Even without having all of the answers -- or even asking the right questions -- the market still got behind Answers
An 8-K filing reveals that the online reference site is extending a contract with Google
Investors applauded the move, but the filing still leaves a few questions unanswered. The amended contract "modifies the tiered schedule" for determining the company's revenue share percentages. Is it higher? Is it lower? Will a positive adjustment be enough to finally plant Answers in the black?
The last question is the biggie, because Answers has had a hard time turning a profit, even with Google's backing, in the past. Answers is getting a favorable bump in revenues through traffic gains and its association with Google, but the company has still posted an adjusted loss in three of the past four quarters.
The most recent quarter is typical, with Answers losing $1.2 million on a sadly uninspiring $2.8 million in revenue.
The company trimmed 12% of its head count last month, but that's unlikely to make much of a dent in the operating expenses ($4.2 million this past quarter) that are sucking out more than what's coming in from Google.
Answers has friends in high places. Its research-rich site is integrated into websites run by the likes of CBS
The root of the problem may be the company's reference material. Answers.com offers some unique editorial content, but most of its pages duplicate content that's found elsewhere. For instance, Wikipedia is an Answers.com staple. That's a great place for free website content, but search engines such as Google penalize duplicate content, because they naturally list the original source higher in their search-result pages.
Answers is having success with WikiAnswers, its attempt to generate its own user-generated reference material, but investors should wait until they see what kind of impact the WikiAnswers initiative can have on the company's fiscal performance. For now, the company has already warned of a sequential dip in the current quarter.
So should shareholders cheer the contract extension? Sure. Google is the market leader in contextual marketing. It should provide a better revenue-share return than smaller players such as Yahoo!
Until Answers provides all of the answers, it will remain a questionable investment.
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Longtime Fool contributor Rick Munarriz was hopeful for Answers back when it was Guru. He still is, though he's in a "show me" state of mind now. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.