Why Investors Should Bet on Barry Diller

by Jonathan Berr | July 26, 2012 11:18 am

InterActiveCorp (NASDAQ:IACI[1]) CEO Barry Diller has marched to the beat of his own drummer for decades. Shareholders are now coming along for the ride.

Earlier this week, he assumed control of the Daily Beast Newsweek[2] from the family of the late Sidney Harman, who bought the money-losing newsweekly from Washington Post Co. (NYSE:WPO[3]) in 2010. IAC, whose media business lost $7.3 million in the last quarter, wrote down the value of its investment in the venture.

Daily Beast Newsweek will continue to lose money (even if he takes it all digital[4]), but that probably doesn’t faze Diller, whose net worth is estimated by Forbes at $1.6 billion, because the rest of his empire is doing well.

InterActiveCorp, parent of Match.com, Ask.com and ServiceMagic, among other properties, reported on Wednesday that net income rose 2% to $43.4 million, or 47 cents per share, from $42.4 million, or 44 cents, a year earlier. Revenue rose 40% to $680.6 million, fueled by gains across most businesses. Excluding one-time items, profit was 86 cents, beating analysts’ 72-cent average estimate. The revenue figure also beat the $665.72 million consensus estimate.

Shares of IAC rose almost 7% in early afternoon trading, breaking over $52 before settling at $51.18. The shares are up more than 21% this year. The one-year average price target is $57.85, still more than 12% higher than where it currently trades. The shares, however, are expensive, with a multiple of 24.11. That’s a five-year high, according to Reuters[5].

IAC would do even better if the company weren’t so hard to understand and Diller weren’t so unpredictable. IAC, however, is firing on most of its many cylinders.

In the past quarter, revenue at the company’s Search and Applications business rose 46% to $348.8 million as queries surged by 38%. Operating income leaped 46% to $74.1 million.

Membership at Match.com, the world’s largest online dating service, rose 10% as revenue soared 53% to $178.4 million and operating income jumped 39% to $57.1 million.

Growth for both CityGrid and ServiceMagic pushed up results in IAC’s local business. Operating income in the unit climbed 25% to $11.7 million. Revenue rose 5% to $84.5 million.

The company’s Media business is a hodgepodge. Besides Daily Beast Newsweek, IAC also owns Electus, a firm headed by former NBC executive Ben Silverman to produce and distribute programs, and CollegeHumor.com, whose name is self-explanatory. How these businesses fit with one another is anyone’s guess. Nonetheless, growth from Electus and video-sharing site Vimeo pushed revenue in the group up by 97% to $37.4 million.

Interestingly, Diller has warned about the dangers of media consolidation, telling PBS’s NOW With Bill Moyers in 2003 that[6] “what you get is fewer and fewer actual voices participating in the process.” Now, he has a golden opportunity to back his words with actions. Opportunities both small and large abound for the former Hollywood executive.

Maybe Diller will buy Journatic, a provider of hyperlocal content that has gotten into hot water with clients including Tribune Co. for running stories with fake bylines and for failing to catch writers plagiarizing content.

Even though Journatic has failed miserably in its execution, the idea of hyperlocal content is a solid one — just ask AOL (NYSE:AOL[7]) CEO Tim Armstrong[8], who’s hitched much of his company’s fortunes to the hyperlocal Patch news service. Readers care deeply about issues such as schools, crime and their state and local government, which big-city dailies are finding increasingly difficult to cover with their already-stretched and shrinking staffs.

Other possibilities include acquiring Current, the low-rated cable TV channel started by former Vice President Al Gore and Joel Hyatt of Hyatt Legal Services. The channel is in an ugly fight with its former marquee anchor Keith Olbermann and could use Diller’s money for better production values. Current looks like a cable access channel.

Martha Stewart could also use Diller’s dough. The domestic diva’s media company, Martha Stewart Living Omnimedia (NYSE:MSO[9]), has struggled with profitability for years. Wall Street expects the New York-based outfit to lose 7 cents in the quarter and 2 cents for the year.

Whatever moves Diller might make, investors would be wise to follow closely.

Jonathan Berr does not own shares of the companies listed here. Follow him on Twitter @jdberr.

Endnotes:
  1. IACI: http://studio-5.financialcontent.com/investplace/quote?Symbol=IACI
  2. Daily Beast Newsweek: http://www.thewrap.com/media/column-post/barry-dillers-iac-takes-controlling-interest-newsweek-daily-beast-49031
  3. WPO: http://studio-5.financialcontent.com/investplace/quote?Symbol=WPO
  4. he takes it all digital: http://allthingsd.com/20120725/will-barry-diller-take-newsweek-web-only-mmmmaybe/
  5. according to Reuters: http://www.reuters.com/finance/stocks/financialHighlights?symbol=IACI.O
  6. in 2003 that: https://mail.google.com/mail/?tab=em#compose
  7. AOL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AOL
  8. CEO Tim Armstrong: http://investorplace.com/2012/07/aol-hasnt-turned-the-corner-yet/
  9. MSO: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSO

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