MGM Provides Support to IAC Investment Thesis, Share Stake Rises

Posted on: February 14, 2024, 03:18h. 

Last updated on: February 15, 2024, 12:20h.

Barry Diller’s IAC/InterActiveCorp (NASDAQ: IAC) posted fourth-quarter revenue that missed Wall Street estimates. But the shares rallied Wednesday due in part to the company’s large stake in MGM Resorts International  (NYSE: MGM).

IAC CEO Joey Levin in a 2019 interview. He lauded the company’s MGM Resorts stake in a new letter to investors. (Image: Patrick Fallon/Bloomberg)

The sharp move higher by the media conglomerate’s stock arrived as MGM slumped. That’s because investors paid more attention to revenue retrenchment at the operator’s regional casinos rather than focusing on record reports from its Las Vegas and Macau properties.

Our largest holding, MGM is a keen beneficiary of growth in the travel & leisure sector, which has materially outpaced broader consumer spending generally for the last 20 years,” wrote IAC CEO Joey Levin in a letter to investors. “Consumers’ ever-increasing time spent on social media has elevated exposure and access to new experiences, making the top of the travel & leisure funnel — fear of missing out (FOMO) — only grow.”

Diller and Levin joined MGM’s board of directors in August 2020 after IAC invested $1 billion in the gaming company’s shares.

MGM Has Been Good to IAC

IAC was prescient with its purchase of MGM equity, stepping into the gaming stock in 2020 after it was drubbed due to the coronavirus pandemic.

Diller’s company initially bought shares of the Bellagio operator at $12.17 before adding another $1 billion worth of the stock over the succeeding three months. Even when accounting for Wednesday’s nearly 6% decline, MGM has rewarded IAG’s investment. Using $12.17 as the starting point, the gaming stock is up 3.5x since then.

As of mid-2022, IAC owned 15% of MGM’s shares outstanding. But that percentage has increased substantially due to the casino giant being a dedicated buyer of its own shares, thus reducing the amount of shares outstanding.

“We owned nearly 20% at the end of 2023, and with continued repurchases, could still own more before the secret gets out,” added Levin in the investor letter.

IAC Remains Bullish on MGM

For IAC, MGM is a minority, passive investment. But the owner of Angi, Dotdash Meredith, and other holdings is overtly constructive on the gaming company’s prospects. Levin sees the Cosmopolitan operator benefiting as consumer consumption trends shift from goods to services.

As social currency moves away from ownership (less shareable online) towards experiences, MGM has gained,” he noted in his letter to shareholders. “MGM is also the market leader in Las Vegas, which showed the world again this past weekend why it’s the global center for sports and entertainment experiences: nearly every major live tour, show, fight, race, competition, chef, and soon to be every major league sport, has a Las Vegas outpost, and MGM often plays host.”

Specific to his company, Levin argued that IAC’s current market capitalization reflects its cash on hand and investments in MGM and car rental firm Turo, and nothing else. That’s implying those who buy the stock today get the likes of Angi and Dotdash for “free.”