Google AI Pressures Will Shrink Digital Reach Though Recovery Looms

Key Takeaways

• Heavy investment in diversification and technology faces sustained risks from platform shifts, privacy headwinds, and rising competition in digital and AI-driven spaces.
  
• Reliance on maturing brands and fragmented assets raises concerns over future portfolio quality, scalability challenges, and the sustainability of revenue and profit growth.
  
• Reliance on vulnerable traffic sources, untested revenue models, and concentrated brands amid rising competition and digital commoditization threatens IAC's revenue growth, margins, and earnings stability.

Catalysts

Operates as a media and internet company worldwide.

• While IAC has made substantial progress diversifying revenue streams away from Google Search dependence-with non-Google sessions now driving a majority of traffic and revenue-the risk of further value erosion remains high as mega platforms like Google prioritize their own AI-driven results, potentially limiting IAC's ability to grow traffic and advertising revenues at historical rates in the future.
  
• Although the pivot to first-party data and the D/Cipher+ ad targeting platform presents an opportunity to participate in the continued shift of advertising dollars to digital and improve off-platform monetization, the spread of privacy regulations and growing consumer resistance to tracking could undermine the effectiveness and scale of IAC's targeted advertising products, pressuring digital ad revenue and margin expansion.
  
• Despite the rebranding of Dotdash Meredith to People Inc. and robust investments in product and technology designed to capture growth from mobile and new digital channels, these efforts carry heavy upfront costs and face an uphill battle against industry giants rapidly incorporating AI, which could erode long-term profitability if IAC cannot achieve and sustain operating leverage.
  
• While Care.com's relaunch and strategic refocus show initial signs of engagement and subscription growth, Care.com still monetizes only a small fraction of potential users and faces operational complexity from portfolio fragmentation, leaving it vulnerable to margin dilution and revenue stagnation if new product and marketing initiatives fail to scale effectively across its massive addressable market.
  
• Although strategic M&A and recurring divestitures have historically enhanced IAC's net asset value and provided capital to redeploy, the limited pool of attractive assets and the overreliance on mature brands such as People Inc. and Care.com increase the risk that future sales will bring lower-quality, lower-growth companies into IAC's portfolio, potentially contributing to earnings volatility and inhibiting consistent long-term revenue growth.

IAC Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on IAC compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming IAC's revenue will decrease by 15.5% annually over the next 3 years.
• The bearish analysts are not forecasting that IAC will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate IAC's profit margin will increase from -12.9% to the average US Interactive Media and Services industry of 11.0% in 3 years.
• If IAC's profit margin were to converge on the industry average, you could expect earnings to reach $246.2 million (and earnings per share of $3.85) by about September 2028, up from $-479.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 13.2x on those 2028 earnings, up from -6.1x today. This future PE is lower than the current PE for the US Interactive Media and Services industry at 16.9x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.29%, as per the Simply Wall St company report.

IAC Future Earnings Per Share Growth

Risks

• People Inc. (formerly Dotdash Meredith) remains heavily exposed to ongoing changes in Google Search, with 28% of its site sessions still reliant on search traffic; the continued rollout of Google AI Overviews and prioritization of non-publisher content presents a structural headwind for revenue growth and margin stability if click-through rates decline further.
  
• The company's increasing dependence on new, unproven monetization channels such as D/Cipher+ and off-platform syndication comes with execution risk and untested returns, potentially limiting margin expansion and dampening consolidated earnings if these investments fail to scale as projected.
  
• IAC's strategy of portfolio consolidation and focus on a handful of flagship brands creates top-line concentration risk, as underperformance or stagnation in People Inc. or Care.com could result in overall revenue plateauing or declining, especially with ongoing softness in Care.com's direct-to-consumer business since 2022.
  
• Sectors such as digital publishing and online care services are facing intensifying competition from much larger internet platforms and fast-moving AI-first entrants, which could erode IAC's user and advertiser share, lower average selling prices, and compress digital advertising margins long term.
  
• If there is a saturation or commoditization of digital content and services due to advances in AI-powered tools and changing consumer habits (such as greater ad-blocking or generative search reducing site visits), IAC's ability to sustain revenue growth and EBITDA margins could be undermined, leading to prolonged pressure on profit growth and free cash flow.

Valuation

• The assumed bearish price target for IAC is $39.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of IAC's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $60.0, and the most bearish reporting a price target of just $39.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $2.2 billion, earnings will come to $246.2 million, and it would be trading on a PE ratio of 13.2x, assuming you use a discount rate of 9.3%.
  
• Given the current share price of $36.79, the bearish analyst price target of $39.0 is 5.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.