IBD report // from Raging Bull poster:
Dan..., brief mention of ring-tone $$$ in yesterday's IBD paper. I'm still interested in INSP even though the market scared me out a few days ago. Took my profits from the small number of shares I had. Want back in @ a lower price if that happens again. Good luck.
Investor's Business Daily
Search, Mobile Markets Help Internet Firm Bounce Back
Friday October 8, 7:00 pm ET
Pete Barlas
InfoSpace is a rarity in this post-dot-bomb world: an Internet company with a healthy share price and bottom line.
It can thank strong performances from its two main businesses.
One is search and directory, which helps Web users find information, merchants and products online.
The other is its mobile division, which develops tools that let wireless carriers and other clients develop and deliver mobile data services across multiple devices.
Business on both fronts has been good enough to help InfoSpace (NasdaqNM:INSP - News) move back into profitability after three straight years of red ink.
First Call analysts expect the firm to earn $1.08 a share this year, up from a 20-cent loss in 2003.
Wall Street has taken notice, pushing InfoSpace's stock price to a 52-week high of 52.40 on Oct. 4 before a recent slump pushed shares closer to 47.
"The stock has performed very well because people are starting to appreciate that they are in the search business, but they also appreciate that this mobile business has some legs to it," said Wedbush Morgan Securities analyst Scott Sutherland, who owns shares of InfoSpace.
Searching For More Business
InfoSpace operates three search engines: Dogpile, Metacrawler and Webcrawler.
Most of its revenue comes from licensing its Web search service to other sites that want to provide consumers with the ability to search the Internet.
InfoSpace's search customers include ABCNews and Fox News. It also provided search for NBC's Web site during this year's Summer Olympics.
The company has agreements with more than 75 clients. It splits revenue from ads with each site owner. Its search partnerships accounted for 60% of its search revenue in the second quarter vs. 5% the prior year, analysts say.
"They have a compelling offering to other Web sites who want to get their users a search functionality and also get extra revenue," said analyst Stewart Barry of Think Equity Partners.
InfoSpace has cashed in on the fact that most Web sites don't have their own search engine, says Chief Executive Jim Voelker.
"Search has become more of an important activity, second only to e-mail," he said. "There are many high traffic Web sites out there where search is not their core competency, so it's been a strong growth area for us over the course of the last year."
InfoSpace's search operates differently from high-profile peers Google (NasdaqNM:GOOG - News) and Yahoo (NasdaqNM:YHOO - News).
Instead of creating its own search index, it draws its results from several search engines -- including Yahoo and Google. InfoSpace collects the results and puts them in front of the consumer as its own list of results.
Yahoo and other search engines are willing partners. That's because InfoSpace gives them access to more consumers, says Sasa Zorovic, analyst for investment bank Oppenheimer & Co.
"If the user clicks on an ad on Yahoo, then some of the revenue goes to Yahoo, and InfoSpace at least has a chance to get some of the business," he said.
InfoSpace increased its focus on search earlier this year by acquiring Switchboard, a search company, for $160 million in cash.
Switchboard, which provides local search services, helps consumers connect online with small businesses in their hometowns. The deal gave InfoSpace an entry into local search, one of the fastest growing segments of the search market.
Big Potential Payoff
InfoSpace and its peers are chasing business in the paid search market. With paid search, advertisers pay to have their names listed among search results. They pay only when a consumer clicks on their ad.
In the last two years, paid listings helped turn around a moribund ad market. They also reversed the financial fortunes of search companies like InfoSpace that get most of their revenue from ads.
By 2009, the paid listings market in the U.S. will reach $4.9 billion, up from $1.7 billion last year, says market tracker Jupiter Research.
Meanwhile, InfoSpace continues to tweak its overall lineup of products. In the last two years the company has divested several businesses. The last to go was Authorize.net, an online payment processing firm InfoSpace sold for $82 million earlier this year.
InfoSpace kept its wireless business, but has made changes to it in the last year. The company started out selling a software platform to wireless companies that lets consumers get information such as stock quotes and sports scores on mobile phones.
When that business didn't take off right away, InfoSpace expanded its strategy. It began selling ring tones -- the jingles that sound off when somebody dials a cell phone.
InfoSpace entered the business last year after spending $25 million to buy Moviso, a mobile media company. InfoSpace sells packages of ring-tones to wireless carriers.
The company is expected to post wireless sales of $25 million in wireless sales. Over 75% will come from its ring-tone business, analysts say.
That market is growing. By 2009, the number of ring-tone downloads in the U.S. alone will reach 767.4 million vs. 71.1 million last year, says market tracker International Data Corp.
In July, InfoSpace again beefed up its wireless business by acquiring Atlas Mobile, which provides multi-player tournament games on wireless phones.
InfoSpace is trying to carve a niche among wireless consumers who will rely on mobile devices for doing more than making phone calls, analyst Sutherland says.
"It's not just ring tones -- it's going to be graphics, screen savers and games," he said. "As that population ages, you will see a slow migration into user adoption."
AI
