GoTo Reports EBITDA Breakeven in Second Quarter Results
Core U.S. Search Business Profitable
PASADENA, Calif., Jul 25, 2001 (BUSINESS WIRE) -- GoTo (Nasdaq: GOTO chart, msgs):
Second Quarter Highlights:
-- Second quarter revenue increased 20% to $62.5M from the first
quarter of 2001.
-- EBITDA was breakeven in the second quarter of 2001.
-- Core U.S. Search business posted operating income of $1.3M.
-- Number of paid introductions increased to 323 million.
-- Average price per paid introduction was $0.19, $.03 more than
reported in the first quarter 2001.
GoTo (Nasdaq: GOTO chart, msgs), the leading provider of Pay-For-Performance search to Web sites across the Internet, today announced strong financial results for the quarter ended June 30, 2001.
GoTo reported second quarter 2001 revenue of $62.5 million, an almost 200% increase over revenue of $21 million in the second quarter 2000, and a 20% increase over revenue of $52 million in the first quarter 2001.
GoTo reported a second quarter 2001 net loss of $2.9 million, or $0.06 per basic and diluted share. This compares to a net loss of $20.3 million, or $.42 per basic and diluted share, in the second quarter of 2000. In the first quarter of 2001, GoTo reported a net loss of $6.7 million, or $0.13 per basic and diluted share.
"We're very pleased that we've been able to translate our industry leadership of commercial search into our first profitable quarter in our U.S. search business," said Ted Meisel, president and CEO, GoTo. "And we're even more excited about the future. We expect the search market to grow quickly over the next several years, and we believe the quality of our service, team and execution leaves us well-positioned to capitalize on the opportunities likely to emerge."
Revenue Drivers/Key Metrics
The key metrics driving GoTo's revenue are paid introductions, or paid clicks, and the average price per introduction paid by GoTo's advertisers. In the second quarter of 2001, GoTo facilitated 323 million paid introductions. GoTo reported 93 million paid introductions in the second quarter of 2000 and 314 million paid introductions in the first quarter of 2001.
Advertisers paid GoTo an average of $0.19 for each paid introduction during the quarter ended June 30, 2001. This compares with an average of $0.21 for each paid introduction in the second quarter of 2000 and $0.16 in the first quarter of 2001. Average price per introduction has trended upward since February.
Follow-on Offering
On July 5, 2001, GoTo completed a successful follow-on offering of 3,750,000 primary shares of its common stock. GoTo's sale of shares raised net proceeds of approximately $58.2 million for the company. The net proceeds from the offering are not included in GoTo's second quarter 2001 financial statements, as the offering was completed on July 5, 2001.
GoTo's Pay-For-Performance Search
GoTo is the Internet's leading Pay-For-Performance search engine. GoTo Search generates highly relevant results by allowing advertisers to bid for placement in the company's search results only on keywords that are relevant to their businesses. GoTo's team of 80 editors review each listing for relevance to its specific keyword and for quality of description.
In addition to editorial review, our model helps to ensure relevance. Because advertisers pay for every qualified lead, as represented by a click on one of their listings, they have an incentive to bid only on search terms for which they have a relevant, quality offering. These carefully screened results are then distributed across the Internet to some of the most popular and well-known Web sites. GoTo's ongoing commitment to relevance provides affiliate partners with a high quality and revenue generating search capability, and ensures advertisers receive highly targeted, qualified traffic.
GoTo has reached an important milestone in providing Pay-For-Performance search in the U.S. GoTo's core U.S. Search business, which represents the majority of GoTo's revenue, posted operating income of $1.3 million this quarter. This compares with a $2 million operating loss for the U.S. Search business in the first quarter of 2001.
Continued Expansion of the Internet's Leading Pay-For-Performance Network
GoTo enables its affiliate partners to enhance revenues and user functionality by offering Pay-For-Performance search to their users. More than 95% of GoTo's paid introductions are generated through its tens of thousands of affiliates.
The continuing acceptance and adoption of Pay-For-Performance search has led to improved financial results and metrics across the board. During the second quarter of 2001, GoTo implemented or renewed deals, such as the deal with MSN, and made improvements and additional implementations to existing deals, such as iWon and CNET Networks, Inc. The ongoing restructuring of our affiliate partnerships, coupled with the improvement in metrics such as average price, has allowed GoTo to improve the margins of the affiliate program. In the second quarter 2001, affiliate costs expressed as a percentage of revenue totaled 59%, compared to 67% in the first quarter 2001.
Serving More Advertisers, Increased Advertiser Spending
GoTo's customer base includes small, medium and large advertisers, and comprises some of the best brands doing business on the Internet. GoTo increased its active, paying advertisers in the U.S. to approximately 45,000 in the second quarter 2001, up from 42,000 at the end of the first quarter. Average spend per advertiser increased to $1,405 in the second quarter 2001, up from $1,277 in the first quarter 2001, which represents a 10% increase.
GoTo's unique business model offers four benefits to advertisers: 1) pinpoint targeting - advertisers have complete control over their placement in specific search results, subject to relevance guidelines and review; 2) pre-qualified customers - users come to search with a need to fill, in contrast to most advertising which seeks to stimulate a need; 3) pay per lead - advertisers pay only for each search-qualified lead, or click through; and 4) set your own price - advertisers determine the value of a GoTo search lead for each product, service or information service.
During the second quarter, GoTo also made numerous enhancements to its online customer support center, including several improvements that make it easier for advertisers to manage their accounts and interact with GoTo.
GoTo Auctions
On June 29, GoTo completed a management buy-out of GoTo Auctions, which became a newly formed company, ChannelAdvisor Corporation. GoTo retained a minority stake of 18.5% in this new corporation, whose goal is to provide online and offline businesses with the ability to leverage online auctions as a channel of distribution. ChannelAdvisor seamlessly connects businesses' inventory, payment and fulfillment systems to automate the multi-channel online sales.
The newly created ChannelAdvisor Corporation has made significant progress in its industry over the past quarter in developing its technology and service offering, and has won key brand-name customers, including West Marine, Omaha Steaks and Memorex.
GoTo Shopping
Through its acquisition of Cadabra in January 2000, GoTo operated a comparison-shopping site, GoTo shopping. Consistent with the company's announced intentions, GoTo closed its comparison-shopping business on April 30, 2001.
Continued Momentum for GoTo Europe
GoTo UK continues to gain momentum by growing both its advertiser base as well as the number of affiliate partners that distribute GoTo's UK search results to their users.
During the second quarter of 2001, GoTo UK's advertiser base grew to more than 2,600 active, paying advertisers, including leading brands such as beeb.com (a subsidiary of BBC Worldwide and TH Li, Global Internet Managers, LP), Lloyds TSB, Hertz and Thomas Cook.
GoTo UK now reaches approximately 50% of the UK's online population through its affiliate partnerships, which include, among others, Freeserve, the UK's largest Internet Service Provider, and Ask Jeeves (UK). In the second quarter of 2001, GoTo UK signed new agreements with AltaVista UK and Excite UK.
GoTo Europe is on track for its planned launch in Germany, Europe's largest Internet market, in the first half of 2002.
Business Outlook
The following discussion contains forward-looking information intended solely to provide management's current expectations for the remainder of the year and 2002. Even though the guidance provided herein might change after July 25, 2001, GoTo undertakes no obligation to revise or update this information and may not provide this type of information in press release format in the future. All numbers are approximate.
As a result of the company's strong second quarter 2001 results, GoTo is estimating higher revenues for the remaining quarters in 2001 and for the full year in 2002.
Revenue
Third quarter 2001: $64 million
Fourth quarter 2001: $70 million
Full Year 2002: $320 million
Cost of Revenue as a Percentage of Revenue
GoTo expects that the cost of revenue, as a percentage of revenue, will approximate 8% of revenue per quarter for the remainder of 2001 and for the 2002 fiscal year.
Traffic Acquisition Costs as a Percentage of Revenue
Third quarter 2001: 58%
Fourth quarter 2001: 56%
Full year 2002: 55%
Other Marketing, Sales and Service
Other marketing, sales and service expenses are estimated by the company to be approximately $8 million per quarter for the remainder of 2001 and approximately $39 million for full year 2002.
General and Administrative
Third quarter 2001: $9 million
Fourth quarter 2001: $10 million
Full year 2002: $45 million
Product Development
Product development costs are estimated by the company to be approximately $4 million per quarter for the remainder of 2001 and approximately $18 million for full year 2002.
Net Income
Third quarter 2001: $1 million
Fourth quarter 2001: $3 million
Full year 2002: $19 million
Earnings Per Share
Third quarter 2001: .02
Fourth quarter 2001: .05
Full year 2002: .31
About GoTo
GoTo is the leader in Pay-For-Performance search on the Internet. The company created the market for Pay-For-Performance search by redefining how businesses market online. In the second quarter of 2001, GoTo facilitated more than 323 million paid introductions between consumers and its 45,000 advertisers, who bid for placement in relevant keyword search listings and pay GoTo only when a consumer clicks on a description. The company distributes these high-quality results to tens of thousands of sites across the Internet, including America Online, Microsoft and Alta Vista, making it the largest Pay-For-Performance search and advertising network. GoTo is based in Pasadena, with offices in New York and London. For more information, visit www.goto.com.
Conference Call Details
GoTo will be holding an investor conference call to discuss its second quarter results at 5:00 p.m. Eastern/2:00 p.m. Pacific on July 25, 2001. Investors will have the opportunity to listen to the conference call live or over the Internet at goto.com or www.companyboardroom.com. Please go to the site at least 15 minutes prior to the start of the call to download any necessary software. For those who cannot listen to the live broadcast, a replay of the call will be available shortly after the live call ends at goto.com and GoTo's Web site at www.goto.com.
This press release contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements include without limitation statements regarding GoTo's beliefs and expectations about the future, the search market and its position to capitalize on opportunities, the acceptance and adoption of Pay-for-Performance search, GoTo's affiliate partnerships and affiliate program, GoTo's business model, the growth of GoTo UK, GoTo's planned launch in Germany, GoTo's revenue, cost of revenue, traffic acquisition costs, other marketing, sales and service expenses, general and administrative expenses, product development costs, net income, and earnings per share. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially. These risks and uncertainties include, among others: possible fluctuations in the demand for GoTo's services; possible fluctuations in economic conditions affecting the markets for GoTo's services; GoTo's ability to compete with existing or new competitors; possible future price cutting or other actions by GoTo's competitors; the risk that GoTo's key performance metrics, including overall traffic and use of GoTo services, number of paid clicks, average price per paid click, number of advertisers and average spend per advertiser, might not continue to increase at historical rates; the risk that GoTo may not experience benefits through agreements with its distribution affiliates; the risk that GoTo may not experience benefits from international expansion; and the risk that GoTo may not achieve its strategic objectives regarding the spin-off of its auction business. For a discussion of other risks that could cause actual results or events to differ materially from such forward-looking statements, see the discussion of "Risks That Could Affect Our Financial Condition and Results of Operations" in GoTo's quarterly report on Form 10-Q filed with the Securities and Exchange Commission on March 31, 2001 and the section entitled "Risk Factors" in GoTo's prospectus filed with the Securities and Exchange Commission relating to its recently completed follow-on securities offering. GoTo undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this press release.
GOTO.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
2001 2000
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 17,818 $ 12,986
Short-term investments 40,560 41,694
Accounts receivable, net 7,925 5,365
Prepaid expenses and other 3,293 1,970
Prepaid marketing expenses 14,275 23,605
Total current assets 83,871 85,620
Property and equipment, net 29,002 26,076
Intangible assets, net 2,625 3,234
Restricted investments 5,720 5,564
Long-term investments 2,533 293
Other assets 700 626
Total assets $ 124,451 $ 121,413
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 29,509 $ 23,284
Accrued expenses 5,280 4,148
Deferred revenue 6,460 4,441
Current portion of
capital lease obligations 446 791
Total current liabilities 41,695 32,664
Other long-term liabilities 211 576
Long-term capital lease obligations -- 78
Stockholders' equity:
Common Stock, $0.0001 par value,
200,000 shares authorized:
Shares issued and outstanding--
53,021 and 52,566 for June 30, 2001
and December 31, 2000, respectively 5 5
Additional paid-in capital 595,442 591,239
Deferred compensation, net (1,175) (1,128)
Accumulated deficit (511,605) (502,026)
Accumulated other
comprehensive income (loss) (122) 5
Total stockholders' equity 82,545 88,095
Total liabilities and
stockholders' equity $ 124,451 $ 121,413
GOTO.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts; unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
Revenue $ 62,463 $ 21,011 $ 114,422 $ 38,226
Cost of revenue 5,157 2,813 9,870 5,418
Gross profit 57,306 18,198 104,552 32,808
Operating expenses:
Marketing, sales and
service 43,638 18,267 85,213 34,581
General and
administrative 12,053 8,055 21,118 14,322
Product development 3,240 4,262 6,939 6,463
Amortization of
deferred compensation 202 375 438 800
Write-off of acquired
in-process research
and development -- -- -- 7,550
Amortization of
intangible assets 292 30,578 609 44,532
Loss on closure of
GoTo Shopping 1,499 -- 1,499 --
Loss on disposition
of GoTo Auctions 2,112 -- 2,112 --
63,036 61,537 117,928 108,248
Loss from operations (5,730) (43,339) (13,376) (75,440)
Other income:
Interest income, net 833 1,511 1,788 3,058
Other income 2,017 21,512 2,009 21,557
Net loss $ (2,880) $(20,316) $(9,579) $(50,825)
Earnings before interest,
taxes, depreciation and
amortization (EBITDA)
excluding Disney
settlement (1) $ 52 $(10,572) $(3,866) $(19,400)
Basic and diluted net loss
per share $(0.06) $(0.42) $(0.19) $(1.09)
Diluted EBITDA excluding
Disney settlement per
share (1) $ 0.00 $(0.22) $(0.08) $(0.42)
Weighted average shares
used to compute basic
and diluted net loss
per share 50,906 48,007 50,562 46,657
Weighted average shares
used to compute diluted
EBITDA excluding Disney
settlement per share 53,280 48,007 50,562 46,657
(1) EBITDA excludes non-recurring other income from the settlement of GoTo's trademark infringement lawsuit against The Walt Disney Company in 2000. In 2001, EBITDA includes certain non-recurring items including the loss on the closure of GoTo Shopping; the loss on the disposition of GoTo Auctions; legal costs and other expenses paid by GoTo to defend against litigation from MercExchange, which are included in general and administrative expenses; and the reimbursement of legal costs and other expenses pertaining to the MercExchange litigation, which is included in other income.
Contact:
GoTo, Pasadena
Kasey Byrne, 626-229-5766 (Investors)
kasey@goto.com
Al Duncan, 626-685-5714 (Media)
al@goto.com
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