Why IAC/InterActiveCorp Shares Plunged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of IAC/InterActiveCorp (NAS: IACI) plunged by as much as 11% today after the company received an analyst downgrade.

So what:Goldman Sachs dropped its rating on IAC from "neutral" to "sell" while reducing its price target from $53 to $42. The analyst sees increased risk in competition for traffic, and companies such as IAC are subject to changes in Google's (NAS: GOOG) search algorithms, since they generate a large portion of their traffic from the search giant.

Now what: AOL (NYS: AOL) and Demand Media (NYS: DMD) have been exploring a similar strategy that will put competitive pressure on IAC as the rivals bid up keywords. Under a best-case scenario, analyst Heath Terry believes cost of revenues will move higher as competition increases, but in the worst case, large segments of revenue could be threatened altogether by policy changes at Google. That's a big risk, since Internet searches generate more than half of the company's revenue.

Interested in more info on IAC/InterActiveCorp? Add it to your watchlist by clicking here.

The article Why IAC/InterActiveCorp Shares Plunged originally appeared on Fool.com.

Fool contributor Evan Niu, CFA, has no positions in the stocks mentioned above. The Motley Fool owns shares of Google. Motley Fool newsletter services recommend Google. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.