IAC has a standard habit of building up lines of business, getting them to a certain size, and then spinning them off. With the completion of its spin-off of Vimeo in May, it has now successfully completed 11 of these. As Chairman Barry Diller said, "it appears there is validation in repetition. On to the 12th."

But the question stands: what is the 12th one?

With all the love digital media is beginning to receive again and the prospects for liquidity tied to all the SPACs, media investors are wondering about the well-operated and very profitable Dotdash within the IAC family. In many respects, this is where IAC's growth is happening.

Whether it becomes the 12th spinoff, though, remains to be seen. According to The Wall Street Journal:

And fast-growing it is. In 2019, Dotdash generated $167.6 million in revenue. In 2020, that had grown by 27.5% to $213.8 million. The company is already on its way to having a strong 2022. In Q1, it generated $65.4 million in revenue, up from $44.1 million in Q1 2020. If we assumed the same percent growth for the rest of the year, it would generate $66.1 million in Q2, $75.3 million in Q3, and $110 million in Q4. That would end the year at $316.8 million. With the tailwinds that most digital media is experiencing this year, this wouldn't surprise me.

The breakdown of revenue is also important. In Q1, $37.2 million of its total revenue came from display ads, with the other $28.3 million coming from performance (affiliate and commission-based marketing). While display advertising is growing (24% year over year), performance, which grew 99% year over year, is likely where much of the excitement is.

But what has separated Dotdash from the majority of digital media companies has been its relentless focus on strong margins. In 2020, with its revenue of $213.8 million, it earned an adjusted EBITDA of $66.2 million, which is a margin of a little over 30%. Let's compare that to, say, Buzzfeed (which I dug into here). In 2020, Buzzfeed did $321 million in revenue with an adjusted EBITDA of $31 million. This is a 10% margin.

While Dotdash is 40% smaller than Buzzfeed (based purely on 2020 numbers), its margin is more than 3x what Buzzfeed generates. That's a very good place to be.

And it's not letting up. While revenue grew by 48% Q1 2021 compared to Q1 2020, its EBITDA grew from $7 million to $19.9 million in the same period. That is a 184% increase.

With all of that said, is it any wonder that Dotdash is valued far better than Buzzfeed? Using actual numbers, Buzzfeed going public at $1.5 billion (with the Complex deal included) values the company at 88.23x 2020 EBITDA. If Dotdash is valued at $1.9 billion, this would mean it's valued at 28.7x 2020 EBITDA. And it's growing much faster than many of its contemporaries out there.

Can this growth be expected to continue?

To answer that, it helps to look at where some of the growth for Dotdash has likely come from. According to Axios, it has acquired seven brands since January 2019: MyDomaine, Byrdie, Brides, Liquor, TreeHugger, Serious Eats, and Simply Recipes. CEO Neil Vogel told Axios that the Serious Eats and Simply Recipes deal were "probably 3-4 times the size of anything we've bought to date."

And its strategy makes a lot of sense. I dug into it more last September, but the crux of it is not complicated. At the core is the belief that speed matters. Since a large percentage of its traffic likely comes from Google, the Dotdash brands are very aware that being fast could mean the difference between ranking #1 or #2 for a specific keyword, with thousands of visits on the line. With every new purchase, it does a couple of really smart things.

First, it moves the site onto its owned technology infrastructure. This can take upwards of half a year to accomplish, but the outcome is that every site uses the same tech. This means that the engineering team can build a feature once and roll it out to every site. Additionally, because there's a single code base, the team can spend a lot of time making the sites load as fast as humanly possible.

Second, it actually reduces the number of ads on the pages. One of the leading contributors to slow websites is the number of ads that have to load before the content appears. Most media companies are afraid to reduce the number of ads because they believe revenue will drop. Dotdash, though, understands that reducing ads actually increases the value of the remaining ads on the page. Additionally, if more people come to the site because it performs so well, overall revenue will rise. Less is more when it comes to advertising.

The issue is that there is a lot of competition to acquire brands. Buzzfeed, Recurrent Ventures, Bustle Digital Group, Outside, and other major players are scooping up consumer media brands left and right. I'll write about this in more detail another time, but we're at the point now where not a week goes by that a deal isn't happening. Many of these publications don't fit Dotdash's core niches, but the fact remains. With digital media being an exciting area again, there's more competition.

Consider this... It acquired seven brands between January 2019 and September 2020. In the 10 months since then, it hasn't announced any deals. Knowing that the company wants to acquire brands that can fit its genre of content and will deliver to the bottom line, it could simply mean that it can't find something at the right price. Nevertheless, if acquisitions have been a big driver of growth for Dotdash and it can't find future deals, it'll need to rely on organic growth.

All of this brings back the initial question that I posed at the top. Could Dotdash be the 12th spinoff?

Unless something serious happens to Dotdash (like Google shutting down), I see no way that it doesn't become the next spinoff. No other brand has reached a level of maturation to be having this conversation. However, it's hard to know at what valuation Dotdash would have to be for IAC to want to spin it off. Nevertheless, one thing is true. Dotdash has demonstrated that there are ways to grow incredibly fast and have high margins even when you're an advertising business.

I'll return to Dotdash in a few weeks when it reports its Q2 numbers.

Thanks for reading today's newsletter. If you have thoughts, please hit reply. I am thinking about building a database on AMO where I pull out key metrics from public media company earnings reports. Since more companies are going public through SPAC, it'll be fun to pay attention. If this would interest you, please let me know. Have a great week!