Dilution Worries Drop IAC Stock

InterActiveCorp shares dropped nearly 8% ($3.02) to $36.48 per share in 4
p.m. trading Tuesday despite reporting strong second-quarter growth.

InterActiveCorp (formerly USA Interactive) grew revenue 38% in the quarter to
$1.53 billion and operating income before amortization more than doubled to
$202.9 million from $91 million, fueled mainly by strong showings from its
online travel-related businesses.

But investors appeared to be more concerned with possible earnings dilution
stemming from IAC’s recent acquisitions of several online companies for

IAC said it would have about 800 million shares outstanding by the end of the
year, after its acquisition of online financial-services company LendingTree
Inc. is completed, along with that of the remaining interests in Expedia Inc.
and Hotels.com L.P. that it didn’t already own. That’s up from the 741.6 million
shares IAC had outstanding as of June 30.

Since earnings per share are basically a company’s net income divided by its
shares outstanding, the larger the number of shares, the lower the EPS

IAC reiterated that it expects to meet or exceed EPS guidance of 75 cents per
share for 2003.

The company agreed to purchase LendingTree for about $734 million in stock in
May. In June, it completed the purchase of the remaining interest in Hotels.com
for $1.1 billion in stock, and in March, it agreed to buy the remaining interest
in Expedia for $3.3 billion in stock. The Expedia deal is expected to close
shortly after a shareholder vote scheduled for Aug. 8.

Even with those dilution fears, IAC had a strong quarter despite a volatile
travel market.

In addition, its Home Shopping Network channel -- a distant No. 2 to industry
leader QVC Inc. -- grew its domestic operating income faster than its rival for
the second quarter in a row. HSN reported revenue growth of 5% and operating
income before amortization grew 25% in the quarter.

"We’re finally taking away share," IAC vice chairman Victor Kaufman said on a
conference call with analysts.

HSN’s actual results are still far lower than QVC’s -- HSN reported domestic
revenue of $375.3 million and operating income of $35.7 million in the period, compared
with $862 million in revenue (up 2.3%) and operating cash flow of $196 million
(up 2.6%) for QVC.

IAC chairman Barry Diller joked that HSN has been in rebuilding mode for "700
quarters," but now, the company appears to have turned the corner.

"The fact that we're growing against our much bigger competitor and we've
done it now for the second quarter is, I think, of real significance, and we
intend to put more pressure on that system," Diller said on the conference call.

Diller added that IAC’s strong cash position would likely mean that the
online powerhouse will make an acquisition of up to $1 billion by the end of the
year. However, he declined to be specific.

"As we have often said, we have no intention of making a big mistake, so
don't look for something ridiculously dramatic or transforming from us," Diller
said on the call. "But there is definite near-term opportunity. I cannot imagine
that the year will end itself without our making an acquisition or series of
acquisitions in the $1 billion or so range."