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Its quarterly results released Apr. 27 didn't initially strike investors as all that exciting. About.com reported a first-quarter operating loss of $7.5 million, or 44 cents per share. That was far better than the 58-cent loss Wall Street was expecting and better, too, than the $7.9 million, or 91 cents a share, it lost the previous year. Moreover, its revenues grew to $15.8 million, up from only $2.4 million a year earlier. But on the strength of those results, the stock gained almost $5, or 16% the following day. Then the stock took off as analysts upwardly revised their projections for revenue growth and earnings and investors dug deeper into the results. E*Offering analyst Patrick Winton upgraded the stock to strong buy on Apr. 28, citing "accelerating business momentum." It quickly gained $15, or 45%, to close May 1 at $49 5/8. It has slipped back a bit since then, but closed May 3 at $44 1/2, up 2 1/4 on a day when the Dow Jones industrial average fell 250 points. Analysts expect it to eventually regain all its lost ground. SELLING SHORT? Why the surge? Sure, results were better than expected. But other Internet giants that target consumers, such as Priceline, Amazon, and eBay, beat analysts' forecasts for the first quarter. Yet their stocks barely budged, notes a recent analyst report from Robertson Stephens. At least part of About.com's price spike likely came from short sellers who got squeezed and had to buy its shares to exit their positions. But that's hardly the entire story. A key difference is that About.com achieved a rare feat in the Internet world this past quarter. It not only increased traffic and sales from the prior quarter but it did so while spending $1 million less on marketing. "We can spend less and make more, and that's pretty rare among Internet companies," boasts CEO Scott Kurnit.
The results were a much-needed indication that About.com's business model can work. Even though the company plans to get most of its revenue from advertising -- a frightening prospect for most Internet investors these days -- About.com has found a way to capitalize both on its huge traffic and its niche sites. As a top-10 site, it attracts attention from advertisers and is included in big-media buys, says Kurnit, who claims it also can collect higher fees since it can offer such targeted audiences. He says it can charge as much as $60 for 1,000 viewings of a niche ad, and its average charge across the site is $30 for 1,000. Many other portals now command less than $10 per 1,000 viewings. NO TRACKING NEEDED. About.com's strategy also allows it to dodge another bullet that's wounding many a dot-com: privacy issues. While the technology exists for portals like Yahoo! to slice and dice its user base, concerns about invading users' privacy have kept them from selling targeted ads. About.com doesn't have to track users, for example, to sell ads for wedding dresses on its bridal channel. The company also has other revenue streams. It outsources services such as Web hosting and creating interactive tools that it uses to set up its own network of sites. One exciting source for new revenues, says Winton, is its Luna Network, where its guides choose other sites to link to. About.com can sell ads on those other sites. It also launched an ad-buying auction on May 1 called Sprinks, which will allow it to do small ad buys efficiently. Critics of About.com point to its lack of "stickiness" -- Web jargon that describes whether vistors to a site stay on the site for long. Another gripe is the site's reliance on human beings as opposed to software doing the work, which increases costs. These guides are all independent contractors and get paid a slice of ad revenues generated from their site. DOING A DEAL? Some analysts believe About.com will eventually be acquired by a larger media company, and Winton acknowledges that potential. Kurnit admits he talks frequently to other companies that want to initiate a deal. "If I believe a combination would create more long-term shareholder value, then I would seriously consider it," he says. But so far, he hasn't found a deal that he thinks would give his shareholders more upside than if About.com just keeps doing what it's doing, he says. In April, investors clearly weren't willing to stick around to see if Kurnit could pull off his strategy. But with the latest quarter providing more evidence that his vision is on track, the recent gains in About.com's stock may be a sign that Kurnit is persuading investors to get back on the bandwagon. Stone covers the markets for Business Week Online What's your take on About.com? Talk about it on our Ask Amey Stone Forum EDITED BY BETH BELTON |
