Lycos Reaches Profitability: Beats Wall Street’s Expectations

Portal site operator Lycos Inc. announced yesterday that it has exceeded Wall Street’s expectations by achieving operational profitability in its fourth fiscal quarter.

Excluding acquisition-related expenses and other one-time charges, the Waltham, Massachusetts-based company generated a net income of $605,473 (US$), or one cent per share. This was in comparison to a loss of $703,038, or one cent per share, a year ago. In addition, both advertising and e-commerce revenue rose $26.1 million over the same period last year.

The announcement is a pleasant surprise for Lycos’ investors, who were bracing for less encouraging results. According to Multex.com, Inc., a consensus of 18 Wall Street analysts had predicted that Lycos would just break even this quarter.

“We are extremely proud to have achieved profitability ahead of schedule, while at the same time consistently and carefully managing the ongoing business and investing growth of the company for the future,” said Edward M. Philip, Lycos’ chief financial officer and chief operating officer.

Acquisition Costs

Despite the short term success, Lycos must now turn its attention to the long haul. A $2.5 million loss incurred from the May breakup merger agreement with USA Networks, and other nonrecurring acquisition expenses contributed to a $24 million net loss for the quarter. The company reported a net loss of $6.8 million in the same period a year ago.

Lycos spent $265 million on several acquisitions this quarter, including Whowhere? for $133 million in stock, Wired Digital for $83 million in stock and Internet Music Distribution Inc. for $49 million in stock. In addition, it acquired minority ownership of seven other companies as part of its expansion strategy.

Forged Alliances

Lycos also forged several significant alliances during the quarter:

A $52 million e-commerce agreement with WebMD to become the exclusive provider of all the healthcare content on the Lycos Network.

Lycos portal will now be embedded into IBM’s new release of Lotus Notes and all of its new Aptiva PCs.

Packard Bell NEC is making Lycos the exclusive portal on all of it new consumer desktops.

My Lycos will be co-branded with RCN Corp. and distributed to all RCN dial-up customers. Lycos also announced several other initiatives during the quarter, including a $135 million e-commerce agreement with WingspanBank.com and the founding of Lycos Ventures — a $70 million Internet venture capital fund.

About the Company

Founded in 1995, Lycos Inc. (Nasdaq: LCOS) has established a network of Web sites including Lycos, HotBot and Tripod. Each month, about 30 million people visit its sites, utilizing search engines, chat rooms, e-mail and home pages.

About 75 percent of Lycos’ revenue comes from advertising, but it also generates revenue from e-commerce and licensing agreements with such partners as Bertelsmann. Internet investment firm CMGI owns 18 percent of the company.

Lycos is ranked fourth in the number of unique visitors it receives, behind only America Online Inc., Yahoo! Inc. and Microsoft Corp., according to June figures released by Internet media market researchers Media Metrix. Last year, Lycos, which employs about 456 workers, lost $97 million on revenue of $56 million. Yesterday, its stock closed at $42.32 per share, up $1.88 from the previous day on volume of 87 million shares. Its 52-week high is $72.69 per share; its 52-week low is $10.03 per share.

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