Match Group, Inc. annual report, FY2010

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Filing identity and period

Important scope note: The supplied filing is IAC/InterActiveCorp’s Form 10-K, filed March 1, 2011, for the fiscal year ended December 31, 2010. It is not a Match Group 10-K. Match was one of IAC’s reporting segments; the summary below covers IAC consolidated results and highlights Match where relevant. The filing reports annual results, not standalone fourth-quarter results.

Financial performance and liquidity

  • Revenue: $1.637 billion, up 22% from $1.347 billion in 2009. Revenue increased across all segments: Search $837.1 million (+23%), Match $400.7 million (+17%), ServiceMagic $181.4 million (+16%), and Media & Other $219.9 million (+30%).
  • Profitability: Operating income was $49.8 million, compared with an operating loss of $1.038 billion in 2009. The prior-year loss included $1.045 billion of Search goodwill and intangible-asset impairment charges; 2010 included $28.0 million of goodwill impairment and $15.5 million of indefinite-lived intangible impairments. Continuing operations recorded a $9.4 million net loss, versus a $956.5 million loss in 2009. Net earnings attributable to IAC shareholders were $99.4 million, versus a $978.8 million loss; the 2010 result included a $140.8 million after-tax gain on the Liberty Exchange and a $37.0 million discontinued-operations loss.
  • Operating measure and margins: Management’s non-GAAP Operating Income Before Amortization was $189.6 million, up 56%, or approximately 11.6% of revenue versus 9.0% in 2009. Cost of revenue rose to $593.8 million, or 36% of revenue, from 32%; IAC attributed the increase mainly to traffic-acquisition costs and a greater share of revenue from third-party-distributed toolbars. This measure excludes, among other items, stock compensation and amortization/impairment, and should not be treated as GAAP operating income.
  • Cash flow: Continuing-operations operating cash flow was $340.7 million, down from $348.5 million. Continuing-operations investing cash outflow was $118.1 million and financing cash outflow was $717.2 million, including $539.6 million of treasury-stock purchases and $217.9 million paid in the Liberty Exchange. Cash and cash equivalents declined to $742.1 million from $1.246 billion.
  • Liquidity and debt: Marketable securities were $564.0 million, bringing cash plus marketable securities to $1.306 billion, versus $1.734 billion a year earlier. Current assets were $1.544 billion and current liabilities $356.9 million. Long-term debt was $95.8 million, consisting of $15.8 million of 7% Senior Notes due 2013 and $80.0 million of 5% Liberty Bonds due 2035. Total contractual cash obligations were $556.2 million, including debt, operating leases and purchase obligations.
  • Match: Segment revenue was $400.7 million and operating income was $115.4 million. IAC reported approximately 1.6 million subscribers at year-end. Growth reflected domestic business performance, acquisitions and the Latin America venture, partly offset by the prior-year sale of Match Europe.

Changes, outlook, and material items

  • 2010 revenue rebounded from the 4% decline in 2009. Search revenue recovered, although the segment’s revenue per query was pressured by lower monetization of distributed-toolbar queries. Match and ServiceMagic also grew; ServiceMagic’s operating-income-before-amortization measure fell 15% as marketing and staffing costs increased.
  • IAC repurchased 23.1 million shares for $530.9 million during 2010. The December Liberty transaction exchanged Evite, Gifts.com and IAC Advertising Solutions, plus $217.9 million cash, for substantially all of Liberty’s IAC equity stake. Barry Diller held about 33.8% of voting power after the transaction.
  • Outlook: Management expected 2011 capital expenditures to be slightly below 2010’s $39.8 million and said cash, anticipated operating cash flow and capital-market access were sufficient for foreseeable needs. The filing provides no specific 2011 revenue or earnings guidance. Management noted that acquisitions could reduce cash or require debt.
  • Key risks: Google supplied $727.9 million of 2010 revenue, about 45% of consolidated revenue; the paid-listing agreement expires December 31, 2012, and renewal or replacement terms are uncertain. Other cited risks include advertising cyclicality, rising traffic-acquisition costs, dependence on third-party distribution and search traffic, competition, privacy and data-security regulation, technology changes, international exposure, acquisitions and potential impairment of goodwill.
  • Tax and contingencies: The continuing-operations tax provision was $32.1 million, an effective rate of 141%, driven in part by nondeductible impairments and other tax items. Unrecognized tax benefits and related interest totaled $487.6 million; tax examinations were ongoing, including IRS examination of 2001–2006 returns. Management said legal matters were not expected to have a material impact, while cautioning that outcomes remain uncertain.
  • Other unusual/subsequent events: IAC recorded impairment charges for Shoebuy and Search assets, and an $18.3 million impairment of its HealthCentral investment and $7.8 million impairment of its Zip investment. InstantAction ceased operations. After year-end, The Daily Beast entered a 50/50 joint venture with Newsweek, and Match acquired OkCupid for $50 million cash plus potential contingent payments.
  • The independent auditor issued an unqualified opinion on the financial statements and internal controls; management also concluded disclosure controls were effective. A securities class action and related derivative suits were dismissed with prejudice in 2010.

Important facts for investors to verify

  • Confirm the issuer and reporting scope: this is IAC’s 2010 10-K, not a Match Group filing, and Match figures are segment-level.
  • Assess the durability and economics of Google-dependent revenue ahead of the agreement’s 2012 expiration.
  • Separate recurring operating performance from impairment charges, the Liberty Exchange gain, discontinued operations and other investment-related items.
  • Review cash deployment, especially share repurchases and the Liberty transaction, alongside the decline in cash balances and the full contractual-obligations schedule.
  • Examine the $487.6 million tax-contingency balance, audit status and potential cash-settlement timing; the filing says timing cannot be reliably estimated.
  • Track Match subscriber trends, acquisition contributions and the performance of newer ventures; the filing does not provide a clear comparable subscriber-growth series.