Excite deals mean smaller loss

Excite (XCIT) today reported a smaller second quarter loss than expected, as partnerships and new initiatives bring the company into position to grow revenue and reduce costs.

The company reported a loss of $7.9 million, or 63 cents a share, for the quarter ending June 30, compared to a loss of $15.4 million, or $1.29 cents a share, for the same quarter a year earlier. Excluding a $2.5 million one-time acquisition charge, Excite would have posted a loss of $5.4 million, or 43 cents a share.

Analysts expected a loss of 55 cents a share, according to First Call. The company, which announced its earnings after the market's close, saw its stock gain 1/4 to close at 17-5/8.

"The company is spending more than it is taking in, but that is part of building the business. We want them to spend as long as we see an increase in top-line growth," said Brian Oakes, an analyst with Lehman Brothers.

Revenue grew to $9.5 million, up from the $2.1 million reported last year and the previous quarter's 26 percent increase.

The business model for search engine companies has been based on one source of revenue: advertising sales. That has been a concern for analysts. Oakes says additional revenue streams are needed to diversify and expand income.

During the quarter, Excite began to do just that. The No. 2 search engine company has started branching out through deals with Internet and media companies in an effort to increase traffic, build its brand, and generate revenue through new outlets.

The deals announced during the quarter confirm the wisdom of the channel strategy, said company CFO Robert Hood. "The deal with Intuit (INTU) is a confirmation of the content side, the Amazon (AMZN) deal is a confirmation of the advertising side, and the Netscape (NSCP) deal is a confirmation from the distribution side."

In June, Intuit (INTU) bought a 19 percent chunk of Excite for $40 million. That equity investment prompted the search engine company to cancel a much-anticipated secondary offering.

Scott Ehrens, an analyst with Oppenheimer & Company, said the partnership not only provides much-needed cash, but also opens the door to Intuit's 10 million-strong customer base. That creates the possibility of a personal finance channel within Excite, cobranded with Intuit, with revenue and cost sharing. That could be a springboard to developing transactional services.

Excite also announced a deal with Ticketmaster to provide direct online ticketing and live event information. With the agreement, Excite became the first navigation firm to offer Ticketmaster event listings online and offer direct online access to ticketing with a credit card.

Netscape and Excite announced last week an alliance under which the search engine company will produce a new navigational service providing international information, dubbed International Netscape Guide.

Excite and Amazon.com announced a three-year distribution and programming agreement which lets users buy books while browsing Excite's channels, and lines up the bookseller to create original content for the channels.

"Through these partnerships, Excite will leverage its audience reach to grow high-margin revenue streams such as transactions and merchandising while at the same time reducing costs and business risks," said Oakes.