Liberty Interactive Outperforms

Zacks

Liberty Interactive Inc. (LINTA) reported solid financial results for the fourth quarter of 2011. Quarterly total revenue of $3,079 million was an improvement of 7% year over year, surpassing the Zacks Consensus Estimate of $3,063 million. Quarterly net income was $304 million or 48 cents per share. Fourth-quarter 2011 EPS of 48 cents was miles ahead of the Zacks Consensus Estimate of 37 cents.

Quarterly total operating income was $408 million compared with $396 million in the year-ago quarter. In the fourth quarter of 2011, consolidated adjusted OIBDA came in at $618 million compared with $564 million in the year-ago quarter. In the previous quarter, Liberty Interactive repurchased approximately 16 million Class A shares for a total consideration of $256.7 million.  

In 2011, Liberty Interactive generated $914 million of cash compared with $1,289 million in 2010. Free cash flow (cash flow from operations less capital expenditures) in 2011 was $602 million compared with $1,031 million in 2010. At the end of 2011, Liberty Interactive had total consolidated cash and marketable securities of $2,015 million compared with $2,463 million at the end of 2010. Liberty Interactive exited 2011 with $6,039 million of outstanding debt compared with $6,463 million in 2010. At the end of 2011, debt-to-capitalization ratio was 0.42 compared with 0.34 at the end of 2010.

QVC Segment

Quarterly total revenue of QVC segment was $2,649 million, up 5% year over year. Consolidated adjusted OIBDA was $579 million, up 9% year over year. Consolidated operating income was $397 million, up 1% year over year. QVC U.S. quarterly revenue inched up 4% year over year to $1,792 million. Gross margin was 34.6% compared with 33.1% in the year-ago quarter. Adjusted OIBDA was $401 million, up 10% year over year. Operating income was $254 million, down 3% year over year. QVC International quarterly revenue climbed 7% year over year to $857 million. Gross margin was 37.4% compared with 37.7% in the year-ago quarter. Adjusted OIBDA was $178 million, up 5% year over year. Operating income was $143 million, up 8% year over year.

eCommerce Segment

Quarterly revenue of eCommerce Business segment was $430 million, up 18% year over year. Quarterly adjusted OIBDA was $49 million, up 4% year over year. Operating income was $30 million, up 7% year over year.

Increase in Share Buy-back

The board of directors of Liberty Interactive has authorized a fresh $700 million of Class A share of Liberty Interactive repurchase program. With this enhancement, the company had over $1 billion of authorized share repurchase left on February 23, 2011.

Formation of Tracking Stocks

The board of directors of Liberty Interactive has decided to split its shares into two tracking stock, viz., Liberty Interactive and Liberty Ventures. The Liberty Interactive tracking stocks will follow QVC, the eCommerce companies, a 34% stake in HSN Inc. (HSNI), approximately $500 million of cash and $5 billion of debt and other liabilities. Liberty Venture will look after minority interests of Expedia Inc. (EXPE), Time Warner Inc. (TWX), Time Warner Cable Inc. (TWC), AOL, Interval Leisure Group, Tree.com and Liberty’s green-energy investments. Liberty Venture will be assigned around $1.25 billion of cash and $3 billion principal amount of Liberty Interactive’s publicly traded exchangeable debentures.

Recommendation

We maintain our long-term Outperform recommendation on Liberty Interactive. Currently, the stock holds a short-term Zacks #1 Rank (Strong Buy).

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