Overture’s Net Income Tumbles as Expenses Rise
Net income for Overture Services Inc. dropped by more than half in the fourth quarter compared with the previous year, even though its revenue nearly doubled, the company reported Thursday.
Overture, which sells favored placement on Internet search sites, blamed the slumping profit on increased fees and an arbitrator’s ruling that cost it $8.7 million.
The Pasadena-based company earned $9.5 million, or 16 cents a share, in the quarter ended Dec. 31, compared with $20.8 million, or 35 cents, a year earlier. Its revenue was $199.6 million, up 97% from $101.2 million the previous year.
Overture strikes deals with customers such as Yahoo Inc. and Microsoft Corp.’s MSN to give advertisers prominent positions when users search for related items. For example, New Balance Athletic Shoe Inc. paid Overture to have a link to its site appear prominently when Yahoo users searched for “shoes.”
The major expense increase was in the commissions -- called traffic acquisition costs -- the company pays to Web sites. Overture said those fees consumed 62% of its revenue in the fourth quarter of 2002, up from 51% in the year-earlier period.
“Overture’s revenue growth has been exceptional,” analyst Lisa Haas of SoundView Technologies Group said. “But they have to give more and more of it back to its major partners.”
Neither Haas nor her firm owns Overture stock or does business with the company.
Overture’s full-year revenue grew to $667.7 million, a 132% increase from 2001. Its net income in 2002 was $73.1 million, or $1.23 a share, compared with $20.2 million, or 36 cents, the previous year.
Overture Chief Executive Ted Meisel predicted revenue would increase to “well in sight of $1 billion” in 2003, a figure analyst Haas said was reasonable.
But Overture also is looking at substantial costs from international expansion. Chief Financial Officer Todd Tappin predicted that net income would be $8 million to $9 million in the first quarter of this year.
The company took a fourth-quarter charge on an arbitrator’s ruling that favored online marketer Internet Fuel, a former affiliate, but is “exploring all legal recourse” in attempting to reverse it, according to a statement.
An Overture spokesman would not discuss the matter further, and Internet Fuel executives could not be reached for comment.
Overture shares fell 61 cents to $22.37 on Nasdaq before the results were announced. The shares plunged to $18.95 in after-hours trading.
