Diller Rains on IAC Parade

The exec reverses a rally by talking about spending and acquisitions.
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Updated from 10:18 a.m.

IAC/InterActiveCorp

(IACI)

swung to a fourth-quarter profit and set a plan to buy back 42 million shares, but CEO Barry Diller quenched an early rally by talking of the need to invest in the business.

The New York-based online company made $113 million, or 33 cents a share, for the quarter ended Dec. 31, reversing the year-ago loss of $46 million, or 13 cents a share. Revenue rose 45% from a year earlier to $1.79 billion. Excluding certain costs, pro forma earnings rose to 52 cents a share from 41 cents a year ago, beating the Thomson First Call analyst consensus estimate by a nickel.

News of the solid quarter sent shares of IAC up 5% in early action Wednesday. But the stock reversed course at midday after Diller spoke of the need to stay on the offensive.

"Don't misunderstand the emphasis on investments," Diller said on a midmorning conference call. "We think it's good for us to invest money, offensively and aggressively in our business."

Investors had struggled to understand Diller's strategy of piecing together seemingly disparate businesses that do everything from sell tickets to lend money. Last year, he spun off the

Expedia

(EXPE) - Get Report

travel business to make IAC easier to understand.

"He's becoming strategically complete,'' says Gabelli Asset Management fund manager Larry Haverty, who owns shares of IAC personally and in his fund. "The business is undervalued and the stock is growing."

The positive earnings surprise from IAC contrasts with disappointments from other Internet titans including

Google

(GOOG) - Get Report

,

Yahoo!

(YHOO)

and

eBay

(EBAY) - Get Report

.

Last year's $720 million purchase of Cornerstone Brands and strong online demand boosted sales in IAC's retailing business by 42% to $940.9 million. Operating income increased 57% to $94.5 million.

Media and Advertising revenue jumped more than 10-fold to $109.5 million because of last year's $2.3 billion acquisition of the Ask Jeeves search engine. The business had $7.7 million in operating income compared with a loss a year earlier.

Ask Jeeves' share of U.S. search queries was 6.3% in December, up 20% over the prior-year period, growing fastest among the major search engines on a percentage basis. Citysearch completed its first year of profitability and substantially grew unique users.

Services results were led by a 24% increase in worldwide ticket sales in Ticketing and significant growth at LendingTree, particularly from closing loans in its own name. Sales jumped 46% to $475.5 million on operating income of $67.6 million.

IAC's Membership & Subscriptions business saw sales rise 8% to $261.8 million, and operating income increase 16% to $81.1 million. The growth was driven by a 21% increase in paid subscribers in Personals and improved results in Vacations. Performance in Discounts was disappointing during its seasonally important fourth quarter.

Diller's appetite for the acquisitions that built IAC also seems to have cooled. During the conference call, he mentioned that prices for Internet companies were "wildly overhot."

"Our acquisitions have slowed to less than a crawl," he said, adding that the company would continue to do deals that made strategic sense.

After rising as much as 8% earlier, IAC was down 13 cents Wednesday afternoon at $27.53.