Overture Plunges as Costs Rise
By George Mannes
Senior Writer
02/06/2003 05:00 PM EST
Overture Services (OVER:Nasdaq - news - commentary - research - analysis) plunged late Thursday after the company warned of a first-quarter shortfall and said costs would rise in 2003.
The setback came as the company posted fourth-quarter results that were in line with Wall Street estimates and maintained its financial guidance for the whole of 2003. But the prospect of a steep shortfall in the first quarter, and the bad news on so-called traffic acquisition costs, a key component of the bearish case on the stock, knocked Overture down 13% in after-hours trading.
Overture's drop is the latest twist in a volatile Wall Street debate over the long-term prospects for the company, which operates an advertising-supported, pay-per-click search engine that appears on Yahoo! (YHOO:Nasdaq - news - commentary - research - analysis), Microsoft's (MSFT:Nasdaq - news - commentary - research - analysis) MSN and other Internet properties.
For the fourth quarter ended Dec. 31, earnings fell to $10 million, or 16 cents a share, from $21 million, or 35 cents a share, a year earlier. The latest quarter included a charge related to an unfavorable arbitration ruling regarding a former affiliate; excluding those costs, net income was $15 million, or 24 cents a diluted share. Revenue nearly doubled, to $200 million from $101 million a year earlier; analysts surveyed by Thomson Financial/First Call had expected earnings of 23 cents a share on revenue of $195 million.
More worrisome to investors, though, was the company's first-quarter forecast. Overture said first-quarter earnings would be 13-14 cents a share on revenue of $215 million-$220 million. Wall Street analysts had expected earnings of 23 cents a share on revenue of $223 million.
Also problematic was Overture's forecast that traffic acquisition costs, or the amount of money the pay-per-view search engine shares with its business partners, would rise to 63%-64% of revenue in the first quarter. The company had previously said it expected that number to stay in the 61%-63% range.
News of the shortfall comes during an eventful week for Overture, which earlier noted deals with AOL Europe and ESPN. |
