IAC, Demand Media Fall as Goldman Sachs Cuts Ratings

IAC/InterActiveCorp. (IACI), the Internet company founded by Barry Diller, tumbled the most in almost six weeks after Goldman Sachs Group Inc. cut its rating on the stock to sell, citing increased competition for Web visitors.

The shares fell 7.8 percent to $43.50 at the close in New York, the biggest one-day decline since Oct. 24. The stock has gained 2.1 percent this year.

Companies that depend on users finding them through Internet searches, including IAC, Demand Media Inc. (DMD) and AOL Inc. (AOL), are under threat from changes to Google Inc.’s policies and increased competition, Heath Terry, a Goldman analyst, said in a note to investors today. They are paying more money to show up more frequently in search results, which makes their business model less sustainable, Terry said.

“While the companies may be able to continue this business, as IAC has for years now, we believe, at best, the cost of those revenues will increase as competition increases, while at worst significant segments of those revenues could be eliminated by policy changes,” said Terry, who had previously given IAC a neutral rating.

Internet searches account for more than half of the revenue at IAC, which owns Ask.com and earlier this year purchased About.com from the New York Times Co. (NYT)

Goldman Sachs also downgraded Demand Media to sell from neutral. The company’s shares fell 6.5 percent to $8.63.

To contact the reporter on this story: Sarah Frier in New York at sfrier1@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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