2HRS2GO: InfoSpace still needs to grow up

3 min read

COMMENTARY--Executives couldn't allay investors' doubts about InfoSpace.

Shares fell 15 percent today for the provider of technology and services for online content and commerce, while the overall Nasdaq rose slightly this morning. You might wonder why InfoSpace (Nasdaq: INSP) took a hit, considering it already trades around $5 a share, sees an improving bottom line as the year progresses and expects to exit December with plenty of cash.

Unfortunately, Wall Street expected a lot more from the company's latest forecast.

Anyone listening to the Q&A portion of yesterday's conference call could tell analysts were underwhelmed. Today's INSP notes from research houses were nearly unanimous in noting a lack of impressive news. Merrill Lynch analyst Virgina Syer-Genereux summed up the sentiment:

"We think there was some speculation that the updated outlook--because the one provided two weeks ago was so poor--would be stronger than it turned out to be."

When InfoSpace reported second-quarter results two weeks ago, company executives said they needed to finish their new strategic plan before providing improved financial targets. The implication was that the picture would look much better once executives figured out cost cutting moves and decided what businesses to "de-emphasize."

Wireless and broadband content and commerce services are good. Units dealing directly with consumers are old hat; returning CEO Naveen Jain yesterday cited Playsite.com as an example of what would receive less attention, compared to previous quarters.

(Incidentally, Jain pointed to an easy target. As this was typed, Playsite.com listed slightly more than 1,700 players online, including users of its 3.0 beta site. At the same time, MSN's Zone.com showed nearly 84,000. With that kind of disparity, it's worth asking why Playsite.com continues to function at all.)

CFO Tammy Halstead raised the company's bottom line and gross margin goals, but that was to be expected, given that InfoSpace cut 250 jobs earlier this month. Jain and Chief Operating Officer Ed Belsheim talked up InfoSpace's focus on growth areas, but provided relatively scant specifics.

Company observers wanted to hear about revenue growth. They wanted to find out just how InfoSpace plans to pull back from its consumer dealings. They wanted more details about how each of the company's wireless initiatives will grow.

But executives' statements boiled down to this: Here are our financial targets, we're going to be in a great position by the end of the year. Trust us.

The market isn't so trusting these days, not with any company, and certainly not for a company that ripped out a relatively new management team and replaced it with the Old Guard.

Let's face it, the executive overhaul is really what's bugging Wall Street. Analysts justifiably complain that the company's revenue growth remains cloudy, but the biggest uncertainty continues to be management.

After almost five years of existence, and more than two years as a publicly traded entity, InfoSpace ought to be acting like a solid company by now. The business plan should be entrenched and revenue growth should be reliable.

Instead, the company appears to be starting over. InfoSpace is back in a start-up mode led by its returning chief entrepreneur. Meanwhile, Arun Sarin, the man originally picked to lead the company into adulthood, just resigned from the board.

It's the kind of turmoil that would make Wall Street retreat from any stock at the height of a bull market, let alone the current atmosphere of gloom.

InfoSpace should be a grown-up by now, but it's back to being a kid. The company has reverted to a rookie, forced to prove itself to a world in which 13 of 17 analysts have either hold or tepid buy recommendations on INSP stock.

These days, no one is willing to buy into anything simply because of a slightly better forecast. People want steady results. 22GO>