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Liberty Interactive to Outperform

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We upgrade our recommendation on Liberty Interactive Corp. to Outperform following its robust financial results for the second quarter of 2012. Both top and bottom lines beat the Zacks Consensus Estimates. We believe the TV home shopping business will continue to flourish in the near future as the global macro-economy is expected to gradually stabilize compared with massive fluctuations in the last couple of years.

The company’s prestigious QVC division continues to perform exceptionally well. The QVC shopping network has successfully transformed itself into a powerful global brand, which may facilitate Liberty Interactive to boost its revenue in double digits.

The strategic move taken by management to offer QVC programs on mobile platforms, such as smartphones and tablets, was a huge success. Furthermore, Liberty Interactive is continuously generating positive free cash flow to sustain its future endeavors.

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. QVC accounts for over 11 million customers in the U.S., which is expected to grow in the long term. QVC is currently the 8th largest online retailer by revenue in the U.S.

Liberty Interactive is systemetically following a share buy-back program in order to enhance its shareholders’ wealth. In the previous quarter, Liberty Interactive repurchased approximately 14.7 million Class A shares for a total consideration of $257.4 million.

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