Online Travel Aids InterActive

8/10/2003 8:00 PM Eastern

InterActiveCorp (formerly USA Interactive) grew revenue 38% over the quarter to $1.53 billion — while operating income before amortization more than doubled to $202.9 million from $91 million — fueled mainly by strong showings from its travel-related online businesses.

But investors appeared to be more concerned with possible earnings dilution, stemming from IAC's recent acquisitions of several online companies for stock. They drove shares down nearly 8% ($3.02) to $36.48 in 4 p.m. trading last Tuesday.

IAC said it would have about 800 million shares outstanding by year-end, after it completes its acquisitions of online financial services company LendingTree Inc. and the interests in Expedia Inc. and that it doesn't already own.

That's up from the current 741.6 million shares IAC had outstanding as of June 30. Since earnings per share are basically a company's net income divided by its shares outstanding, the larger the number of shares, the lower the EPS figure.

IAC reiterated that it expects to meet or exceed EPS guidance of 75 cents per share for 2003.

IAC agreed to purchase LendingTree for about $734 million in stock in May. In June, it completed the purchase of the remaining interest in for $1.1 billion in stock and in March, it agreed to buy the remaining interest in Expedia for $3.3 billion in stock.

The Expedia deal was expected to close shortly after a shareholder vote scheduled for Aug. 8.

Despite those fears of dilution — and a volatile travel market — IAC had a strong quarter. In addition, its Home Shopping Network channel, a distant No.2 to industry leader QVC Inc., grew its domestic operating income faster than its rival for the second consecutive quarter.

HSN reported revenue growth of 5% and operating income before amortization improved 25%.

"We're finally taking away share," said IAC vice chairman Victor Kaufman on a conference call with analysts.

HSN's actual results are still far lower than those of QVC Inc. — it reported domestic revenue of $375.3 million and operating income of $35.7 million in the period, compared to $862 million in revenue (up 2.3%) and operating cash flow of $196 million (up 2.6%) for QVC.

IAC chairman Barry Diller joked that HSN has been in rebuilding mode for "700 quarters," but now the company appears to have turned the corner.

"The fact that we're growing against our much bigger competitor and we've done it now for the second quarter is I think of real significance, and we intend to put more pressure on that system," Diller said on the conference call.

Diller added that IAC's strong cash position would likely mean that the online powerhouse will make an acquisition of up to $1 billion by the end of the year. However, he declined to be specific.

IAC Slides
Close Share Price
Source: NASDAQ Web site
July 3140.32
August 139.82
August 439.50
August 536.48

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