Overture Profit Falls Despite Revenue Leap

Pasadena-based Overture Services Inc., the Internet search company that Yahoo Inc. has agreed to buy for $1.63 billion in cash and stock, said second-quarter profit dropped 56% as expenses rose. Sales jumped 74%.

Net income fell to $7.62 million, or 12 cents a share, from $17.5 million, or 29 cents, a year earlier, the company said. Revenue rose to $265.3 million from $152.5 million.

Overture offers “sponsored” search results, in which companies pay to have links to their Web sites listed at the top of search results related to their business.

Overture shares revenue with companies that offer its search results, including Yahoo. Profit declined in the last three quarters as Overture’s payments to those firms rose.

“In the long run, this was a company becoming more and more dependent on their major partners,” said Darren Chervitz, director of research at Jacob Asset Management in New York. “I think they’re both happy that they did the deal,” he said of Yahoo’s agreement to buy Overture.

Jacob Asset manages about $110 million in Internet stocks, including some shares of Overture, Chervitz said.

Overture fell to $24.10 in after-hours trading after the company announced its results. It rose 51 cents to $24.15 on the Nasdaq Stock Market. The stock has fallen 12% this year. Yahoo, based in Sunnyvale, Calif., rose 87 cents to $32.12 on Nasdaq. Traffic acquisitions costs, or payments that Overture makes to companies that use its search results, were equal to 64% of its revenue, up from 53% a year earlier, the company said.

Costs have risen, analysts have said, because of competition with Google Inc., which provides sponsored search results to Internet companies, including AOL Time Warner Inc.’s America Online.

Overture’s listings are offered on Microsoft Corp.’s MSN site, as well as Yahoo. Overture generated 63% of its revenue last quarter from those two partnerships, down from 65% in the first quarter.