RealTime IT News

GoTo.com Going In Right Direction

Back in April I wrote about the recently filed IPO of GoTo.com, a pay-for-positioning search engine whose business model was, in my mind, unproven.

Two recent measurements of the company's growth, however, indicate that GoTo.com (GOTO) so far appears to be successfully executing its game plan.

Early this month the released its first quarterly earnings statement since going public June 18. The results were impressive. I had called the IPO premature, noting the meager $822,000 in sales last year and concluding that GoTo.com "needs more seasoning and more revenue."

Well, it's getting the revenue. In the quarter ended June 30, GoTo.com had $3.6 million in revenue, compared to $19,000 for the year-ago quarter. For the first six months of '99, GoTo.com's revenue was $5.1 million, compared to $57,000 in the first half of 1998.

Granted, the search site was just getting off the ground last year, having gone live in September 1997. (Which, of course, is why I thought the IPO was coming too soon.) But even versus the first quarter, which saw $1.5 million in sales, revenue growth is impressive.

More than 90% of GoTo.com's incoming money comes from advertisers paying for premium placement on GoTo.com's search engine results. If you pay GoTo.com more than any of your competitors, you get the top returned item from the search.

While I had no doubts that advertisers would pay for such a service, the real key for GoTo.com was attracting enough traffic, or eyeballs, so it could charge premium rates for search result placements. And that's where I saw a problem: Web search users looking for information, I wrote, "will bristle at being routed to a site that's trying to sell them something or boost traffic."

Bristle though they may, they seem to be coming back to GoTo.com's site. Figures released Aug. 20 by Internet traffic measurement firm Media Metrix show that GoTo.com visitors increased from 4.7 million in June to 7.3 million in July. That's 55% growth in one month, and it moved GoTo.com from No. 27 to No. 20 among digital media/Web properties.

Market reaction to GoTo.com was reserved at first. The stock closed on its first day of trading in June at $22.38, just 49% above its $15 offer price. GOTO shares caught fire (along with many other Internet stocks) in July,rising as high as $69.88 on July 6. From there a long slide extended into August. Since the Aug. 5 earnings report -- which showed at 2 cents per share loss, beating analysts' expectations - GOTO shares were up 25% through Friday.

With a market cap of about $1.6 billion, GoTo.com is still pretty pricey, valued around 130x this year's $13.4 million revenue (as estimated by Donaldson Lufkin Jenrette). If it continues to grow traffic, the numbers should become more attractive.

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