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IAC/Interactive Wins Fans

Shares climb as investors get on board Barry Diller's Net strategy.



shares climbed Tuesday as the company's third-quarter earnings beat helped persuade investors that Barry Diller's multipronged Internet attack is in good shape.

The stock was recently up $1.17, or 3.9%, to $30.99 on the strength of the company's profit report, as well as a plan to buy back 60 million shares.

The New York-based online conglomerate earned $75 million, or 24 cents a share, for the quarter ended Sept. 30, up from the year-ago $68 million, or 20 cents a share. Excluding certain items, earnings rose to 35 cents a share from 32 cents a year earlier. Revenue rose 11% from a year ago to $1.6 billion.

Analysts surveyed by Thomson Financial were looking for a 33-cent profit on sales of $1.61 billion.

The company said revenue for the quarter reflects a modest increase in domestic retailing, with flat revenue from HSN. The services sector continued to benefit from strength in ticketing but was hurt by market conditions in lending.

Continued growth at the company's search division contributed to strong revenue performance in the media and advertising sector. IAC's search and media business increased revenue by 34%, and revenue per query for continued to rise. Overall, revenue in the quarter reflects increased year-over-year contributions from every sector within IAC.

"We are unabashedly building an interactive conglomerate," said CEO Barry Diller. "We have three interrelated strategies: one, the growth of each of our businesses; two, as the connecting thread; and three, all our cross-company efforts which allow us to leverage our audience, scale and diversified expertise."

IAC repurchased 12.4 million shares at an average price of $25.79 during the quarter. IAC said its board authorized it to repurchase up to 60 million shares of its outstanding common stock, which is in addition to the 8.8 million remaining under the prior authorization.

"People are starting to recognize that IAC is not just a holding company -- it is an interactive conglomerate," says Sumit Desia, an equity analyst at Morningstar. " is serving as the glue that brings everything together, and if they continue to get everything right, they will be functioning like a finely tuned machine."

In a conference call for investors on Tuesday, Diller countered Monday's media reports that IAC was planning to acquire travel-related companies in the U.K. Diller said his comments were in reference to Expedia, a conglomerate of online businesses that IAC spun off in August 2005; Diller remains chairman of Expedia.

Diller also said that the increasing its presence in the burgeoning Internet video market will be a top priority for IAC. "There is no question about it. We will play as much as we can in that market," said Diller.

The push into video will extend along all of IACs' media properties, led by the company's search engine, Rather than bank on huge acquisitions, "we will follow a disciplined approach of developing video out of what we do," said Diller, adding that the company would shy away from big investments in other lines of business as well.

IAC has already begun to step up its efforts in the video space. On Monday, Brightcove, an Internet TV company backed by IAC and

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America Online, announced that it would open up its online video marketplace to all media companies and professional video content owners, instead of only selected companies invited by Brightcove.

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, which entered the market through its acquisition of YouTube in early October, and



, which sees dominating the video market as a key strategic priority.

As IAC continues to make headway into the high-growth Internet sector, there are also signs that its struggling HSN business -- which currently accounts for nearly half of IAC's revenue -- is showing signs of a turnaround under new management. While revenue continues to be flat for the retail division, operating income has surged 31%. "We believe a turnaround at Home Shopping Network is taking shape, and Q4 should be a referendum on changes made earlier this year," Standard and Poor's analyst Scott Kessler wrote in a research note.

Despite concerns that Wall Street continues to undervalue the company due to its complex business structure, Diller said that he did not desire to take the company private through a buyout. "We are very comfortable with our public company status, and we think the market over time will reflect the value we are building and like our configuration," said Diller.

Referring to increasingly active and prominent private equity firms, Diller said IAC has had "all the usual suspects knocking on the door."

The main benefit of remaining publicly traded is the ability to use its stock to make acquisitions -- a big plus for an acquisitive company like IAC, said Morningstar's Desai. But Diller "has always been a proponent of wanting to run IAC the way he thinks it should be run, and not by what Wall Street cares about," said Desai.

"You can do that much easier when you are private," Desai added. "While he said he is not excited about that prospect, I'm sure he thinks about it every once in a while."