Approaching the roulette wheel...
Q: So what's the strategy here?
A: Walk away.
A funny thing happened. On Friday, shares of sprawling Web giant InterActive Corp
Q: How can you avoid such a predicament in the future?
A: By focusing on value.
When you overpay for a stock, you are getting taxed. It's not all that different from the roulette wheel, the blackjack table, or a slot machine at the Ameristar
The point here isn't that InterActive Corp is a $30 stock, nor is it that investors who paid more than $29 per share necessarily overpaid and therefore deserve to pay the consequences. The point here is that investors should take value into serious consideration before making any investment decision.
Another issue relevant to InterActive Corp is that an investor is also playing with a disadvantage when purchasing companies that can't be understood.
On the surface, InterActive Corp looks for all the world to be a loose -- perhaps messy -- collection of good businesses. For the most part, this is probably not far from the truth. While fellow Web-based giants eBay
But there is a simpler way to look at it.
InterActive Corp's three largest operating segments -- IAC Travel, electronic retailing (Home Shopping Network), and ticketing (Ticketmaster) -- accounted for 85% of the company's $1.5 billion in second-quarter revenue. IAC Travel represented 37% of that total with $555.5 million in reported revenue, and one brand -- Expedia -- contributed 78% of that segment's $3.4 billion in gross bookings. In addition, a second brand -- Hotels.com -- accounted for another 14% of IAC Travel's gross bookings.
There are many intelligent investors who like InterActive Corp at this price. And despite the company's outward complexity, I don't think it is a lost cause for an investor to get his hands dirty and try to tear it apart, piece by piece.
A good place for investors to start is with InterActive Corp's three big segments representing the bulk of its business and virtually all of its earnings, as well as the company's online business aspirations, cash flow, and well-respected management. Just keep valuation under consideration, and you stand a much better chance of avoiding being permanently taxed.
For more Foolish analysis of InterActive Corp: