LookSmart Looks Bad, Investors Retreat

Investors looking for the announcement of a high-profile MSN replacement in conjunction with LookSmart's fourth-quarter earnings reacted with disappointment Friday after the paid search placement company released a bleak 2004 outlook and no concrete plans to fill the MSN-void. Shareholders responded early on Friday by unloading their shares. LookSmart's stock dropped 19 cents--or 10 percent--to $1.67 at the Nasdaq close.

While the San Francisco-based company reported surprisingly stable fourth-quarter earnings of $44.1 million--41 percent higher than in fourth-quarter 2002 and 9 percent higher than in third-quarter 2002--its plans to replace MSN remain vague.

"While our agreement with MSN ended only a few weeks ago, our restructuring efforts are well underway," said Damian Smith, LookSmart's interim CEO, following the recent departure of former CEO Jason Kellerman, who resigned days after the MSN loss.

"Over this year LookSmart will introduce a number of new, rapidly monetized search products in addition to our core listing business," Smith noted, but wouldn't specify further what these products might be. He added that the company would "draw upon our history of successfully developing early-stage search opportunities to deliver innovative solutions within underserved sectors of the market."

MSN, which dropped LookSmart from its paid inclusion plans on January 15, accounted for nearly 70 percent of LookSmart's total revenue. As a result, the company cut its staff to less than 200, from 429 at the end of the fourth quarter.

Smith adds that LookSmart anticipates strong revenue growth from its paid listings business in 2004, in the range of $45-$50 million. But the company anticipates hefty restructuring costs and personnel reductions, including the termination of LookSmart's international operations. LookSmart's Adjusted Net Loss projection for 2004 is expected to be between $26 and $30 million.

LookSmart expects that it will take the rest of 2004 to generate $47 million in revenue; it posted $44 million in the fourth quarter of 2003 alone.

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