Another View of IACI: Fundamentals Mixed, Lower Price Target (IACI)

Citigroup analyst Mark Mahaney on IACI's Q4 earnings results:

SUMMARY

• IAC reported a Beat quarter -- $1,792 revenue, $276 OIBA (operating income before amortization), and $0.52 Adjusted EPS vs. our estimates of $1,846 revenue, $259 OIBA, and $0.48. The revenue miss was essentially due to a reclassification of Lending segment revenue.

• Fundamentals mixed -- Organic revenue grew 17% Y/Y, a deceleration from 28% in Sept and 23% in June. But organic OIBA margin reached a record 15.9%, up 250 bps Y/Y. Organic Y/Y OIBA growth was 38%.

• Reit the Hold but lowering PT to $30. Key positives: 1) Accelerating rev. growth at Ticketing (up 34% Y/Y on easy comps), Personals (34%), and Teleservices (28%); 2) Record OIBA margins at U.S. Retail (12.4%), Int'l Retail (6.0%), and Teleservices (12.1%); and 3) Big share buyback activity. But the negatives continue to offset: 1) Weak 2.4% Y/Y growth at HSN; 2) Weak 9% Y/Y growth at Ask Jeeves; 3) A significant '06 investment horizon.

Did IACI’s fundamentals improve? No and yes. On an organic basis – excl. Ask Jeeves and Cornerstone -- Y/Y revenue growth was 17% (16% excl. all acquisitions) vs. 28% in September and 23% in June. However, organic OIBAmargin grew 250bps Y/Y to 15.9%. And organic Y/Y OIBA growth – probably the most objective measure of bottom-linegrowth -- was 39% in the December quarter.

Were fundamentals better than the Street expected? Yes. Consensus revenues were $1,769, consensus OIBA was $249MM and Adjusted EPS was $0.46, so even after adjusting for the Lending reclassification there was a clear top- and bottom-line beat. But the caveat here is that consensus estimates were fairly spread apart.

Did the company raise guidance relative to the Street? Per its standard practice, IACI did not provide forward guidance.