Internet 2001: Domestic Portals Search For Answers To Ad Downdraft

Tuesday’s Morning Report looked at the current state and outlook of portal companies targeting markets in China and Latin America. Today we’ll focus on portals that primarily serve Internet users in the U.S.

Two of the domestic portals are among the largest and most successful Internet companies – America Online and Yahoo , though AOL actually makes most of its money through monthly access fees.

Yahoo will be in the spotlight after the market closes Wednesday. The company is due to release Q4 and annual reports. While Yahoo has been solidly profitable and almost always has surpassed Wall Street estimates – which call for a fourth-quarter net profit of 13 cents per share – investors remain skittish about companies that derive most of their revenue from online advertising. Right now, that figure ranges from 80% to 90% for Yahoo.

Given that YHOO traditionally take a hit on the company’s quarterly reports, expect shares to lose at least the 11% they gained on Tuesday, especially if Yahoo’s forecast for the coming year hints at slower revenue growth (which it will).

Through Tuesday, YHOO was trading at $30.13, up from its Dec. 21 price of $25.63, its lowest close in more than two years. For investors who have always liked Yahoo but considered it dramatically overvalued, that’s good news. But considering the ominous cloud darkening the horizon for online advertising, don’t expect much upward movement for awhile – unless the whole Internet space rallies.

I’ve written a million times about AOL, so there’s no point in repeating myself here. In short, AOL is a very strong company that isn’t heavily dependent on advertising revenue. And when the merger with Time Warner is complete, less than half of its revenues will come from the Internet. These days, I guess that’s a big plus.

There are four other portal and search companies to consider: , Ask Jeeves , GoTo and LookSmart . should disappear from the ticker in late February, after its acquisition by magazine publisher PRIMEDIA is completed.

Last month Ask Jeeves announced a restructuring, layoffs of 25% of its workforce and that CEO Rob Wrubel would step aside. ASKJ also said Q4 revenue will be 30% below forecasts and that its net loss will be $18 million, or 50 cents per share. Analysts predicted a net loss of 32 cents per share.

Despite the bad news, ASKJ insisted it could reach profitability by the fourth quarter of this year. Believe it when you see it.

GoTo, the pay-for-position search engine, is pursuing a unique strategy to further its business goals – changing its name. It used to be before dropping the dreaded “” Then it announced in October that it will again change its name. In fact, GoTo has hired a company to assist in the process, which may not be complete until the middle of this year, if you can believe it.

By any name, GOTO is a heavy bleeder, losing $46 million in Q3, more than twice the net loss from the second quarter. Stay away.

LookSmart, the leader in Web directories, derives revenue from several sources, primarily online advertising and licensing of its search content and software to third-party sites. It’s in better financial shape than GOTO or ASKJ, but is still losing money. Q3 results show revenues of $33.4 million and a net loss of $12.9 million, or 14 cents per share. I’d check back on it in about three more quarterly reports to see how it’s trending.

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