Interland Spins a New Web

Last August, Interland (Nasdaq: INLD  ) hired new CEO Jeffrey M. Stibel with one clear goal: Turn the company around. With a new corporate name and a fundamental shift in the company's business, investors are now learning just how far he'll go to accomplish that mission.

A former senior vice president of United Online (Nasdaq: UNTD  ) , Stibel certainly understands Interland's focus on Web hosting for small-to-medium-sized businesses. Stibel has made progress in stabilizing Interland's business. He sold off its dedicated server business for $14 million in cash while slashing 38% of the workforce.

Yet the financials are still problematic. In the fourth quarter, the company posted revenues of $12.1 million, which was down from $20.6 million. Why the huge shortfall? Much of it stemmed from the sell-off of Interland's dedicated server business.

However, the company lowered its net loss from $6.2 million to $2.6 million. EBITDA came in at negative $1.3 million (which includes a $0.8 million restructuring charge), an improvement from the year-ago loss of $2.1 million. In all, the company has about $23.3 million in the bank.

Of course, cost-cutting can go only so far. Thus, Stibel is trying to bolster the top line. He struck a deal with R.H. Donnelley (NYSE: RHD  ) , one of the nation's largest traditional Yellow Pages publishers, to sell Web services to its members using a private-label model. In addition, Interland recently purchased the 5,400 hosting subscribers of CNET Networks (Nasdaq: CNET  ) .

With its existing infrastructure already in place, it's fairly easy for Interland to scale large numbers of subscribers. So it's no surprise that the company is now concentrating on prudently and effectively growing its subscriber base. That's why it sold off its cash-intensive dedicated server business. Through careful spending, the company was able to reduce subscriber acquisition costs by 35% over the past quarter.

In addition, Interland purchased Web.com for $4.4 million. It will be adopting Web.com's name along with its 9,000 individual hosting accounts and domain-name registration business. A name change is often a non-event, but in the case of Web.com, it looks like a smart move. After all, how many people think of Interland when they want to purchase a domain name or a website?

As with most turnarounds, this one will take time, but it appears that the business has stabilized. The company is fundamentally shifting its marketing approach from its formerly narrow, tech-intensive brand to a more open company in search of new subscribers. More importantly, the former Interland appears to be focused intensely on generating a profitable business. Given its new focus, it just might work -- and finally provide some rewards to shareholders in 2006.

CNET is aMotley Fool Rule Breakerspick. To discover more high-tech stocks with explosive growth potential, sign up today for a free 30-day trial.

Fool contributor Tom Taulli does not own shares mentioned in this article.


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