IAC Q2 Deep Dive: Market Reacts to Revenue Shortfall, Management Focuses on Diversification

Digital media conglomerate IAC (NASDAQGS:IAC) fell short of the market’s revenue expectations in Q2 CY2025, with sales falling 7.5% year on year to $586.9 million. Its non-GAAP loss of $0.31 per share was significantly below analysts’ consensus estimates.

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StockStory’s Take

IAC’s second quarter was met with a negative market reaction, as revenue came in below Wall Street’s consensus and fell year-on-year. Management attributed the shortfall primarily to ongoing declines in Google-driven web traffic and evolving search algorithms, which have forced the company to accelerate its push into diversified audience channels. CEO Neil Vogel acknowledged the persistent headwinds from changes in Google search and AI-powered competition, emphasizing that “we run this business as if Google from search is going to go to zero.” The company pointed to investments in new product lines and broader distribution channels as both a source of higher costs and a foundation for future resilience.

Looking ahead, IAC’s forward strategy centers on further reducing reliance on traditional search-driven revenue, instead prioritizing off-platform audiences, proprietary data tools, and direct consumer relationships. Management stressed upcoming launches such as the People app, expansion of the D/Cipher+ ad targeting platform, and deeper moves into e-commerce and licensing as key growth drivers. CFO Christopher Halpin noted that while investments will continue to pressure near-term margins, the expectation is for improving profitability as these initiatives scale, stating, “we expect adjusted EBITDA to grow year-over-year...and then get back to real margin scale in the fourth quarter.”

Key Insights from Management’s Remarks

Management attributed second quarter performance to lower search-driven traffic, increased strategic investment, and the ramp of new digital products and platforms.

• Search traffic declines: IAC’s core digital brands experienced reduced traffic from Google Search, exacerbated by the rollout of Google AI Overviews, which now appear in over half of relevant searches. This shift has accelerated the need for alternative traffic sources.
• Diversification of audience channels: The company saw progress in building off-platform audiences across platforms such as Apple News, YouTube, Instagram, and TikTok, helping offset some of the lost Google traffic. Off-platform now contributes roughly one third of digital revenue.
• Monetization mix shift: Advertising revenue grew modestly, led by direct premium sales in health, travel, and tech categories, but was offset by continued weakness in consumer packaged goods and home-related verticals. Licensing and performance marketing saw particular strength, especially from Apple News and Walmart partnerships.
• Margin impact from investment: Digital adjusted EBITDA margins were pressured by increased spending on technology, new product launches (such as D/Cipher+ and the People app), and higher healthcare costs, though management expects margin recovery as these investments mature.
• Care.com relaunch: The June relaunch of Care.com introduced product enhancements and a new marketing push, with early signs of improved user engagement and stability in key metrics after a period of consumer revenue erosion.

Drivers of Future Performance

IAC expects its forward performance to be shaped by diversification of revenue streams, continued investment in digital products, and margin recovery as new initiatives scale.

• Reduced reliance on Google: The company is proactively shifting its business model to limit exposure to search traffic by growing owned and operated audiences, building out off-platform reach, and leveraging first-party data for advertising.
• Scaling new digital products: Management is focused on expanding the D/Cipher+ data-driven ad platform, launching mobile apps, and strengthening e-commerce and licensing partnerships, all of which are expected to drive both revenue growth and higher-margin opportunities in the medium term.
• Care.com and portfolio optimization: The relaunch of Care.com, with an emphasis on improved matching, new pricing models, and expansion into senior and pet care, is intended to reignite growth in the consumer segment. Management also highlighted ongoing evaluation of M&A and potential divestitures to unlock value and maintain capital flexibility.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will monitor (1) the ramp-up and monetization of D/Cipher+ and other proprietary ad platforms, (2) engagement trends and revenue contributions from new app launches like the People app and Care.com enhancements, and (3) progress on audience diversification away from Google Search. Capital allocation decisions, including M&A and potential divestitures, will also be key indicators of strategic execution.

IAC currently trades at $34.29, down from $39.51 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).

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