All True SEEKers, Tonight's Red Herring Article...
Here's the full text from the RH article about SEEK.
Very positive. BTW, I pulled this off the Yahoo thread.
SEARCH ENGINE SEEKS TO
ADD VALUE
With a new management team in place, a
new ad campaign on the airwaves, and a
valuation argument that has Wall Street
paying attention, InfoSeek is after a little
respect in the search engine business.
By Peter D. Henig
March 6, 1998
Nine months ago Infoseek chief executive Harry Motro
didn't want to talk to reporters, which was more than a
little unusual because, if you've ever met Mr. Motro in
person, you'd know he could charm the feathers off a
duck.
He had just taken over the top spot at Infoseek (SEEK)
and there was work to be done, like replacing half of the
senior management, for starters. Pesky reporters were
the last people Mr. Motro wanted to deal with.
Shareholders wanted value, the board of directors
wanted results, and the CEO needed to build a brand
name. Now, the media-savvy Mr. Motro and his
low-key but wickedly sharp CFO Leslie Wright are
ready to chat.
The revolving door
Until last April, the company had a revolving door on the
executive suite. Steve Kirsch, Infoseek's founder, had
moved upstairs to be chairman of the board, and Robin
Johnson had taken over, bringing the company public in
June 1996. But the search engine was losing market
share and losing money at the same time that Yahoo was
boosting its pageviews and Excite was putting ads on
TV. Wall Street was losing patience with Infoseek, and
the stock showed it. Shares of the company sank to all
time lows of 4.38 in July 1997.
Then came Mr. Motro, fresh from CNN Interactive. In
just four months, Mr. Motro tore through Infoseek's
executive ranks, leaving in place the product and
technology people, but ripping the guts out of sales,
marketing, and finance.
The company reported fourth quarter revenue growth for
1997 of 105 percent over the same quarter in 1996,
bringing in $12.5 million for the quarter and $34.6 million
for the year. While not yet profitable -- Wall Street is
looking for breakeven by Q4 1998 -- Infoseek did
achieve a victory of sorts by showing a Q4 loss of only
-0.15 per share, beating analysts' expectations by as
much as five cents per share for the first time since going
public.
This strong performance may explain Wall Street's recent
warming trend towards Infoseek. In a recent 3
million-share secondary offering through Merrill Lynch
and BT Alex. Brown (who also acted as underwriters for
the 1996 IPO), more than 2.5 million shares were
subscribed by institutional investors. This is in stark
contrast to its common stock offering, 85 percent of
which landed in the hands of retail customers, where
Merrill Lynch had been pushing it heavily. Such a large
subscription is a tremendous vote of confidence in the
company's new management team, and in its strong push
to build a broader brand identity while making its
channel-driven site more user-friendly.
Merrill Lynch analyst Bruce Smith certainly couldn't be
any more bullish on the stock. "On a relative valuation
basis its a great buy," he says (Merrill has a Buy rating on
the company). "When you measure market value against
latest month's page views, Infoseek is 40 percent
undervalued compared to the rest of them -- Lycos,
Excite, Yahoo, all of them. What you have now is a lack
of understanding on the part of investors, a big
misperception in the market, although that's quickly
closing." Indeed, Infoseek recently set new all-time highs
at 17.75. So does Merrill have a price target on the
stock? "Nope, it already blew through it," says Mr.
Smith.
Rick Berry, director of research for Argent Securities,
was a little more balanced, although the technician in him
seemed to warm to the stock. "It's interesting -- you
couldn't give these stocks away five to seven months
ago; now everybody wants them," he says. "If someone's
looking for value in the Internet market, Infoseek offers a
pretty good value. The other thing it's got going for it is
that people are looking for a safe haven out of hardware
stocks and into Internet stocks." He's got a point there,
given Intel's recent 10-point bombshell on first-quarter
earnings shortfalls.
Crowded market
To say there is competition in the search engine business
is an understatement. In fact, there's a whole school of
thought that maintains that if you're not No. 1 or 2 (in
other words, if you're not Yahoo or Excite) -- you can
forget it. CFO Les Wright challenges that notion
head-on. "In the media world, 70 percent of the
advertising dollars go to the top 10 sites; that's the
general industry standard."
Citing statistics from Jupiter Communications, Mr.
Wright marches on: "In 1997, advertisers spent a billion
dollars in advertising on the Internet. That number is
going to climb to $1.9 billion in 1998, $3 billion in 1999,
and $4.4 billion by the year 2000. By the year 2002, 4.1
percent of total advertising dollars spent worldwide will
be spent on the Internet." With Infoseek one of the top
five sites on the Web in terms of unique users, the
assumption is that the company only stands to gain for
that kind of dynamic growth.
However, other analysts who asked not to be quoted
suggested that Lycos remains a stronger play. Lycos was
the second search engine, after Yahoo, to show a
profitable quarter, and has landed some strong
partnership deals which could prove fruitful.
For its own part, Infoseek has done a creditable job of
establishing new sponsorship arrangements for its
channels, while decreasing its emphasis on advertising
dollars into 1998 and beyond. Although results of these
shifts in revenue proportions remain unsubstantiated,
according to Mr. Wright, Internet commerce
sponsorship and transaction deals will contribute 20-25
percent to revenues for 1998, compared with a 10
percent share for 1997. This brings reliance on
advertising dollars into a much more manageable 65-70
percent of revenues, versus the 85 percent or higher it's
been in the past.
Not more takeover rumors again
Perhaps the biggest thing Infoseek's stock has going for it
right now is the widespread belief that, of all the search
engines, it's the most likely takeover candidate. The
rumors stem from several obvious indicators. The first is
Mr. Motro himself: As a veteran of CNN Interactive and
Turner Broadcasting's mergers and acquisition team, Mr.
Motro could easily be interpreted as Time Warner's
advance strike force. Time Warner's new media flagship
Pathfinder has foundered, and to date, none of the major
media conglomerates have a top-rated Web presence.
When Mr. Wright was asked to comment on this, the
best we could get out of him was, "Since I've been here
there have been a steady stream of articles which talk
about consolidation in this industry, linking Harry's arrival
with interest by Time Warner. For our part, we're just
here to try and build a brand name and make Infoseek
the best search engine on the Internet." We told you
these guys were smooth.
But for now, it's the valuation argument which perhaps
makes the most sense from an acquisition angle. With a
market capitalization now hovering in the $450-$500
million range as compared with Yahoo!'s $3 billion plus
market cap, Infoseek could be considered downright
cheap. So what does Mr. Motro think of that?
He wants no part of it. If he's ready to talk, he's got three
things to say. "Infoseek is building a brand name, it's
making its sites consumer friendly, and it's concentrating
on generating ad sales and driving traffic to its site."
Beyond that, he's got one last piece of advice. We're all
ears.
"Go to Infoseek and type in F-O-R-D." Ford? "Yep,
then do the same on Yahoo. If I'm doing my job right,
and I've got the best management team in the world by
the way, you're going to like what you see. That's all I
have to say."
Infoseek's not the only search engine company that has been
through rough patches.
Are you ready to speak your mind on Infoseek? Talk to us.
**********************out***************************
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