Overture Sees Continued Search Growth

Overture Services reported its second-quarter financial results on Wednesday, enjoying growth in the number of paid clicks and in the revenue each click generated.

Overture, which inked a $1.63 billion deal to be acquired by Yahoo last week, said paid introductions — the number of times searchers clicked on Overture listings — were 646 million, up 38 million from last quarter. Average price per click (PPC) also increased in the quarter, rising three cents from last quarter to 40 cents.

Overall, Overture’s revenues were $265.3 million, a 74 percent increase from a year earlier. Net income was $7.6 million, or 12 cents a share, down from $17.5 million in the same period last year. The results were above Overture’s guidance.

“We’re entering the combination with considerable momentum,” said Ted Meisel, Overture’s chief executive, on a conference call. “In combination with Yahoo, we expect to accelerate this progress.”

Meisel said the increase in paid clicks and PPC were a result of improvements to its Match Driver product and other technologies, and noted an absence of a seasonal dropoff.

The increase in PPC comes after Overture saw some stagnation in pricing levels last quarter, when PPC rose 2 cents. Ask Jeeves, which uses Overture rival Google, yesterday reported flat pricing levels for its keyword ads. Ask Jeeves does not break out the average PPC. FindWhat.com has reported flat PPC levels for the past five quarters.

Overture also grew its advertiser base in the quarter, adding 7,000 advertisers. It now boast 95,000 advertisers, just shy of Google’s reported 100,000. FindWhat reported a decrease in advertisers during the second quarter.

Traffic-acquisition costs — the share of revenue Overture gives to its partners — held steady at 64 percent. Overture’s persistently high traffic acquisition costs had caused many analysts to downgrade their forecasts for the company’s prospects.

However, once Yahoo ! owns Overture, those costs will change dramatically. Yahoo accounts for about one third of Overture’s revenue. The percentage of business coming from Yahoo and Overture’s No. 2 partner, MSN, fell from 65 percent to 63 percent.

In the aftermath of the Yahoo deal, many industry analysts have doubted Overture’s ability to maintain the MSN partnership, which expires in December 2004.

“In general, reaction from our affiliates has been positive,” Meisel said. “We believe that our affiliates will benefit considerably from the merger.”

Overture said it continued to see growth abroad. International revenues for the quarter were $32 million, up 45 percent from the first quarter. The company plans to open operations in five new markets by the end of the year.

In addition, Meisel said Overture would have an integrated Web search product, developed through the technologies gained in its Alta Vista and FAST acquisitions, would be ready by the end of the year.

Overture also says it will have a paid inclusion product, called Express Inclusion, by the end of the summer.

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