THE DAY AHEAD: Lycos struggles for respect; Quintus to surge

Larry Dignan
4 min read

According to Lycos Inc. (Nasdaq: LCOS) officials, the portal is among the most undervalued, unappreciated Internet stocks on the planet. Officials may come off as whiny when they harp on valuation, but they may have a point.

Based on audience reach, page views and 12-month trailing revenue, competitors such as Yahoo! (Nasdaq: YHOO) and America Online (NYSE: AOL) trade several multiples above Lycos, said CEO Bob Davis on a conference call last night. A lot of analysts will tell you the same thing.

"There's still a substantive valuation gap between ourselves and many of our competitors," Davis said.

Lycos: Deserves more respect?

The company's solution has been to execute, build a huge brand and acquire eyeballs through an aggressive acquisition strategy. The acquisitions are expected to continue and Lycos is morphing into an e-commerce play of sorts.

You'd think Wall Street would notice the Web's fourth largest site.

Lycos met first quarter estimates and investors seemed to be pleased in after-market trading.

The reason? The company beat revenue estimates by a wide margin with sales of $56 million and was extremely bullish on fiscal 2000. Lycos reported an operating profit of a penny a share.

"Our outlook for this fiscal year has increased quite substantially," CEO Robert Davis told analysts. "We're as bullish as we have ever been about our operating model going forward. We think there's great upside, with the strategy we've employed, with regard to earnings."

The $56 million in first quarter sales marks a 126 percent improvement compared to the year-ago period. "The results we just reported today in Q1 are pretty close to what we were expecting at a full year annualized run rate," said Davis, noting the company's fiscal 2000 target of roughly $230 million for revenue.

All that bullishness is nice, but Lycos is still struggling for respect. Maybe it's because the company is based in Waltham, MA instead of Silicon Valley, but it's just not hip like Yahoo. And unless Lycos is tossed around as a takeover target, Wall Street doesn't notice.

The Wall Street Journal, the bible of Wall Street, failed to mention Lycos' earnings in its print edition Tuesday. Usually, Lycos earnings get a brief somewhere in the back, but this time the portal lost out to companies like Lucy.com and Liquid Audio (Nasdaq: LQID).

When USA Networks (Nasdaq: USAI) was going after Lycos, the portal got some press. When CMGI (Nasdaq: CMGI) engaged the portal in on-and-off talks, Lycos got attention. As a stand-alone entity, Lycos apparently isn't worth the print. Lycos did make the Journal's Interactive edition though.

Part of it may be Lycos' fault. In the gripe department, we have two in with Lycos:

1. The company didn't reveal traffic figures in its release (full statement). That fact alone makes us a little suspicious. Traffic was up 17 percent from the fourth quarter's 70 million average daily page views.

2. Lycos' webcast needed a lot of help. No hold music and frequent problems. Officials frequently sounded like one of the adults on a Peanuts cartoon. Lycos should consider using Broadcast.com. Of course there's a problem: Yahoo (Nasdaq: YHOO) owns Broadcast.com.

Quintus a hot IPO today, takeover target tomorrow?

Quintus (Nasdaq: QNTS), a customer interaction and e-commerce software company, will be the hot IPO of the day, but if you want to know where this company will be in a few years just look at where its competitors have wound up.

Three of the competitors cited by Quintus in regulatory filings have been acquired in recent months. Nortel Networks (NYSE: NT) bought Quintus competitor Clarify , Cisco Systems (Nasdaq: CSCO) acquired WebLine Communications and PeopleSoft (Nasdaq: PSFT) bought Vantive. Judging from these developments, chances are pretty good that Quintus will be acquired too.

Who would buy Quintus? Lucent Technologies (NYSE: LU), which already resells Quintus products, would be a leading candidate.

In the short-term, however, Quintus will be a strong stock. Similar companies such as Kana Communications (Nasdaq: KANA) and SilkNet Software (Nasdaq: SILK) have been impressive since going public (comparison chart).

And early indications reveal that Quintus will have a nice debut. The company bumped up its price range for its 4 million shares to $15 to $17 from $12 to $14 and priced at $18. The company's financials are also solid, relative to other recent offerings.

For the six months ending Sept. 30, Quintus reported revenue of $22 million and a net loss of $1.68 million. For the year ending March 31, the company had sales of $30.3 million and a loss of $11.4 million.

AOL-Wal-Mart deal on tap?

Are Wal-Mart (NYSE: WMT) and America Online (NYSE: AOL) about to hook up?

Donaldson, Lufkin & Jenrette analyst Gary Balter think so. In a research note, he said Wal-Mart and AOL are discussing a strategic partnership.

Financial details may be meek, but the strategic importance is significant. AOL can set up kiosks in Wal-Mart and lure more newbies. Wal-Mart can use AOL to acquire customers with its redesigned site in January. With AOL's help, Wal-Mart could be the "Wal-Mart of the Web." AOL could also use Wal-Mart's help in gaining customers in Europe.

The two companies could definitely help each other a lot. It's worth watching Amazon.com (Nasdaq: AMZN) to see the reaction to a Wal-Mart-AOL partnership.