“Given the tough industry climate and internal challenges of restructuring, our team has delivered a terrific result — exceeding our own and the Street’s expectations,” said Evan Thornley, chairman and chief executive officer of LookSmart. “LookSmart’s listings business continues to show strong customer acceptance and rapid revenue growth. Our cost management efforts are ahead of plan and we are deeply investing in new listings product development.”
“As we complete the development cycle on additional listings products over the course of this year, we will have a high margin revenue machine that will generate large scale growth when we expand distribution volume,” said Thornley. “The fact that we have generated 44 percent and 36 percent sequential revenue growth in listings in the last two quarters with flat distribution volume gives us greater confidence about the long-term growth prospects for our business as distribution expands.”
With the focus on listings and targeted search marketing products, in combination with strong financial management, LookSmart is focused on profitable growth and is reiterating its expectation to reach cash operating profitability by the fourth quarter 2001.
LookSmart’s results reflect the company’s continued focus on listings and highly targeted search marketing products that are growing at a rapid pace and gaining customer acceptance even in the current online advertising industry downturn. The growth of LookSmart’s products results from the continuing trend from untargeted to targeted advertising, and from CPM (cost per thousand) to CPC (cost per click). LookSmart’s products include directory listings and search targeted marketing products; online marketing products that are targeted around directory search results. Listings and search targeted marketing products now account for 82 percent of listings and advertising revenue while untargeted products account for only 18 percent.
The power in directory listings comes from the ability of businesses to reach customers at the very time they are searching for products or services. Through listings, marketers can reach highly qualified, potential customers when they are ready to act and in an environment where they can transact immediately. This precise targeting and interactivity, combined with the massive scale of Internet search, creates a powerful direct marketing environment versus other online and offline alternatives.
Listings revenues, including Express Submit and Subsite Listings, generated $6.4 million in the first quarter 2001, versus $4.7 million or an increase of 36 percent from the fourth quarter 2000, despite an extremely challenging environment in online marketing.
LookSmart continues to attract high-quality listings customers due to the effectiveness of these marketing products resulting in lower customer acquisition costs. The listings products appeal to a diversified customer base of online and offline marketers, both big and small. Express Submit targets small to medium sized businesses, which are mainly offline, while Subsite Listings appeal to larger marketers. Recently announced customers for the Subsite Listings product include Barnes and Noble, Eddie Bauer, OfficeMax, REI and Spiegel who join a strong existing customer base which includes Amazon, eBay, Gap, VerticalNet, Banana Republic, Deal Time, and Old Navy.
Express Submit products are sold through LookSmart’s partnership network including Microsoft, AltaVista, Excite, iWon, and through resellers, including SmartAge and Traffick.com. Subsite Listings are distributed through Microsoft’s MSN, AltaVista, the LookSmart ISP network, and, in this quarter, LookSmart expanded the distribution of Subsite Listings to Excite.
During the first quarter 2001, LookSmart restructured the organization to focus on its core listings and search targeted marketing products. Specifically, LookSmart reduced employee count by 172 people, reorganized from 11 to four business groups, reduced distribution costs, and exited non-core business activities. LookSmart will to continue to review and manage expenses going forward. Cash used was $8.8 million during the first quarter 2001, versus $14.0 million in the fourth quarter 2000. LookSmart had a balance of $90.0 million in restricted and unrestricted cash, and short-term investments at the end of the first quarter 2001.
