Overture, LookSmart Continue Growth

Overture Services and LookSmart continue to show staying power, though questions linger over the growing presence of rival Google and recent questions about fee policies.

On Thursday, Pasadena, Calif.-based Overture posted better-than expected earnings and increasing sales of its pay-for-placement search engine results.

The company saw second-quarter revenue increase 7 percent from last quarter, to $152.5 million. Net earnings topped $17.5 million, or $0.29 per share, slightly down from $29.3 million, or $0.48 per share, during first quarter. Much of that decrease came as a result of a $10.4 million tax provision made during second quarter, the first period in which the company has recorded such an expense.

Wall Street had expected earnings of $0.25 per share, according to Thomson Financial/First Call. The quarter marks Overture’s fourth consecutive quarter of profitability.

“During the second quarter, Overture demonstrated strong momentum on all fronts,” said Overture President and Chief Executive Ted Meisel. “Based on our current execution, we fully expect to carry this momentum into the second half of the year.”

San Francisco-based LookSmart, meanwhile, posted a profit before one-time charges and continued to narrow its net losses, to $800,000, or $0.01 per share. Last quarter, the firm posted a net loss of $5.4 million, or $0.06 per share. Quarterly revenue grew 5 percent, to $21 million.

Despite the promising numbers, Mountain View, Calif.-based Google’s rise to prominence in the paid listings space does seem to have had a chilling effect on the two veteran players.

For one thing, while Overture’s average price-per-click increased to $0.30 during the second quarter 2002, up from $0.24 previously, the company handled less traffic that it had previously, with the number of clicks dropping from 587 million to 515 million during the quarter. Overture attributed the decrease to a combination of expected seasonality, and the loss of AOL Time Warner as an affiliate, to Google.

Overture also said it expected traffic acquisition costs — representing the percentage of sales revenue paid to affiliates — to begin increasing, after several quarter of improvement. Next year, the company said traffic acquisition costs would grow to about 60 percent or 62 percent, due to international expansion, market share consolidation among affiliates, and increasing competition.

“Depending on the development of the competitive landscape, it is possible that these costs may be higher,” said Chief Financial Officer Todd Tappin. “We intend to be consistent with our strategy of being competitive and still enter into economically sound deals.”

Also, despite the fact that the company brought in 7,000 new advertisers during the quarter — making for a total of 67,000 — it said advertiser spending also dropped slightly to $2,410, from $2,540 during the first quarter.

The company said it expects revenue to continue increasing, giving guidance of $160 million and $180 million for the two coming quarters, respectively. Net earnings, meanwhile, are expected to come in at about $11 million next quarter, or $0.17 per share, and $12 million in fourth quarter, or $0.19 per share.

For next year, the company forecasted $850 million to $900 million in revenue, and net income of $60 million to $70 million, or $0.90 to $1.05 per share.

Meisel waved away concerns over competition, saying the attention that a new major competitor like Google brings to the paid listings space would benefit all players.

LookSmart, too, faces difficulty, in part due to its controversial change that required small business customers to pay ongoing, pay-per-click fees, rather than a one-time fee. Since instituting the change, which was designed to bring in recurring income, the company’s revenue from small business customers dropped from $3.1 million to $2 million during the quarter.

Additionally, while the company’s paid clicks grew 74 percent to 87 million during the past year, average revenue-per-click dropped from $0.23 to $0.19.

Overture also is dealing with recent changes in its fee structure. Earlier this year, the company began offering an automated system for clients to manage their paid listings, though some small customers complain that the process unfairly increased margins between bids. Spokespeople from Overture last week told internetnews.com that feedback had generally been positive.

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