CNET logo Why You Can Trust CNET

Our expert, award-winning staff selects the products we cover and rigorously researches and tests our top picks. If you buy through our links, we may get a commission. Reviews ethics statement

Lycos up on smaller losses

Stock in the search company is on the rise after it shrinks its losses past analysts' expectations.

Paul Festa Staff Writer, CNET News.com
Paul Festa
covers browser development and Web standards.
Paul Festa
3 min read
Lycos (LCOS) shares rose as much as 7.5 percent in trading this morning after the search engine company's fourth-quarter performance beat expectations.

Lycos shares climbed as high as 32, up from yesterday's close of 29-3/4.

Lycos posted a net loss of $575,000, Lycos at a glance or 4 cents a share, for the quarter ending July 31, compared with a loss of $1.3 million, or 9 cents a share, a year ago.

Wall Street analysts were expecting a loss of 6 cents a share, compared to a loss of 16 cents a share for the same quarter a year ago, according to First Call.

"It was a very strong quarter. They exceeded my expectations in both the top and bottom lines," said Paul Noglows, analyst with Hambrecht & Quist. Noglows attributed the company's better-than-expected performance to what he described as "very tight control over operations," increased licensing of Lycos search technology to other companies, and increased advertising revenues.

Lycos saw its revenues climb to $7.8 million for the quarter, up from $2.7 million a year ago. Licensing revenues rose 42 percent in the quarter, and advertising sales rose 30 percent.

For the fiscal year, Lycos posted a net loss of $6.6 million, or 48 cents a share, compared with a smaller loss of $5 million a year ago. Revenues for the year rose to $22.3 million, compared with $5.3 million the previous year.

"We're thrilled with the results," said Lycos vice president of marketing Jan Horsefall. "And we think the market will be too."

Analysts have been hounding search companies to break away from the advertising-only revenue model and into a more diversified business. Yahoo (YHOO) and Excite (XCIT) have taken that advice: Excite announced a partnership with bookseller Amazon.com, and Yahoo signed a deal yesterday with CDnow. (See related story.)

Lycos joined the club last week, announcing a deal with Barnes & Noble. Under the alliance, Lycos and BarnesandNoble.com will integrate content and technology throughout their Web sites and promote online book sales. BarnesandNoble.com will become the exclusive bookseller on Lycos.

The bookseller will pay about $1 per Lycos share up front, a recent analyst report said. Lycos stock jumped 20 percent on the news that it will subsequently receive a percentage of online transactions.

"The deal announced with BarnesandNoble.com positions Lycos as an e-commerce platform going forward," Noglows said.

Lycos stock has skyrocketed since July, jumping about 130 percent to yesterday's close of 31-3/8.

Alan Braverman, an analyst with CS First Boston, said in a recent report that the deal with Barnes & Noble will provide "a positive impact to [Lycos's] deferred revenues, cash, and general credibility." Lycos appears to be the cornerstone of the bookseller's online strategy.

Braverman said Lycos is positioned to be the next search company to reach profitability. He expects the company to break even in the second quarter of 1998, but additional alliances may move that date up.

Noglows predicted Lycos would break even next quarter. "They've been on a very methodical march toward profitability, and they've picked up the pace this quarter. They will definitely be the next search service to be profitable, and will beat Infoseek and Excite," he said.

Not everyone is so confident in the company's prospects. Some analysts have said that there will be only one or two winners in the online search business, and those winners will be Yahoo and Excite.

Keith Benjamin, managing director at Robertson Stephens & Company, said Infoseek (SEEK) and Lycos are dead, that they will never make enough revenue to catch up to the big players. In this business, "first is everything," and they were just too late, Benjamin said.

Noglows felt differently.

"They had a good year. This company has positioned itself as a very strong No. 2 in the market," he said.

While analysts prognosticate, Lycos is busy trying to build its future. The company announced a joint venture with German media company Bertelsmann in May, through which it plans to offer local-language directory services in 37 European countries. Bertelsmann planned to invest $10 million in the Lycos venture, which will be called Lycos-Bertelsmann.

Lycos has also continued to expand its international guides. The latest additions include Germany, Latin America, and the Caribbean. They join Lycos guides for cities in the United States, Canada, the United Kingdom, Ireland, Australia, New Zealand, Europe, and Asia.