Tinder, Amazon, IBM dominate US tech giant spinoff rumours

IAC recently reorganised its dating websites and some other properties into a unit called Match Group, which could be an initial step toward making it a separate publicly traded company.

Where EBay and Hewlett-Packard have gone, can Tinder be far behind?

IAC/InterActiveCorp, billionaire Barry Diller's holding company of websites and dating apps such as Tinder – where singles swipe their smartphone screens to match up with other users – may be among the next technology firms to pursue a breakup.

IAC, as well as chipmaker Qualcomm and online retailer Amazon.com, all contain divisions that don't have to be under one roof and may be more valuable if separated, according to analysts. EBay and Hewlett-Packard shares have outperformed the broader US equity market since announcing their respective splits late last year.

Breakups have been comprising a larger chunk of deal activity lately, according to Gavin Slader, a managing director in the investment-banking group at JMP Securities who focuses on the technology industry. About 40 per cent of the deal transactions his team advised on last year involved some sort of divestiture, versus only 10 per cent to 15 per cent in prior years. Whether the goal is to shed smaller units that aren't a core part of the company or to split a fast-growing business from a more cash-flow driven segment, it's a trend that will continue, Mr Slader said.

"We're definitely continuing to see the divestiture/breakup/spinout conversation," he said in a phone interview. "With some of the larger companies, you're getting to the point of the old industrial conglomerate, where they're being valued at a conglomerate discount."

If EBay's dual-business structure was casting a shadow over the stock, it's been lifted in the four months since heeding activist shareholder Carl Icahn's call to spin off PayPal. The shares gained 7 per cent since the company's September 30 separation announcement.

Similarly, Hewlett-Packard shareholders have rewarded the company for its decision to break apart printers and personal computers from enterprise hardware and software.

IAC

Besides dating services Match.com, Tinder and OKCupid, the $US5.5 billion ($7 billion) company owns search sites About.com and Ask.com as well as the Vimeo video-streaming business. The New York-based company recently reorganised the dating websites and some other properties into a unit called Match Group, which could be an initial step toward making it a separate publicly traded company. Mr Diller is known to do spinoffs – he announced four at once in 2008 and also spun out Expedia in 2005.

IAC is working on monetising Tinder by creating ways to charge users, as the company has done with its other dating properties. Once Match Group proves it can do that, the unit may be in a better position to become a stand-alone entity – perhaps even later this year or early 2016, said John Blackledge, an analyst for Cowen Group in New York. He estimates Match Group alone could be valued at close to $US5 billion based on the earnings before interest, taxes, depreciation and amortisation it may generate next year.

Qualcomm

The majority of the $US117 billion company's revenue comes from selling chips used in mobile phones such as Apple's iPhone, yet the majority of its profit is generated by the fees it collects from smartphone makers that license its technology. There's been talk in the past of splitting San Diego-based Qualcomm in two, which may also alleviate legal and regulatory challenges it's faced. The company just agreed to pay $US975 million and give a discount on royalties due on handsets sold in China to settle an antitrust investigation, and US and Europe authorities are also looking into the company. With the shares down about 7 per cent in the past year – one of the worst returns among tech stocks in the Standard & Poor's 500 Index – it may once again start to look like an attractive option for shareholders.

Investors may wonder if the high-margin licensing unit, with its recurring revenue stream, would trade for a higher valuation than it gets today by being locked in with the chip business, said Mike Walkley, an analyst for Canaccord Genuity Group. At about nine-times ebitda, Qualcomm is one of the cheapest US semiconductor stocks, according to data compiled by Bloomberg based on companies larger than $US5 billion.

Amazon.com

The $US174 billion online marketplace may be gearing up for a split from its web-services unit, which has grown to exceed 1 million customers globally. It will begin reporting Amazon Web Services in a separate category in this year's financial statements, branching out from the vague "North America, Other" group it had been lumped in with previously. The cloud-computing service's usage growth was almost 90 per cent in the fourth quarter, Seattle-based Amazon said last month.

Microsoft, IBM

Microsoft Corp and International Business Machines, two American tech giants, have long been subject to breakup speculation, though it's never come to fruition. For Microsoft, the talk has focused on jettisoning its Xbox video-game consoles and the Bing search engine. For IBM, it's about stepping up what is essentially a slow-moving slimdown that the New York-based company has been pursuing for a decade. Microsoft chief executive officer Satya Nadella can at least point to the stock's 16 per cent gain in the past year, while IBM's Ginni Rometty is up against a 12 per cent decline.

Representatives for IAC, Amazon and IBM didn't respond to requests for comment. Representatives for Microsoft and Qualcomm declined to comment.