Investors applauded IACI announcement in November that it would split into five companies, but since then the stock has taken a beating, finishing 2007 close to its lows for the year. A new report from Citi analyst Mark Mahaney enumerates the issues the company faces, and at least for now, there’s no reason to think they’ll go away once the company is no longer a conglomerate. The big problem: IACI isn’t growing market share at its core businesses. Ask isn’t making progress in the search arena, while HSN is still getting beat by arch-rival QVC. Investors may have already digested TicketMaster’s eventual loss of Live Nation (NYSE: LYV) as a customer, but Mahaney believes the real story there is Live Nation’s rise as a head-on competitor. Other factors:
– US exposure: The report we mentioned earlier, from JPM’s Imran Khan, made the point that the big US internet names have been sharply reducing their dependency on the US economy. That’s not the case at IACI (NSDQ: IACI). In 2008, international revenue is expected to account for just 13 percent of the total. That compares to 35 percent at Yahoo (NSDQ: YHOO) and 52 percent at Google (NSDQ: GOOG), though arguably, the IAC division, once spun off, will make for a better comparison. In the meantime, the conglomerate IACI will not be protected against a US slowdown. Of course, one of the standalone divisions will be LendingTree, which is at the center of the storm.
– Lack of innovation: Mahaney doesn’t see the company creating new revenue streams, as Google and Amazon (NSDQ: AMZN) have. He doesn’t deny that new products and services are being developed within IACI, just that few will contribute meaningfully to the business.
– Take out value: Seeing as IACI has already charted a course for the split-up, it’s highly unlikely that another company would try to make a play for the whole thing. Post-split, of course, various divisions could be in play. Liberty Media (NSDQ: LINTA) CEO Greg Maffei, for one, has already signaled interest in HSN and TicketMaster, at the right price.
– Bottom line: Despite the challenges, IACI isn’t doing terribly, which Mahaney acknowledges. Both revenues and margins are expected to grow in ’08. EBITDA is expected to rise by a respectable 21 percent for the year. But the report largely argues on a relative basis, and on this measure, the company’s peers are doing better.