Editor's note: In the earlier version of this article, the words "per query" were accidentally deleted from the copy in the last sentence of the first paragraph. We apologize for this mistake.
Last month left us with a search engine cliff-hanger. Yahoo! (NASDAQ:YHOO) kicked off the festivities with a great quarter. Not to be outdone, Google (NASDAQ:GOOG) went on to follow suit. Then InfoSpace (NASDAQ:INSP) proved that even some of the smaller players can party with the big guns when its revenues per query more than tripled while earnings grew sevenfold. Yet just when it felt as if the sector would be performing a clean sweep, Ask Jeeves (NASDAQ:ASKJ) came up short sequentially and spooked investors by projecting a year-over-year decline in revenues per query during the seasonally potent fourth quarter.
So which way would FindWhat.com (NASDAQ:FWHT) lean? The company produced a solid third quarter with explosive growth in revenues and earnings due to some accretive acquisitions, including European search specialist Espotting. Yet it would have done pretty well regardless as earnings per share climbed 25% higher during the period.
With our Stocks 2005 now just weeks away, it bears mentioning that FindWhat.com was a timely recommendation in Stocks 2004 at $13.99. As of yesterday the stock was trading 42% higher.
However, the stock was trading lower after the report when its projected top- and bottom-line ranges for the year's final quarter opened up the upsetting possibility of sequential weakness.
After FindWhat.com earned $0.15 a share in the September quarter, its profit range for the current period is $0.14 to $0.17 a share. After the company produced revenues of $58.3 million in the third quarter, the fourth-quarter projected range is $58 million to $65 million. If the company were to come in at the low end of its guidance figures, it would be a sequential disaster given the fact that advertisers usually ramp up their spending budgets during the critical holiday shopping quarter.
Yet any weakness that would allow an investor to buy into this dynamic company for less than 30 times earnings -- a relative bargain pitted against the search engine giants -- may be sorely tempting. The company has been on a corporate buying spree this year with five acquisitions to digest, yet each one makes sense. The company is already looking for margins to improve in fiscal 2005 over the current quarter's showing. So while we may be holding our breath in the near term, there is still time for a happy ending.
Are text ads on a search engine more effective than graphic ads? Which sites are worth spending an ad budget on? All this and more -- in the Webmaster's Corner discussion board. Only on Fool.com.
Longtime Fool contributor Rick Aristotle Munarriz has been a vocal fan of the paid search providers but does not own shares in any of the companies mentioned in this story.
