IAC Focuses On Sites With Lots Of Traffic

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Ask.com, Vimeo.com and Match.com may seem like unrelated websites, but there's one thing they have in common: They're owned by media conglomerate IAC.

New York-basedIAC ( IACI ) owns more than 150 Internet brands in the areas of search and applications, personals, local, media and other. Additional names include About.com, Dictionary.com, Chemistry.com, OkCupid.com, CityGrid.com, HomeAdvisor.com and Tutor.com.

IAC is the seventh-largest site network in the world. Its websites get over 1.1 billion visits and more than 346 million unique visitors per month. The company is headed by longtime entertainment figure Barry Diller.

"What's interesting about the company is that they've historically been referred to as a multibusiness business," said analyst Scott Kessler of S&P Capital IQ. "You don't necessarily know the IAC name or brand, particularly if you're a consumer in the marketplace. But it's a huge number of interesting and compelling Web properties."

The company has been around since the mid-1980s and has gone through various growth spurts, involving many acquisitions and spin-offs. In the early days, its acquisition strategy was pretty aggressive. But that strategy was fraught with risks, says Kessler.

In more recent years, however, management has put less of a focus on M&A and more of a focus on execution.

More Measured

"They've amassed all these kinds of brands and businesses and have operated them very effectively, very efficiently. They've been more measured in some of their strategic decisions from an M&A perspective," added Kessler. "I think they've been pretty shrewd in terms of some of the capital allocation decisions that they've made. And I think, most importantly, perhaps, operationally the company seems to continue to execute on a regular basis."

One way IAC is different from other large Internet companies is that it tends to operate all the businesses autonomously.

Its stock, after hitting a high last October, went through a soft patch, but has been recovering since. The reason for the softness? The market's perception of the impact of changes toGoogle 's ( GOOG )advertising policies on IAC's Ask.com.

"They (Ask.com) weren't one of these bad actors that Google is trying to police up," said Brian Fitzgerald, an analyst at Jefferies & Co. "There were some of these other guys that had to make these changes."

"The Street got a little overly concerned with the Google changes. This company has had a 10-year relationship with Google. That is not a business relationship that is going to go sour overnight."

The search engine Ask.com generates 5% of all global online search queries. The search segment accounts for more than half of IAC's total revenue. It grew 41% in 2012, outpacing the industry's search growth rate of 15%. Nearly all of that segment's revenue comes from Ask.com and more than 90% of it comes from Google display ads that appear on Ask.com.

Another way IAC has been trying to be more proactive about its business is by reshaping its earnings calls, noted Fitzgerald. It was a very hands-off call, but now "they've made a market change to adjust how they interface with the Street. They started putting out detailed notes and prepared remarks. So, they really want to make sure that their message is getting articulated to the Street."

He expects the search segment to grow at 19% in 2013, generating revenues of $1.7 billion. IAC also acquired About.com in 2012 and should see positive synergies from that transaction.

"With the About.com acquisition, what they're doing is they're starting to layer in some of their own content in the results. So, it's not 100% Google data," said Fitzgerald. "They've always had third-party information as part of their service. And prior to owning About.com, they had to pay for that."

Matching and personals take up about 24% of IAC's total revenue and are expected to grow 12% this year. This area includes dating sites Match.com, Chemistry.com, OkCupid.com, OurTime.com and the European network of dating sites Meetic, as well as many others.

"Match.com is subscription-based. Some of the acquisitions they've done over the course of the years, such as Meetic, were more advertising-centric. So what they're doing is, they're trying to up-sell guys who are just going to these Meetic sites, which are advertising-driven, into a subscription-based product," said Fitzgerald.

In addition to having a special collection of brands and businesses as well as using a proactive approach to operations and investments, the management team is considered very solid by the Street.

"They do a lot of things the way they're supposed to be doing," said Kessler.

Increased Dividend

IAC has had a very shareholder-friendly policy. They recently increased their dividend, providing a yield of 2%, a figure unheard of in the Internet industry. Since 2008, they've repurchased stock or paid dividends in the amount of more than $2 billion. The company recently approved an additional repurchase plan of 10 million shares.

In the past, IAC also spun off several companies, includingExpedia.com ( EXPE ),HSN ( HSNI ),Ticketmaster (TKTM) andTree.com ( TREE ). Kessler says the spinoffs were never because of problematic businesses, but rather as a way to reduce complexity or unlock value.

"They are very active. They constantly are monitoring their existing businesses, potential opportunities and taking action to improve what they have. And I think that's somewhat different than a lot of other companies, where it seems like there's a huge level of time horizon and patience, and, sometimes I argue, wrongfully so," he added.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: EXPE , GOOG , HSNI , IACI , TREE

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