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Liberty Interactive Neutral Again

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We downgrade our recommendation on Liberty Interactive Inc. to Neutral based on its current valuation, which soared nearly 53% last year and is currently trading at the high-end of its 52-week price range. The company reported robust financial results for the fourth quarter of 2011, easily beating the Zacks Consensus Estimates.

We believe the TV home shopping business will flourish in the near future as the global economy is expected to gradually stabilize compared with the massive fluctuations in the last couple of years. The company’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. Besides, the company is generating positive free cash flow. Nevertheless, high level of current valuation may restrict above market gain in the near term.  

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. and ValueVision Media Inc. . 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.

eCommerce business of Liberty Interactive are witnessing significant growth year over year. During 2011, this segment’s revenue increased by a massive $223 million (up 20% year over year) compared with the prior-year period. Each of the company’s e-commerce business sites witnessed sales increase. Adjusted operating income before depreciation and amortization increased by $20 million in 2011, up 19% year over year.

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