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Citigroup Internet analyst Mark Mahaney initiated coverage yesterday on IAC (ticker: IACI, temporarily trading as IACID) with a Hold rating and a $29 price target. (The stock closed last night at $24.35.) One of the topics covered in his initiation of coverage report is the mix of IAC's business, in which he points out that the majority of IAC's revenues come from offline businesses, particularly retailing. Excerpts:

IAC BACKGROUND: OPERATING DIVISION DESCRIPTIONS
Retailing

We estimate that Retailing will account for $3.0B in revenue in 2005, 53% of revenue. We also estimate that Retailing will generate $273MM in OIBA (Operating Income Before Amortization), 45% of total OIBA, implying a 9.0% OIBA margin. Although the old IAC’s Internet properties garnered most of the attention, with a particular focus on the online travel business, HSN’s retailing group has always represented a significant portion of the revenues. Post spin, retailing as a percentage of revenues grows considerably larger, especially given the $715MM cash acquisition of Cornerstone, which closed on April 1, 2005. IAC’s Retailing division includes the Home Shopping Network (HSN) and America’s Store TV networks in the US, HSN.com, and several international brands (HSE in Germany and minority interests in Shop Channel in Japan, and TVSN in China) and the recently-acquired Cornerstone Brands portfolio of catalog and online shopping companies (Ballard Designs, Frontgate, Garnet Hill, Improvements, Smith + Noble, The Territory Ahead, and TravelSmith). We estimate that 88% of IAC Retailing’s proforma revenue (adjusted for the inclusion of Cornerstone) in the June quarter came from domestic sales. Cornerstone revenues are all domestic.

HSN is the number two player in the U.S. TV-shopping market behind QVC and reached approximately 78% of all US homes with a television set by the end of 2004. (Including non-overlapping households from America’s Store, IAC’s TV shopping networks covered 84% of all households with a television.) Not to be overlooked is the growing contribution from HSN.com, which accounted for almost 16% of HSN sales in 2004.

Cornerstone has been able to grow its topline around 19% Y/Y the past two years, and we believe that its online business currently represents more than 30% of its total sales. Approximately 65% of Cornerstone’s sales come from its proprietary product lines, so it is possible that the acquisition will generate synergies since HSN should benefit from having new Cornerstone retail merchandise to push, thereby generating incremental sales growth...

IAC ONLINE/OFFLINE REVENUE MIX

While IAC’s Internet businesses have historically received most of investors’ attention, the “new

Source: Is the New IAC (IACI) Really an Internet Company?