Back to Home > News > Friday, Sep 01, 2006 Today in the Times Posted on Fri, Sep. 01, 2006 email ... Investors betting Diller h

Barry Diller, who became a Hollywood and television legend in the 1970s and 1980s through his skill at gauging America's taste in entertainment, is finding success more elusive in the Internet world.

Over the past decade, Diller has done some 100 deals valued at $20 billion to create IAC/InterActiveCorp, a hodgepodge of Web companies, such as online loan service LendingTree, dating site Match.com and Citysearch, a site to search for local businesses.

But as shares of other Internet companies have soared, Wall Street has had a weak stomach for IAC, which also includes Ticketmaster and HSN, the home-shopping network. Along with IAC's hits, like LendingTree, there have been misses like Hotwire.com, a travel site.

Now some investors feel that IAC is finally getting it right as it refocuses on Internet searches and other businesses that depend on Web-ad sales. Until recently, IAC's Internet businesses relied mostly on transactions, particularly those in the travel business. Last summer, IAC spun off its travel arm, Expedia Inc., and about the same time spent $1.7 billion to acquire Ask Jeeves, the search engine it renamed Ask.com. IAC has made Ask, which relies on advertising revenue, the centerpiece of its Internet strategy.

Diller readily admits that he is changing his Internet strategy as he goes along. "God knows we have plenty of money with which to screw up," he says, referring to IAC's $1.1 billion in available cash.

If Diller's bet is successful, IAC's shares would be an attractive buy. They have been bouncing around in the $24 to $30 range for about two years, well off their record in 2003 of more than $47. The market capitalization is now $9.5 billion.

The price-to-earnings ratio is 16.7 times projected 2007 earnings, excluding option expenses, just a bit more than the S&P 500-stock index, according to Merrill Lynch. Google Inc.'s ratio is 30.7 and Yahoo Inc.'s is 35.8, Merrill Lynch says.

To be sure, at this point IAC can only dream of duplicating the success of those two companies. Ask is fifth in Internet searches with a 5.4 percent market share, compared with 43.7 percent for Google and 28.8 percent for Yahoo, according to comScore Networks Inc.

IAC also faces problems in its retail division, which includes HSN and Cornerstone Brands, a catalog and Web retailer. The unit contributed 53 percent of total 2005 revenue and 43 percent of the company's operating profit, but revenue rose only 2 percent in the second quarter, and earlier this year IAC replaced the retail unit's chief executive. Meanwhile, moves such as E.W. Scripps Co.'s recent decision to shut its home shopping network suggest that consumers are shifting away from buying on TV.

Still, Diller has a loyal cadre of investors who believe he has assembled a group of potentially high-growth companies and is solving management shortcomings, in part by creating the position of chief operating officer. Investors were buoyed by IAC's second-quarter earnings, which showed 14 percent revenue growth for Ticketmaster and better-than-expected performance by HSN.

"Like a good baseball hitter, (Diller) is going to swing and miss but he's going to have a good average over time," says Peter Supino, an analyst with mutual-fund firm Wallace R. Weitz & Co., which in the second quarter bought 1.1 million IAC shares, bringing its total share holdings to 5.1 million.

Diller has made plenty of investors wealthy in the past. As head of Paramount Pictures Corp., he restored the studio with blockbusters like "Saturday Night Fever." In the late 1980s, he helped launch the Fox television network, breaking the three major networks' lock on prime-time television.

This is cache, read story here