Liberty Interactive in Neutral Zone

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We reiterate our long-term Neutral recommendation on Liberty Interactive Corp. (LINTA) following its mixed first-quarter 2012 financial results. We believe the TV home shopping business will continue to flourish in the near future as the global macro-economy is expected to gradually stabilize compared with the massive fluctuations in the last couple of years.

Liberty Interactive’s most prestigious division QVC continues to perform well. QVC shopping network has successfully transformed itself into a powerful global brand, which may facilitate the company to boost its revenue in double digits. The strategic move taken by management to offer QVC programs on mobile platforms, such as smartphones and tablets, was a huge success. Furthermore, the company is generating positive free cash flow. We believe Liberty Interactive is currently fairly valued as the company is undergoing a process to create Liberty Ventures tracking stock.

Liberty Interactive’s QVC division has become the undisputed market leader in the $8 billion TV home-shopping business. Currently, QVC commands an estimated 69% market share, far ahead of its nearest rivals, HSN Inc. (HSNI) and ValueVision Media Inc. (VVTV). Furthermore, Liberty Interactive also owns a 32% stake of HSN Inc. TV home-shopping business is characterized as having quite stable customer base, generally women. QVC accounts for over 11 million customers in the U.S., which is expected to grow in the long term.

Currently, QVC’s services are distributed to approximately 195 million homes worldwide. Despite facing devastating earthquake and tsunami in Japan, resulting in severe disruption of QVC TV shows in the country, Liberty Interactive managed to retain its sales momentum in Japan.

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