Search engine Ask Jeeves said sales rose sharply and profits doubled in the fourth quarter, but the results weren’t enough to impress investors who see the shadow of Google looming over its much smaller rival.
Ask Jeeves earnings shot up 130 percent to US$17.5 million, or 25 cents per share, versus $7.6 million, or 13 cents per share a year ago. Revenue more than doubled to $86.1 million in the quarter, compared to $31.8 million in the fourth quarter of 2003. However, that figure still fell just shy of forecasts.
Steve Berkowitz, the CEO of the Oakland, California-based company, said the quarter capped a “great year” for Ask Jeeves.
Investors weren’t impressed, however. Shares plunged nearly 8 percent in morning trading today to $25.08
“The stock is suffering from its association with Google and its inability to match the results in terms of search dominance and growth,” analyst Clay Moran of Stanford Group Co. told the E-Commerce Times. “But on a standalone basis, they continue to execute well. I think the stock’s reaction is excessive.”
The same appeared to be true for interactive advertising marketing concern DoubleClick, which actually posted a three-fold jump in earnings for the quarter but issued a forecast that was below what Wall Street was hoping for. Its shares were off nearly 6 percent.
Room To Grow
Moran said that while Ask Jeeves can’t compete head-to-head with the “big three,” it continues to hold a steady 6 percent market share. And given the overall growth of the search industry, Ask Jeeves can continue to be profitable without grabbing market share away from its rivals. “We say if it maintains its share, that should result in stock out-performance because the industry is growing so rapidly,” he said.
Still, Ask Jeeves is hoping to capture more consumer eyeballs and will invest more heavily in advertising this year. Berkowitz said the company plans a 30 percent hike in its marketing budget, including more TV, print and online ads.
The CEO said the marketing message would be aimed at reminding users that Ask Jeeves performs keyword searches as well as its question-based query system, for which it is best known. “The search market is robust and we expect it to remain that way,” Berkowitz said. “The competition is fierce. Our focus is on building a quality product and we believe we will be able to grow our market share.”
Moran applauds the marketing effort — and the timing of it. “Last year wasn’t really the year to spend significantly on marketing. Google was going to get all the headlines with its IPO,” he said.
Google and Ask Jeeves have another connection: Ask Jeeves’ reliance on Google for some 70 percent of its revenue is a “long-term concern” for Moran, who notes that the partnership extends through 2007. “It’s something investors have to consider when looking at Jeeves, but it’s not an immediate concern.”
For some investors, Ask Jeeves’ latest results might only serve to underscore the difference in sheer scale between it and Google, which turned in revenue in the fourth quarter that passed the $1 billion mark for the first time — well over ten times what Ask Jeeves generated.
Ask Jeeves has revamped itself in the past year or so to focus on the paid Web search space, divesting itself of an enterprise division and buying the former Excite Networks family of sites to boost traffic.
Piper Jaffray analyst Safa Rashtchy said Ask Jeeves could be a likely takeover target for a company that wants to enter the search space. He agreed with Moran, saying in a research note that the stock is “heavily undervalued” after the recent sell-off.
Outlook Doesn’t Satisfy Investors
DoubleClick, meanwhile, has come back from the brink, though it has been rumored to have all or part of its business on the sale block. In the fourth quarter, its revenue was $83.5 million, ahead of forecasts, and earnings topped $10 million, compared to less than $4 million a year ago.
Jupiter Research analyst Nate Elliott [*correction] told the E-Commerce Times that both companies’ investors seemed to be selling despite strong results that were loaded with good news.
At least in part, he added, the companies seemed to have been punished for “telling analysts not to get too excited about the future” and for not blowing away targets as Google did. In keeping with a practice it said it would follow before going public, Google did not issue specific guidance, Elliott noted.
*Editor’s Correction Note: Comments in this story were incorrectly described as having been given directly to the E-Commerce Times by Jupiter Research analyst Nate Elliott. The comments were, in fact, an interpretation of his Weblog comments on the earnings of another search company. We apologize for the error.