Diller: InterActiveCorp's All Grown Up

The wheeling-and-dealing CEO says it's time to focus on operations, not acquisitions.
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InterActiveCorp (IACI) expects its bottom line to grow an average of 30% annually over the next five years, excluding acquisitions.

That's what the Barry Diller-led interactive commerce conglomerate told analysts Tuesday, as it sought to convince investors that it's making a transition from an deal-hungry acquirer of e-commerce companies to an operating company with good prospects for growth and profitability.

Diller, whose company owns such properties as the HSN home shopping channel, the Expedia travel site and the Lending Tree loan clearinghouse, has certainly convinced investors over the past year that online commerce is a calling for him, and not merely something to occupy his time as he prepares to return to a former life as a Hollywood mogul.

But judging by last week's reaction to InterActiveCorp's third-quarter financial results, investors aren't yet convinced that IAC will maintain its growth rate as greater numbers of financial transactions find their way online.

IAC's stock, which was priced at $37 on the eve of the Nov. 5 financial release, closed at $33.39 Tuesday afternoon, down 31 cents.

Need for Speed

Among other forecasts, IAC said that it expects revenue to grow, without help from acquisitions, at about a 20% rate over the next five years, to reach $16.5 billion in 2008. Operating income before amortization -- one of the company's preferred bottom-line yardsticks -- will grow at a 30% rate annually to about $3 billion.

The company says it expects to generate in the neighborhood of $10 billion in free cash flow -- that is, cash flow from operations minus capital expenditures and interest expense -- in the intervening years. The company plans to spend about half of that money on share repurchases.

Executives said that the forecasts were rough ones, and though the company was backing away from major acquisitions in the short run, it would still be on the lookout for investment opportunities.

"Is this going to happen exactly?" asked Diller, referring to the projections. "Of course not."

To build its various brands, the company expects to spend a total of $900 million on marketing in 2004, up from about $500 million in 2003. Spending money on the company's brands, said Diller, is "the smartest investment we can make."

In response to a question suggesting that the privately held search engine Google might try to acquire InterActiveCorp following a public offering of Google's stock, Diller said that Google and two other search companies -- he didn't say which, but presumably one is

Yahoo!

(YHOO)

and the other is part of

Microsoft

(MSFT) - Get Report

-- were interested in doing some sort of deal with Citysearch, IAC's online guide to entertainment, restaurants and other local businesses. The company is inclined to maintain its nonexclusive arrangements with the three unnamed properties, Diller said, but he suggested that IAC could be persuaded to ally with only one of the three under the right circumstances.

As for IAC's stake in Vivendi Universal Entertainment, the subsidiary of

Vivendi Universal

(V) - Get Report

that's in a deal to merge with

General Electric's

(GE) - Get Report

NBC, Diller reiterated earlier comments that he's generally agreeable to Vivendi's and GE's desires to buy out IAC's stake -- at the right price. IAC's share of VUE has a net present value of $2.2 billion to $2.4 billion, according to IAC.

As he has before, Diller said he wasn't in any rush to complete such a transaction. "We ain't anxious," he said.