Overture Speeds International Rollout

Overture Services reported fourth-quarter financial results on Thursday, saying it would speed its international expansion in 2003. However, the company’s reliance on partners Yahoo and MSN continued to drive up traffic-acquisition costs.

For the last three months of the year, Overture brought in $199.6 million in revenue, a 97 percent increase from a year earlier. The company returned $14.7 million in net income, excluding a one-time $8.7 million charge to settle a lawsuit with a former affiliate. Including the charge, net income to $9.5 million from $20.8 million a year earlier.

Overture reported consumers clicked on its paid listings 563 million times in the quarter, up from 442 million a year ago and 500 million in the third quarter. The company said its price per introduction was 35 cents, up from 23 cents in the same period a year ago. It ended the quarter with 80,000 advertisers, adding 7,000 in the quarter.

“In a dynamic market we executed solidly in the quarter,” Ted Meisel, Overture’s chief executive, said on a conference call. “Our achievements in the quarter and through 2002 leave us quite encouraged about where we’ve taken the business and going forward.”

Meisel said the results show that Overture was continuing to lead the paid-search market, despite the high profile entry of Google into the paid-search business last year. Google was able to win away a few Overture clients, including Ask Jeeves, EarthLink and, most importantly, AOL.

Meisel trumpeted Overture’s investment in international expansion, which the company sees as a high-growth area that could also diversify its revenues. Overture has won a number of deals abroad in the last few months against rival Google, including a deepening of its AOL Europe partnership announced yesterday.

“The global opportunity is immense,” Meisel said.

He announced Overture would continue spending on new markets, expanding to Italy and Spain, as well as other European countries, during 2003. Overture already has operations in the United Kingdom, France, Germany and Japan. Its Korea operations are set to open in the next few months.

Traffic-acquisition costs — the amount it pays to its partners — rose to 62 percent of revenue, compared to 51 percent in fourth quarter 2001.

Overture’s rising traffic-acquisition costs caused some analysts to worry that the company was overly dependent on its largest partners, Yahoo and MSN. Overture gives the large portals a bigger piece of the revenues generated from paid searches compared to the deals it has with smaller sites.

Chief financial officer Todd Tappin said the two combined to account for 66 percent of the company’s revenue, up from the 63 percent they accounted for in the previous quarter. In the first quarter, traffic-acquisition costs are expected to continue rising to around 63 or 64 percent, thanks to Yahoo and MSN accounting for such a large chunk of Overture’s business.

“We certainly see an increase in concentration,” Meisel said. “As our international investments ramp, we think that will help to diversify, eventually.”

The company also announced that smaller advertisers will need to pay more on Overture. The company raised the minimum bid from 5 cents to 10 cents.

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