We downgrade our recommendation on
Liberty Interactive Corp.
) to Underperform based on the company's weak financial results
for the fourth quarter of 2012. While the top line barely met the
Zacks Consensus Estimate, net income fell below the same.
Why the Downgrade?
A major concern for Liberty Interactive is that the growth
rate of the company's QVC segment has slowed down
significantly.This segment currently generates approximately 85%
of the company's total revenue and 100% of operating profit.
Therefore any fluctuations in the revenue stream of QVC will
significantly affect the company's overall financials.
Furthermore, the stock price has also soared nearly 35% in the
last year and is trading at the high end of its 52-week price
range. With respect to several valuation metrics, the stock is
trading at significantly higher multiples compared with the
S&P 500. Liberty Interactive currently has a Zacks Rank #3
Other Causes of Concern
According to a report of Internet Retailer, after
), QVC was the second-largest e-commerce retailer of the U.S. in
2012. Despite this,the e-commerce businesses of Liberty
Interactive are still reeling under losses. In the reported
quarter, adjusted operating income before depreciation and
amortization of this segment fell by an enormous 29%, year over
year. Low advertising revenue and increased promotional
activities are the primary reasons for this sorry state of
With 69% market share, QVC has become the market leader in the
$8 billion TV home-shopping business. This places QVC far ahead
of its rivals,
ValueVision Media Inc.
). However,increasing deployment of personal video recorders,
video-on-demand technology and IPTV network are gradually
changing the distribution and viewing habits of the common
people. These fundamental changes are taking a toll on the home
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