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Retail Unit Roughs Up IAC/Interactive

Shares slip after lackluster revenue growth in its top division.

Shares of



slipped in afternoon trading Tuesday after the company announced that fourth-quarter results couldn't ease concerns over sluggishness in its core retail division.

The stock, which has had a sharp rally recently, gave back some of its gains, slipping $1.40, or 3.5%, to $37.87.

Shares of IAC have gained about 55% since August, easily outpacing the 20% gains the broader


index has made over the same period. IAC also embarked on an aggressive stock buyback program during some of that time, repurchasing 10 million shares at an average price of $37.87 between Oct. 28 and Feb. 2.

The New York-based online media company posted an 85% drop in fourth-quarter earnings due to a $214 million write-down the company took on its discounts business. It earned $17 million, or a nickel a share, down from the year-ago $113 million, or 33 cents a share.

Revenue rose 8% from a year ago to $1.82 billion.

On an adjusted basis, excluding all manner of costs, earnings rose to 67 cents a share from 50 cents a year earlier. Analysts surveyed by Thomson Financial were looking for a 53-cents-a-share profit on sales of $1.88 billion.

Still, revenue growth in IAC's retail division continues to be lackluster as the conglomerate works on finding ways to jump-start its struggling HSN television shopping division. While retail revenue accounts for 54% of IAC's overall revenue, it grew only 4% from a year earlier. Operating income before amortization, meanwhile, slipped 12%.

Though the results are not dramatic, a new management team that IAC installed in the division is continuing a turnaround, the company said. "At HSN, we continue to make progress against initiatives in December," IAC President Doug Lebda said in a conference call for investors. "We don't expect it to change overnight, but we are gaining speed in the unique art of TV shopping."

Growing the unit's revenue will be key to a turnaround, IAC CEO Barry Diller said during the conference call, and the company thinks it can deliver growth that is at pace with that of television shopping by the end of 2007. "For the year, we look for the top line to certainly be in line with the segment, and the bottom line will follow," Diller said. "If we get the top line where we want it strategically, everything else will fall in place, and we will be on the right growth path."

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IAC's home finance unit, Lending Tree, also had a difficult quarter and delivered flat revenue because of a difficulty in converting leads to closed loans. "It was a tough market, and if you look at competition, they are posting significantly weaker results than we are," Legba said.

But IAC was much more upbeat when talking about the progress of, the company's search engine. grew its market share in 11 out of the 12 months ending in December, and the two new search features it rolled out over the quarter are "indicative of the type of innovation you will see with us," Legba said.

IAC said it is keeping a close eye on the dynamics in the Internet search business and may re-evaluate its partnership with


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, which currently powers the advertising results for, down the road.



, which recently unveiled its upgraded Panama advertising platform, and


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could also be contenders, Diller said.

"We have a very good partnership with Google, but there are other options now and we want to play this sensibly," Diller said, adding that IAC now accounts for 10% of Google's ad syndication business. "That brings a lot of traffic and a lot of queries. We are a great client to have."

Diller said that IAC is still eyeing acquisitions and continues to talk to candidates, with potential deal sizes ranging from between $10 million to $300 million. "Some will come through during the next year," Diller said.