IAC Call: Search Ads Hold Up, While Display ‘Spotty’; Looking At All Deals, But Will Be Selective

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imageFor its last call as a single company, all five CEOs and their CFOs are on IAC’s conference call. Kicking off the call, Diller noted that it’s not even worth talking about Old IAC anymore, in part because it’s almost gone, but really because “It’s just too much complexity and information.” That statement speaks as much to the company’s conference calls and earnings releases as it does to the whole notion of Old IAC: ‘just too much complexity’. Hence the breakup. Right now the company doesn’t have precise timing on the split, except that it will be “very soon”. Diller said he hoped to talk about all five companies on the call, and that he didn’t want New IAC to hog the time, but almost every question was on New IAC (NSDQ: IACI). At a couple of points, Diller, from the position as a shareholder in each company, took the job himself to ask questions of the other CEOs.

Use Of Cash: Since New IAC will be starting off with $1.3 billion, there was a lot of talk on the call about what the company would do with the cash, particularly as it relates to acquisitions. On whether IAC would get active in acquiring startup web firms, Diller talked about inflated valuations, and the alchemy by which startups grow their valuation from round to round without having actually created any value. “We’re not going to be in that game… we’re going to be extremely disciplined about anything that we acquire. And I’m absolutely certain that we’re going to be better than the cost of capital.” IAC is not just going to sit there with the cash, but we’re not going to put it down on something that isn’t productive.” So what will they do with the cash? Well, they will do some acquisitions. McInerney: “We’re going to buy properties where we can add value with our distribution and monetization.” Lexico is an example of a property they can get more value out of by doing things like cross listings, etc. “That’s the acquisition focus: taking internet properties we know we can improve.” Other uses of cash include new startup opportunities. Diller: “The investments that we’ve made in starting businesses have almost all paid off for us.” Expect to see more sites like Life123 and RushmoreDrive. But the pace of acquisitions won’t change, says Diller: IAC looks at everything. “We’re looking at a number of things now… we’re not going to suddenly wake up next month or two months from now and come out with ten acquisitions… we’ll kind of keep up our regular pace of things.” More after the jump

New IAC Profitability: Rather than have all of the CEOs go through their own numbers, CFO Tom McInerney quickly ran through the results of each unit. On New IAC, he noted the lower revenue was “reflecting de-emphasis of sponsored listing distributions business.” All IAC divisions grew profits by double digits, except emerging businesses, which remains in investment mode. For the coming quarters, except to see the same trends, perhaps even a decline in revenue growth, but again, at higher margins, so this is a voluntary tradeoff.

Online Ad Environment: McInerney: “When we look at the business, there’s always pockets… in these types of climates, the most performance-oriented advertising tends to be the most resilient (search, lead-gen).” Search is seeing good gains, even excluding the new Google (NSDQ: GOOG) agreement. “Display side is a little spottier”. Diller: “There’s generally a shift, as we all know, to online advertising in the greater pie… (given that it’s targeted and based on actions), the secular change is going to have an ameliorating effect on whatever the general economic effects on advertising are.”

Search Share: Diller: “We spent a good deal on marketing (ed note: the billboards), we got big, big increases in queries… after we stopped marketing, we lost many of them.” Now it’s more important to focus on frequency and retention, both of which are up significantly year over year. In the late 4th quarter, new marketing endeavors will be based on a “more practical path.” On share: “We just passed AOL… that’s not one of the great land feats in the world

Mobile: Diller: It’s all still in the early stages. “09 is going to see more action in mobile… all of our businesses are geared for participating.”

Non-Ask IAC: Both CitySerach and Evite are doing well. CitySearch will do over $100 million revenue next year. Evite growing 20 percent year over year. Both services have very significant product overhauls coming in the back half of the year. Expect a lot more investments into local next year.

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