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Heat Stays On IAC/InterActiveCorp

Vishesh Kumar

It's tough to find a bright spot at IAC/InterActiveCorp(IACI Quote - Cramer on IACI - Stock Picks).

Shares of the Internet conglomerate were off 4% Tuesday after the company announced second-quarter earnings that fell short of Wall Street's expectations. IAC earned $96 million, or 32 cents a share, for the quarter ended June 30, up from the year-ago $54 million, or 17 cents a share.

Revenue rose to $1.51 billion from $1.43 billion a year earlier.

But analysts surveyed by Thomson Financial were looking for a 33-cent profit on revenue of $1.61 billion.

While conceding the performance during quarter was disappointing, IAC management said that company continued to move in the right direction.

"Our consolidated results are not what we hoped," IACI CFO Thomas McInerney said in a conference call for investors. "But directionally they are correct."

Weaker-than-expected results at IAC's Ticketmaster ticketing service along with tight margins in the HSN home shopping unit contributed to the soft results, the company said.

Revenue at Ticketmaster grew 3% to $302.7 million, while operating income fell 24% to $52.4 million.

Revenue in the company's retailing unit, which includes HSN, grew 1% to $701.4 million, while operating income dropped 31% to $34.6 million.

IAC Chairman Barry Diller said a surprisingly weak concert schedule over the quarter was responsible for Ticketmaster's disappointing results. "We are dependent on selling concert tickets, which depends on whether [performers] decide to come and play or not play," Diller said. "And [performers] are not timing their performance based on our quarterly reporting period."

The company's LendingTree loan unit also continued to struggle amid extended difficulties in the credit markets. Revenue dropped 9% to $98.6 million, while operating income before amortization tanked 89% to $1.7 million.

IAC management said there had been substantial layoffs at LendingTree and HSN in order to cut costs.

But perhaps it was the lackluster performance of the company's Ask.com search engine that should be the biggest cause of concern to investors. Previously touted as the glue that would bind IAC's far-flung Internet properties together, the company continues to struggle to gain market share against major players like Google(GOOG Quote - Cramer on GOOG - Stock Picks), Yahoo!(YHOO Quote - Cramer on YHOO - Stock Picks) and Microsoft(MSFT Quote - Cramer on MSFT - Stock Picks).

As of June, Ask.com's share of the search market remained flat month over month at only 5%, according to researcher Comscore. And a high-profile marketing campaign that management had previously talked up as a key to gaining traffic last quarter seems to have fallen short, forcing IAC to have to change gears.

"We are not seeing the same impact with this marketing campaign as we have seen with ones in the past," IAC President and Chief Operating Officer Doug Lebda said in a conference call. "We are going to be retooling marketing with a much more call to action and product demo orientation."

IAC also said that revenue-per-query declined during the quarter, but the company attributed the slip to users clicking on search results over paid ads. Lebda said the trend would bode well for the company over the long run as the increasing mix of search results means the engine is yielding better results.

Revenue for IAC's media and advertising category, which includes Ask.com, grew 33% to $174 million year over year. But its operating loss narrowed just 6% to $10.7 million, in part because of Ask.com's marketing spending.