Overture Loses AOL Contract to Google
Shares of Overture Services Inc. tumbled by more than a third Wednesday after the Pasadena-based search engine lost its second contract in less than three months to rival Google Inc., which announced a deal to provide search listings to America Online.
Analysts had expected Overture to renew its contract with AOL Time Warner Inc.’s America Online because both companies had announced last week that they were extending negotiations past a previous deadline.
The multiyear Google deal surprised the markets, which just last week had sent Overture’s stock soaring 32% on news of the company’s three-year agreement to be the search engine for Yahoo Inc.
Overture shares fell $12.20 to $21.99 during regular trading Wednesday on Nasdaq.
Lanny Baker, an analyst with Salomon Smith Barney, said that despite the loss of the America Online contract, Overture still remains the stronger of the two search engines.
“My read is that the Yahoo endorsement for Overture is stronger than the AOL endorsement for Google,” Baker said.
During a conference call Wednesday, Overture Chief Executive Ted Meisel told analysts that the loss of AOL, which has 34 million members, would not significantly affect the span of Overture’s network.
The company estimates that its listings reach more than 85% of U.S. Internet users.
“We are disappointed not to have AOL as a partner in the U.S. but remain confident that Overture is well positioned to grow without it,” Meisel said.
Overture, formerly known was GoTo.com, provides pay-for-performance searches. Advertisers bid for placement in the search listings, which usually appear as “sponsored sites,” and pay Overture when someone clicks on their links.
The company, which signed an agreement with AOL Europe at the beginning of the year, will continue to provide listings on America Online’s properties in France, Germany and the United Kingdom through March 2005.
Earlier this year, Overture lost its contract with EarthLink Inc. to Google.
With its latest agreement, Google’s listings will appear on the AOL service, AOL.com, Netscape and CompuServe during the next few weeks.
The Mountain View, Calif., company launched an expanded paid search, called AdWords Select, in February.
Google’s ability to provide both standard and sponsored listings gives it an advantage over search engines that offer only pay for performance, said Omid Kordestani, senior vice president of worldwide sales and field operations for Google.
“Our view is that we are in a position to offer the best combination of the two,” Kordestani said.
“It’s very compelling that you’re not sacrificing one for the other.”
But during the conference call Wednesday, Overture’s Meisel said there has not been much demand among the company’s partners, among them Microsoft Corp.’s MSN, for additional search capabilities.
Company officials said during the call that the company now is forecasting a profit of 53 cents to 83 cents a share in 2003, less than the 88-cent average estimate of analysts polled by Thomson Financial/First Call.
The company anticipates a second-quarter profit of 23 cents a share, down from the 25-cent analyst estimate.
Overture posted a first-quarter profit of 48 cents a share last week.