Infoseek shares plunge

Shares in the Net portal company plummet after reporting earnings under views, despite doubling its revenue from year-ago levels.

Jim Hu Staff Writer, CNET News.com
Jim Hu
covers home broadband services and the Net's portal giants.
Jim Hu
3 min read
Shares of Infoseek plunged today after the company yesterday reported third-quarter earnings 2 cents lower than analyst expectations, despite more than doubling revenue from the same period a year ago.

The company reported a net loss of $2.6 million, or 8 cents a share, which is 2 cents further into the red than Wall Street estimates, according to First Call. Revenues this quarter jumped to $19.2 million, a 129 percent increase from the $8.4 million from the same quarter last year.

Shares of Infoseek were down 9.42 percent in early trading, a drop of 3.13 points to 30.06. The stock has traded as high as 45 and as low as 6.25.

Infoseek stock also took a hit this morning after two influential investment banks lowered the company's outlook. Salomon Smith Barney downgraded the company to "neutral" from "buy," while Deutsche Bank cut its rating to "hold" from "accumulate."

Financial results for the past quarter come just weeks before a shareholder vote on November 18 that will determine the outcome of the company's deal with Walt Disney to develop a portal site that the two have named the Go Network.

In June, Disney paid $70 million in cash, and handed over its ownership of Starwave for a 43-percent stake in Infoseek.

Infoseek, on the other hand, will oversee the development and daily operations of Go Network, and has committed to purchase $165 million in promotional support for the new portal. Infoseek executives maintain that the company will remain a search and directory brand after a November preview and a launch slated for March 1999.

The Go Network will combine a number of Disney and Infoseek joint-venture Web properties, such as Disney Online, ESPN SportsZone, and ABCNews, into one branded Web portal, along with Infoseek-powered search and content channels.

But the development and investment in Go Network, even with the marketing muscle of Disney, has not impressed Infoseek observers. Though Disney has proven its immense value as a brand and a promotional channel, some think the effort is too late--and too expensive--to compete in a landscape currently dominated by well-established heavyweights such as Yahoo, AOL, and Excite.

"[Infoseek is] embarking on an expensive means in gaining market share, which I think will not work," said Keith Benjamin, an analyst at BancBoston Robertson Stephens. "They are hopeless at this stage to close in on the competition, even with Disney's help."

Benjamin added that a combination of Infoseek's slow audience growth rates seen this quarter, combined with Disney's inexperience in growing Web sites, will set the project too far behind today's portal leaders by Go Network's March 1999 launch.

"I think it's too late for anybody with any amount of money to gain that much share back," he said.

On the other hand, some analysts said it is too early to pass judgment on the portal effort. Rather, it will take a couple more quarters before the real strength of Go network's sales and marketing force will begin to affect Infoseek's earnings results, according to Bruce Smith, an analyst at Jeffries & Company.

"It was a good quarter considering how distracted they were," said Smith, referring to Infoseek's efforts to develop a new company while integrating sales and marketing forces. "This is going to be an incredible marketing effort by Disney that is underestimated. We can't see the fruits of that until we get through the next two quarters.

"I'm extremely bullish," added Smith, who currently rates Infoseek as a "buy."

The same is true for Andrea Williams, an analyst with Volpe Brown Whelan, who yesterday raised her rating to for the stock to "buy" from "neutral." The primary reason for the upgrade, she said, was her faith in Disney's whole-hearted support of the project.

"[We have] greater confidence in Disney's support of Go Network," said Williams in an earlier interview. "The concept of a network model makes sense for us, and may have good consumer appeal."

Nonetheless, Volpe Brown Whelan expects the Infoseek will not be able to reach profitability until 2000--a fact that some analysts can forgive, but most cannot forget.