Revenues of $18.5 Million; Infrastructure Focus Drives 45% Sequential Gross Profit Growth and Reduces Losses
SAN FRANCISCO, Calif.--(BUSINESS WIRE)--Jan. 27, 2000--LookSmart (Nasdaq:LOOK), a leader in Internet search and navigation infrastructure, announced financial results for the fourth quarter ended December 31, 1999. Revenues of $18.5 million for the quarter increased 255% over revenues of $5.2 million for the comparable quarter of 1998 and increased 39% over revenues of $13.3 million for the previous quarter. Total 1999 revenues were up 456% to $48.9 million compared to $8.8 million for 1998.
Infrastructure revenues accounted for over 90% of fourth quarter revenues due to outstanding growth in advertising, syndication, distribution, and licensing revenues driven by partner relationships. While revenues from LookSmart's relationship with Microsoft were up by 78% over the comparable quarter a year ago, that relationship accounted for 26% of total revenues versus 51% for the same period a year ago.
The strength of LookSmart's search infrastructure business is its ability to serve multiple partners' search needs while leveraging fixed costs and partners' marketing expenditures. The business model's revenue growth is scalable and expanding with both LookSmart's existing and new partner relationships. As a result, fourth quarter operating costs of $38.1 million increased only 6% from $35.9 million for the previous quarter. This compares to gross profits for the fourth quarter which increased 45% to $15.8 million versus $10.9 million for the previous quarter. Gross margins grew to 85% for the quarter compared to gross margins of 82% for the third quarter. As an example of the business model's success, new technology adoption drove editorial costs for the U.S. database lower, despite URL growth of nearly 9% and U.S. revenue growth of 39% for the quarter.
For the quarter, LookSmart reported a loss of $18.3 million or $0.21 per share, excluding the effects of non-cash compensation and intangible amortization charges. This compares to a net loss of $16.4 million or $0.31 per share for the previous quarter. Including the non-cash compensation and intangible amortization charges, LookSmart reported a net loss of $21.3 million or $0.25 per share for the quarter ended December 31, 1999, compared to a net loss of $24.0 million or $0.45 per share for the previous quarter. For the year ended December 31, 1999, LookSmart reported a net loss of $49.4 million, or $1.08 per share compared to a net loss of $12.1 million, or $0.65 per share for 1998, both excluding the effects of non-cash compensation and intangible amortization charges.
With the addition of Time Warner, US West, and 91 ISPs in the quarter, LookSmart's network reach grew to 45 million unduplicated Internet users domestically. Internationally, the joint venture with British Telecom, announced in the fourth quarter, draws on BT's massive installed customer base and will extend LookSmart's reach to an additional 31 million Internet and wireless access customers in Europe and Asia.
"By focusing our efforts solely on our exploding infrastructure business, we have been able to execute against all metrics and establish a leadership position as the premier search infrastructure provider globally," says Evan Thornley, CEO and co-founder of LookSmart. "With our search solutions now reaching 45 million unique users in the U.S. through our quality partners, and aggressive international investments into 17 new country markets, we are demonstrating the potential to create value through search for our partners and their users."
YEAR IN REVIEW - LOOKSMART EMERGES AS A LEADER IN INTERNET SEARCH INFRASTRUCTURE
In the fourth quarter, LookSmart achieved its goal to become a leader in Internet search infrastructure. LookSmart provides outsourced search solutions to aggregators of online users. These aggregators include portals, media companies, Internet service providers, granular web sites, and wireless telephony companies. Companies choose LookSmart to outsource their search needs because of LookSmart's ability to meet the fundamental needs of providing a best-of-breed search experience, integrated partner content, a seamless look and feel, and maximum revenue realization. LookSmart's scalable and flexible search solutions coupled with the attractive economic model have led Microsoft, Excite, AltaVista, Time Warner, Sony, MacroMedia, British Telecom, NetZero, USWest, over 400 other ISPs globally, and over 600,000 granular affiliate sites to ask LookSmart to help solve their search needs.
LookSmart receives revenue from licensing fees and customization fees from the existing directory and from custom-built directories based on the specifications of our customers. Clients who license LookSmart's directory include Microsoft, Excite, and AltaVista. Internationally, LookSmart has built 17 country databases and has partnered with Microsoft, Excite (Australia, Canada, UK), and, most recently with British Telecom, through the announced 50:50 joint venture to cover continental Europe and Asia.
LookSmart generates advertising revenue on the search environments it creates for many of its search solutions partners. When LookSmart builds out a search solution for a partner, it creates the HTML environment, serves the pages and sells the highly targeted advertising on those pages. There are three factors that drive advertising business to LookSmart. First, LookSmart delivers highly targeted advertising based on the specific content category on the page. Second, LookSmart creates a quality environment with all sites selected by expert webrarians, and excludes all pornography. Lastly, advertisers are attracted to the scale LookSmart has achieved through its distribution network of search solutions customers. LookSmart added 278 ISPs this year including BT, US West and NetZero and opened a new channel into vertical portals by partnering with Inktomi Corp. With Inktomi, LookSmart delivers custom vertical directory and search products which integrate partner data for Time Warner, Macromedia, and most recently for Sony Music Entertainment and Columbia Tri-Star pictures (announced in January of this year).
Many businesses see value in being included in the LookSmart network, because it allows them reach to 45 million Internet users. LookSmart developed distribution revenue with its first merchant partner, Buy-It-On-The-Web. Inclusion in the LookSmart network resulted in a 53% sales increase in 7 months in a multi-million dollar revenue stream. LookSmart is now beginning distribution partnerships with a wide range of other merchants.
STRENGTH IN INFRASTRUCTURE OPENS UP FUTURE BUSINESS OPPORTUNITIES
LookSmart's emergence as a search and navigation infrastructure leader opens up future opportunities. In addition to realizing the impact of signed deals such as Time Warner and Sony, LookSmart believes that the overall advertising market will continue to grow, especially for high quality targeted category inventory -- the area in which LookSmart excels. In addition to its traditional advertising supported model and the current distribution-based revenue through Buy-It-On-The-Web, LookSmart is also aggressively pursuing opportunities to expand its distribution-based revenue streams. LookSmart is working with its partners to explore ways to leverage its distribution channel to create additional high growth revenue streams with little or no incremental costs.
The powerful results emerging from its U.S. infrastructure business give LookSmart confidence to embark on a preemptive parallel investment to take leadership positions in a large number of international markets. Going forward, LookSmart will separately report pro-forma results for its U.S. and international businesses to ensure investors have access to full revenue results from the international businesses not reported through U.S. GAAP results.
LookSmart (Nasdaq:LOOK) is a leading online search and navigation company dedicated to helping the world find useful stuff quickly. LookSmart's search and directory service reaches over 45 million people a month - nearly 70 percent of all Internet users in the U.S. - through LookSmart's Web properties and partner sites. LookSmart has launched sites for the U.S., the UK, Canada, Australia, the Netherlands, Singapore and New Zealand, and built directories for Japan, Korea, and France, with directories for another seven countries in development.
LookSmart's search solutions include a collection of over 1.5 million URLs organized into more than 100,000 categories, proprietary content from its search customers and access to the entire Web. LookSmart currently provides its navigation products to leading Internet portals, ISPs and Web sites including The Microsoft Network, Netscape Netcenter, Time Warner Inc., Excite@Home, British Telecom, US West, AltaVista, NetZero, over 370 Internet Service Providers, and 600,000 Web sites.
Through its partnership with Cox Interactive Media, LookSmart also offers one of the largest collections of quality local Web content in more than 70 U.S. markets. The company is headquartered in San Francisco and can be contacted at (415) 348-7000 or visited at www.looksmart.com.
This press release contains forward-looking statements that involve risks and uncertainties, including those relating to the company's ability to continue to build the LookSmart directory, to successfully grow its licensing and syndication affiliate base, to successfully open and manage new international offices, and the ability to build a well-known consumer brand. Actual results may differ materially due to risks and uncertainties described in LookSmart's filings with the Securities and Exchange Commission, specifically its S-1 registration statement. LookSmart assumes no obligation to update the forward-looking information contained in the press release.
Liz Connaghan, 415/348-7185 (Dir. of Corporate Comm.)
Patricia Cole, 415/348-7505 (CFO)