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Search engines still seek profits

As quarterly reports come due, Wall Street expects continued losses for Yahoo, Lycos, Excite, and Infoseek.

Search engine companies are revving up their motors to try and meet Wall Street expectations that they post profits by mid-1998.

But Wall Street isn't expecting much out of them this quarter. Yahoo (YHOO) prepares to report its quarterly results Tuesday--Lycos (LCOS), Excite (XCIT), and Infoseek (SEEK) all report later this month--the expectation on Wall Street is for a loss of 5 to 48 cents a share.

"If you look at the way search engines have performed since they went public, all have exceeded expectations from a fundamental perspective (such as traffic and revenues)," said Shaun Andrikopoulos, an analyst with Alex Brown.

"We expect this quarter will be no different than previous quarters. They will meet or exceed expectations and we shouldn't see any earnings or revenue disappointments."

Analysts expect losses for this quarter
Company Period Estimated loss per share Report date
Yahoo (YHOO) 1996 Q4 -5 cents Report: Jan. 14
Lycos (LCOS) 1997 Q2 -17 cents Report: Feb. 24
Excite (XCIT) 1996 Q4 -48 cents Report: Jan. 27 - week of
Infoseek (SEEK) 1996 Q4 -17 cents Report: Jan. 28
Source: First Call

Andrikopoulos added the Internet's rapid growth is helping to drive these search engine companies forward in reaching their goal for profitability.

"I think Infoseek, Yahoo and Lycos will clearly become profitable in 1997 and Excite has the potential to be profitable at the end of 1997 or early 1998," said Andrikopoulos.

Other analysts largely agree.

Paul Noglows, an analyst with Hambrecht & Quist said he anticipates Lycos will see profitability in the second quarter of 1998 and that Yahoo could be profitable as early as this year or, at the latest, the first quarter of 1998.

He added that he expects Yahoo to report a fourth quarter loss of 5 cents a share on revenues of $6.7 million. And for the year he believes the company will post a loss of 14 cents for the year on revenues of $17.2 million.

"I'm very pleased with the progress they've made. They've made a number of initiatives to expand their brand. They made aggressive moves overseas to expand their sites in Germany, Japan and France, for example. And they have also been aggressive in setting up local sites for six major cities."

Yahoo, which launched its "My Yahoo" personal search engine service last year, is estimated to have signed up 300,000 members as of late last year, said Noglows.

"I would not be surprised if they now have over 400,000 memebers," he said.

Meanwhile, Noglows's outlook for Lycos is a loss of 17 cents for the quarter on revenues of $4.2 million.

He noted the company has done a good job at developing a second source of revenue--other than the bread-and-butter contribution from advertising fees.

Lycos is licensing its technology to such companies as GTE, Prodigy and CompuServe.

Analysts also remain bullish on Infoseek.

"Infoseek is positioned to meet or exceed our $5.7 million estimate for the December quarter," Andrikopoulos said. "They have good advertising and a good productive direct sales force."

Michael Parekh, an analyst with Goldman Sachs, described the future of search engines with this analogy:

"There are three main legs of the economic stool for Internet services. Ads, subscriptions and transactions," he said. "The search companies have started on the advertising side and will be supplementing their business with more products to sell more ads. But like Yahoo's joint venture with Visa, the notion is to convert traffic into some sort of new revenue stream."