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Infoseek seeks better numbers

The search engine company's stock drops 12 percent in trading after reporting a wider loss than analysts expected.

4 min read
Infoseek's (SEEK) stock dropped almost 12 percent in trading today after it reported a wider loss than analysts expected.

The search engine company's stock has been on a roller-coaster ride. In active trading, the stock fell to 5-61/64 from yesterday's close of 6-3/4. This drop follows a 25-percent boost it got prior to competitor Yahoo (YHOO) releasing its earnings last week.

While its revenues held steady in the face of a seasonal slowdown, Infoseek announced a widening net loss of $4.1 million, a loss of 16 cents per share, compared with a net loss of $3.6 million or 14 cents a share for the first quarter of 1996. The company's loss grew from $3.95 million in the previous quarter.

The Wall Street consensus was a loss of 15 cents a share, according to First Call. Despite missing the consensus by a point, analysts are not necessarily disappointed in the results.

Shaun Andrikopoulos, an analyst with Alex. Brown, said the quarter was in line with his expectations and that business is strong for the growing search engine firm.

The company reported revenues of $6.2 million, a 255 percent increase over year-over-year figures of $1.7 million. Revenues grew just a bit over last quarter's $6.1 million.

"Traditionally, the first quarter is a weaker quarter, but we are very pleased that revenue was up slightly. Technically, we were a cent below [expectations], but we are making steady progress and are very encouraged by this quarter," said company spokesman Steve Grady.

Grady said the first quarter of the year tends to lag behind the Christmas season, a big quarter for advertisers. He added that companies also tend to reevaluate budgets in the early part of the year, so spending trails off.

Infoseek revenues come largely from advertising, but the company launched a software product called Ultraseek Server during the quarter. The version of Infoseek's software is available to IS managers for internal Web sites.

Grady said that less than five percent of revenues came from this software but that "we are expecting it to grow but expecting advertising to grow as well. The thrust of our business will remain our advertising sector. We do not want to be a software company."

The search site saw its traffic increase, as well as its number of advertisers, which grew 6 percent to 293. The quarter was also marked by strategic partnerships with big media companies like NBC and CNN, and technology companies including Netscape Communications.

But building partnerships won't make the company profitable. "Although Infoseek has announced a lot of new partnerships and alliances, we believe it is still unclear how the company will reach critical mass," said Keith Benjamin, an analyst with Robertson Stephens & Company, in a report.

Others say those kinds of partnerships will nurture growth. "Partnerships don't cost a lot," Andrikopoulos said. "They help establish brand identity and it gives them a better product. I have no reason to doubt their future profit potential...All of the growth drivers are there and their traffic growth has really picked up."

Traffic increased 33 percent from last quarter, which brings visitors to about 6 million a day, up from 4.2 million in the previous quarter. Grady said that during the week the company averages 8 million visitors a day.

Last month, Netscape renewed its deals with four companies--Excite, Yahoo, Infoseek and Lycos--which will remain the premier search engines on its Net Search page.

Under the new agreement taking effect on May 1, Infoseek said it will receive at least 35 percent of the traffic from the Net Search button, up from 20 percent under the current agreement.

Search engines face growing competition as competing services enter the market and existing ones continue adding content to act as a resting stop for information, rather than simply a pointer.

That doesn't go along with Infoseek's goals, even though the company did add some content to its site. During the quarter, Infoseek Investor was launched, which features services for investors, including stock quotes, a portfolio tracker, and company news. The company also launched a search capability that allows users to search daily newspapers.

"We are a pointer, basically, and we are not trying to be a destination site. Our primary goal is to build context, not content. We want to be the middleman, not a free online service," said Grady.

While online advertising dollars are on the rise, analysts think that those dollars will go to the few industry leaders. Moreover, expansion efforts are costly, which has raised concern in the financial community.

"We believe 1997 will be the year companies begin to allocate larger budgets for Web advertising. We believe a significant portion of these advertising revenues will be skewed towards those Internet companies with the largest differentiated audiences, such as Infoseek, if it succeeds in building its brand," said Benjamin of Robertson Stephens.

Earlier this month, Infoseek named Leonard LeBlanc its chief operating officer, a newly created position within the company. LeBlanc joined Infoseek in 1996 as executive vice president and chief financial officer; he will continue to serve as CFO and will join the board of directors.

Andrikopoulos expects Infoseek to turn profitable in early 1998 and has its stock rated as a "strong buy."