Pay-for-performance search engine Overture Services
(formerly GoTo.com) seemingly has beaten the odds facing advertising-dependent online plays — improving its bottom line to top Wall Street estimates and post its first net profit, amid one of the harshest ad climates in years.
The Pasadena, Calif.-based company wowed the Street on Thursday, posting $9 million in third-quarter profit, or $0.15 per share, on revenue of $72.5 million. Analysts had expected the firm to post a $0.02 profit, according to Thomson Financial/First Call consensus.
Not that you can blame the analysts for a conservative estimate: just a quarter earlier, Overture reported a net loss of $2.9 million, or $0.06 per share. A year earlier, it posted a net loss of $10.7 million, or $0.22 per share.
Additionally, Overture’s stellar quarter comes while most online ad plays are cutting costs to boost bottom-line results, while it itself saw booming spending from advertisers. The company brought in 16 percent more in revenue than it did last quarter, and 190 percent more than it did a year ago.
During the quarter, advertisers paid an average of $0.21 per click — roughly the same amount paid a year ago. But Overture reports having 49,000 advertisers at the end of September, up 6 percent from last quarter, and 34 percent from September 2000. And advertisers increased their spending as well, with Overture bringing in an average of $1,510 from clients, versus $1,380 per advertiser last quarter.
“We’ve converted our industry leadership into positive financial results, and for the first time, reported net income profitability,” said Overture president and chief executive officer Ted Meisel. “This milestone reinforces our belief in the opportunity ahead and motivates us to continue to invest in the quality of service we provide.”
New advertiser interest isn’t the only reason for Overture’s success, having undertaken a number of significant changes designed to boost income prior to changing its name. For one thing, the company earlier this year raised the monthly minimum it required advertisers to pay to $20, and the minimum per-keyword bid to $0.05, up from a penny.
In July, the company spun off its auction business, now known as Channel Advisor. That agreement sold the unit to its management for an undisclosed sum; GoTo walked away with an 18.5 percent stake in the firm as well.
At the time, a GoTo spokesperson said the company found it more lucrative to concentrate on selling keyword advertising in an auction model, rather than also marketing private-label auction software.
That same month, GoTo completed a successful follow-on stock offering of 3.75 million shares, raising net proceeds of approximately $58.2 million for the company.
At any rate, near-term prospects look rosy for Overture, which said it ended the quarter with about $131 million in cash and marketable securities, and less than $500,000 in long-term debt. Next quarter, the firm said it anticipates bringing in $10 million in net profit, or $0.17 per share — well above analysts’ $0.06 per share estimates. The firm also gave guidance to $28 million in profit over all of next year, or $0.45 per share, versus current analyst expectations of $0.29 per share.