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Infoseek losses miss mark

The search engine company reports earnings that fall short of Wall Street's expectations. Larger-than-expected restructuring charges eroded profits.

In the midst of an executive makeover, Infoseek (SEEK) reported earnings that fell short of Wall Street's expectations, as larger-than-expected restructuring charges cut into profits.

The search engine company today reported a net loss of $11.9 million, or 45 cents per share, compared to losses of $4.7 million, or 52 cents a share, in the same quarter a year ago. In the first quarter, Infoseek reported a loss of 16 cents a share.

The company announced its results after the markets closed, but in active trading today, investors pushed the stock up about 20 percent to 6-7/16, from yesterday's close of 5-3/8.

The deal Infoseek announced today with Microsoft may have something to do with all the speculation. For three months, Infoseek will be the default search site on MSN's Germany, France, and United Kingdom sites, and will continue as a recommended search engine for an additional three months. MSN also will sell European advertising for Infoseek, while the search engine will add ActiveX controls to its Europe sites.

Infoseek's $11.9 million loss was compounded by a one-time $7.4 million restructuring charge associated with management changes. Without the restructuring charge, the net loss for the quarter ending June 30 was $4.6 million, or 17 cents per share. Wall Street analysts expected a loss of only 15 cents a share, according to First Call.

The size of the charges took analysts by surprise.

"It was awfully high...and they were very vague as to what was in that number," said Andrea Williams, an analyst with Volpe Brown Whelan. She said the $7.4 million charge covers compensation for executives that left during the quarter as well as charges involved with refocusing the company on its core business of Internet search and navigation.

Williams added that even more losses are expected in the coming quarters as advertising makes up a greater share of Infoseek's expenses. That means losses will be greater than expected. Williams already readjusted her fiscal 1997 projections downward; she foresees revenue of $33.8 million and an operating loss of 87 cents a share, down from a loss of 79 cents a share.

On Monday, the company will fill one vacancy by announcing a new vice president of advertising sales. Infoseek has yet to unveil the names of candidates for chief financial officer and vice president of marketing. Filling those shoes may help begin to get the company on track, building its brand and growing traffic, Williams said. "We have seen a slew of partnership announcements out of Yahoo and Excite, but Infoseek has been conspicuously absent."

Investing in the business is essential to growing traffic and building distribution partnerships, and analysts applaud the one Infoseek announced today with Microsoft. To boost revenues, Infoseek needs to concentrate on building traffic by building brand name, said Williams.

Revenues continue to grow for the search engine company. For the quarter, revenue was $7.7 million, a 134 percent increase over $3.3 million for the second quarter of 1996. Results were up 25 percent over the first quarter's results of $6.2 million.

The company has grown its revenue each consecutive quarter since its jump into the public realm in early 1996. Infoseek's traffic grew 31 percent this quarter from the previous quarter.

In June, Infoseek promoted Dr. William Chang to chief technology officer and Arthur Clark to vice president of business development.

On July 7, two of the company's top executives officially stepped down: Leonard LeBlanc, company chief financial officer and chief operating officer, and Peter Rip, vice president and general manager of the Infoseek Network.

In May, chief executive Robin Johnson abruptly resigned. His post was filled by Harry Motro, who had arrived the previous month as president.

But most analysts have said recently that the search engine company lags behind competitors Yahoo (YHOO) and Excite (XCIT), both in daily page views and advertising. Analysts say Infoseek's growth is hindered by its executive vacuum.

Last month Shaun Andrikopoulos, an analyst with Alex. Brown, downgraded the company to "buy" from "strong buy." He said in a report that the reorganization of the management team is happening at "an inopportune time because the industry appears to be consolidating from both a traffic perspective and a revenue perspective."