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Liberty Interactive Upped to Neutral

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We upgrade our recommendation on Liberty Interactive Corp. to Neutral based on the improved performance of the QVC and eCommerce segments. The company reported mixed financial results for the first quarter of 2013. While revenues surpassed the Zacks Consensus Estimate, net income fell below the same.

Why the Upgrade?

We believe that the TV home shopping business will continue to flourish in the near future. The QVC division of Liberty Interactive has successfully transformed itself into a powerful global brand, which may boost Liberty Interactive’s revenues in the double-digits. The strategic move taken by management to offer QVC programs on wireless platforms, such as smartphones and tablets, was a huge success.

Management believes that Liberty Interactive’s online sales in the U.S. will constitute more than 50% of the total revenue by 2014. The major thrust is coming from the growing adoption of high-end smartphones in the U.S. QVC is about to introduce a synchronized content for its mobile applications. This feature will enable smartphone users to get real time information about a product which is broadcasted on the TV show. This will promote online sales further.

According to a report of Internet Retailer, after Inc. (AMZN - Free Report) , QVC was the second-largest e-commerce retailer in the U.S. in 2012. QVC has become the market leader in the $8 billion TV home-shopping business. It commands an estimated 69% market share, far ahead of its nearest rivals, HSN Inc. and ValueVision Media Inc. . The TV home-shopping business has a stable customer base, which generally constitutes of women.

Exposure to international markets, such as Japan, Germany, Italy, the U.K. and China will enable QVC to achieve a high rate of growth. QVC is gradually expanding its presence in these developed markets. Currently, international markets provide 35% of QVC’s yearly revenues. The company is expecting this figure to reach 50% within the next 5 years.

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