Overture Chief Tries to Reassure Investors
By CHRISTOPHER KEOUGH
Staff Reporter
Shares of pay-per-click Internet search engine Overture Services Inc. had a tumultuous two days last week when the loss of Internet service provider EarthLink Inc. as a client apparently spooked investors.
After tumbling 41 percent Feb. 6 Overture stock fell from $30.42 to close at $17.92 the stock bounced back the next day to close at $22.65 (up 21 percent).
Overture, formerly known as GoTo.com, has a corporate policy of not commenting on stock activity. But it held a conference call last week because of the volume of inquiries from reporters and investors. In the call, President and Chief Executive Ted Meisel assured investors that Overture had “an outstanding (fourth) quarter” and the end of its ties with EarthLink would have no material effect on Overture’s financial results.
In the release, the company said it would surpass “by a wide margin” its initial fourth quarter 2001 net income forecast of $10 million, or 17 cents a share. Overture will announce 2001 results Feb. 12. The company also upped its guidance on 2002 revenues, initially projected at $345 million, by 25 percent.
Spokesman Jim Olson said the two-year contract with EarthLink, which expired Jan. 22, was so small it would have no effect on the overall numbers.
More important than EarthLink to Overture’s performance are deals with AOL Time Warner Inc., Yahoo Inc. and Microsoft Corp., which account for 40 to 50 percent of Overture’s revenues. The company has recently announced short-term renewal of its relationship with Yahoo, a two-year contract with Bell South and an international deal with AOL.
EarthLink spokesman Arley Baker said the Overture contract was valued at $10 million. He said the decision to drop Overture and use Google to power searches from the EarthLink home page was based on Google’s emergence in the market and its recent entry to the pay-per-click, or sponsored search business.
Ultimately, Baker said, Google offered EarthLink the ability to keep users within the EarthLink domain while searching. That gives EarthLink the ability to sell advertising to go with search results.
Analysts agreed that the expiration of the EarthLink contract was inconsequential. In a Feb. 7 note to investors, Merrill Lynch & Co. upgraded Overture from “intermediate-term buy” to “intermediate-term strong buy” and said the Feb. 6 dip created a “bargain basement price” for the stock.
