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Apr 30, 2008

NEWS: Diller, IAC, Ask, Citysearch, Evite, Match

The New IAC: Riding On Google’s Coattails

iac-logo.pngIAC reported first quarter earnings this morning, and broke out the financials of what the new IAC would like after the pending five-way breakup of the company is completed. (AMarch court victory against dissenting shareholder Liberty Media clears the way for the spin offs). What’s clear from the financial statements is that the new IAC very much owes its 22 percent jump in revenues and 15 percent jump in operating income to the $3.5 billion, five-year deal it struck with Google last fall to hand over all search advertising on Ask.com and other sites to the search overlord.

In the Media & Advertising division—the new IAC’ largest and most profitable unit which includes Ask.com, Citysearch, and Evite—revenues increased 28 percent to $216 million and operating income skyrocketed 192 percent to $31 million. This was largely due to better revenues per search query due to the Google relationship, and a slashing of marketing costs. (Those annoying and expensive TV commercials finally got canned). Ask has been able to hang on to iits No. 5 spot in search market share (4.7 percent in March, according to comScore) and showed the biggest percentage gain (12 percent) in search queries of any search engine

These numbers show the benefits, at least in the short term, of handing your search advertising over to Google—something Yahoo is learning itself through its limited test with Google to do the same thing. The question is what happens in the long term when market share erodes and Google does not have to pay so much for the privilege of taking away the search advertising business from its fading competitors.

IAC’s other businesses did not do so well on their own. Match.com saw a 10 percent jump in revenues, but a 13 percent decline in operating profits. And the other businesses are just a mish-mash of underperforming assets.


IAC Q1 In-Line; Ask Revenue "Grew Strongly" (IACI)

barrydiller.jpgBarry Diller's about-to-be-broken-up IAC's Q1 meets the Street's modest expectations: Revenues are up 8%, to $1.6 billion (vs. $1.5B consensus) and adjusted EPS was 30 cents, which is where the Street had predicted it would fall. Operating income was down 4%, to $135 million; Barry and co blamed the decrease on "a difficult macro environment on our Catalogs business, profit declines at Ticketmaster, and transaction expenses in connection with our planned spin-offs."

Most interesting to us is IAC's breakout of the 5 companies it imagines it will be, post break-up.(It's still trying to give one of those companies -- HSN -- to Liberty Media so it can complete its messy divorce with John Malone). "New IAC" is the one most SAI readers will want to track -- it consists of Ask and Barry's other "pure play" Web businesses:

Revenue: $392 million, up 22% y/y

Operating Income: Loss of $33.3 million, a 15% y/y improvement

Revenue at the "New IAC"'s biggest unit -- its media group -- grew 28%, primarily due to a renewed Google (GOOG) deal which resulted in an increase in revenue per query across all proprietary search sites". A nice bonus: Though Ask's queries continue to decline -- the company says it's because it's advertising less, not because Google is crushing all competitors -- "Revenue and revenue per query at Ask.com grew strongly, even excluding the benefits of the renewed contract."

IAC, AOL: Thanks, Google!

A_helping_hand_hr.jpgOne common theme in both IAC and AOL's quarterly report cards today: Both of them are grateful to be working Google (GOOG). Both IACI (IACI) and AOL (TWX) reported increases in paid search, and in both cases that's because they've outsourced that business to Google.

Both companies would argue that Google wasn't completely responsible for whatever results they did want to brag about. IACwhich recently re-signed a paid search deal with Google, went out of its way to note that "revenue and revenue per query at Ask.com grew strongly, even excluding the benefits of the renewed contract." But essentially, their results mirrored Google's which makes plenty of sense.

The problem here: Google's helping its partners with one hand, and crushing them with the other. As we pointed out earlier this morning: "The boost here is likely to be temporary. As Google gains more and more share of the search market, we expect AOL's [and Ask's] query share will gradually trend toward zero."

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