Lycos and Excite: A Tale of Two Buyouts

Though easily outperformed by fellow IPO Class of April ’96 portal company
Yahoo!, Excite and Lycos each have seen their stock prices and market
capitalizations increase substantially, especially in the past year.

But unlike Yahoo!, neither Lycos nor Excite have been able to turn a
profit, despite solid revenue growth. Excite, for example, has seen sales
rise from $14.1 million in 1996 to $50.1 million in ’97 and $154.1 million
last year, while losses for those same years were $43.1 million, $42.4
million and $37 million, respectively.

And on Thursday, Excite announced first quarter revenue of $54.1 million, a
123% increase over the $24.1 million in revenue for Q1 ’98. Still, the
company lost $7.4 million in Q1, only slightly less than the $7.5 million
loss in the same quarter last year.

Lycos, meanwhile, has seen revenues grow from $5.3 million to $22.3 million
in 1997 to $56.1 million in fiscal ’98. Like Excite, though, Lycos has
dwelled in the red, losing $5.1 million in ’96, $6.6 million in ’97 and
$3.6 million last year.

Compare these performances to Yahoo!’s, which not only has been
consistently profitable, but which last week reported revenues of $86.1
million in the first quarter alone. Market caps also tell a story: Yahoo!
is valued at $41.5 billion, while Excite currently is valued at $7.74
billion, and Lycos at $4.1 billion.

Realizing they were unlikely to close the revenue, market cap or site
traffic gap with Yahoo! anytime soon without help, both companies announced
deals earlier this year to be acquired.

The reactions to each deal, however, varied dramatically. When @Home
revealed in January plans to buy Excite for $6.7 billion, share prices of
the No. 2 Web portal immediately rose 63% to $110. Share price bounced
between $90 and $110 for the next two months before a run-up beginning in
March that saw Excite’s stock close at an all-time high of $171.96 this
past Monday.

In contrast, USA Networks’ bid to purchase Lycos met with fierce skepticism
from investors, who felt the $5.7 billion price tag undervalued the fourth
most-popular Web destination. On Feb. 8, Lycos shares closed at $127.25. A
day later, when the USA Networks deal was announced, Lycos stock ended the
day at $94.25, a 26% plunge.

Since then Lycos shares have traded in the $80s and low $90s, until a surge
last week that took prices in the low $100s this week. (The stock spiked
briefly to close at $108.81 on April 6 amid rumors that the USA Networks
deal would be upgraded, then fell $10 the next day.)

If the USA Networks deal goes through, plans call for combining Lycos’
search directory and community sites with the Home Shopping Network and
Ticketmaster Online-CitySearch.

@Home intends to deliver Excite’s content over its high-speed Internet
access systems.

Coming Next Week

No definites, but start looking for Marimba, Razorfish, Internet Financial
Services, Town Pages plc and CAIS Internet.

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