IAC’s Q3 Mortgage Pains Countered by Strength in Media and Advertising

The sub-prime mortgage crisis took its toll on the quarterly results of IAC/Interactive Corp.’s real estate and lending units, but growth at the diverse company’s media and advertising properties, including Ask.com, helped buffer the blow.

IAC reported its Q3 revenue increased by 7 percent compared to the same quarter last year, reaching $1.5 billion. It reported $173 million in operating income before amortization, a $3 million increase on the year, and adjusted earnings per share of 37 cents, two cents more than the year-ago period.

In a conference call discussing the results, IAC EVP and CFO Tom McInerney and President and COO Doug Lebda said they were pleased with the progress being made in the company’s media and advertising branches.

“Media and advertising businesses all benefited from continuing growth in queries from our syndicated search business as well as queries and revenue-per-query growth at our Fun Web Products business and query growth at Ask,” said McInerney.

The officials said IAC’s media and advertising sector revenue increased by 40 percent during the quarter. That segment’s operating income before amortization was $27.6 million, about $12 million more than the year-ago period.

The executives noted that Q3 of this year was the first full quarter for the new “Ask3D,” a re-engineered version of the Ask.com search engine. “It’s been received positively by consumers and critics alike,” said Lebda, noting an August report by the Consumer Satisfaction Index that credited Ask with achieving the largest gains in consumer satisfaction. He said the company’s next move in search “is to rebuild and redeploy the infrastructure of the core search engine. We’re in the midst of that now.”

He said the infrastructure rebuild should yield “more relevant, more complete and fresher” search results. Content and categories continue to be added to Ask3D, including maps, real estate, local, movies, music and health, said Lebda.

The search engine benefited from an advertising campaign that hit the airwaves in mid-September and “positively impacted queries late in Q3 and continues to do so in Q4,” he said. The new TV spots, consisting of elegant product demos, replaced a much reviled campaign created by agency Crispin Porter + Bogusky that made use of D-list celebrities and taglines like “The Unabomber hates the algorithm.”

Lebda made a point of discussing IAC’s sell-side advertising strategy, something he contended “holds great promise” for the company. “Our advertising solutions business, the units that sell ads on behalf of all the IAC sites, is achieving strong, double-digit increases in CPMs, more effectively monetizing previously unsold inventory and doing larger deals in larger categories with larger advertisers,” said Lebda.

The ramp-up has helped IAC attract some heavy-hitting advertisers, including AT&T, Ford, American Express, Universal Pictures and Target. “This is happening because of a new team and strategy put in place beginning in late 2006,” Lebda said. Those initiatives included rebuilding the sales team, migrating ad-serving into a single platform and continuing to tweak Ask’s sponsored listings network.

“It’s still early, but in 2008 and beyond we expect continued improved results from advertising on our site as our technology investment, operational improvements and early forays into things like video ads and behavioral targeting begin to bear fruit,” said Lebda.

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