From July 27, 2000....For any interested in a bit of history....go back in our GNET/INSP files here...found this, and the next one as a background story....(Also, again, when anyone finds a story of lasting interest, hopefully they will print the whole thing....if you go back on our links, you will find that many are no longer available as the pages are perishable...)
Go2Net Merger Gives InfoSpace Investors Indigestion
Betsy Schiffman, Forbes.com, 07.27.00, 5:10 PM ET
It's hard to pass silver off as gold, and according to the market, that's what InfoSpace is trying to do through its merger with Go2Net.
The thinking is that InfoSpace insp (nasdaq: insp) can't ride on a wireless ticket if it's got a Web portal dragging it down. But analysts say it's a misconception--Go2Net gnet (nasdaq: gnet) isn't just a portal and the companies simply haven't explained the story clearly to Wall Street.
Yesterday afternoon, Bellevue, Wa.-based InfoSpace announced it will merge with Go2Net, a Web portal and provider of applications, in a stock swap valued at about $4 billion. The merger is expected to close during the fourth quarter.
InfoSpace, the brainchild of fast-talking former Microsoft msft (nasdaq: msft) veteran Naveen Jain, is perceived primarily as a wireless infrastructure play. Among other things, InfoSpace's technology allows wireless carriers to deliver Internet content over non-PC devices. It has partnered with four of the five major U.S. wireless carriers--Alltel at (nyse: at), AT&T t (nyse: t), SBC Communications sbc (nyse: sbc) and Verizon Communications vz (nyse: vz)--and analysts estimate it has more than 80% market share in the North American wireless infrastructure space.
Go2Net, on the other hand, is perceived as a pure Internet play with applications such as search engine MetaCrawler and commerce platform HyperMart. But according to analysts, many of its assets are technologies that can be deployed and exploited over wireless devices. "When we stop and begin to consider the upsell potential of [Go2Net's] core applications--metasearch, Web-based payments, merchant hosting, finance and Java-based games, we start to believe these applications could become true monsters when distributed through [InfoSpace's] vast affiliate network," SG Cowen analyst John Graves wrote in a research note.
Besides the similarities in the two companies' strategies, Go2Net is a profitable little puppy--last week it announced third quarter net income of $10.1 million on $23 million in revenue, or 22 cents per share. And 84% of revenue was gross profit. Meanwhile, InfoSpace reported a net loss of $3.3 million, or 1 cent per share, and $24.6 million in revenue.
So if the merger makes strategic sense, and Go2Net's finances are strong, it's befuddling that the market would thrash shares of InfoSpace so severely. After news came out yesterday afternoon, InfoSpace shares were trading down from their closing price of $47.75, to $40.50. Today, the stock took a further beating, trading down more than 25% at around $35.43.
Analysts say that because Go2Net is still perceived as an Internet play, it dilutes InfoSpace's "wireless" valuation.
"InfoSpace is given a premium value as a wireless business, and although Go2Net's services are complementary to InfoSpace, they aren't wireless services," San Francisco-based Thomas Weisel analyst Matt Finick says. InfoSpace Chief Executive Arun Sarin says it's a matter of educating investors.
"I understand our investors' reaction because they don't know what we bought," Sarin says. "But Go2Net is basically in the same position that InfoSpace was a year ago, only we were positioned for wireless and they're positioned in the broadband space."
However, there's still some sense that the wireless space is overvalued and volatile, much like Internet stocks were before this spring's market slide.
"Anything hyped as wireless gets a premium valuation, and then with any hiccup, there's a lot of activity. The entire wireless market is prime for a Wall Street downgrade. That's not to say the fundamentals aren't solid and there isn't great value ahead, but we've got to come back down to reality a bit," says Boston-based Yankee Group analyst Mark Lowenstein.
InfoSpace may be the first wireless play to take the hit.
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