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Answers Elusive For Ask Jeeves

In May 1999, he predicted the company would be profitable within 24 months.

With only five months to go, it now looks like Ask Jeeves is falling somewhat short of CEO Robert Wrubel's bold proclamation.

But Wrubel won't be at the helm when next May arrives, for he is stepping down from the chief executive's post and relinquishing his seat on the board of directors. Many current Ask Jeeves employees also may find themselves in other jobs come May, as heavy layoffs loom for the red-drenched "natural language" search portal and technology company.

None of which should be surprising to anyone looking beyond the prodigious hype that has accompanied the marketing-savvy firm for most of its brief existence.

Among those ignoring the warning signs for too long were the half-dozen or so analysts who rushed to downgrade ASKJ shares late last week after the company warned that fourth-quarter losses, already expected to be bad (33 cents per share), would be even worse (50 cents per share). Some had cut their ratings for Ask Jeeves earlier in the year (though not enough), while at least a couple - First Union and US Bancorp Piper Jaffray - each had rated ASKJ a "strong buy" by late July.

I won't have to lower my assessment of Ask Jeeves, because I've always been skeptical about the company's business model, technology claims and long-term prospects, even before its July '99 ticker debut. (See Ask Jeeves Searching For Answers and Records Fall, With Days To Spare.)

Since its moonshot IPO, Ask Jeeves has consistently turned in quarterly reports showing deep operating losses and revenues that failed to justify the company's previously lofty valuation. Shares reached absurd heights a year ago (closing at $186 on Nov. 16, 1999) and have been unraveling ever since. After Thursday's Q4 warning, ASKJ plunged 66% to $3.25 by early Friday afternoon, a price that leaves the stock with a 97% loss for the year. Put that in the Macy's Day parade and see if it floats.

The company insists it can make a profit by Q4 2001, or a year from now. Given the Q4 preview, that's a tall order. First, softness in spending on online advertising is expected to continue through the first two quarters next year, and perhaps beyond. In fact, fourth-quarter sales are forecast to be about $25 million, less than the previous two quarters. So Ask Jeeves may have trouble increasing revenues, even as it tries to move further away from dependence on ad dollars and toward business services.

Net loss for Q4 is expected to be $18 million, or 50 cents per share, which may be worse than street estimates, but still is a big improvement over Q3's net loss of $39 million, or $1.08 per share. If a company's revenues are flat and it's losing money, there's only one way to erase the operating deficit: Cut costs. That might be accomplished in part through increased efficiencies. However, the traditional and surer method is an employee blood-letting.

That's what Ask Jeeves will be looking forward to next year - if it's lucky. If it's not...well, we all know the answer to that one.



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