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LookSmart enjoys sharp debut

LookSmart (Nasdaq: LOOK) closed up 5 5/16 to 17 5/16 Friday in its market debut after pricing at $12 a share.

The Internet search/directory company offered 7.7 million shares and priced in the middle of its $11 to $13 a share price range.

LookSmart originally planned to offer 12 million shares, but later reduced the offering to 9 million shares. By Thursday evening, the underwriters decided to offer only 7.7 million shares.

LookSmart claims to be the largest collection of "granular," or highly specific, content. Its LookSmart directory contains over 750,000 URLs in over 60,000 categories.

Lead underwriter for the IPO is Goldman Sachs, co-managers are Robertson Stephens and Hambrecht & Quist.

The company's revenue was $6.6 million for the three months ended March 31, 1999, compared to $804,000 the year earlier. Net loss for the quarter was $6.7 million, compared to $1.7 million in the previous year's quarter.

Risks include the large proportion of revenue coming from Microsoft, according to company filings. For the quarter ended March 31, 1999, revenue from Microsoft accounted for 66 percent of Looksmart's total. The terms of this agreement with Microsoft are also cited as a significant risk to revenue.

Under the agreement, the company licenses its database to Microsoft, and is obliged to increase the number of unique URLs included in its database every six months by pre-defined amounts. Microsoft has the right to determine the criteria for a portion of these URLs.

Another risk is the large portion of LookSmart's revenue derived from advertising. For the year ended December 31, 1998 and the three months ended March 31, 1999, advertising revenues accounted for 63.3% and 33.3% of the company's total revenues

LookSmart competes with companies that provide directory content and/or search algorithms, content aggregation and licensing, and demographically and content-targeted advertising. Inc. (Nasdaq: BOUT) and Inc. (Nasdaq: GOTO) are cited as similar companies.

Since the company's inception, it has incurred net loss of about $6.7 million in the quarter ended March 31, 1999. As of March 31, 1999, it had an accumulated deficit of around $30.0 million.