Monday, March 21, 2005

IAC/InterActiveCorp acquires Ask Jeeves for $1.85 Billion

According to C|Net News, Barry Diller's blandly-named IAC/InterActiveCorp has purchased second-tier search play Ask Jeeves in a stock-based transaction valued at $1.85 billion. While Ask Jeeves only has a single-digit share of the search market (hearsay suggests 3% for the property itself, and 6% total for all Ask properties including iWon, Teoma, and a few others), it is unique in that users can enter their searches in natural language (i.e., "Why did I buy IAC at $40 and watch it go down to $21?"). Diller (on CNBC) called search "the unifying force of the internet," and obviously plans to tie Ask Jeeves in with IAC's other properties.

While I think the acquisition is a good one, the buyout of Ask Jeeves in my opinion leaves no more reasonably priced pure search plays in the market. Google and Yahoo are still overpriced (at PEG ratios of 1.50 and 1.99, respectively), Microsoft seems to be stuck around $25 a share (and is, obviously, nowhere near a pure search play), and marginal players like FindWhat, LookSmart, and Mamma seem to be too small and/or suspect to be worth consideration.

As for IAC, I'm not about to invest in it again (as I wrote above, I bought it around $40 and watched it go down to $21), but I think it could prove to be a good play if the PEG goes much below 1. I think Diller has the right idea in splitting the travel section off from the company and acquiring a search property, but the breadth of the company has thus far been its flaw. While I still cringe at the term "synergy," I think IAC's properties could be effectively tied together with the right leadership. I do think it will be a challenge to raise Ask's market share in the crowded search market, but Ask itself has about the same number of unique viewers as IAC's properties (around 40 million each).


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