A financial "D-day" looms for Infoseek.
The Internet directory is lobbying to win shareholder approval for its pending investment by Walt Disney just after the company posted weaker-than-expected third quarter earnings and has lost some investor support on Wall Street.
Despite facing myriad challenges, many analysts bet that Infoseek chief executive Harry Motro can win shareholder support for the deal, which will be put to a vote on November 18.
As reported, Disney will take a 43 percent stake in Infoseek, while handing over its ownership of Starwave. The companies are teaming up to launch the Go Network later this year, the "mother of all portal sites," as one industry executive put it.
Infoseek yesterday posted weaker-than-expected third quarter earnings, causing its stock to drop as much as 5.1875 points this morning. At least three investment banks downgraded the stock following the earnings report.
Andrea Williams, an analyst with Volpe Brown Whelan noted that Infoseek's stock, while down today, has made a strong recovery since earlier this month. The stock closed at 18.50 on Oct. 8, but has since climbed into the 30s.
"The reason it's had this run is because of increased optimism for the potential of the Disney deal," Williams said. "In the past few weeks, there has been more details about the Go Network and Disney's role with Infoseek."
Bruce Smith, an analyst with Jeffries & Co., said investors who sold today likely are those who thought Infoseek would blow past earnings expectations.
"They should invest in this stock for what Disney brings, not for the near term. I think they'll blow away the numbers in the second half of 1999," Smith said.
Yet Keith Benjamin, an analyst with BancBoston Robertson Stephens, said in a previous interview that Infoseek is jumping into the portal business a little late in the game. Infoseek's slow audience growth rate over the past quarter, combined with Disney's inexperience in growing Web sites, will hamper Go's development, Benjamin said. Go Network is scheduled to launch in March 1999.
The October rise in Infoseek's stock price puts it back to the level where it roughly traded when the deal was first announced.
"The stock has had a good run and the company has a lot of potential, but at this level [of trading], I want to see the deal really working before I put more money into it," said Henry Blodget, a CIBC analyst.
Lanny Baker, a Salomon Smith Barney analyst, said in a research report he was lowering his recommendation because the "upside timing" of the Go network appears to be pushed further back.
"The partnership with Disney, the acquisition of ESPN.com/ABCNews.Com and the Go.com portal project have potential to significantly enhance [Infoseek's] long term value, however integration issues and brand investment plans point to deeper losses in 1999 than we had anticipated," Baker said in his report.