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LOS ANGELES (MarketWatch) - Shares of InfoSpace sank as much as 27% Wednesday as investors expressed their disappointment with the company's outlook for the second quarter, despite a surge in profit and revenue for the just-ended period.








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Shares (INSP: news, chart, profile) sank $11.70 to $33.29 on heavy volume, in recent trading. The shares have ranged from $26.50 to $57.92 over the past 52 weeks.

After Tuesday's closing bell, the Bellevue, Wash., provider of telephone directory information on the Internet warned that in the current second quarter, it's forecasting a profit ranging from $13.5 million, or 36 cents a share, to $15 million, or 39 cents a share. It put revenue at $83 million to $85 million. On average, analysts had been looking for earnings of 42 cents a share on revenue of $91.7 million.

InfoSpace said the seasonal slowdown in overall search activity and a slowdown in mobile handset sales, and limited promotions by mobile phone carriers, are affecting its business in the second quarter.

Many analysts suggested in their notes to clients that InfoSpace's lack of exposure overseas and increased competition are also weighing on its business.

"Search is seasonally weak in the second quarter," wrote Stewart Barry, an analyst at ThinkEquity. "However, we feel it's apparent that InfoSpace's lack of international exposure is diminishing its upside in the search and that the mobile business, while full of potential is working through growing pains as it faces a more competitive market."

InfoSpace gave its outlook at the same time it reported a first-quarter profit of $93.4 million, or $2.52 per share, up from $36.7 million, or $1.16 a share, a year earlier. Revenue for the three-month period that ended on March 31 climbed 81% to $87 million from $48.1 million a year ago.

Excluding the settlement gain, the company's profit from continuing operations would have nearly tripled to $16.6 million, or 45 cents a share, from $5.4 million, or 15 cents a share, in the comparable period of last year. On average, Wall Street analysts had forecast a profit of 37 cents a share before items on revenue of $86 million, according to a Thomson First Call survey.



For the year, the company, which also provides private-label Web search and mobile entertainment services, predicted a profit of between $67 million and $75 million. On a per-share basis, it predicted a profit of $1.75 to $1.95 a share, on revenue of $375 million to $395 million.

The current average of analysts' estimates puts the company's 2005 profit at $1.85 a share on revenue of $387.5 million.

Into search

InfoSpace derives 45% of its sales from its search and directory business. InfoSpace saw sales from this business rise 2% sequentially to $47.9 million. This quarter-over-quarter growth rate compares to 22% sequential growth at Google (GOOG: news, chart, profile) and 10-plus percent estimated growth for Yahoo's (YHOO: news, chart, profile) paid-search business.

Analysts are concerned that InfoSpace's search business is losing market share. Indeed, in March, InfoSpace's search Web sites saw a decline of 8% in unique visitors to its property of Web sites compared to an overall rise in traffic to search sites in that month, according to ComScore Networks. InfoSpace's Excite Web Search property saw traffic plunge 50%.

In the second quarter, analysts expect InfoSpace to generate sales of $45.4 million in search and directory sales, down 5% sequentially, in what is to be a strong period for the paid-search business.

InfoSpace did suggest to investors that it plans on growing its search business internationally to capitalize on the growth in international paid search.

Into mobile

InfoSpace's mobile business generated $39.1 million in the first quarter. That's up 163% from last year, and up 20% from the fourth quarter.

But second-quarter sales are expected to grow only 3% sequentially, a marked slowdown that has investors worried InfoSpace won't meet its objectives this year.

InfoSpace's mobile business has grown 20% sequentially in the five past quarters, and in the second quarter, it's estimated grow 3% sequentially, noted ThinkEquity's Barry.

First Albany lowered its rating on the company to "neutral" before the opening bell, citing a lack of confidence in InfoSpace's ability to hit its financial targets for the full year.


Michael Paige is a reporter for MarketWatch in Los Angeles.
Bambi Francisco is Internet editor for MarketWatch in San Francisco.