May 2 (Bloomberg) -- IAC/InterActiveCorp, the Internet and media company run by Barry Diller, said first-quarter profit fell 32 percent because of a sales decline at cable shopping network HSN and the spinoff of Expedia Inc.

Net income at the owner of LendingTree.com and Ticketmaster declined to $47.2 million, or 14 cents a share, from $68.9 million, or 19 cents, a year earlier. Revenue rose 36 percent to $1.55 billion with the purchase of Cornerstone Brands Inc. and Ask.com, New York-based IAC said today in a statement. Earnings beat analysts' estimates.

Sales at HSN fell 2.6 percent, hurt by discounts and weak demand for health and beauty products, and the company said it doesn't expect an immediate recovery at the cable channel. Profit was cut by about $45 million after the spinoff of online travel- service Expedia. Chairman Diller realized $464.1 million on the exercise of IAC and Expedia stock options last year, according to regulatory filings.

IAC's performance met expectations ``other than the revenue shortfall in the retailing segment and apparent challenges in the lending segment,'' Piper Jaffray & Co. analyst Safa Rashtchy wrote in a note today.

Shares of IAC rose 8 cents to $29.10 at 4 p.m. in Nasdaq Stock Market composite trading. They have gained 2.8 percent this year, after dropping 7.7 percent in 2005.

Retailing Division

Revenue in the retailing division, which includes HSN and is the largest unit with half of the company's sales, rose 28 percent to $769.1 million on the purchase of Cornerstone Brands. Operating profit dropped 1.8 percent to $44.9 million.

``I recognize that results not rhetoric is what you are interested in, and that is not going to come in a flash,'' Diller, chief executive officer of IAC, said on a conference call with analysts and investors. ``We had a pretty good run to gain market share and then we fell back.''

Diller realized $290.2 million on the exercise of IAC stock options and $173.9 million on Expedia options, according to proxy statements filed by both companies with the U.S. Securities and Exchange Commission.

The IAC and Expedia options exercised by Diller last year stemmed from a 1995 option grant, the company said in a statement. The options had a 10-year term and Diller exercised them in the last weeks of the term. All of the shares, net of taxes, are currently held by Diller.

Excluding stock option costs, some amortization expenses and one-time gains, IAC's profit rose to 31 cents a share. Rashtchy estimated 15 cents in profit in the quarter and earnings before one-time items of 27 cents. Menlo Park, California-based Rashtchy is top-rated for accuracy by StarMine Corp.

HSN Slowdown

The average estimate of 15 analysts surveyed by Thomson Financial was 27 cents. Thomson declined to disclose the parameters for the estimates in its survey.

The slowdown at HSN has continued into April, Chief Financial Officer Thomas McInerney said on the conference call. The company remains ``cautious'' about the near-term results at the home-shopping channel, he said.

Services division sales jumped 27 percent to $482.5 million, lifted by demand for concert and sporting event tickets from TicketMaster, the company said.

Revenue at the media unit surged 13-fold to $117.6 million after IAC acquired search-engine Ask.com. Sales increased 16 percent to $178.4 million in membership and subscriptions, helped by personal ad sites such as Match.com.

`Daunting Circumstances'

``We have been able to grow on really daunting circumstances,'' Diller said of Ask.com. ``I think we can continue to do it.''

The search engine plans to introduce a news product in three to six months, the CEO said.

Gross margin, or the percentage of sales left after subtracting the cost of goods sold, widened to 47 percent from 44.3 percent a year earlier, IAC said. Selling, general and marketing expenses increased to 33.1 percent of sales from 30.2 percent.

The lending market is going through a cyclical decline and it's costing LendingTree.com 50 percent more to gain customers this year versus last year, McInerney said on the call.

IAC bought Cornerstone Brands, owner of catalogs including Garnet Hill and Ballard Designs, for $720 million last year, giving it home and leisure products and casual apparel to sell through HSN.

Acquisitions

Diller, 64, built the company through acquisitions over the past nine years, starting with Home Shopping Network in 1996. He spun off Expedia in August.

Ask.com, purchased for about $1.95 billion in July, boosted its share of U.S. search queries to 5.9 percent in March, according to the company. IAC is now competing with Google Inc. and Yahoo! Inc. in the sale of advertising links that appear next to search results.

Microsoft Corp. last month hired IAC Search and Media CEO Steve Berkowitz to lead its MSN unit, a move that prompted at least two analysts to cut their ratings on IAC. The company last week named Jim Lanzone as chief executive of Ask.com, a new position.

``We see Berkowitz's leaving at the start of Ask's major rebranding and marketing campaign as at least unsettling, if not a major negative,'' Michael Millman, an analyst with Soleil Securities Corp., wrote in an April 24 note. He is based in Short Hills, New Jersey, and has a ``hold'' rating on the stock.

IAC was called USA Networks Inc. before Diller sold its USA cable-TV network and other entertainment assets to Vivendi Universal SA two years ago to focus on Internet commerce and home shopping.

Diller was chief executive of the Paramount Pictures film studio in the 1970s and early 1980s and then started the Fox TV network for Rupert Murdoch's News Corp. in the late 1980s.

The company's results have exceeded analysts' estimates the four prior quarters. Of the 17 analysts tracked by Bloomberg, eight rate the company ``buy'' and nine recommend ``hold.''

To contact the reporter on this story: Josh Fineman in New York at jfineman@bloomberg.net.

Last Updated: May 2, 2006 16:20 EDT