InterActiveCorp (IACI) appears likely to benefit from a strengthening online travel business in the third quarter.
But despite the company's growing role in online commerce, the sell-side analysts who are fans of the former USA Interactive still wonder when it will get some respect. Investors hope the answer is Wednesday, when IAC is slated to report its latest round of financial results.
Led by Barry Diller -- the Hollywood mogul who was an early convert to interactive marketing -- IAC has positioned itself as a leader in online travel booking, financial services, entertainment ticketing and even dating.
But the parent of such companies as the HSN home shopping TV channel, the online travel agency Expedia and the LendingTree loan clearinghouse still trades at a discount to other Internet headliners such as
And that won't change, say analysts, until the acquisition-hungry IAC's finances clean up and investors assure themselves that IAC's collection of businesses clearly benefits, in terms of increased revenue and reduced costs, from being under the same corporate umbrella.
IAC's shares may already have been boosted by IAC's efforts, completed earlier this year, to buy back publicly held stakes in three of its majority-owned subsidiaries: Expedia, Hotels.com and Ticketmaster. Shares in IAC doubled from February to June, rising from a 52-week low of $20.73 to a July high of $42.88. The stock traded at $37.28 Tuesday, down 43 cents.
Certainly, for the third quarter ended Sept. 30, Wall Street is expecting strong growth. Revenue, according to analysts surveyed by Thomson First Call, should amount to $1.55 billion, up 30% from year-ago sales. Analyst Shawn Milne of SoundView Technology expects IAC's core travel assets of Expedia and Hotels.com to show revenue growth of more than 40%, which would account for more than 70% of the company's organic growth.
Earnings before interest, taxes and amortization -- IAC and its analysts seem to prefer that measure to the more common, depreciation-excluding EBITDA -- are expected in the neighborhood of $205 million for the quarter, according to
informal survey of estimates (ranging from $180 million to $229 million).
Adjusted earnings per share -- that is, the Thomson First Call bottom-line number not in accordance with generally accepted accounting principles -- is expected to come in at 18 cents a share, though a lower-than-expected share count could bump that number higher.
Despite the quarterly performance, one senses that IAC's stock won't re-embark on its ascent -- and enjoy valuations similar to other big Internet names -- without certain changes.
Milne, who has an outperform rating on IAC, notes that as of the end of October, IAC was trading at an enterprise-value-to-2003-EBITDA multiple of 25, compared to Amazon's 55, eBay's 43 and Yahoo!'s 64. SoundView hasn't done underwriting for IAC.
One catalyst for a closing in that gap could be the monetization of IAC's shares in Vivendi Universal Entertainment, which majority shareholder
plans to merge with
But investors may also be waiting for clearer payback from IAC's diligent agglomeration of assets. "We believe that investor sentiment on additional acquisitions within the travel group will be more negative unless clear integration efforts are undertaken first," wrote US Bancorp Piper Jaffray analyst Safa Rashtchy in a recent note. "At some point investors need to see at least the beginning of an effort to get more from the sum of the parts."
Otherwise, says Rashtchy, IAC "will continue to bear a heavy discount as a rollup model with complicated financials." Rashtchy has an outperform rating on IAC; his firm has either done banking for IAC in the last 12 months or intends to seek such business in the next three months.