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IAC's Local Approach Should Bring Upside

IAC (Nasdaq: IACI) is an interactive conglomerate operating more than 60 diversified brands in sectors being transformed by the Internet, online and offline. IAC's mission is “to harness the power of interactivity to make daily life easier and more productive for people all over the world”.

The Company's business can be classified into five segments:

1) Retailing (HSN, Cornerstone Brands,
2) Membership & Subscriptions (Interval International,, Entertainment Publications)
3) Transactions (Ticketmaster, LendingTree,, ServiceMagic)
4) Emerging Businesses (, Pronto, CollegeHumor, Very Short List)
5) Media & Advertising (, Citysearch, Evite)

The Company has been divesting its non-core businesses to focus on the online search and content business. The Company has shutdown America's Store, a non-strategic secondary channel. IACI inked a deal to sell HSN Europe to German retailer KarstadtQuelle for up to $270 million after earn-outs. In November 2006, the Company sold PRC, LLC, its Teleservices subsidiary. IAC is clear in its vision and is focusing on acquiring complementary businesses and building strong online brands.

IAC acquired in August 2006 by picking up a 51% stake in Connected Ventures, LLC, the parent company of IAC also acquired, Inc., an Internet retailer of footwear and related apparel and accessories in January 2006. The Company has launched IAC Programming to buy and build branded online content properties. The Company plans to make many more small strategic acquisitions.

InterActiveCorp acquired in 2005 for $1.9 billion. is the fourth largest search engine with approximately 6% market share in the United States. According to comScore, IAC had 239 million worldwide online audience and 73 million U.S. unique monthly visitors in March 2007.

Despite its much smaller size compared to Google or Yahoo, Ask is a significant player in search, with about $468 million in revenues in 2006, which includes both search [PPC] and display advertising revenues from its network of sites. has developed its own advertising system, and some of the paid links are provided by the network.

In December 2006, Ask launched AskCity, a new local search service that integrates local information with a variety of InterActive properties such as TicketMaster, ServiceMagic, ReserveAmerica, and CitySearch, as well as other content/service providers such as Fandango, OpenTable, TripAdvisor, Yelp, and InsiderPages. In October 2006, CitySearch had 12 million unique visitors, a reach of 7%, and average usage of three minutes per visitor.

The Company's strategy is to be a major player in the local search and entertainment space and it has the ingredients to take on Google, MSN and Yahoo with its varied offerings (local search, tickets, event listings, maps and city guides).

According to Barry Diller, CEO of IAC, the search business will act, as “glue” that would bind together far-flung online services ranging from mortgage loans to event ticket sales to community activities, shopping and bars and restaurants. IAC is betting on the fact that its branded sites will provide high quality content to the search engine, which in turn will act as a feeder to the sites and enable them to attract a larger number of users by leveraging the search engine results.

The Company has started the integration of the Ask search engine with its other branded properties. What needs to be seen is whether IAC is able to continue innovating and integrating newer services to its local search engine.

Ask has significantly improved the user experience of its search engine and expects some market share gains. Ask continues to innovate as demonstrated by AskCity. Ask intends to invest in AskCity, its local search platform, which is not only innovative, but also differentiates itself through the integration with IAC's diverse portfolio of e-Commerce and online properties and aid IAC in better monetization of all of its online properties.

According to a report published by Piper Jaffray, IAC “is one of the more promising conglomerates to watch, especially as the company has just started investing in search and content.” I couldn't agree more. The revenue of the company is similar to Yahoo's, but the market cap is less than a third. Pretty cheap, and could be lots of upside. I really like the “Local” organizing principle.

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