A Net Stock Hits A New High

It’s a long way from its all-time high, but GoTo.com did yesterday what few Net stocks have done lately: it hit a new 52-week high.

GoTo’s close of 25.99 and intraday high of 26.29 exceeded its September 5 intraday high of 25.25, when the Nasdaq closed at 4143. Before that, you have to go back to May 2000 to find a higher price on GOTO. Its all-time high of 114.50 was reached in November 1999.

The reason for GoTo’s resurgence is simple: the company is in the right place at the right time. GoTo’s pay-per-click search service is suddenly in demand, as search and portal sites look for alternatives to advertising. Since last fall, GoTo has announced deals with AOL, Terra Lycos, AltaVista, DirectHit, NetZero, iWon, NBCi, and Infoseek (Go.com), among others.

The Go.com win was a major coup; GoTo became the primary search service for the Disney Internet site it had once sued for having a logo a little too similar to its own. But the Go.com win also symbolizes how risky GOTO’s stock is. The future of Go.com has been very much up in the air, with Disney threatening to shut it down as recently as January. A continued shakeout among search sites could bring GOTO stock back to earth.

But GoTo has also diversified into other areas. The ChannelFusion online auction management program allows merchants to better manage their listings on eBay , one of the very few Net companies whose fortunes have been unaffected by the market shakeout. It’s interesting to note that eBay and GoTo have led the ISDEX higher since the April 4 bottom.

But inevitably, we have to mention valuation, and GOTO stock is pricey indeed. The company is expected to lose 47 cents a share this year, turn profitable by the end of the year, and earn 30 cents a share in 2002. That means the stock is trading at a 2002 price-to-earnings ratio of 87, or twice the company’s long-term projected growth rate. The company could exceed those targets, but keep a close eye on GOTO stock, which can be volatile. The September 5 close of 23.31 should now be support if this breakout is for real.

But in an environment for Net stocks where it’s tough to make money, GoTo.com has always been about making money. And investors are taking notice.

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