IAC Shows Growth, Invests in Businesses

Amid increased investments in Ask.com and its other businesses, IAC/InterActiveCorp showed strong growth in adjusted earnings and revenues this quarter.

“This is a period when the smartest thing for us to do is make a serious investment in Ask.com,” said IAC’s chairman and CEO Barry Diller. “If we can increase queries, and increase revenue per query, in a year or two we’re going to have a great business.”

Revenue rose 18 percent over last year’s second quarter, topping $1.61 billion compared with $1.37 billion in 2005. Due to $402 million in one-time gains last year, IAC’s net income dropped dramatically from $618.1 million to $53.8 million. Income in the 2005 quarter includes $322.1 million from the sale of VUE, $79.6 million from the sale of Euvia, results of Expedia, which was spun off last August, and $62.8 million in tax benefits.

When those costs and certain other charges are taken out of the equation, IAC’s adjusted earnings rose 12 percent to $108 million, from $96.6 million a year ago.

Earlier this year, IAC announced it would spend considerably more on marketing this year, which is reflected in a $13.1 million decline in profits in the media and advertising businesses. IAC has also upped its revenue-sharing payments to traffic providers.

“We continue to be in investment mode for IAC Search and Media, and are not concerned with current profitability,” said Tom McInerney, IAC’s EVP and CFO.

Efforts to integrate Ask.com with its other online properties continued during the quarter. Doug Lebda, IAC’s president and COO, has been tasked by Diller to seek ways to increase the synergy between businesses. A first step, deploying an Ask.com search box on all sites, has already contributed to Ask’s search volume, Lebda said.

A high-priority integration is underway to more tightly include Citysearch into Ask.com’s local search results. There should be significant progress made in the next four to six months, Diller said.

“There’s no question we have the best local content, in breadth and depth. Our quality puts everyone else to shame,” Diller said.

Another way IAC hopes to leverage its various companies is by implementing a program to examine and deploy best practices across all its businesses, Lebda said. The company has already made changes to its B2B telesales and offline marketing practices, and is currently reviewing best practices for online marketing, search marketing, PR and other areas. He predicts IAC will save more than $10 million a year once it consolidates its offline media buying with one agency. The company has not yet announced which agency will keep its business.

IAC’s Search and Media segment, which includes Ask.com and Citysearch, increased revenue by 21 percent over last year, largely due to revenue growth at Ask.com in the U.S., offset by weakness at Ask.com in the U.K. Diller said that over-monetization, along with challenges in infrastructure and marketing efforts, hampered Ask.com’s efforts in the U.K., but that improvements have been made and should be reflected in the future. These changes include replacing the management team, cutting inefficient staff, and putting Ask.com’s U.K. operations under the control of Jim Lanzone, who also heads Ask.com in the U.S.

According to Lebda, Ask.com increased the number of search queries in the quarter by more than 40 percent, and improved revenue per query by more than 10 percent year-to-year. Citysearch grew its unique monthly users to 21 million in June, and is currently focusing on adding local merchants to its pay-for-performance program, which reached 50,000 by the end of the quarter, he said.

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