Election Section

Search engine one of few profitable dot-coms

By Michael Liedtke AP Business Writer
Friday October 26, 2001

SAN FRANCISCO – Advertising-driven search engine Overture Services Inc. reported its first-ever quarterly profit Thursday, demonstrating that some dot-com companies may emerge from the Internet industry’s rubble as moneymaking businesses. 

The Pasadena-based company earned $9 million, or 15 cents per share, reversing a loss of $46.1 million, or 94 cents per share, in last year’s same period. Overture’s revenue nearly tripled to $72.5 million in this year’s third quarter, up from $25 million a year ago. 

Wall Street had expected Overture to become profitable in the quarter, but not by such a wide margin. The consensus earnings estimate among analysts polled by Thomson Financial/First Call was 2 cents per share. 

“They had a Barry Bonds-like quarter,” quipped industry analyst Lanny Baker of Salomon Smith Barney. 

Before the company’s earnings breakthrough, Overture’s shares gained $1.02 to close at $19.05 on the Nasdaq Stock Market. The stock climbed by another $3.70, or 19 percent, in after-hours trading. 

With its performance, Overture joins a handful of profitable Internet companies. Despite the weakening economy, Overture remains bullish. It disclosed Thursday that it expects to make $10 million, or 17 cents per share, in the fourth quarter, up from the consensus earnings estimate of 6 cents per year. 

Next year, Overture expects to earn $28 million, or 45 cents per share, on revenue of $345 million, up from the consensus estimates of 29 cents per share on revenue of $317 million. 

“Although we are very excited about this accomplishment, you won’t finding any of us resting on it,” said Overture CEO Ted Meisel. “We know that what we did will probably engender even more competition.” 

Overture, which changed its name from GoTo.com earlier this month, is thriving by auctioning off the rankings in its search engine, a method that has rankled some consumer activists. 

The Web sites in Overture’s database are ranked by how much they are willing to be paid to be listed in specific categories. The more a Web site pays, the higher it appears in Overture’s search results. 

Although online purists argue that the practice misleads Web surfers who believe they are getting objective search results, the method is becoming more prevalent. Popular search engines run by MSN, AOL and AltaVista all draw upon Overture for their search engines. 

As Overture’s search engine emerges as the Web’s version of the Yellow Pages, more sites are paying to be listed in the database. As of Sept. 30, Overture had 49,000 active advertisers, a 53 percent increase from 32,000 advertisers a year ago. In the third quarter, advertisers paid Overture an average of $1,510, up 9 percent from an average of $1,380 a year ago. 

Through the first nine months of the year, Overture lost $605,000, or 1 cent per share, on revenue of $186.9 million. At the same time last year, the company had lost $96.9 million, or $2.04 per share, on revenue of $63.3 million.