Markets
Dot-Com Mogul
A former Hollywood heavyweight is building an Internet conglomerate.
By J. Alex Tarquinio
From Kiplinger's Personal Finance magazine, February 2005
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You may not know the name IAC/InterActiveCorp, but you're a customer if you buy something from the Home Shopping Network or make vacation plans through Hotwire.com or Expedia.com. If you're planning a date, you can buy tickets through IAC's Ticketmaster and locate the perfect bistro on Citysearch.com. IAC can even help you find a date on Match.com. And for the honeymoon, there's Hotels.com -- InterActiveCorp owns that, too.
The impressive record that IAC has built wringing sales out of the fickle dot-com industry is matched by its ambition. The company says it's the third-largest travel-services provider in the world (behind American Express and Germany's TUI), and Barry Diller, its chairman and chief executive, says IAC will be the top travel player within five years.
Deal maker
Diller, the Hollywood mogul who once ran Paramount, became head of what was then called Silver King Communications in 1995. Since then, he has made the company a blockbuster of e-commerce. In 1996, he merged it with Home Shopping Network. In 1997, he bought half of Ticketmaster. And he made a whirlwind of deals in 2003, buying the rest of Ticketmaster and a host of e-commerce companies, among them LendingTree.com and RealEstate.com.
But lately, the IAC story has needed a script doctor. The stock (symbol IACI) dropped from $39 in October 2003 to a low of $19 last October, before recovering to its recent price of $26. The reason: slowing growth in the travel unit, the company's biggest source of revenue and its fastest-growing business.
IAC's travel unit prospered when the leisure industry stumbled after the September 11, 2001, attacks. That's because Expedia.com and Hotels.com got plenty of cheap inventory from airlines and hotel chains that wanted to fill half-empty flights and vacant rooms -- even at deep discounts.
But now that travel is picking up, inventory for IAC is scarcer. Moreover, big hotel chains have taken a cue from airlines and started promoting their own Web sites. "We won't know how this will play out until the leisure industry hits a soft spot again," says analyst Jeetil Patel of Deutsche Bank Securities. He estimates that IAC's domestic travel sales grew just 23% in 2004, to $1.8 billion, after a 68% gain in 2003. But a growing number of Asian and European travelers are booking with IAC. Patel expected those travel sales to grow 76% in 2004, to $400 million.
Cash hoard
Investors received a pleasant surprise in November when IAC's board authorized the repurchase of an additional 80 million shares (the company has nearly 700 million outstanding). Investors like buybacks because fewer shares in circulation mean higher earnings per share and, in theory, a higher stock price. But even though New York City-headquartered IAC holds more than $3 billion in cash, it's not clear whether it will buy back any of those 80 million shares anytime soon. Diller says that it's proper for a "young and dynamic" business such as IAC to sock away a lot of cash, because it faces more opportunities and risks than mature businesses do.
The shares trade at 26 times the $1.03 per share that analysts expect IAC to earn in 2005. IAC's price-earnings ratio probably won't reach that of a Google (51 on 2005 estimates) or an eBay (72), mostly because IAC owns some slower-growing, traditional businesses, says analyst Safa Rashtchy of Piper Jaffray. But IAC should narrow the P/E gap, he says. He sees IAC rising to $31 over the next year. Analyst Thomas Underwood of Legg Mason thinks the shares could rise to $34.
--Research: Jessica Anderson