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2HRS2GO: Can&#039t complain about InfoSpace-Go2Net

Anyone who has ever heard the chairman of InfoSpace (Nasdaq: INSP) knows he's a tough guy to argue with, if for no other reason that he often talks so fast that listeners can't get in a word.

InfoSpace founder Naveen Jain's rapid speech is usually driven by enthusiasm. And he had every reason to beam yesterday.

Word obviously slipped ahead of time concerning the acquisition of Go2Net (Nasdaq: GNET) by InfoSpace (Nasdaq: INSP): options volume on Go2Net shot higher Wednesday morning, though the deal wasn't formally announced until InfoSpace reported earnings after the closing bell. I suppose the news leak ought to be expected; it's always hard to keep these transactions secret for long, especially when more than two prominent parties are involved. Between all the personnel at Go2Net, InfoSpace and Paul Allen's Vulcan Ventures -- the largest shareholder of Go2Net -- it's no surprise that some buzz hit the markets beforehand.

Besides, it's hard to remain silent about a combination that makes plenty of strategic sense.

Go2Net executives have been saying for a long time that their company isn't so much a portal as a provider of Web technology and services, such online transactions for small businesses. Or in other words, more like InfoSpace than Yahoo! (Nasdaq: YHOO).

At the same time, Go2Net was going to face a limitation of scale sooner or later. Paul Allen's wired world is a nice idea, but it's not nearly as large of a potential distribution platform as a Yahoo!, America Online (NYSE: AOL) or even Excite@Home (Nasdaq: ATHM).

But 92 percent of the Web audience does touch InfoSpace in some form, or so the company says. InfoSpace has also pushed aggressively in the wireless market, and now claims access to 88 percent of North American cellular users. That's the kind of scale Go2Net needs to go from being a solid niche business to a major player.

And of course, InfoSpace gets access to Paul Allen's cable assets.

To its credit, the market seems to share with the companies' delight. InfoSpace shares have lost about a quarter of their value today, but that's just an adjustment for the dilution to be expected from issuing nearly 57 million shares, which would increase InfoSpace's total shares outstanding by -- you guessed it -- roughly 25 percent.

InfoSpace isn't just buying a strategic foothold, it's also getting a good business. Go2Net has been profitable for several quarters and its revenue growth -- 23 percent sequentially in the June quarter -- is nearly as strong as that of InfoSpace. The acquisition will add to earnings immediately, Jain said.

It's hard to argue with that.

Other issues:

  • Nokia (NYSE: NOK)
  • Does this look like the mother of all buying opportunities or what? The Finnish phone giant's caution about near-term weakness sent the market scurrying from the wireless sector, which earlier this month shuddered after a weak quarterly report from LM Ericsson (Nasdaq: ERICY).

    And that's exactly why Nokia remains a good prospect: its main rivals aren't likely to take much advantage of its third quarter weakness. Ericsson has its own problems to deal with. Growth in the wireless handset business of Motorola (NYSE: MOT) continues to trail the other big players. Siemens and Alcatel, though pushing hard, remain far behind the leaders.

    As long as you believe wireless has a future, you have to stick with Nokia. It's too far ahead of its everyone else to do otherwise. 22GO>