LookSmart Fights On

Paid search listings provider LookSmart beat Wall Street estimates and revised its guidance for 2004 upward, continuing its all-out battle to recover from the loss of major client MSN.

LookSmart reported revenue of $27.8 million for the first quarter of 2004 and a loss of 7 cents per share, handily beating analysts’ expectations of $20.6 million and a loss of 9 cents per share. The company also revised its guidance upward for 2004, estimating revenue of $76 to $81 million. Previously, LookSmart had expected $45 to $50 million in revenue for the year.

In October 2003, Microsoft’s MSN (Quote, Chart) opted not to renew its contract with LookSmart, leaving the company reeling. LookSmart had depended on MSN for about 70 percent of its revenue. But it has been fighting back ever since.

As part of its recovery strategy, the company acquired filtering software product Net Nanny. LookSmart announced the decision Thursday, the same day its earnings report was released.

GAAP net loss for the first quarter was $7.1 million, including reductions in net income of $3.8 million related to restructuring charges and $27,000 due to stock compensation from variable stock options

“We will return to operating profitability as rapidly as possible,” vowed Damian Smith, LookSmart’s interim CEO since the January resignation of its former chief executive, Jason Kellerman. Smith said the goal would be reached by growing paid listings, adding distribution partners and reducing staff and cost base.

Plans for drastic layoffs were announced in December. The head count has now been reduced to 152 people, according to Bill Lonergan, the company’s CFO.

The company’s core business, its search listings, grew more than 30 percent sequentially, Smith said.

LookSmart signed eight new distribution partners in 2004’s first quarter, according to Smith. He would not say how many distribution partners the company has in toto.

Smith touted the acquisition of Net Nanny, which has about 400,000 users. The product’s desktop distribution will lead to high-margin proprietary traffic, according to Smith, and will diversify LookSmart’s revenue base. Also, it will allow LookSmart entry into a market with children 16 to 18 years old. (Net Nanny enables parents to control what their children see and do online.) Finally, the combination of LookSmart’s paid listings and the offerings of Net Nanny will attract more distribution deals, he said.

Smith said the overall success of the search market is creating opportunities for firms such as his.

“Prices continue to be bid up on Google and Yahoo as more advertisers come to search marketing and bid the prices up to get the top spots. This creates a secondary market,” Smith said. He likened the search marketing situation to competition between top-level and second-tier airports.

“We’ve got a large number of airline passengers who find flying out of San Francisco Airport prohibitively expensive. We’re telling them to come to the Oakland Airport. You’ll still get a quality ride, but pay less,” Smith said.

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