Congress Guaranteed Profits For This Industry
Congress passed a law earlier this year intended to fight sex trafficking. Under the new law, a website or similar service provider is liable for any instance where its platform was used.
To date, service providers have been protected from lawsuits. For example the Craigslist model (and the traditional model for all media) has been to make no representations regarding 3rd parties and to say that it can’t be held responsible for what gets posted. That position was
attacked a few years ago and Craigslist eliminated its escort advertisement section.
The new law marks a major change: going forward, media companies will be responsible for 3rd party content.
That means that Craigslist would have to vet every ad that gets placed or face a lawsuit and fine.
So Craigslist, Reddit, Backpage and similar companies did the cost/benefit analysis and decided to abandon the entire business of personal ads.
But those are the for-free personal ad sites. The for-fee sites are less affected.
First, because pimps don’t use these sites: they require too much personal information that can be used against them (bank details, for instance).
Second, because the site fees can cover the cost of additional vetting.
The IAC Investment Thesis
Millions of Americans looking for a relationship or just to hook up have no choice but to join for-fee sites. At least in the short term.
And the biggest owner of those sites is IAC Interactive. They own the top brand personals sites: Match, OKCupid, Plenty of Fish, and Tinder.
Congress essentially shut down IAC’s main competitors.
The big opportunity was spotted by Facebook (FB) which then declared their intention to enter the space in April. IAC stock fell by 20%.
That was a buy opportunity, as I said then. For various reasons that I’ve outlined previously, I don’t think FB can pull it off. And certainly not in the next few quarters.
The hook-up market essentially belongs to IAC. And sex sells.
IAC just released Q2 earnings: sales are up 30% y/y. Match (MTCH) and Tinder (TNDR) were the biggest contributors. Each of them saw revenue growth of +25%.
IAC’s stock is now up 15% since I alerted my readers April 20. And 40% since the Facebook hit.
Editor of Moneyball Economics