More NewsOverture Undaunted by Loss of AOL in U.S.

Overture Undaunted by Loss of AOL in U.S.

The leading pay-for-placement player loses a major partner, but says things are still looking rosy for 2002; Overture shares plummet 26 percent.

After two extensions aimed at allowing negotiations to continue, pay-for-performance search player Overture Services says its U.S. distribution deal with AOL Time Warner’s America Online unit will expire, but still says the company’s outlook for 2002 is positive — even better, in fact, than it had been expecting.

The news sent Overture shares reeling, down 26 percent in early Wednesday trading.

Rather than bringing in $473 million in 2002 (itself an increase from earlier full-year forecasts of $465.6 million), as it announced when it released first quarter earnings in April, Overture now says it expects revenues to come in at between $530 and $570 million for the year. The company says it expects 2002 net income of $60 to $65 million, or between $0.97 and $1.05 per share.

Overture’s guidance for the second quarter of 2002, however, remains the same, except it expects to set aside $2 million more for taxes during the quarter, as a result of the increased net income projections for the full year. Second quarter 2002 net income and earnings per share projections are now projected to be $14 million and $0.23, respectively.

The more rosy full-year outlook was attributed to strong first quarter 2002 results (it posted net income of $29.3 million, or $0.48 per share) and the three-year renewal of its distribution deal with Yahoo. The loss of AOL, AOL.com, Compuserve and Netscape, then, won’t have much impact on the bottom line, according to the company. Overture will continue to provide its search results to AOL Europe’s Internet properties in the UK, Germany, and France. It will phase out its search results on the U.S. sites by August.

Overture’s negotiations with AOL have been closely watched as a sign of the company’s future prospects. Although the Pasadena, Calif.-based player is the leader in the pay-for-performance space — widely thought to be the most successful in the Internet advertising industry — recent months have brought it increased competition. LookSmart has been making moves aimed at bolstering its position in the market, and popular search engine Google has begun distributing its results through ISP Earthlink, a former Overture partner.

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