Trying to Play in the ‘Net’s Big Leagues

10/27/2009 11:33 am EST

Focus: STOCKS

Andrea Kramer

Associate Editor, Schaeffer's Investment Research, Inc.

Andrea Kramer of Schaeffer’s Investment Research says IAC is trying to run with the leaders in search engines, but the stock is starting to run behind, too.

In parity with Microsoft's (Nasdaq: MSFT) search engine Bing, Internet issue IAC/InterActiveCorp (Nasdaq: IACI) is hoping to gain market share with its recent deal-intensive makeover of Ask.com. The site's home page was transformed into a snapshot of a crowded park in autumn, with mouseover hotspots featuring "deal" tags for various items. The Motley Fool deemed the revamp "slick" and "clever," noting the great timing heading into the holiday shopping season next month.

However, many of the larger search engines have already tried uniting search with e-commerce—to mixed results. While Scripps Networks Interactive's (NYSE: SNI) "Shopzilla" site and Yahoo!'s (Nasdaq: YHOO) shopping hub drew large crowds, Google's (GOOG) attempt—called "Froogle"—lasted on the search engine's home page for only three years before being pulled and renamed. Nevertheless, the Fool claims to "really like this move" by Ask.com, especially as shoppers prepare to go bargain hunting during the holidays.

If IAC/InterActiveCorp is striving to compete with big-league names like GOOG and YHOO, it has a long road ahead of it. According to Web analytics provider StatCounter, Ask.com is a virtual market-share afterthought to its big-cap competitors.

While the site gained a little ground in September, it harbored only about 2.5% of the market share, with GOOG grabbing 72%, YHOO snagging 16%, and MSFT holding 9%. Granted, these numbers were configured before Ask.com's aforementioned makeover, but nevertheless demonstrate the site's status as a very dark horse.

However, despite IACI's fundamental speed bumps, the Street has high hopes for the shares. Eight out of 12 ranking analysts deem the stock worthy of a "buy" or better rating, Zack’s reports, while the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.74 stands in the 21st annual percentile. In other words, short-term option speculators have been more bullishly biased toward IACI only 21% of the time during the past year.

Technically speaking, the shares recently recoiled from resistance in the $21 region. This neighborhood houses the stock's 32-month moving average, and acted as support from mid-2004 into late 2006. In fact, IACI is now flirting with the $19.30 level, and has underperformed the S&P 500 Index (SPX) [since early in October]. Should the security continue to lag behind the broad market, an unwinding of optimism could place additional selling pressure on the shares.

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