Goldman Sachs Downgrades IAC/InterActiveCorp (IACI) to Sell, Says Search Arbitrage a Risky Bet

December 4, 2012 7:13 AM EST
Get Alerts IACI Hot Sheet
Price: $50.68 -2.86%

Rating Summary:
    0 Buy, 0 Hold, 0 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 1 | Down: 2 | New: 3
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Goldman Sachs downgraded IAC/InterActiveCorp (NASDAQ: IACI) from Neutral to Sell with a price target of $42.00 (from $53.00).

"We believe the risk for IAC of increasing keyword competition or a Google policy change on arbitrage is significant as it derives 52% of its revenue and 65% of OIBA as of 3Q from search and the comparisons of mid-to-high 40% revenue growth for each of the past three quarters are not only difficult but a major outlier within the overall search market growing high teens," the analyst comments.

Goldman views search arbitrage as an increasingly risky citing two reasons: (1) the recent spike in keyword buying from Ask could pressure margins and (2) AOL and DMD aggressively pursuing a similar arbitrage strategy as of 3Q could not only increase auction competitiveness and pricing, but also heighten policy risk at Google.

For an analyst ratings summary and ratings history on IAC/InterActiveCorp click here. For more ratings news on IAC/InterActiveCorp click here.

Shares of IAC/InterActiveCorp closed at $47.17 yesterday.

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