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THE DAY AHEAD: InfoSpace, out with the new, in with the old

COMMENTARY -- InfoSpace CEO Naveen Jain is learning that the magic he used in 1999 and early 2000 to drive shares into the stratosphere may not work in 2001.

It sure didn't on Monday. Shares fell 21 percent after Jain retook the helm at InfoSpace (Nasdaq: INSP). Nothing rattles Wall Street like a management shakeup, a tech slump and a bunch of skeptical analysts.

On Monday, InfoSpace, which provides services for wireless devices, merchants and Web sites, reappointed Jain as CEO. Arun Sarin, the highly touted and now former CEO, has scaled back his responsibilities. Sarin, who joined the Seattle-based company last May from Vodafone AirTouch, was well regarded and led a deep management team.

And Sarin, 45, isn't the only senior exec with a diminished role. InfoSpace's board named Ed Belsheim COO. Belsheim, previously InfoSpace's senior vice president and general counsel, succeeds Russell Horowitz, who will become executive consultant and adviser. Tammy Halstead, chief accounting officer, was appointed CFO, succeeding Rand Rosenberg.

"They are consolidating their management team into the old InfoSpace," said Matt Adams, an analyst at Epoch Partners. “The old guard is back."

Adams isn't kidding -- it's out with the new and in with the old. InfoSpace spent the second half of 2000 talking about its evolution and management buildout. Now the outsiders are history.

The management shakeup left a lot of analysts wondering what's going on behind the scenes. Analysts said InfoSpace's depth of management led by Sarin was the company's biggest asset.

On the surface, you could do worse than having Jain run the company again. Jain founded the company in 1996 and brought it public in 1998.

The charismatic Jain was a staple at investment conferences. With his high-octane pitches, investors couldn't wait to run out and buy shares. And they did. On Jain's watch, shares of InfoSpace soared from $4 at the beginning of 1999 to $53 by the beginning of 2000. The stock surged to $130 in early 2000 and then settled at about $67 by May. That's when Sarin took over -- just in time to preside over InfoSpace's collapse amid the dot-com turmoil.

But don't blame Sarin for InfoSpace's stock problems. "Be careful of looking for cause and effect with the markets," said Keith Bachman, an analyst with ABN Amro. "You have to separate markets from individuals."

In other words, 2000 was a bad market year and 1999 was a great one. Jain got lucky. On a conference call with analysts Monday, Jain's luck was gone. He had trouble painting a happy face on the shakeup.

"Very little has changed," said Jain. "We have a tremendous management team in place."

Sarin followed up by adding that he's partially stepping aside because didn't want to relocate his family from the Bay Area to Seattle.

Analysts didn't bite. They asked whether Sarin would be on wireless sales calls and negotiate deals. Sarin, who has great contacts in the wireless industry, said he'd help as much as he could in his "role as a board member." Simply put, Sarin will be more board member than employee. That's bad news for investors.

"This obviously means I will be less engaged in the company than I was as CEO," Sarin told analysts during a conference call. “But that’s the balance I’ve been seeking between my work and home life.”

"That sounds like less engagement," said Bachman, who before the call noted that "any less of Arun's mindshare is a negative."

Aside from Sarin, the loss of Horowitz is notable. Horowitz joined InfoSpace via the acquisition of Go2Net last year. In Horowitz's new role as adviser, it's safe to say he has one foot out the door. Actually, it's more like his pinky toe is the only part of his foot still in the door.

Jain said he had a "good and positive relationship" with Horowitz, who was expected to lead the company's broadband strategy. But Horowitz wasn't on the conference call.

Sources said senior management had trouble working with Jain, who reportedly couldn't delegate as the company grew. Analysts said Jain's best position is as a visionary, but he'll have to be more of a manager to handle InfoSpace, which is now a grown-up cross-platform company. Jain didn't rule out hiring another CEO that lives in Seattle and can work 16-hour days, but he sounds entrenched at InfoSpace.

Of course, much of the management hoopla was just the warm-up act for InfoSpace's earnings next week. The fourth quarter is safe -- management is comfortable with estimates of a profit of a penny a share on sales of $65.75 million -- but the 2001 outlook could be in flux. The company projected 2001 sales of $360 million, but analysts don't buy it. If InfoSpace cuts its outlook, Jain will need plenty of charisma to get Wall Street on board.TDAIN


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