Pasadena, Calif.-based GoTo also filed with the Securities and Exchange Commission to sell 2.5 million common shares in a secondary offering. The company plans to use the proceeds for "working capital and general corporate purposes, including for the expansion of our international operations and for product development," according to the filing. GoTo will not profit from the sale of Idealab-held shares.
The sale of the stock comes as the company enjoys healthy progress in an otherwise emaciated marketplace. GoTo.com managed to grow its business despite a slack advertising market that foiled countless Net businesses. The company's performance this year raised its profile and exceeded analyst's expectations. Part of its fast-moving success came from partnering with highly trafficked sites including AOL Time Warner's America Online, AltaVista, iWon, NetZero and Walt Disney's Go.com.
Idealab, one of the best known of the so-called Internet incubators, has seen several of the companies it helped create, including toy site eToys, wither and die as a result of the Internet shakeout. Bill Gross founded GoTo in April 1998 through the incubator. After the offering, Idealab will hold about 8.6 million shares, or 15.5 percent of GoTo, according to the filing.
Merrill Lynch analyst Henry Blodget on Wednesday downgraded the stock "due to valuation" from "buy" to a "neutral" rating. Blodget, however, kept a long-term "buy" rating on the shares, which have more than doubled in recent weeks. He advised his customers to wait for a better price on the shares before buying.
In the last 52 weeks, GoTo shares have traded as high as $28.28 and as low as $4.81; they are currently near $24.
Blodget added that GoTo is trading at about 107 times his estimate of 25 cents a share for 2002.
The "fundamentals are intact," he wrote in a research note. "GoTo has performed well in a dismal online advertising environment, which we attribute to its pay-for-performance offering and the fact that direct marketing holds up better than traditional advertising in a bad economy."
Credit Suisse First Boston, Salomon Smith Barney and U.S. Bancorp Piper Jaffray will handle the company's secondary offering and have the option to buy about 1.1 million shares from GoTo and Idealab to cover over-allotments.
GoTo will have about 55.4 million common shares outstanding when the offering is completed.