How Smart Is LookSmart?

LookSmart (LOOK-NASDAQ) posted earnings: -$0.04 GAAP EPS and -$0.01 non-GAAP EPS and revenues at $15.0 million; estimates were -$0.08 & $15.475 million, but there are less than a handful that cover it.

David Hills, CEO:  "Looking forward, 2007 will be a year of prudent investment, particularly in the critical areas of sales and marketing. Now that we have improved our product offering, we will focus on increasing our penetration in the marketplace. We believe we are establishing ourselves as a viable competitor in the online advertising industry, and are encouraged that our customers feel the same way. A key indicator of this is Ask.com’s renewal of its AdCenter agreement with us through 2009. We are pleased to continue with them as a customer. We are making strategic investments for long-term growth and profitability, and ultimately for increased value to our stockholders."

The most important part of this was signing IAC’ Ask.com as the anchor client, although it is at far lower rates.  They are forecasting a sequential 12% drop in revenues, which would be $13.2 million for the coming quarter (well under estimates). For 2007 Revenue is expected to increase 20% to 25% from the year ended 2006, which would lead to $61 million or more on the lower-end of projections (even at the high-end this is under estimates).

This is a catch 22 in a big way.  This has warnings because it signed IAC’s Ask.com at significantly lower rates.  Ask.com most likely had them in a barrel so keeping them is still probably a win. After all, where would the company be if they LOST them?  The stock closed at $5.38 and the 52-week range is $2.21 to $5.75.  So there are obviously many hopes they’ll get back to some sort of profitability soon, but they are probably going to have to rely on the cult stock followers from here rather than the turnaround investors.  Shares are down about 1.5% after-hours.

Jon C. Ogg
February 15, 2007