by Tom Taulli | August 27, 2012 12:24 pm
Over the years, Barry Diller has built IAC/InterActiveCorp (NASDAQ:IACI) into an Internet empire with aggressive acquisitions. The latest deal came over the weekend: a $300 million purchase of information site About.com from The New York Times Co. (NYSE:NYT). IACI shares gained more than 1% in early Monday trading.
About.com does look like a good fit, especially with IAC’s search engine business (properties include Ask.com, Dictionary.com and Mindspark). The company was a pioneer in how-to content, and now has more than 3 million articles covering about 90,000 topics, which in turn produces 100 million unique users per month.
However, the financials for About.com aren’t nearly as attractive as its site metrics, with revenues falling nearly 9% to $25.4 million in the most recent quarter.
Why? About.com faces intense competition, such as from operators like Demand Media (NYSE:DMD) and its eHow franchise. What’s more, it has lagged alongside the surge in mobile growth — a transition that has been difficult for many Internet companies, notably Facebook (NASDAQ:FB).
Another big issue is About.com’s reliance on Google (NASDAQ:GOOG). The search giant periodically changes its search engine algorithms, which can result in drops in traffic — something that happened last year.
The good news: IAC has a good track record with improving Internet assets. The company has a wide array of business divisions, such as Match.com and ServiceMagic (a matching service for contractors), as well as a controlling stake in Newsweek/Daily Beast.
And IACI shares have had a good run lately, up 22% this year, almost double the broader markets. The company has been bolstered by asset spinoffs such as Expedia (NASDAQ:EXPE) and TripAdvisor (NASDAQ:TRIP), and also has engaged in massive stock buybacks.
But the company’s success has been more than just financial engineering. In the second quarter, IAC’s revenues spiked by 40% to $680.6 million, and adjusted earnings grew 30% to 62 cents per share, with the main drivers including the search segment and Match.com.
Q2’s results continued a strong run that has included years of revenue growth and six straight quarters of earnings improvements. Still, it’s reasonably valued at roughly 15 times forward earnings that are expected to grow more than 27%, and it even touts a modest dividend of 1.9% that beats the 10-year T-note as of this writing.
All in all, it’s hard to find much wrong with IAC/InterActiveCorp. Its strategy is working well, and its shares should have more upside as the company’s growth continues.
Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned securities.
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