InterActive Sees Hotel Squeeze

Updated from 4:28 p.m.

IAC/InterActiveCorp (IACI) slumped Wednesday morning after becoming the latest Internet player to warn of a slowdown in the travel business.

Shares plunged 17% in early trading as the company outlined problems throughout its far-flung online travel operations. The postclose meltdown comes on the heels of July's Internet stock selloff and adds to a deep decline this year in IAC shares.

For the period ended June 30, Barry Diller's New York-based travel giant earned $91.6 million, or 12 cents a share, from continuing operations. A year ago, the company earned $57.9 million, or 9 cents a share, on the same basis.

Total earnings fell to $69.9 million, or 9 cents a share, from the year-ago $92.9 million, or 16 cents a share. But so-called adjusted earnings, excluding certain costs, were up 22% from a year ago at 22 cents a share, which is a penny ahead of the Thomson First Call analyst consensus estimate.

Though earnings beat Wall Street's bottom line, revenue was weak, falling to $1.5 billion from $1.53 billion a year earlier (while rising from $1.29 billion on an apples-to-apples basis). Wall Street analysts had seen second-quarter revenue of $1.58 billion.

Chairman Barry Diller told analysts on a postclose conference call that there was nothing fundamentally wrong at the company or its travel business. That said, he seemed to signal that coming quarters at IAC, as it likes to be called, may be difficult.

"Over the next years," he said, "we're going to have really strong growth."

That in mind, the company trimmed its full-year cash flow forecast Tuesday. InterActive forecast operating income before amortization, or OIBA, of around $1 billion. That's at the low end of the company's original $1 billion-$1.2 billion range.

InterActive also said it expects operating income of $430 million for the year.

IAC, which recently changed its name from InterActiveCorp, blamed a looming slowdown in the U.S. hotel business, among other factors.

IAC's U.S. merchant hotel business "continues to experience competition from other third party distributors, promotion by hotel chains of their own direct sites, and a more challenging supply environment resulting from recent increases in hotel occupancy rates," the company said. "We believe these factors have resulted, and may continue to result, in slower growth rates in domestic merchant hotel bookings."

In addition to disappointments at its Hotels.com and Hotwire.com travel business, according to IAC, other problems include poorly performing operations in Germany, weaker-than-expected top- and bottom-line results at the Match.com dating service, and a difficult environment for the European travel industry both offline and online.

In the closely watched travel segment, revenue rose 34% to $555.5 million, short of TheStreet.com's surveyed consensus of $574 million. Travel OIBA -- subtracting out a one-time benefit from the reversal of $6.4 million in expenses related to a contractual dispute -- amounted to $164.2 million, compared to TheStreet.com's consensus of $159 million.

The news came a day after online rival Priceline (PCLN) offered weak second-half projections, and less than a month after big travel site Orbitz (ORBZ) offered up its own earnings disappointment.

Shares in InterActiveCorp dropped $4.60 Wednesday to $22.43.

>To order reprints of this article, click here: Reprints