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Is Lycos Stronger for the Bruising? Investors have pushed up the stock since the Diller deal died. But analysts wonder if the bounce will last -- without a major media partner Bob Davis, the feisty CEO of Lycos (LCOS) has a talent for turning lemons into lemonade. Even though his company's controversial deal with USA Networks (USAI) and Ticketmaster Online-CitySearch (TMCS) has fallen apart, he points to several positive outcomes from what some would deem a fiasco. For one, all the publicity from the much-debated merger created a spike in traffic that he believes was partly responsible for moving Lycos above Yahoo! (YHOO) in Media Metrix' March rankings. "All that great ink as a result of the transaction has been a part of the great bounce we've received in audience reach in the last 60 days," he says. He also claims that the terms of the termination agreement give Lycos the promotion benefits it would have gotten from the original deal anyway, while allowing the company to retain its independence. Lycos will get on-air promotion on USA channels, advertising on Ticketmaster envelopes, and various other cross-promotion and cross-selling opportunities. "I get a tremendous amount of promotion out of this relationship," says Davis. "I have what others have had to give away their companies for." "WE BEAT DILLER!!!" In conversation with reporters, Davis seemed perhaps a little miffed that investors didn't see all the upside he saw in the now-defunct deal -- particularly in the E-commerce potential of combining with USA's Home Shopping Network. But he makes a strong argument that Lycos is all the stronger for its bruising. Lycos now has 21 million registrants, with between 40,000 and 70,000 signing up each day. "Lycos was a good business three months ago, and it is a great business today," says Davis. Apparently investors agree. Even though the deal's termination was widely anticipated by the time it was announced, Lycos shares jumped $8, or 9%, to close at $107 on May 12. "It's striking when most Internet stocks are having a weak day," says Ryan Jacob, portfolio manager of the Internet Fund. "We beat Diller!!!" rejoiced one message on a stock chat board, referring to USA Chairman Barry Diller. Many investors, including Lycos' largest shareholder, CMGI (CMGI), believed Diller would have paid too little for Lycos under the previous arrangement.
Although he calls the breakup "definitely a positive," Standard & Poor's analyst Mark Cavallone says he's maintaining his hold rating on Lycos until he "can get a sense for how it is going to operate as an independent company." He is hoping to gain more insights into the value of Lycos' core assets, which include popular community sites Angelfire and Tripod, when the company reports its fiscal third-quarter earnings on May 18. Lycos has already said that it expects to report a solid quarter. One reason for the recent gain in the stock is speculation that Lycos will attract bigger bids than the USA offer. "Lycos could become a jump ball for other bidders, which generally now have more expensive currencies," Keith Benjamin, an analyst with BancBoston Robertson Stephens, wrote on May 7. Terms of the breakup agreement require Lycos to pay USA Networks a $35 million fee if it agrees to sell itself to somebody else before July 15. But considering Lycos' $4.25 billion market cap, that fee is hardly prohibitive, says Jacob. Davis declined to comment on new media partners and emphasized a plan to bulk up through acquisitions, such as its deal with Wired Digital, which he says should close soon. He noted that there are still plenty of big media companies, such as Time Warner (TWX), Bertelsmann, CBS (CBS), and Fox Entertainment (FOX), that remain unaligned with a major Web portal. But he adds that Lycos doesn't need a partner. "If anything, we can say media companies need us," says Davis.
It hasn't yet. So far, Davis has managed to turn the termination of the deal with USA into a positive for the stock. Now all he needs to do is keep investors believing in him. Amey Stone is an associate editor of Business Week Online _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ |
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 Amey Stone covers the markets and investing for Business Week Online | ||||||||||||
