Overture Sees Lower Earnings

Paid search company Overture Services said on Wednesday that its 2003 earnings would be much lower than expected.

The Pasadena, Calif.-based company said net income for the year will be $22 million to $26 million, or between 35 and 42 cents per share. Wall Stret analysts had forecast Overture to earn 63 cents a share. Overture stood by its $1 billion revenue forecast.

Overture executives, speaking on their first-quarter earnings conference call, blamed a variety of factors, including lower revenue from its U.S. paid listings, higher-than-anticipated traffic-acquisition costs (TAC), and increased spending from its recent buying spree of AltaVista and the Web search unit of FAST Search and Transfer.

“2003 has been a year of investment and we feel it is prudent to think long-term,” said Todd Tappin, Overture’s chief financial officer.

The changed guidance comes as Overture undertakes an overhaul of its business. The company scooped up AltaVista and FAST earlier this year, in order to have an algorithmic search product to offer in competition with Google.

The company announced the first benefit of this move: an early extension of its search agreement with Lycos through May 2006. Overture will provide both paid listings and algorithmic search through FAST.

In addition to its algorithmic initiative, Overture has plans to launch contextual advertising and paid inclusion products, as well as expand to seven new countries during the year. The company also plans to launch a local search product in 2004.

Overture CEO Ted Meisel said the number of changes made the company’s forecasts difficult to make.

“The fundamentals of our business remains strong,” he said.

Overture did return solid first-quarter results. Revenues grew 57 percent to $224.7 million from the same period a year ago. Net income was $11.1 million, off from the $29.3 million returned in 2002.

One area of concern continues to be TAC, the amount of money Overture gives to partners who carry its paid listings. Portal giants like Yahoo! and MSN, which make up nearly two thirds of Overture’s business, command a higher cut of the revenue generated from the commercial-search listings.

In the first quarter, TAC rose to 64 percent, compared to 54 percent a year earlier. For the full year, Overture anticipates TAC will be between 62 and 64 percent of revenue.

Overture said it added 8,000 advertisers in the quarter, bringing its total number to 88,000. Recently, Google said its network encompasses 100,000. Paid clicks in the quarter totaled 608 million, compared to 563 million a year earlier. The average price per click also rose, from 35 to 37 cents.

Meisel said he was confident the short-term sacrifices Overture was making to invest in new revenue areas would pay off in the long term, while admitting the company had previously been too bullish in its estimates of when it would see rewards.