Time to Bail on InterActive?

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In today's Motley Fool Take:

Time to Bail on InterActive?
Shameless Plug: Motley Fool Hidden Gems
ValueClick's Second Chance
Discussion Board of the Day: Value Investing
A Short Supply for Nokia
Quote of Note
More on Fool.com Today

Time to Bail on InterActive?

Alyce Lomax

(TMF Lomax)

IAC/InterActiveCorp (Nasdaq: IACI) shares tumbled nearly 20% today after the company reported a nearly 25% decrease in its second-quarter profit and disappointing revenues. It also ratcheted down its expectations to the low range of its previous levels, with the second half of the year presented as challenging, with cooler growth.

Although InterActive did meet Wall Street expectations with earnings of $174 million, or $0.22 per share (excluding certain items; otherwise, profits decreased), gross bookings decreased from last quarter. Revenues increased 17% to $1.5 billion, while sales in the travel segment rose by 34%.

The travel business proved an Achilles heel. (Note that rival Priceline.com(Nasdaq: PCLN) recently admitted to a similar outlook.) The company cited "cyclical concerns" that prescribe a weaker second half.

In hotels, resumed traveling meant hotel occupancy rates increased, so discount deals were harder for InterActive to come by. In addition, there was direct competition from some hotels themselves, as well as rival Travelocity's stepped-up presence in the arena.

InterActive admitted slowness in its Hotwire unit but denied any structural problems in its overall business in its conference call (transcript courtesy of Thomson StreetEvents; registration required). It also denied that it's losing any substantial market share, pointing to its "wide leadership gap" in the industry. Chairman and CEO Barry Diller emphasized that people shouldn't panic and think InterActive's travel business (its largest) is in danger. However, other areas showed signs of weakness too.

For example, anyone who was hoping that InterActive's online dating business, which includes popular Match.com, would offer some easy money: not so fast. Second-quarter revenues there were flat. Competition's been mounting just as online dating has gained acceptability, and the space has been seen as one that the public's throwing money into. InterActive said that a 16% upswing in sales was offset by costs associated with reduced prices for long-term subscribers and marketing campaigns.

Sure, all that Internet real estate, even beyond travel and matching, likely makes InterActive a tempting stock for some. Count in Citysearch. Yesterday it announced it would provide local content to Ask Jeeves(Nasdaq: ASKJ), though one might wonder about the competing local offerings from Google, Yahoo!(Nasdaq: YHOO), and Time Warner's(NYSE: TWX) AOL. Other InterActive untis include Home Shopping Network, Ticketmaster, and LendingTree.

However, despite having planted itself in hot markets, it's got fierce name brand (or aggressive upstart) rivalry. In travel alone, the company's facing Priceline, Orbitz(Nasdaq: ORBZ), and Sabre Holdings'(NYSE: TSG) Travelocity.

Investors had an extreme reaction this morning. However, maybe they have good reason to fret. Since the winter months, many have predicted an increased interest in travel and vacation this year, compared with last year's war and economic worries, so it's understandable that investors might wonder, where's the reward? InterActive's psyched for 2005, for which it predicts sustained growth -- it appears that feels like too little, too late for some skittish investors.

Read more Foolish content on online travel:

Priceline Pounded for Predictions, by Seth Jayson
Orbitz Gains Altitude, by Seth Jayson
The Priceline Is Right, by Rick Munarriz

Alyce Lomax does not own shares of any of the companies mentioned. She often wishes InterActiveCorp had a more catchy, meaningful name.

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ValueClick's Second Chance

Rick Aristotle Munarriz (TMF Edible)

I imagine that I wasn't the only one kicking myself for not buying into ValueClick(Nasdaq: VCLK) when Matt Richey recommended it two years ago. Trading at a discount to its Net Net Working Capital, at the time it provided the refreshing paradox of buying into a risky entity with little risk.

Online advertising bounced back and with it zoomed the shares of a company that the market had once pegged as being worth less than worthless. As a five-bagger at its peak, earlier this year the company was profitable and using its enviable cash reserves to scoop up rivals on the cheap.

So maybe I'm not entirely disappointed to see the stock take a 25% hit in trading today -- down to roughly $7.28 -- after posting its second-quarter results. Granted, my heart goes out to those presently owning the company, but perhaps this is the prodigal stock coming back to be reclaimed by those who missed it the first time around.

The market's spooked by the company's soft outlook going into the third quarter, but I still see a solid company. Despite all of its acquisitions, including my favorite of the lot in affiliate program provider Commission Junction, the greenery hasn't been diluted much. The company sports nearly $3 a share in cash. The company is still on track to earn between $0.26 and $0.29 a share this year. Back out the cash balance from the company's falling share price, and you're left with an earnings multiple in the teens based on the ValueClick's enterprise value.

This past quarter saw profits more than triple as revenues soared by 72%. Yes, the acquisitions have helped, but there's a lot of synergy and organic goodness at play here, as diluted shares have grown by less than 10% over the past year despite the buying spree.

It's the text-based ad specialists such as Google(Nasdaq: GOOG), Yahoo!(Nasdaq: YHOO), Ask Jeeves(Nasdaq: ASKJ), and FindWhat.com(Nasdaq: FWHT) that are putting up monster results relative to the old-school banner ad players such as ValueClick and DoubleClick(Nasdaq: DCLK). And it's a market that will continue to soar as usage grows and sponsors become more familiar with the charms of the Web's ability to target an ideal audience.

In other words, ValueClick is once again living up to its name.

Longtime Fool contributor Rick Aristotle Munarriz will have to wait if he wants to hop back on the ValueClick buying bandwagon. He does not own shares in any of the companies mentioned in this story.

Discussion Board of the Day: Value Investing

Are you drawn to firms with single-digit earnings and cash flow multiples? Do you like companies in turnaround situations or asset-rich operations trading for little more than enterprise value? If so, then you are a value investor. Learn all about dirt-cheap companies in the Value Investing discussion board.

A Short Supply for Nokia

Alyce Lomax (TMF Lomax)

Lots of investors have been waiting for sunnier news to come out of Nokia(NYSE: NOK) this summer, but brace for another setback. Today The Wall Street Journal reported short supply of what is turning out to be a popular phone model from the Finnish handset maker. It's a little disconcerting to hear, when the company is in the midst of trying to rejuvenate sales growth as well as protect and boost market share.

In case your memory needs refreshing -- and very likely, it doesn't -- Nokia warned in April. It was a painful scene as it became obvious that as powerful as the telecom giant is, it's been losing market share and facing flagging sales as its products weren't hitting on the most popular consumer phone picks.

The WSJ article tracked short supply in several London cell phone shops, including the online store for Vodafone(NYSE: VOD), the U.K.'s largest service provider. According to the article, when questioned Nokia admitted to both healthy demand and a lack of supply because of a shortage of components for the popular model.

The model in question is the Nokia 6230, a popular option as it has a built-in camera, one of the features that has resonated so well with consumers this year. (However, the Nokia 6230 happens to sport the "candy bar" design, not the "clamshell," the latter of which is the far-and-away favorite design for consumers in the upgrade cycle.) In addition to the camera, Nokia's gadget, which hit the market in March, has a built-in music player and FM radio.

Even though it's not the coveted clamshell, it does sound like a step towards providing a solid product for consumers who expect more from their cell phones than ever. Archrival Motorola(NYSE: MOT), which has been filching market share, isn't going to ease up. It recently announced a deal linkingApple's(Nasdaq: AAPL) iTunes to its phones, an aggressive bid perhaps to capitalize off of one of the most marked pop culture icons of the day, though its Apple hookup won't hit the market till 2005.

As much as it's heartening to hear that the Nokia 6230 has been enjoying a warm consumer response, today's news still sends a chill and the impression that Nokia's still got to pull itself together. (However, a ray of hope in the article indicated that some consumers have placed themselves on waiting lists for the Nokia 6230, as opposed to fulfilling their cellular wish lists through rivals.)

However, it was no surprise that investors barely reacted today. They've already slammed this stock pretty soundly (recently, Fool contributor W.D. Crotty examined the stock's two-year low), and for now, expectations are pretty grim. However, today's word underlines Nokia's mandate: It's got to give the people what they want.

Pick sides as you relive the valiant duel:

Dueling Fools: Nokia's Ready to Deliver, by W.D. Crotty
Dueling Fools: Nokia No Way, by Seth Jayson

Alyce Lomax does not own shares of any of the companies mentioned.

Quote of Note

"It has yet to be proven that intelligence has any survival value." -- Arthur C. Clarke, astrophysicist and sci-fi author

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