Diller Can't Hide Travel Slowdown

InterActiveCorp (IACI - commentary - Cramer's Take) CEO Barry Diller proclaimed Monday that "we are on our way into a new bubble." But Diller shouldn't complain, because it is bubble-minded thinking that keeps IAC's stock as high as it is.

The New York-based Web retailer and home shopping company reported fourth-quarter earnings Monday that were so 1999. True, Henry Blodget wasn't on the call, but everything else was there: the heavy use of misleading in-house company earnings measures, the poor financial disclosure in key areas, the gaudy five-year earnings growth projections -- right alongside indications that business is getting harder.

From continuing operations, IAC earned $149 million in the fourth quarter, up 24% from the year-earlier period. But those numbers are meaningless, because they are massively skewed by the acquisitions IAC has recently made, issuing a huge amount of stock to pay for its deals. As a result, earnings per share actually fell in the fourth quarter to 19 cents, from 24 cents in the year-earlier period.

Analysts expect IAC to make around 96 cents a share in 2004, which means IAC stock is trading on a multiple of 35 times forward earnings. Not astoundingly high -- but then, the estimate comes from Wall Street analysts who on Monday's conference call showed little capacity for understanding what's actually happening at the company.

The fact is, IAC's earnings could easily falter this year. That is likely to happen because earnings from the travel division -- the business the bulls are placing all their hopes on -- are starting to show signs of vulnerability.

IAC stock jumped $1.60, or 5%, to $33.55 Monday.

Nose Job

As usual, all eyes were on IAC's travel business, which includes well-known Internet names such as Expedia.com and Hotels.com. The company spent over $5 billion last year buying the parts of both companies that it didn't own. Having paid through the nose, InterActiveCorp now finds it is imperative that both businesses perform according to plan. And CEO Diller was quick to defend the travel business on the Monday call, saying "visions of serious margin deterioration are not realistic." Why doubt such a hard-hitter?

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In keeping with TSC's editorial policy, Peter Eavis doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback and invites you to send any to [e-mail].