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Overture Shares Surge on News of Deal With Yahoo

Technology: The pay-for-performance search engine wins a three-year extension of contract with Net portal.

April 27, 2002|CHRISTINE FREY | TIMES STAFF WRITER

Shares of Overture Services Inc. rose nearly 32% on Friday, the day after the Pasadena company said Yahoo Inc. extended its contract to use Overture's Internet search results by three years.

Thursday's announcement came as a surprise because Yahoo, which had until this summer to renew the contract, had stated publicly that it was interested in creating its own pay-for-performance search engine. Terms of the Yahoo deal weren't disclosed.

Overture, formerly known as GoTo, provides pay-for-performance searches on portal sites such as Yahoo, Microsoft Corp's MSN and AOL Time Warner Inc.'s America Online. Advertisers bid for placement in the search listings, which usually appear as "sponsored sites," and pay Overture when someone clicks on their link.

"This agreement demonstrates that we've got a business model that's proven," said John Gentry, senior vice president and general manager of Overture's affiliate business group. "We are the leader in the space."

Overture shares leaped $8.14 to $33.77 in Nasdaq trading Friday.

The company's pay-for-performance search is one of the few profitable online advertising services, and other firms have been eager to take away some of its market share. Rival search engine Google Inc. began offering a similar service this year and won a contract with EarthLink Inc. in February.

But Overture's latest agreement should help the company secure more long-term agreements with the major portals, said Safa Rashtchy, analyst with U.S. Bancorp Piper Jaffray.

Overture is in talks with AOL over a new contract. The company Wednesday extended its present agreement, which was to expire this week, until May 1 to continue discussions.

"Overture is still a very young company, but they have become a major force in online advertising," Rashtchy said.

Overture generated 587 million paid clicks during the first quarter, compared with 442 million paid clicks during the fourth quarter of 2001. The search engine's 60,000 advertisers--the largest base of advertisers on the Internet, Rashtchy said--spent an average of $2,540 during the quarter.

On Thursday, Overture posted a first-quarter profit of $29.2 million, or 48 cents a share, contrasted with a loss of $6.7 million, or 13 cents, a year earlier. Revenue nearly tripled, rising to $142.8 million.

For the second quarter, the company projects a net income of $16million, or 27cents a share, on revenue of $133million. Overture reported a net loss of $2.9 million, or 6 cents a share, on revenue of $62.5million a year earlier.

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