Business Context and Reporting Period
This summary covers the Form 10-Q filed by IAC/InterActiveCorp (IAC) for the quarterly period ended June 30, 2009. IAC operates more than 50 diversified Internet businesses across 30 countries, organized into four reportable segments: Media & Advertising, Match, ServiceMagic, and Emerging Businesses. The filing includes unaudited consolidated financial statements and management's discussion and analysis.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2009 | Six Months Ended June 30, 2009 |
|---|---|---|
| Revenue | $340.0 million | $672.1 million |
| Operating Income (Loss) | $3.9 million | $(29.2) million |
| Net Earnings (Loss) Attributable to IAC | $40.8 million | $12.4 million |
| Diluted EPS (Continuing Ops) | $0.29 | $0.09 |
| Cash and Cash Equivalents | $1.61 billion (Balance Sheet) | N/A |
| Long-Term Debt | $95.8 million | $95.8 million |
| Operating Cash Flow (Continuing Ops) | N/A | $103.4 million |
Note: Net earnings for the three months ended June 30, 2009, were significantly boosted by a one-time gain on the sale of Match Europe. Operating Income Before Amortization (non-GAAP) was $25.7 million for the quarter and $22.6 million for the six-month period.
Material Changes vs. Prior Period
- Revenue Decline: Revenue decreased 4% year-over-year for the quarter and 7% for the six-month period. The decline was primarily driven by the Media & Advertising segment, which saw a 10% drop in quarterly revenue due to lower revenue per query and the discontinuation of certain partner relationships.
- Operating Profitability: Operating income improved significantly in the quarter to $3.9 million from a loss of $6.4 million in the prior year quarter. However, the six-month operating loss widened to $(29.2) million from $(17.5) million, impacted by a $1.1 million goodwill impairment charge in the Emerging Businesses segment.
- Segment Performance:
- Match: Revenue declined 5% due to the sale of Match Europe, but Operating Income increased 45% due to reduced traffic acquisition costs and marketing expenses.
- ServiceMagic: Revenue grew 18% driven by increased service requests, though Operating Income fell 36% due to higher marketing costs and a shift to lower-margin service requests.
- Media & Advertising: Operating Income dropped 69% to $9.1 million.
- Other Income/Expense: Other income was $74.1 million for the quarter, primarily due to a $116.8 million gain on the sale of Match Europe. This was partially offset by a $38.2 million impairment charge related to a contingent value right (CVR) from the sale of Home Shopping Europe (HSE) and a $3.9 million impairment on remaining Arcandor AG (ARO) stock following ARO's insolvency filing.
Guidance, Outlook, and Risks
- Capital Allocation: IAC repurchased 12.9 million shares of common stock during the quarter for approximately $206 million. On July 29, 2009, the Board authorized an additional repurchase of up to 20 million shares.
- Investment Risks: The company faces significant exposure to the insolvency proceedings of Arcandor AG (ARO). While the CVR redemption value was fixed at €54 million, the company recorded a substantial impairment charge and continues to monitor the situation. The remaining ARO stock was written down to €0.61 per share.
- Goodwill Impairment Risk: Management noted that reporting units such as IAC Search & Media and InstantAction.com operate in dynamic segments. A hypothetical 10% decrease in fair value for these units could result in goodwill impairments of approximately $140 million and $4 million, respectively.
- Tax Contingencies: Unrecognized tax benefits totaled $427.8 million as of June 30, 2009. The company is under audit by the IRS for tax years 2001 through 2006 and various state jurisdictions.
- Liquidity: Management believes cash on hand ($1.6 billion) and anticipated operating cash flows are sufficient to fund operations and commitments for the foreseeable future.
Key Facts for Investor Verification
- Match Europe Sale: Verify the accounting treatment and future cash flow implications of the 27% stake in Meetic received in exchange for Match Europe.
- Arcandor AG Exposure: Monitor the progress of ARO's insolvency proceedings and the potential for further write-downs on the remaining stock and CVR.
- Media & Advertising Trends: Assess the sustainability of revenue declines in the search and advertising segment, particularly regarding revenue per query and partner relationships.
- ServiceMagic Margins: Evaluate the impact of increased marketing spend and the shift to lower-margin service requests on long-term profitability.
- Share Repurchases: Track the execution of the newly authorized 20 million share repurchase program and its impact on capital structure.