Overture profit down, sales up
Despite a surge in revenue from paid search services, the company's first-quarter earnings fell by almost two-thirds, but revenue surged by more than one-half.
The Pasadena, Calif.-based commercial search company reported a first-quarter net income of $11.1 million, or 18 cents per diluted share, on revenue of $224.7 million for the three months ending March 31. That compares with earnings of $29.3 million, or 48 cents per diluted share, on revenue of $142.8 million in the same period last year.
First-quarter net income included a one-time, pretax credit of $3.9 million due to a reduction in the final arbitration award associated with a legal dispute with InternetFuel. It also included a tax provision of $11 million. Excluding the one-time credit, first-quarter 2003 net income was $8.8 million, or 15 cents, per diluted share.
Analysts had expected the company to earn net income of 14 cents per share this quarter, according to a survey of 10 analysts on First Call.
In addition, Overture reduced its full-year financial forecast by between 40 percent and 50 percent. It now expects to earn about 25 cents to 30 cents per share for the year. Still, it plans a year-over-year revenue increase of about 50 percent to reach more than $1 billion in 2003.
The company said it lowered its 2003 forecast because of higher expected traffic acquisition costs. Traffic acquisition costs were 64 percent of revenue in the first quarter of 2003, compared with 54 percent in the first quarter of 2002. In addition, it expects to add expenses from technology and infrastructure related to its Web search and commercial search products.
"While some near-term challenges have led us to revise our 2003 earnings outlook, we believe that the investments we are making now will position Overture to be one of the few major players in search and performance-based marketing," Overture CEO Ted Meisel said.
Overture's battle plan is to advance its business on several fronts this year. It aims to build a Web search and paid inclusion business based on its acquisitions of AltaVista and Fast Search & Transfer assets. It also expects to build out its analytics and advertising products, as well as further expand international businesses.
The company recently opened for business in South Korea and plans expansion into six other new international markets in Europe and Asia this year, on top of its businesses in the United Kingdom, Germany, France and Japan.
This week, Overture finalized its purchase of the Web search assets of Norway-based Fast Search & Transfer, which it bought for $70 million in cash and $30 million in potential bonuses. The company's acquisition of AltaVista is also expected to close in coming weeks. In March, Overture said it would pay $140 million in cash and stock for AltaVista. The acquisitions give Overture bigger search muscles to compete against Google in the Web navigation market.
Other positive notes included a rise in paid introductions, or the number of times people click on advertising text links on Overture's partner sites. Its number of paid introductions in the first quarter was 608 million worldwide, compared with 587 million paid introductions in the same period 2002, and 563 million in the fourth quarter of 2002.
Advertisers also paid more on average for their listings. Advertisers paid Overture an average of 37 cents for each paid introduction during the first quarter of 2003, compared with 24 cents in the first quarter of 2002, and 35 cents in the fourth quarter of 2002. Overture's total number of active, paying advertisers increased by 10 percent from last quarter to 88,000.
Overture shares were up 40 cents to close the day at $16.48. The earnings report was issued after the close of regular trading. In after-hours trading, Overture shares fell more than $4 to $12.12, according to Island ECN.