LookSmart's Second Quarter Results Demonstrate Strong Revenue Growth and Narrowing Losses
Advertising Yields Grow 38.3% from the First Quarter; Listings Deals Signed with Microsoft's MSN, Excite@Home, AltaVista and iWon
SAN FRANCISCO--(BUSINESS WIRE)--July 26, 2000--LookSmart (Nasdaq:LOOK), the global leader in Internet search infrastructure, announced financial results for the second quarter ending June 30, 2000.
- Revenues grew 27% from the first quarter of 2000 and 160% versus the second quarter of 1999
- Operating Losses (excluding the effects of non-cash compensation and intangible amortization charges) narrowed 12% versus the first quarter of 2000 and 12% versus the second quarter of 1999
- Operating EPS of ($.09) (excluding the effects of non-cash compensation and intangible amortization charges) beat First Call consensus estimates of ($.14) by 37% -- "Cash burn" improved by 51% to $9.4 million from $19.3 million (excluding convertible debt financing) in the first quarter of 2000. LookSmart had a balance of $125.3 million in cash and short-term investments at the end of the second quarter of 2000.
- Search advertising yields (revenue per 1000 pages) jumped to a record $22.56, increasing 38.3% from the first quarter of 2000 and 176% from the second quarter of 1999
- ECommerce/Distribution revenues were up 47.4% over the first quarter of 2000 and 213% versus the second quarter of 1999 o Network reach grew to 58 million unique users or more than 3 out of every 4 US Internet users
"We are observing a flight to quality in terms of advertising spending creating winners and losers in the industry," said LookSmart chairman and CEO, Evan Thornley. "Advertisers are shifting their advertising expenditures towards more effective means of driving traffic to their web sites. This is why advertising yields from LookSmart's highly targeted search and directory inventory are up 38.3% over the first quarter of 2000 and revenues from our Listings business have more than tripled since the first quarter of 2000."
LookSmart will continue to extend its leadership position in the online directory space by focusing on its three core competitive advantages:
(i) Superior directory products: by investing deeply in enhancing and differentiating our quality directory products, both in the US and internationally.
(ii) Ubiquitous directory distribution: by partnering with a broad range of major portals, ISPs and media companies to extend our leadership in the category we created.
(iii) Superior monetization: through the effectiveness and targeting of LookSmart's advertising products and through monetizing the directory content itself with Listings products.
LookSmart moves towards profitability with growth in revenues, decreasing operating losses, and a reduction in cash burn
Revenues of $27.3 million:
-- Revenues increased 160% over revenues of $10.5 million in the second quarter of 1999, and increased 27% over revenues of $21.5 million in the first quarter of 2000.
Operating losses narrowed:
-- Operating losses decreased 12% to ($8.4) million for the second quarter of 2000 from ($9.5) million in the first quarter of 2000 or ($.09) per share from ($0.11) per share, excluding the effects of non-cash compensation and intangible amortization charges. Including the non-cash compensation and intangible amortization charges, LookSmart reported a net loss of ($12.9) million or ($0.14) per share for the second quarter of 2000, compared to a net loss of ($13.8) million or ($0.16) per share for the first quarter of 2000.
-- Effective cash management: LookSmart had a balance of $125.3 million in cash and short-term investments at the end of the second quarter of 2000. Even with increasing investment in the BT LookSmart joint venture, cash burn decreased by 51% versus the first quarter of 2000 as a result of narrowing operating losses and strong balance sheet management.
Results by Business Segment:
Advertising/Syndication - The core business sees accelerating growth; Advertising yields up 38.3%
-- Recent partner announcements show success in LookSmart's strategy to sign major ISPs and portals. Recent new deals include Juno, the third largest ISP, iWon, the ninth-largest search engine, and an expanded relationship announced today with AltaVista, the fifth-largest search engine - in each case displacing competitive offerings.
-- Gross traffic levels declined slightly in the second quarter (down 3%), due to the product mix shifting towards high yield search and directory pages (up 3% of mix) and away from low-yield community and home pages, as well as the later-than-expected implementation of new accounts Time Warner (phase 2), Juno and iWon. Traffic levels are expected to increase in the third quarter of 2000 due to the full impact of new partners and further improvements in the product mix.
-- LookSmart's total number of advertisers was 260 at the end of June 2000 vs. 227 at the end of March 2000 (in addition to thousands of new small business customers in the Listings business). Financial Results
Advertising/Syndication Revenue growth:
-- The Advertising/Syndication business reached $17.2 million for the quarter, an increase of 40% versus the first quarter of 2000 and 401% over the second quarter of 1999.
Advertising Yield growth:
-- Search advertising yields hit record levels of $22.56 per thousand pages. This was an increase of 38.3% from $16.31 in the first quarter of 2000, and up 176% over the second quarter of 1999 levels of $8.21. This compares to other industry leaders who experienced US yield growth of between -10% and +10% versus the first quarter of 2000.
ECommerce/Distribution - Listings products gain traction and endorsement by major partners: MSN, Excite@Home, AltaVista, iWon
-- During the quarter, LookSmart focused its efforts on finalizing beta testing of its Express Submitsm and Sub-Site Listings products and securing distribution agreements for these products. LookSmart has now secured the key distribution agreements necessary to launch its Express Submit product (see today's press release announcing the launch of Express Submit and Listings partnerships with major portals MSN, Excite@Home, AltaVista and iWon). By taking advantage of LookSmart's Listings products, participating sites can gain access to a distribution network that reaches more than 3 out of every 4 US Internet users. The impact of these partnerships is expected to be seen towards the end of the third quarter and fully in the fourth quarter of 2000.
-- PI was launched through a partnership with the Gale Group, a subsidiary of Thompson Financial that revolutionizes traditional publishing. The partnership makes magazine and periodical content from over 300 publications available for free to users who search LookSmart's partner network.
-- LookSmart is the first major search provider to offer Internet users free access to premium information online. LookSmart has the rights to distribute more than 1,000,000 articles through its partner network. Integration of articles into the directory will continue throughout the remainder of the year.
-- Towards the end of 2000, LookSmart expects to monetize this content through a combination of targeted advertising and subscription commerce.
ECommerce/Distribution Revenue Growth:
-- ECommerce/Distribution revenues for the quarter were $5.7 million, up 47.4% from $3.9 million in the first quarter of 2000 and up 213% compared to the second quarter of 1999.
-- ECommerce/Distribution revenues accounted for 20.9% of total revenues in the second quarter of 2000.
-- Although the Listings products were in beta testing during the second quarter of 2000, revenues for these new products more than tripled from $0.5 million in the first quarter of 2000 to $1.6 million in the second quarter of 2000.
-- One of LookSmart's goals is to diversify its business model and grow revenue streams other than Licensing. LookSmart continues to license its directory to Microsoft's MSN and Excite@Home.
-- As expected, Licensing revenues were cyclically lower in the second quarter of 2000 due to the accounting treatment of fixed licensing payments from Microsoft. For further information, see LookSmart's Annual Report or Form 10-K filed with the SEC on March 30, 2000. We believe that Licensing revenue will increase cyclically in the third quarter. Licensing revenues were $4.4 million in the second quarter of 2000, down 18% from $5.4 million in the first quarter of 2000. Licensing contributed 16.1% of total revenues, compared to 50% of total revenues in the second quarter of 1999.
-- LookSmart continues to enjoy a close partnership with Microsoft. With LookSmart's total revenues growing and diversifying, the Microsoft Licensing revenues now account for only 13% of total revenues for the second quarter of 2000, versus 23% in the first quarter of 2000, and 50% in the second quarter of 1999.
Product Investment Initiatives
To accelerate its lead in directory distribution and monetization, LookSmart continues to invest at significant levels in the development of its US and international directories. Expenditures totaled $9.4 million in the second quarter of 2000, up 10% from $8.6 million in the first quarter of 2000. In addition to investment in editorial resources and systems, LookSmart continued its development of exclusive products, including:
-- PI was launched with a partnership with the Gale Group, a subsidiary of Thompson Financial (see above).
-- LookSmart Live!, where real Internet users answer search queries from other users, has achieved its target level of 90+% community answering two quarters ahead of schedule. This level of community involvement now creates an economically scalable service that can be syndicated across LookSmart's partner network.
-- The BT LookSmart joint venture will provide products and services delivered in local language to more than 25 leading ISPs, media companies, web sites and portals in 14 countries. LookSmart and BT LookSmart have already developed 30 international directories. The directories for Germany, US Hispanic, Latin America, Canadian French, France, and Japan increased their number of URLs by more than 50% during the quarter. International URLs now represent 39% of the total LookSmart directory URLs.
-- LookSmart has built the leading directory of broadband content, and begun distributing it to leaders in the broadband space, including partners RoadRunner, Excite@Home, and Cox Interactive.
-- LookSmart is building WAP directories in 8 countries in Europe and Asia which will be distributed through BT LookSmart. About LookSmart
LookSmart is the global leader in Internet search infrastructure, dedicated to helping the world find useful information quickly. LookSmart's distribution network of partner sites reaches more than 58 million users - more than 3 out of 4 Internet users (77 %) - in the United States each month. The company provides its search solutions to leading Internet portals, ISPs and Web sites including Microsoft's MSN, Netscape Netcenter, AltaVista, Excite@Home, Time Warner Inc., Sony, BT, Road Runner, Prodigy, US West, NetZero, over 370 Internet service providers and thousands of Web sites. LookSmart's search solutions include a collection of more than 2,000,000 high-quality URLs organized into 200,000 categories. LookSmart has built Web directories for 30 countries, including the United States, UK, Canada, Australia, Japan, Korea, Mexico and Brazil. Through its partnership with Cox Interactive Media, LookSmart also offers one of the largest collections of quality local Web content in more than 70 US markets. LookSmart is the official search infrastructure provider for www.olympics.com the official Web site of the Sydney 2000 Olympic Games. The company is headquartered in San Francisco and can be contacted at 415/348-7000. Forward-Looking Statements
Except for the historical information contained herein, this press release contains forward-looking statements that involve risks and uncertainties. Words such as "will," "aims," "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "may," and variations of these words or similar expressions are intended to identify forward-looking statements. Also, any statements that refer to expected revenues from existing and new products, time lines for roll-out of new products, changes in advertising yields, future expectations, industry projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These statements are not guarantees of future performance and are subject to risks and uncertainties. Our future results may differ from the results discussed or forecasted in the forward-looking statements due to various factors such as: the potential failure of businesses, Web sites and Internet users to use our listings products at projected rates; the potential inability to continue to build and monetize the LookSmart directory; the possibility that advertising yields will not continue to grow as a result of industry-wide trends or internal factors; the potential failure to expand successfully in international markets; the potential failure of broadband, interactive, WAP and other products to achieve wide user acceptance; the possible failure to continue to expand the LookSmart network of distribution affiliates; the potential inability to derive substantial revenue from new products and services including the directory listings business; the possibility of an unexpected increase in costs, expenses or other factors contributing to our burn rate; the possibility that we may not reach operating profitability as early as projected, if at all; and other risk factors detailed in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission. Please note that we undertake no obligation to revise or update publicly any forward-looking statements for any reason.
Note to Editors: "LookSmart" is a trademark of LookSmart, Ltd., and/or its subsidiaries in the U.S. and other countries. All other trademarks mentioned are the property of their respective owners.
Liz Connaghan, 415/348-7185 (Director of Corporate Communications)
Ned Brody, 415/348-7134 (Chief Financial Officer) firstname.lastname@example.org
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