Barry Diller's Mea Culpa
By Timothy J. Mullaney
Say this much for Barry Diller: The man doesn't run and hide when things go wrong. The oft-combative CEO of IAC/InterActiveCorp (IACI ) has taken his lumps from Wall Street since a second-quarter earnings report Aug. 3 that missed analysts' revenue targets in IAC's all-important online-travel business. And Diller made things worse when he got testy under questioning from analysts on the post-earnings conference call.
But in an Aug. 5 e-mail sent to IAC employees, which Diller has now provided to BusinessWeek Online, he takes the fall for the revenue miss. He admitted to giving too-bullish guidance at an investor and analyst conference last November, which has led to a series of misunderstandings with Wall Street.
Some analysts had panned IAC in the first quarter for spending too much on advertising for the division, which owns popular travel sites Expedia, Hotels.com, and Hotwire. More ad spending built up market share, but at the expense of maximizing short-term profits. In the second quarter, IAC pulled back on ads, which helped it slightly beat profit goals. But travel revenue of $555.5 million, up 34% from the same quarter of 2003, was less than the 41% gain Legg Mason analyst Tom Underwood had projected (see BW Online, 8/5/04, "Turbulence Alert for Online Travel").
Diller called his August conference-call performance "lame" and "far too defensive.... We did disappoint the estimates for growth set by our own hands and by not lowering them earlier in the year as the strain became clear we mightily exacerbated the problem," Diller wrote in his mea culpa to employees.
Indeed, IAC shares fell 49.5% from their peak in July, 2003, to the day after the earnings report. The stock has since regrouped and stabilized, closing at $23.48 on Aug. 23. Still, that's 45% off the previous year's high.
Wall Street should take comfort from the e-mail, if only because the boss also told IAC's staff that near-term growth will come from existing businesses, rather than more mergers. That's consistent with what IAC has been saying publicly and may calm worries that stem from the large, if noncash, charges to earnings IAC has been taking from its 2003 buyouts of minority investors in its Expedia, Hotels.com, and Ticketmaster businesses.
"We're making big investments across our spectrum and have...ambitious goals for advancing everywhere," Diller wrote. Among the biggest chunks are those going into expanding IAC Travel into new markets and boosting the real estate business. IAC is building recently acquired RealEstate.com into a full-service competitor to Realtor.com and integrating the portal with IAC services like mortgage-shopping site LendingTree.com.
THE REAL THING?
Those strategies have been bolstered by some behind-the-scenes personnel moves. Barney Harford has been dispatched to build up IAC Travel's now-tiny Asian business. He's one of the highest-ranking Expedia execs remaining since its 2003 acquisition by IAC. To help Harford, IAC on Aug. 11 announced a $60 million investment in Chinese travel site eLong, which will let IAC buy 51% of eLong if it exercises warrants granted as part of the deal. And former Coca-Cola (KO ) marketing executive Tom Reddin, the chief operating officer of LendingTree, has been put in charge of IAC's real-estate operations.
None of this means IAC's road back into Wall Street's heart will be straight and smooth. But at a minimum, Diller has shown that management is serious about winning back investors' good graces.
Mullaney is E-Business editor for BusinessWeek in New York
Edited by Douglas Harbrecht