IAC - InterActiveCorp (IACI)

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IAC/InterActiveCorp (IACI) owns a series of websites and other media properties, including Ask.com, Match.com, and LendingTree.com, Ticketmaster, and the Home Shopping Network. However, some of its larger operations, such as the Home Shopping Network and Ticketmaster, have significant offline investments (television studios and ticketing systems, for example) in addition to their presence on the web.

Since founding IAC in 1995, CEO and majority shareholder Barry Diller has pieced together the company through hundreds of acquisitions, spin-offs, and divestitures. These new markets are not always successful, however, and as a result this strategy of rapidly acquiring new divisions - and spinning-off unattractive ones - exposes IAC to a variety of risks and makes future earnings and profitability difficult to predict. More than half of its 2007 revenues were generated by the Home Shopping Network and Ticketmaster, but sales and operating margins at both have been declining since 2005.

HSN has suffered from poor merchandising decisions-- it ordered too many products which led to excess inventory and larger shipping and handling costs. Ticketmaster has had increased ticketing royalty rates and advertising expenses. Ticketmaster also lost one of its biggest customers, Live Nation (LYV) (it accounted for 20% of Ticketmaster's revenue^[1]), because Live Nation is starting its own ticketing service. As a result of these difficulties, IAC has announced plans to spin off HSN and Ticketmaster, along with two others - Lending Tree and Interval International.^[2] The major brands that will remain with IAC will be Ask.com, Match.com, Evite.com, Gifts.com, College Humor, BustedTees, and Chemistry.com. As of 2007, the company has begun to focus on integrating Ask.com into its other offerings by adding an Ask.com search bar to its other websites. This not only drives search for Ask.com, but helps IAC generate greater revenue from its targeted advertising.

[edit] Business Financials

IAC's revenues were approximately $6.4 billion in 2007, but profit margins at the internet giant have been slipping since 2005. This is partially due to the problems at the Home Shopping Network and Ticketmaster mentioned above. Although the company restructured management at HSN in 2007 and developed a strategy to revitalize the brand, IAC still plans to divest its Retailing arm (which accounted for 47% of revenues in 2007 and includes HSN) and most of its Transactions division in 2008.^[3] This move, although detrimental to IAC's top line (revenues), will help as the company tries to grow and improve its Media & Advertising division.

IAC 2007 10-K^[4]

Achieving growth in Media & Advertising has also dragged down margins. Since its acquisition of Ask.com in 2005, the company has significantly increased its focus - and spending - on its information searching and online advertising businesses. This can be seen in the chart below, which shows that Media & Advertising has increased its contribution to total revenues from 4% in 2005 to 12% in 2007.^[5] Despite heavy investment in its younger businesses, IAC faces strong competition from established providers such as Google (GOOG), Yahoo! (YHOO), and MSN, and is running Ask.com at a loss to gain market share and awareness amongst consumers.

IAC 2007 10-K^[6]

[edit] Segments

[edit] Retailing (47% of revenue, -116% of Operating Loss)

IAC's Retailing segment markets and sells a variety of third party and private label merchandise to consumers through various direct channels, including television home shopping programming on the HSN network, Cornerstone Brands print catalogs, and various websites, including HSN.com and Shoebuy.com.

[edit] Transactions (27% of revenue, 178% of Operating Loss)

The Transactions segment of IAC consists of four brands - and their subsidiaries - which provide a wide variety of services and products.

• Ticketmaster is one of the largest providers of online an offline licketing services, and consists of websites, call centers, and independent retail outlets.
• LendingTree offers lending services, as well as lending-related products including loan settlement services, by connecting consumers with providers in the lending industry.
• Real Estate consists of a variety of businesses, which offer services that range from online property listings and valuation tools to a full service real estate brokerage operating in fourteen markets. It also includes firms that sell products geared towards banks, mortgage lenders, and real estate professionals.
• Service Magic is an online marketplace that helps connect consumers with pre-screened home service professionals.

[edit] Media & Advertising (12% of revenue, -18% of Operating Loss)

IAC's Media & Advertising segment consists of IAC Search & Media, Citysearch, and Evite. The Search & Media division is the focus of this segment, as it includes Ask.com, which provides information search services, consumer applications, and targeted advertising.

[edit] Membership & Subscriptions (14% of revenue, -79% of Operating Loss)

This segment consists of Interval, which provides timeshare exchange and membership services, Match, which includes dating sites such as Match.com, uDate.com, and Chemistry.com, and Entertainment, which is a marketer of coupon book memberships, discounts, merchant promotions and Sally Foster Gift Wrap.

[edit] Trends and Forces

[edit] Spinning Off Major Segments

Soon this small media conglomerate will spin-off a handful of operations.

Recent sales breakdown among the five segments as follows:

• HSN 48%
• 'New' IAC 25%
• Ticket Master 19%
• Lending Tree 3%
• Interval 5%

The New IAC will keep most of the cash. Interval is a growth segment. Lending Tree is losing money due to the falling housing market in the US. Ticket Master has new competition in its segment. HSN could easily become an acquisition target for any number of media companies. New IAC will hold Internet properties such as: Ask.com, Match.com, Evite.com, Gifts.com, College Humor, BustedTees, Chemistry.com and many more.

[edit] The Growth of Online Markets

IAC operates in a variety of markets online. In most of these markets, such as online retailing, the internet is already widely accepted as a means for commerce. However, the company has also made investments in developing markets, which are in their early stages of growth. These investments, which include sites such as LendingTree.com and RealEstate.com, are in markets that are largely untested online. For example, it is yet to be seen whether most consumers are willing to apply for loans or purchase real estate on the internet. Because it is unclear whether these (and other) transactions will become commonplace on the web, the long-term viability of many of IAC's businesses is uncertain.

[edit] Losing Live Nation

In 2007, IAC's Ticketmaster unit announced that it would not renew its contract with its largest customer, Live Nation (LYV).^[7] The concert promoter, which accounts for almost 20% of Ticketmaster's revenues, plans to launch its own ticketing business when the contract expires at the end of 2008. Concert ticketing is a high fixed cost business (meaning that most of the costs to operate are incurred regardless of how many tickets are sold), so the immediate loss of sales, and the subsequent losses to Live Nation's new ticketing service, could adversely affect margins at Ticketmaster.

[edit] Integrating Around Ask.com

After acquiring Ask.com in 2005, IAC has started to integrate its other offerings around the search site. By adding Ask.com search boxes to other sites owned by IAC, it can drive higher search volumes and generate more revenues from targeted advertisements. Also, Ask.com can use its targeted results to help push traffic to other IAC sites. While this strategy depends on Ask.com gaining popularity and market share, it will help expose the site to users of IAC's other products, which are often already strong brands.

[edit] Internet Advertising and E-commerce Strong During a Recession

In 2006, online advertising sales accounted for more than 75% of the Media & Advertising division's revenues at IAC. Despite the US economic slowdown, internet advertising and e-commerce have proven to be surprisingly robust. Online sales went up 17% in the first quarter of 2008, driven by targeted search ads that have helped online stores outperform their physical counterparts.^[8]

[edit] Competition

• Retailing: IAC's Retailing segment, which consists of the Home Shopping Network, Cornerstone Brands print catalogs, and a variety of smaller retail websites such as Shoebuy.com, operates in a highly competitive environment. It faces pressure from traditional retailers, both off and online, and from other companies that aim to sell direct to consumers through television broadcasting. Competitors include:
  • QVC
  • Amazon.com (AMZN)
  • Shop at Home Network
  • ShopNBC
  • ValueVision Television

• Transactions: This segment of IAC consists of Ticketmaster, Real Estate, LendingTree, and ServiceMagic. All four of these businesses compete with traditional offline businesses that provide similar products; for example, LendingTree competes with brick-and-mortar banks and the websites they operate. Ticketmaster, which generated almost 74% of the revenues in this segment in 2007,^[9] competes with online auction sites such as StubHub.com, and will have to compete directly with Live Nation (LYV)'s new ticketing service when it launches. Other competitors, by IAC brand, include:
  • Ticketmaster
    • Tickets.com
    • TicketLiquidator
    • Broadway.com
  • LendingTree
    • Citigroup (C), Bank of America (BAC)
    • Countrywide Financial (CFC)
  • Real Estate
    • Zillow.com
    • Homegain
    • AOL, MSN, Yahoo! (YHOO) Real Estate sections
    • Remax

• Media & Advertising: The focus of IAC's Media & Advertising segment is its Ask.com search service, which competes with established providers such as Google (GOOG), Yahoo! (YHOO), and MSN. Ask.com currently represents about 2.3% of the query market share in the United States. Other competitors include:
  • ValueClick (VCLK)
  • AOL/Advertising.com

• Membership & Subscriptions: This division of IAC is broken up into three segments: Interval, Match, and Entertainment. The Interval segment, which provides timeshare exchange and membership services, competes most notably with Resort Condominiums International, LLC. The Match and Entertainment businesses compete in fragmented industries, although Match does have some large competitors:
  • True.com
  • Sparks Network
  • Yahoo! (YHOO) Personals
  • eHarmony

 IAC - InterActiveCorp

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	Select All  |  Select None Companies Google (GOOG) Yahoo! (YHOO) PlanetOut (LGBT) Microsoft (MSFT) EBay (EBAY) InfoSpace (INSP) LookSmart (LOOK) 24/7 Real Media (TFSM) Local.com (LOCM) Sohu.com (SOHU) TheStreet.com (TSCM) Time Warner (TWX) IAC - InterActiveCorp (IACI) Cancel

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Company	Data From	Advertising Revenue Growth	Increase in Page Views	Revenue from Subscriptions	Net Income
IAC - InterActiveCorp (IACI)	2007	12%[10]	Add	$890M[10]	$87.5M[11]
InfoSpace (INSP)	2007	(8.62%)[12]	Add	Add	$14.6M[13]
Sohu.com (SOHU)	2007	29.9%[14]	Add	Add	$34.9M[14]
TheStreet.com (TSCM)	2006	62.2%[15]	78.9%[16]	$35.5M[15]	$12.9M[15]
Yahoo! (YHOO)	2007	8.19%[17]	11%[18]	Add	$660M[19]

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[edit] References

1. ↑ Morningstar
2. ↑ IAC, 2007 10-K, Item 1, Page 6
3. ↑ IAC, 2007 10-K, Item 6, Page 46
4. ↑ IAC, 2007 10-K, Item 6, Page 41
5. ↑ IAC, 2007 10-K, Item 6, Page 46
6. ↑ IAC, 2007 10-K, Item 6, Page 46
7. ↑ The New York Times, “Ticketmaster to End Live Nation Contract,” 08/23/07
8. ↑ The Mercury News, “No Economic Slowdown on the Internet,” 4/26/08
9. ↑ IAC, 2007 10-K, Item 6, Page 45
10. ↑ ^{10.0 10.1} 2007 IACI, 10-K, Item 7, Page 41
11. ↑ 2007 IACI, 10-K, Item 8, Page 77
12. ↑ INSP , 2007 10-K, Item 6, Pg 27
13. ↑ INSP , 2007 10-K, Item 8, Pg 53
14. ↑ ^{14.0 14.1} 2007 SOHU, 10-K, Item 6, page 42
15. ↑ ^{15.0 15.1 15.2} 2006 TSCM, 10-K, Item 6, Page 20
16. ↑ 2006 TSCM, 10-K, Item 1, Page 8
17. ↑ YHOO, 2007 10-K, Item 7, Pg 39
18. ↑ YHOO, 2007 10-K, Item 7, Pg 40
19. ↑ YHOO, 2007 10-K, Item 8, Pg 60