LookSmart Losses Widen

“LookSmart’s second quarter results were mixed,” said CEO David Hills. “The top-line was negatively impacted by our ongoing efforts to streamline our network to focus on productive traffic. We now have a better performing and higher value ad network.”

GAAP net loss in the preceding quarter was $4.4 million, or $0.04 per share, and a net loss of $0.01 per share in the second quarter of 2004. Taking into account a $1.9 million non-cash restructuring charge, the loss met LookSmart’s $3.5 million guidance. LookSmart reported total revenue of $10.2 million for the second quarter, compared to $12.0 million in the first quarter and $19.1 million in the year-ago quarter.

Since the company lost 70 percent of its revenue in one fell swoop when it lost MSN as a distribution partner at the end of 2003, the company has seen a string of disappointing quarters and a management shakeup earlier this year.

The shakeup led to the company creating two divisions, one focused on specialized vertical search offerings, the other on its consumer products, including Furl and the NetNanny Web filtering service, both acquired last year. In recent months, LookSmart has launched vertical search sites as part of a strategy of choosing strategic niche markets to drive search traffic for its advertisers’ listings.

“LookSmart had a tough time transitioning the existing business last year. That business needs to finish its transition, and we continue to work on those parts of it that support our new initiatives,” Hills said. “We are a company of great assets that have yet to be deployed in one seamless strategy. This is our focus going forward.”

The company plans to launch more vertical “clusters” this year, and to update existing sites with a common branding, design, and naming convention and URL structure. The sites will use LookSmart’s assets to create what Hills calls a “next-generation search community,” taking advantage of the company’s Web search, directory, the Zeal community, FindArticles and Furl.

Hills said the sites will be cost-effective to launch and will make money mainly through LookSmart’s paid search ads and banners. The company will soon offer contextual text ads on its network of vertical sites.

During the quarter, LookSmart installed measures to combat click fraud, and removed suspicious traffic from its network, affecting its revenue. Hills said that higher keyword prices — up 7 percent overall and 23 percent in vertically focused areas — reflect increased customer satisfaction with the quality of the network.

“Prices don’t move up when folks are unhappy with the return,” he said.

For the third quarter ending September 30, revenues are expected to be $7.0 to $8.0 million. The company anticipates a net loss of $5.5 to $6.5 million or $0.05 per share for the quarter.

The company also announced CFO Bill Lonergan will resign as of November 1, or as soon as a replacement is named. A search for a new CFO is currently underway. LookSmart did not give a reason for Lonergan’s resignation from the post he took on two years ago.

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