the portfolio turnover position sizing those types of things?
Jonathan Boyar: 34:46 We treat every account differently, individually based on our clients’ needs so we’ll have anywhere between 20 and 50 names in a given portfolio depending on how concentrated someone wants to be. We’re also believers in not investing everything all at once. It hurt us over the last 10 years when you have a market that’s gone you know straight up but I think over the, I’m always looking at your downside and I like to ease into positions and buy things slowly over time. I just think it’s the right thing to do for a client.
35:33 I don’t look at what sector weightings. Our sector weightings are nowhere near what they are of the S&P 500 or the S&P 1500 value or any of the others. We don’t buy any energy stocks so right there goes one waiting that’s out of the window.
35:57 We don’t like heavy technologies and that’s 26 percent of the index so it goes back to my first slide. You have to or one of my first slides on John Templeton, you have to do things a little bit differently.
Interviewer: 36:14 The next question, why did you switch from deep value from offered deep value investing approach to more of a moat investing approach?
Jonathan Boyar:36:20 I think it’s just about going with the times. I mean deep value I don’t think it works as well it’s also tax inefficient because you’re not buying a company that you want to own forever so you’re holding it for one, two, three years. If the pieces worked well you have to pay the government 25 percent of your earnings so it’s just I don’t think a great tax efficient way to invest.
Interviewer 36:57 Some students have noticed that you tend to own a fair amount of
relatively highly levered companies almost like equity stub opportunities. Is this on purpose and what’s sort of the thinking behind this?
Jonathan Boyar: 37:09 We’ll own levered companies when we think it’s when they have the cash flow to just to support it. We’re in a lot of John Malone names and a lot of them are cable companies and things that have high degrees of cash flow can support that leverage. Obviously in a downturn that could really hurt you so you have to really know what you’re buying.
37:35 I think when you’re buying a leveraged position you should also do your position sizing accordingly.
Interviewer: 37:46 Absolutely. Can you speak about how do you analyze management?
Jonathan Boyar: 37:53 How we analyze management? Yes, we’re a little bit different, we generally we’ll speak to management, but we generally try and avoid them. They tell you everything that they want you to hear, they’re very good salesmen. Sometimes it’s good to speak about their general thoughts on that on the business and where they’re going and their vision, but I’ve never had a company CEO tell me business was bad and
don’t buy the stock.
Interviewer: 38:29 That makes sense. Also, um do you find sort of screeners a part of
your research process either quantitative screeners or keyword screeners?
Jonathan Boyar: 38:40 We do some screening but it’s generally one of the advantages of having a research service. We have some of the most sophisticated people as clients and they also tell us ideas to look into so we’re just always on the hunt and screening works but everyone has the same screens. It’s really digging deeper and you know spending your time reading and coming up with ideas. It’s creating you know it’s a decent starting point but you know you’d also miss like a Madison Square Garden if you were doing the stream. You don’t get those hidden assets and things like that.
Interviewer: 39:19 Can you speak a little bit about your thesis for Disney?
Jonathan Boyar: 39:26 Disney is one of the greatest companies in the world. New customers born every day. Just mentioned earlier they have the best contents out there and I think one of the things that people are not or Wall Street’s not fully appreciating is how well those theme parks are going to be going forward especially with the reopening. I think Disney plus is going to be a tremendous success, it’s going to be bumpy along the way um but I think there’s a lot of upside to Disney.
Interviewer: 40:04 Absolutely. Can you speak about some of the long-term economic impacts that you see as a result of covid?
Jonathan Boyar: 40:10 Can you repeat the question?
Interviewer: 40:10 Sorry, some of the long-term economic impacts that you see as a result of covid.
Jonathan Boyar: 40:16 I think it’s too early to tell. I think there’s a psychological impact on how people have been shot in, shot out for the last couple years. I don’t know what the long-term effects they’re gonna be, but they certainly will be. What is the future of work, I don’t know in terms of remote versus in person? I’m not sure what the long-term impacts are but the world is changing very rapidly. I mean we’re right now, it’s war in Europe there’s lots of horrible things going on but time will tell.
Interviewer: 41:11 Absolutely. How did you initially become interested in investing in specifically in value investing?
Jonathan Boyar: 41:11 I think this is something I’ve been you know; my father started the business so I’ve always watched what he did and admired what he did I’m a curious person and I read a lot and something I just grew up and I never thought I would actually do it as a career but it just to me makes a lot of sense. I enjoy it it’s fulfilling, and you know you get paid to read so it’s a pretty good way to make a living.
Interviewer: Absolutely. Can you talk a little bit about your process for selling an investment? What do you know and how to determine when you sell security and what are some of the reasons that you sell the stock for?
Jonathan Boyar: 41:45 Selling is by far a much harder decision than buying. It’s extremely difficult. We sell for a few reasons. One, thesis changes, we’re wrong on a stock and we just want to get out and cut our losses. We’ll do that, you have to be humble enough to be able to do that or if you need cash and you think there’s a better opportunity to deploy that cash. But we’re reluctant sellers, we like the way you know for taxable accounts the way we look at it is if we’re selling a name, we have to find a stock that has a, that’s 25 you know, that’s significantly more upside. We get to pay 25 percent tax to the government roughly depending on your tax bracket. If it’s a long-term capital gain, we take that consideration, so we’ll only really sell something that we still like if it’s blatantly overvalued.
Interviewer: 43:05 That makes sense. Concluding question, what are some of the
most influential events of your investing career?
Jonathan Boyar: 43:10 I’ve been doing it for a lot longer than I’d like to admit but watching 2008 uh 2009 financial crisis stocks you know going down10 20 percent in a day, S&P going down four, five, six percent in a day. I mean that was just unbelievable to watch. I was much younger then, but it showed you how inexpensive stocks can be and how important it is one, to only invest what you can afford to invest that you don’t need for living or immediate needs, but also how cheap stocks can get. So, it’s good to have some cash on the sidelines to take advantage of some bargains
Interviewer: 44:08 Absolutely. Thank you so much, this is a really terrific session, and we really appreciate you taking the time of your busy schedule to speak with us today.
Jonathan Boyar: 44:19 Thank you very much. Thanks for having me. Have a great day
Interviewer: 44:19 Great, thank you!
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IAC CEO Joey Levin on why his company took a 12% stake in MGM, which companies within IAC he is most excited about, lessons learned from working with Barry Diller, and how he approaches capital allocation.

Date: May 25, 2021

Boyar Value Group

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The Interview Discusses:

Lessons learned from working with media mogul Barry Diller.
Why they decided to take a 12% stake in casino giant MGM.
Which businesses within the IAC portfolio he is most excited about.
How he approaches capital allocation at IAC.
Which stage he believes Angi is at in their fixed priced transformation.
Why he believes Angi’s “take rate” will increase with time.
IAC’s major competitive advantage.
Why he believes Care.com is a major opportunity for IAC.

About Joey Levin:

As CEO of IAC, Mr. Levin is responsible for the strategic leadership of IAC and its operating businesses and also serves on IAC’s Board of Directors. Prior to his appointment to CEO of IAC in 2015, Mr. Levin was CEO of IAC’s Search & Applications segment, where he oversaw strategy across IAC’s mobile and desktop software and media businesses. Prior to this, Mr. Levin served as Chief Executive Officer of Mindspark, an IAC subsidiary. Mr. Levin has also served as IAC’s Senior Vice President, M&A and Finance. Prior to IAC, Mr. Levin worked in the Technology M&A group for Credit Suisse First Boston (now Credit Suisse).

Mr. Levin is Chairman of the boards of Match Group, Inc. and Angi Inc. and also serves on the Board of Directors of Turo and MGM Resorts International. He graduated from the Jerome Fisher Program in Management & Technology from the University of Pennsylvania, with a BS in Economics from the Wharton School and a BAS in Engineering from the School of Engineering and Applied Sciences.

Click Here to Read the Interview Transcript

Transcript of the Interview With Joey Levin:

[00:00:00]
[silence]
Jonathan: Welcome to The World According to Boyar where we bring top investors, best-selling authors, and business leaders to show you the smartest ways to uncover value in the stock market. I’m your host, Jonathan Boyar. Today’s special guest is Joey Levin. Since 2015 Joey has been CEO of IAC, which owns a collection of largely online businesses such as Angi, Vimeo, online publisher Dotdash, Care.com, as well as the host of other smaller, faster-growing businesses. Joey is also executive chairman of Match Group, which until recently was controlled by IAC, is on the board of casino giant, MGM, where in August of 2020, IAC opportunistically invested $1 billion to acquire a 12% stake in the company.
Over the past five years under Joey’s leadership, IAC shares, if you include spin-outs, have compounded at an annual rate of 60% versus 17% for the S&P 500. Full disclosure, clients of Boyar Asset Management, as well as myself, own shares in IAC, as well as IAC controlled Angi Homeservices. Joey, welcome to the show.
Joey: Thank you. Thanks for having me.
Jonathan: Really excited about the interview. I guess I’ll just delve right in. IAC has a market cap of a little over $20 billion, Match’s market cap is a little below 40 billion. You’re CEO of IAC and executive chair of Match. You’ve accomplished this, and you’re only in your early 40s. How do you achieve this level of success at a relatively young age?
Joey: One step at a time, [00:02:00] I guess. I’ve been very fortunate to be a part of IAC, which is a dynamic business with a dynamic chairman and a philosophy that generally– There’s a lot of components, but probably one of the most central elements is to do things differently, try and create new ground or try and go against whatever is the status quo. Things like specific experience or age are less relevant at IAC than they might be at another place. The thing that matters at IAC is people being passionate about something that they’re working on, working really hard on it, and wanting to get a chance to succeed at it, which is something that we give people.
Jonathan: You mentioned an executive chairman. That’s obviously Barry Diller. What are some of the important things that he’s taught you along the way?
Joey: Always think bigger is probably a big one. You think you’re thinking big at something. You say, “Look at this little business that’s doing a few million dollars of revenue. We can imagine one day if we work a lot of things out, we could do a $100 million in revenue.” Most people would say, “Wow. Well, that would be quite an accomplishment for a little business.” We could say that to Barry, and he’d say, “Well, why bother then? Because there’s a much bigger opportunity. If you’re not going for a bigger opportunity than that, then why bother?” That boundaryless thinking has been really important to creating value at IAC and really important to consistently setting the bar and the ambitions higher.
If you start with small ambitions, [00:04:00] the best you do is achieve those. We’re trying to look bigger, go after bigger markets, bigger opportunities with bigger wins that could work out for IAC. That’s been a pretty important one. Also, the willingness to allow yourself to be challenged, to challenge others, and to be comfortable in that state of constantly challenging and being challenged. I don’t ever have any problem disagreeing with our chairman on anything we want to disagree on, nor certainly does he with me. That gets us along with all of our colleagues.
That I think gets us to better answers because if you just start with one and everyone agrees or doesn’t challenge it, then you don’t explore the nooks and crannies of it in a way that allow you to prepare better for the future or better for thinking about what could go wrong or things like that. That challenging culture is really at the essence of getting to better answers I think. Those are some of the important ones, but there’s a lot.
Jonathan: Speaking of thinking big, in August of 2020, you announced a billion-dollar stake in MGM. It’s now May 2021 and that investment, using share prices, increased by about 128%. You get shown deals every day and you obviously pass on most. I’d love to hear how you sourced the idea and what gave you the confidence to give it the green light.
Joey: MGM in particular was a period where we were hair on fire looking at opportunities [00:06:00] knowing that we had a very short fuse because this was March and April of 2020, no one knew what the future looked like, everyone was scared and our businesses were in fine shape. Some businesses declined meaningfully for a short period, but we knew we had a very strong balance sheet. We knew we had the ability to get to the other sideway. As we do always believe that, ultimately, things come back to normal relative to challenging situations.
We said, “We have a very short window to deploy capital here. Let’s make sure we don’t miss this window.” We were looking at ideas round the clock in that period to try and figure out where to go. One thing we realized early was that buying an entire company in that window was probably impossible. Boards of directors weren’t meeting in that window to say, “How do we sell the company?” The only ones that were, were ones who were truly out of money, truly bankrupt, or at a significant risk of near-term bankruptcy. We looked at some of those but didn’t see ones that fit.
We realized that if we were going to put a lot of capital to work in that window, it would have to be likely through public companies and minority investment public companies. In that context, we looked at ones that didn’t have a control shareholder where we could be a meaningful shareholder and where we thought we could add value in the company. Also, ones that were clear leaders in their category with very clear asset value and enough capital to get to the other side, whether their own capital or capital we could contribute. That actually narrowed the field pretty quickly.
Among those, MGM was an idea that I think originated with somebody from our board, Alex von Fürstenberg, who had been talking to somebody else [00:08:00] about the idea. I think we had talked about it a few times in passing, but that one was something that we started to get excited about. I think he was, if not the catalyst, certainly a meaningful catalyst in it. We were looking at that in the context of all the other things we were looking at and as we do with every idea, we went through this process I was referring, which is taking apart the idea and figuring out all the reasons why it wouldn’t work.
Could they run out of money? Would the world change in some meaningful irreversible way? All these things you go through and then get what they were doing strategically. At each step, we didn’t find a blocker. In fact, we found more exciting opportunities, which was the sum of the parts thing, which was something that we’re familiar with. They had, basically still do, three different public companies under the same umbrella. They also had this really interesting theme that’s been relevant for us, which is an offline to online migration through a joint venture they have called Bet MGM, where they are one of the top three players in the US for digital gaming which is a business that’s a multi-billion dollar market today probably be 10x bigger 5 years from now, somewhere in that neighborhood.
You’ve got a market, you’ve got a leader in a very established category with great cash flow, which is I think some downside protection, then you’ve got a digital upside opportunity which is just a huge growing category with tailwind and a leadership or a potential leadership position there. The combination of those two things, which was the cash flow and downside protection plus the upside optionality, was really all we needed to proceed. You add to that a seasoned, solid, strong management team, they just had a new CEO, but a [00:10:00] person who had been in the business for an eternity and who knew it backwards, forwards, upside down, and sideways.
That was a winning formula for us. That has, so far, worked out very well, very quickly. Probably we’ve joked internally, I’ve joked a little bit dangerously, which is generally to create a billion and a half dollars of value, we’ve had to work for years and years, decades, making mistakes harrowing moments, all the things that you do to get there, which are very rare. This one happened in a few months. We didn’t have to do much work at all. The management team on their own did all of that. We were just, sitting back observing.
Jonathan: How did you come up with $1 billion? I think you had about $4 billion of cash on the balance sheet around that time, roughly. Did it just sound like a nice round number or was there just a capital allocation decision there?
Joey: It was two factors. One, it was a little bit of nice round number of us saying, this is about in the neighborhood of what we’re comfortable with, but the other big factor was we were buying in the public markets. We could buy up to 4.9% quietly and then our goal after that was to buy as much as we possibly could before we had to disclose. I think it ended up being a little bit more than a billion, but a billion and change we put in and that got us to 12%. I think they had 10 days to buy– I can’t remember how it works. You have 5 or 10 days to buy, and we bought as much as we possibly could in that time, which got us to the 12%, which ended up being somewhere in the neighborhood of a billion.
Jonathan: You think MGM is more of an attractive opportunity, even though the valuation has gone up now that you have certainty over COVID vaccines or as much certainty as you can, as it was when you bought it, obviously at a much lower price, [00:12:00] but you had that visibility that the world’s not going to end?
Joey: Yes, absolutely. MGM, I think they said last quarter, they had bought back some of their own stock. That’s, I think, a testament to the answer to your question. Yes is the answer. Two things have worked out probably better than we thought. Number one, the pace of the recovery. We always believed it would recover and we always believed they have enough capital to do that, but the pace of the recovery has been faster. Two, the pace of acceleration at BetMGM in capturing share. Now, there’s still a lot of unknown at BetMGM.
Most significantly, all the businesses in this category are losing an enormous amount of money and continuing to lose an enormous amount of money because it’s very competitive, it’s hard to acquire customers, it’s expensive to acquire customers. I think MGM has some unique advantages that they’ve been successfully leaning into. Nonetheless, it’s expensive. There’s still a lot of unknown as it relates to what happens when all of this spending shakes out or settles down. For now, taking real share in what is a huge and growing category.
Our thesis was that the offline and the online work together, that they both enhance each other. In some categories, online destroys offline. In this category, I think online enhances offline. One of the best examples of that was the state of Michigan, it’s the state where MGM has the best property in the state in Detroit. The MGM was at the beginning, other [00:14:00] states we’ve been late joining, this one was at the beginning. The combination of being there from the get-go with a physical property, and the success that we’ve seen there demonstrated how this whole ecosystem can work together in MGM’s favor.
I think that was really, really compelling. That a little bit validated the thesis, probably more than a little bit validated the thesis and that’s been a positive too. When we look at it overall, I think we feel stronger now than we did going in.
Jonathan: In your letter, right after the stake was announced discussing the deal, you left it pretty open-ended on how you would assist MGM. What have you been doing to help? I know obviously, you’re on the board as well — You obviously have great expertise on internet-related businesses. Are you actively engaging with them?
Joey: Very much. I had a call with them last night. Wherever they need us is the answers to specific examples, we’ve trying to help with talent. We’ve helped with sourcing or recruiting some folks. With some of the technology questions that MGM needs to answer for itself and also through the joint venture where and I see employee has joined the board of the BetMGM joint venture. With ideas and direction and helping with the storytelling, all that we’re trying to be helpful with, but we’re not doing anything really ourselves.
We’re passengers here with a team that’s very capable and doing well, doing it all on their own. It’s just us, we’re here to help when they need us and whenever they call, which they do sometimes, we [00:16:00] chip in.
Jonathan: You’re about to spin off Vimeo I think this week or so. Right now the most valuable piece of IAC after the spin-out will be your stake in Angi, your cash, Dotdash and obviously your MGM stake as well. You have a lot of lesser-known companies under the umbrella. Which are the ones that you’re most excited about that investors really should be paying more attention to?
Joey: I really am excited about all of them. If I want to pick out some that you haven’t mentioned that are fun right now, you take one called Turo. Turo we’re the largest minority shareholder, but own a meaningful stake in the business. I’m on the board along with my colleague Mark Stein. The businesses in a fantastic macro situation right now, which is, they’re in the business of peer-to-peer car sharing. If you think about Airbnb as it relates to hotels or vacation homes. Turo does similar for cars.
As a owner of a car, you can generate income from your car and as somebody who needs a car, you can get the most unique set of car inventory anywhere from Turo, generally at a pretty attractive price too relative to the rest of the market. What’s happening macro is two things that are really helping the business, besides the general situation which is Turo’s a much more engaging experience, much better experience. Once you use Turo instead of a traditional rental car, you really don’t ever want to go back to a traditional rental car. [00:18:00] What’s leading to a lot of discovery right now is, number one, there’s a lot of more, it’s called local mobility.
People are less getting on planes. Airplanes are starting to recover, but still even domestic travel on airplanes is still down, so people are taking cars, they’re taking cars for trips and sometimes they use fun cars for trips. That’s really helping Turo. By the way, even in that context, the rental car companies are based in airports. When there’s less people in airports, we don’t need the airports to operate our cars, they are spread out all over the place. The airports also all want to take a tax on the consumer to use cars in airports. We, fortunately, avoid some of that infrastructure by being a different kind of company.
Long-winded, the two macro things that are happening, one is the local mobility, the second one is that because during this crisis, a lot of the car companies sold off their fleets, and now with the chip shortages, the OEMs can’t make new cars, they can’t replace those fleets. You see these stories about the rental car companies charging insane prices for access to cars because the supply and demand aren’t lining up. We have supply and we can grow our supply. We don’t need to go to the OEMs and buy 1,000 of the same car at a time. We’re finding this all the time. Somebody whose operation is working picks up a second car.
Sometimes they buy a second car, sometimes they get a second car from their sibling or their brother-in-law, or father-in-law, or somebody who’s not using a car or who only use the car part-time. They realize that this is a yielding asset and that all these things are unused and they can do it. The business is seeing fantastic growth right now, which is a lot of fun. I think the way it’s transforming [00:20:00] the categories, something that’s going to be very– It is already and will continue to be something that is very beneficial for consumers. That’s a fun one, but we’re, again, minorities there.
We’re also in this category that I think is fascinating, which is matching temp labor with employers. This category lately has gotten a lot of tangential noise because of what’s happening with stimulus and what’s happening with unemployment benefits, and whether people are going to work or not in these light industrial jobs. What this platform does is it matches workers with employers. That traditionally happened, really still today, almost entirely offline. There were resumes, there were interviews, there were phone calls, there were literally physically going to pick workers up at a certain location and move them to another location.
Now in a small way, because it is still very small, but I think if you fast-forward a few years, then we’ll all be down with software, it’s just a better way of doing it. Knowing whether somebody is available to work, knowing whether somebody is proximate to a work location, knowing whether somebody is commute could be half-hour shorter, knowing whether their commute could be a few dollars cheaper. All these data points, knowing their propensity to show up on time, their ability to operate a certain kind of machine. Most of those things are actually relatively binary.
There’s not a huge amount that’s accomplished in an interview in jobs like that. You’re qualified for the work, you’ve done the work and you’ve either demonstrated or not an ability to show up and show up on time for that work. Software is going to be better at judging that than people are at judging that. That’s the idea with this platform is to match the workers with the work and really help the workers [00:22:00] in that context get better jobs, better-paying jobs that are closer to their home, that are more convenient for whatever they need to accomplish and getting rid of a lot of the hassle that really adds no value in that ecosystem.
We’ve got one business doing that in the light industrial space and we’ve got another business doing components of that, not in the same way, in the healthcare space. I think that it’s a pretty interesting category for us. That’s a fun one.
Jonathan: IAC is known for taking businesses, as you mentioned just now, that are primarily currently conducting most of their business offline and transitioning them to online. You’re doing with those businesses that you just referenced. You did it with Ticketmaster, Expedia, Match Group, Angi. Are there really any major categories left for IAC to enter that haven’t meaningfully transitioned from offline to online?
Joey: I thought for sure we’d be out of gas on this strategy by now or five years ago and there’s still a lot more. There’s the one we were just talking about temp labor. It’s almost entirely offline right now. Even Angi is probably still 10%-ish online, definitely less than 20% online. Healthcare is another huge one. We’re basically nowhere in healthcare other than a bit through this employment business. Healthcare is still significantly offline. Food has only in the last few years moved online. The pandemic was a big catalyst for that, but food just probably over the last three years moved massively online. It was otherwise offline.
Offline to online is a little bit– We still talk about it and it’s still, I think, a great way to look at it, but it’s a little bit old news in the [00:24:00] sense of what does offline to online mean anymore? There are different evolutions of online. Another big theme for us has been in a few of our businesses that we’re in that we’ve considered entering is the first amazing moment in going online, you might remember, but most people probably don’t, is this thing of there’s a list of all the available information online. That was transformative when you could find all the information, whether that was in travel or whether that was in ticketing or whether that was just in search, with Google offering you 10 billion results on any query.
Now, what’s happening is, just having the information is not– that’s obviously table stakes. In fact, that can get annoying. What you really want is the curation. You really want to go down to one answer or a couple answers and that curation is a whole other evolution in these businesses where you see disruption from the person providing the lists or the entity providing the list, the entity providing the match and, ultimately, the entity providing the transaction. In all of our businesses, probably Angi most pronounced is, we’re trying to enable that transaction online. That’s another evolution.
Jonathan: As I mentioned earlier and as well-known, you’re about to spin off a Vimeo. You have about $3 billion in cash. Do you have a preference of how you’re going to use it? Do you anticipate any of your current businesses needing a lot of cash, or you think it’s going to be spent on acquisitions? How do you see your use of capital going forward?
Joey: It’s probably not likely a huge amount of capital in just P&L losses. I do think one thing we have been doing with Angi and probably will continue to do is reinvest profits in Angi, but probably not. [00:26:00] Not likely going below zero in those businesses to reinvest, at least not a significant amount of cash into those businesses. We’ll invest into businesses and reinvest P&L, but I wouldn’t say materially more that way. That really leaves acquisitions or new acquisitions, acquisitions in our existing categories, or acquisitions of our own business, which is another word for share repurchases.
We’ve gone through periods where there was after the 2008 spinoffs where we span off four businesses in that period. I think we bought back over a few years basically half our shares. That’s one option. Another option is getting into new businesses and buying more businesses. I think both are possibilities and both are something that we analyze pretty regularly and we’ll continue to analyze regularly.
Jonathan: I guess when Anjali, who is currently leading Vimeo, came to you when it was a much smaller company with a new vision for it, you ended up plowing a lot of money into growing it to where it is today. What gave you the confidence to aggressively invest in that business?
Joey: The big thing that Anjali did was, she convinced us that it was– she really made the case for it being a much larger market than we originally thought. With the tools business, the services business, software as a service business had been Vimeo’s business for a very long time. We thought it was a small cottage business and we needed a really a big ambitious business. That’s what led us into the entertainment business, building our own streaming service. We knew that it was a big market, there were some big players in that market, eventually [00:28:00] ended up being basically every player in that market, but there were some big opportunities there.
What Anjali showed was that, actually, the market for people that needed those services were not just the software as a service video software as a service, were not only the most highly talented filmmakers, which was the bulk of Vimeo’s paying user base at one point, it was really anyone who could use video in their business. When we realized that, it became worthy of significantly more investment and significantly more acceleration. That’s what led to certainly the next $300 million of capital going into that business under her leadership.
Jonathan: For every Vimeo grand slam success, I imagine there has to be a lot of failures. How do you know when it’s right to walk away from an investment? You walked away from the streaming part of it and with the benefit of hindsight that was a great move because you have some deep-pocketed players. How do you know when to walk away?
Joey: The streaming business never really made it out of the crib or the womb or something if we keep going with the analogy. That was relatively easy. We’re investing in things constantly. When you see some sign of traction, you keep going, and when you see no traction, you pull back. You have to think about it differently. The way we think about it is, it certainly ties to the scale of the business. We have a big business, take Ask.com for example. We bought Ask Jeeves at some point. We bought that business for a billion and nine and at that time it was doing about 75 million EBITDA. [00:30:00] There was no question that we lost the search battle.
We lost that probably not that far after we bought the business, we lost to Google. Google was certainly winning when we bought it. Google was probably winning to a greater degree than we even realized when we bought it. We lost that. Instead of pulling out of Ask because there’s not really an easy way for us to do that as the owner of the asset, there weren’t a lot of people interested in buying it at that point and there wasn’t really a viable path to selling it. For us, it was, “Well, we have to make this business work in a different way, so we have to reinvent.”
We don’t usually have the option. For example, as a passive investor, you could buy something under a thesis, the thesis doesn’t work out, you sell it the next day. That’s not available for us. We may buy something, own something, we were trying and it’s not working, well, then we try something else and then we try something else and then we try something else until we find something that works. We did that with About.com, we did that with Ask Jeeves, we did that with basically every single one of our businesses. We’ve disrupted ourselves and tried something new rather than pulling out completely.
We don’t usually have the option available to pull out completely. We can pull out of a strategy completely and we could do that frequently, and we can pull out of something small, but if it exists as a business and it had a reason to exist as a business, then we ought to be able to pivot it and change and adapt and explore new alternatives until we find the thing that’s working. That’s on us to do that. We don’t really give up or cut things loose in that context.
Jonathan: Just want to focus a little bit on Angi, where you own roughly 85% of the company, [00:32:00] You’re making a big bet on fixed price services. It’s really complicated trying to figure out how to charge for jobs, sight unseen across different markets. How close are you to getting this right in terms of execution? How much further do you need to go? It’s really hard.
Joey: It is really hard. I think we’re close in the sense that we’ve proven it in certain parts of the market and far in the sense that we haven’t proven it in other parts of the market yet. You always learn more things good and bad as you scale further. You have certain assumptions on your ability to automate things. Sometimes you find you can do more things that you didn’t realize you could automate, and sometimes you find you can do less things that you were counting on to automate. We’ll go through those realizations over time, but if you focus just on the homeowner and the homeowner experience.
We’ve determined with certainty that for the vast majority of homeowners, when they get the full experience, they’re going to be happier. Full experience means you go online, you find the service you want, you pay for the service you want, that service is completed, and you’re done. You skipped the step where you have to negotiate, you skipped the step where you have to evaluate different providers for the service, and you skipped the step where you have to chase the person down to show up or finish the job or all that stuff. That is really a magical experience.
When you know you can deliver a magical experience relative to the incumbent, then everything else from there is just engineering to optimize that magical experience. Once you’ve seen the magical experience and delivered the magical experience, then you know the direction you’re headed with very high confidence, and you know there’s [00:34:00] no turning back from that direction. All you have to do at that point, I say all you have to do like it’s easy, it’s very hard, but all you have to do at that point is optimize. That is the phase that we’re in right now.
We talked about this how we change frequency. If you’re coming in and doing a fixed price job, what we call now Angi Services, if your first experience is an Angi Services job that gets fulfilled, your frequency, with a couple of other things built into there, change your frequency by 4x. That is transformational. I allegorize that to a bunch of other experience that we’ve admired, like Amazon Prime. When I first signed up for Amazon Prime many years ago, I remember saying, “Well, we get a package every now and then, and we like Amazon. I feel like I know that it’s $10 to ship something, so if I ship a few things, maybe one thing a month, it’s going to work out that we’ll be close enough with this two-day shipping.”
What happened is, we went from that to, we have a package from Amazon at our house four times a week, probably at least. The transformation was that you could rely on it. Once you can rely on something, then your behavior changes meaningfully. I believe that that same opportunity is available within home services. Right now, the average person does six to eight jobs and we get a little under two of them. I think the right number of jobs could be a multiple of that. Our portion of those could be also a multiple of what it is right now00:35:48]. That’s the behavior that we’re looking for.
We’re starting to see some of the early signs of that. That leaves me pretty optimistic about it. That’s why we’re putting in the [00:36:00] level of capital that we’re putting. I think that the faster we go, the better. Meaning a lot of these gains, a lot of these marketplaces are about building up liquidity on both sides of the marketplace. You got to keep the service professionals engaged and happy, and you got to keep the homeowners engaged and happy. The best way to do that is to keep more volume moving through the system. That’s what we’re trying to do right now.
Jonathan: Right now for Angi, your take rate or the amount Angi receives from a job, I think it’s a little less than 10% for the fixed price services. If you look at a company like Uber, they get roughly 20% or so. Is achieving a higher take rate over time realistic?
Joey: I’m not sure you’re right on your estimated take rate on the fixed price services. It’s going to be higher than that. The answer on take rate overall is yes, I do think it goes up over time because I do think we add incremental value over time to the service professional. We can actually start to make their operation more efficient and save them real costs and share in the savings with the service profession. You may not need a receptionist or a calendar person to be making or booking the calls, or a salesperson to be going out and doing the sales.
You could be more efficient with just people doing the work, and by the way, people doing the work in a finite geographic space, which saves on travel time and things like that, optimizing the schedule, optimizing the payments, not having to do invoice and collections, and things like that. You take a lot of those nuisances out of the equation for the service professional, you can start to justify a higher take rate because everyone’s doing better. The loss there [00:38:00] is the inefficiency and the unpleasant part for both sides. That added happiness is generally going to be added opportunity to share in the economics.
Jonathan: IAC is famous for not holding things forever. You let them go and break free. I’ve always thought that a major home improvement company like Lowe’s, which you do have a partnership with Angi, should own part of. I think it makes sense for both sides. In your mind, does it make sense for Angi to be a standalone, or would it be better to partner with a larger organization, or you’re just trying to achieve what you’re trying to achieve?
Joey: I always default to we’re on our own. We’re always open to things. If somebody calls and says something that makes sense, we certainly listen, but our mentality always is and always has to be we’re on our own forever. You’re right that we’ve spun off a lot of businesses and plan to spin off a lot more businesses. Our philosophy, when we get into something is we own it forever. Spinning it off doesn’t mean we don’t own it anymore. It just means our shareholders own it directly. Same owners before the spin as the owners after the spin.
Now, in reality, of course, some people trade in and some people trade out, so it’s not going to be all the same owners. Our thought is, when we buy something, we buy something to own it forever, we buy something for our shareholders to be able to own it forever, and we do that really efficiently. That forever mindset has been a massive competitive advantage for us, in that, very few other people operate with that mentality. [00:40:00]
Jonathan: No, absolutely. Short-termism is rampant. I know we’re running out of time. I just wanted to touch briefly on Care.com. You bought it not too long ago. Before you bought it, the site had some major safety issues which was profiled in a Wall Street Journal story, which I guess gave you the opportunity to purchase the company. They had a lot of hard problems that they needed to address. What gave you the confidence that you could right that ship?
Joey: A similar situation, in that, we looked at the Care’s market position, which they were, I don’t know, 30x the next competitor on audience. They were the default brand in the category, based on the genericness of their name, but also the brand equity that they had built in that area. Is a very large category, which we felt and we’ve been at least right on this part is that the category has a natural tailwind to it, not just offline to online migration, but also more of society feeling a responsibility to help in care, childcare, and senior care.
We’re seeing this on the enterprise side with the growth in the enterprise business at care, and we’re seeing this in government in the discussion in some of the infrastructure bills that are coming out around care. We’re seeing the necessity of this in what’s happened to the workforce, the makeup of the workforce over the course of the pandemic, and particularly women in the workforce. Now, they’ve borne much more of the brunt of childcare than men in the workforce. People are realizing, enterprises are realizing, government’s realizing this is a problem that we have to solve.
We looked [00:42:00] at that combination of things and said, “This is a really attractive place to be.” Generally, our view is that mistakes are fixable, the company made some mistakes in the past, those could be fixed. I don’t think that they fundamentally undermined the principle of what could be accomplished in that category. I think they just made some mistakes and we had the ability to work on fixing some of those. I think we made progress on– It’s impossible to be perfect, but I think we’ve made progress on a lot of those. We’re seeing that come through in the numbers a bit.
Jonathan: Has the pandemic changed the company’s prospects in your opinion?
Joey: Yes, it has. In a business like Vimeo, that came through in real-time where growth rates tripled, or whatever, overnight. In care, it’s perhaps an even bigger impact, but slower because it awakened the world to our responsibilities in helping with care. Now people are seeing that that needs to now translate into the business and people engaging with the right product to solve these problems. The spotlight on carrying the responsibilities around care is there in a way that would not have otherwise come. That’s going to, I think, be really important to the growth of that business.
Jonathan: Joey, you’ve been more than generous with your time. I want to thank you for being on the show and telling us more about your fascinating career as well as your vision for IAC and Angi in the future. We look forward to watching IAC’s and Angi’s progress. Again, thanks for being on.
Joey: Well, it’s my pleasure. I’m looking forward to all that too. I hope to see you again.

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Boyar Value Group On The Value In MSGE, MSGS, IAC & ANGI

Date: November 10, 2020

Boyar Value Group

Jonathan Boyar and Shrey Patel were recently interviewed on the Yet Another Value Podcast where they discuss the firm’s background and the process of finding stocks trading for less than private market value.

Please listen to the interview below.