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Slower than expected pace of growth in top-line

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investora2z   Thursday, 11/21/13 07:11:28 AM
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Slower than expected pace of growth in top-line led to a sell-off in the stock. It has recovered, but the weakness is not over. The valuations are better after the fall. However, some analysts have expressed doubts about the future performance of the company. One article on seekingalpha was particularly negative about the prospects, and the author predicted lower earnings in 2014. The analyst predicted revenue growth to be between 0-6% next year as headwinds from mobile and a less-friendly search algorithm continue. He expects the EPS to come in between $3.85 and $4.05. In the last quarter, there was 6% yoy growth in revenues, though there was a 5% sequential decline. The EPS came in much better than estimates as the net income increased by 138% on a yoy basis. Even the sequential growth was significant. The article mentioned that IAC is generating less revenue per eyeball, indicating less than optimal monetizing of the consumer base. IAC's websites are not that suited for viewing through mobile devices yet, and hence monetizing may not be optimal. The recent change in fortunes of Facebook are primarily based in increased confidence in its ability to leverage the transition to mobile devices. IAC's dependence on Google may hurt its growth prospects because Google may continue to update its algorithm to the disadvantage of others. However, considering the good performance of IAC over the years, one cannot underestimate its ability to improve its performance. Increased use of internet through mobile devices can also be viewed as growth opportunity. IAC's investments into emerging growth segments may help improve growth in the long term. It invested in fantasy sports where Yahoo (YHOO), Comcast (CMCSA) and MGT Capital Investments (MGT) have put in their money. So while analysts may turn negative, one can remain cautiously optimistic. Performance over the next couple of quarters needs to be watched carefully.

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