Interactive Corp. Shares Plunge After Disappointing Forecast

Shares of Interactive Corp. (IACI), owner of travel Web site (search), tumbled more than 17 percent on Wednesday, a day after the company gave a disappointing outlook that dented hopes for a near-term rise in its share price.

Interactive, whose businesses also include (search), on Tuesday reported a 25 percent drop in second-quarter profit and said it now sees 2004 operating income at $1.0 billion, the low end of its previous range of $1.0 billion to $1.2 billion.

Analysts said they expect the company to lower its earnings expectations in the coming weeks.

Improved hotel business is hurting the company's Web bookings, analysts said.

An upturn in group and business travel has pushed up room rates, resulting in weaker bookings for online travel agencies, where leisure travelers typically shop for low prices, Legg Mason analyst Tom Underwood said in a research note.

"Essentially, prices for hotel rooms in several major U.S. markets through Internet travel agencies have increased dramatically," Underwood wrote.

"We do not see a positive catalyst for the shares in the next 120 days," he said of Interactive.

Underwood said he expects U.S. Internet travel agency bookings to grow between 15 and 20 percent in the September quarter.

IAC shares fell $4.43 to $22.601 in early afternoon trade on the Nasdaq, after earlier falling to an 18-month low of $21.65. IAC late on Tuesday said it could face a tough second half in many businesses, including discount travel company Hotwire and, but would return to strong growth next year.

Shares of online discount travel agency Inc. (PCLN) also fell, dropping $1.71, or 8.4 percent, to $18.58, and accelerating a 14 percent drop on Tuesday, after it forecast third-quarter earnings below Wall Street expectations.

Interactive's second-quarter earnings, excluding acquisition costs, beat Wall Street expectations profit, but revenue missed the Street target, with weakness in a number of businesses.

PiperJaffray analyst Aaron Kessler said in a research note, "While the challenging and increasingly competitive market in travel will continue for the rest of the year at least, the expectations are unlikely to be elevated again, given two quarters of disappointment."