Potential IPO hounds who haven't yet been scared off by Google's projected triple-digit share price, or its total valuation in the mid-$30 billion range, have yet another reason to fret. Yesterday, one of Google's second-class rivals, Lycos, was sold by its parent, Terra Networks (NASDAQ:TRLY), to Korea's Daum Communication for the bargain price of $105 million.
For context, recall that when Terra Networks first offered to buy out Lycos in 2000, it bid $12.5 billion. Fast-forward just four years, and the company has lost about 99% of its value. (Why, even your average Kia doesn't depreciate that fast!)
There is one caveat to the depreciation story, but it's a small one. Before the sale, Terra stripped out $435 million worth of Lycos' European and U.S. Spanish-language assets, which it will hold onto at the behest of Terra's parent company, Telefonica SA (NYSE:TEF). So call the depreciation 99%, or 95% if you prefer -- either way, it's a pretty big write-off.
Now, as anyone who has used Lycos' email system can attest, the company is a truly substandard operation. I have an email account with the company myself, which I continue to use despite the site often being down inexplicably. The site's unpopularity causes spammers, who swarm to Yahoo! (NASDAQ:YHOO) and Microsoft's (NASDAQ:MSFT) Hotmail users, to treat Lycos like the cyber equivalent of desert wasteland -- uneconomical even to send junk mail to. Hence, Lycos.com has become a de facto spam-free zone.
Lycos' lack of quality may also explain why it has taken Terra so long to find a buyer at any price. Reportedly, the company has been trying to unload Lycos for about a year now. Interactive Search almost bit but instead got bought itself by Ask Jeeves (NASDAQ:ASKJ) earlier this year. That Korea's Daum jumped in appears to be due to a combination of a price that was too low to resist (almost half the price Terra was seeking just a few months ago) and Daum's burning desire to buy entry into the U.S. Internet market. (Bad as it is, Lycos remains the No. 7 Internet search site in the U.S.)
So bully for Daum. They got themselves a real Internet bargain here, even if it isn't exactly in mint condition. And good for Terra, too, for holding a successful garage sale. But potential Google investors should consider the Lycos sale an object lesson on what can happen when you pay too much for a company in a very competitive marketplace. What you may willingly pay $125 for today, you may be relieved to receive $1.00 for a few years later.
Fool contributor Rich Smith owns no shares in any of the companies mentioned in this article.
