Update from Piper analyst
by: technotweaker (31/M/Jupiter, FL)
Long-Term Sentiment: Buy 03/11/03 04:22 pm
Msg: 48924 of 48926 yboard
From Safa's industry overview today:
"LookSmart (LOOK, Outperform) - Overreaction To Search Consolidation.
Over the last two months there has been industry-changing consolidation within the search space, including the announcements by
Overture of the acquisitions of AltaVista and FAST's web search business. U.S. Bancorp Piper Jaffray's Investment Banking department is advising the board of AltaVista in its acquisition by Overture. The announcement that Overture, with these acquisitions, will enter the paid inclusion market put significant pressure on LookSmart shares. The focal point of this concern was centered around LOOK's
relationship with MSN, a 50%+ revenue contributor for LOOK, and the fear that OVER could now provide comparable services replacing LOOK, or at least pressure its margins. However, we believe LOOK's relationship with MSN is solid, and we expect the Company to renew LOOK's contract before it ends in December of this year.
First, we note that LOOK and MSN have had a strong relationship over the last four years. MSN's focus on high quality, relevant search
results and the fact that LOOK has remained so prominently placed on its search page indicates MSN's satisfaction with LOOK results; we believe it is unlikely to make a sudden change. A further look at MSN's history and strategy further suggest that it is unlikely to make a major change in its lineup of search providers. Our search industry
contacts also confirm this view. Second, LookSmart still has a very valuable asset that is not available to other search technology
providers: the editorially selected directory. A combination of an editorial directory and algorithmic search has proven to be more
relevant that either one alone. LookSmart also has the potential of adding new distribution partners this year. We believe destinations
such as AOL and Ask Jeeves are likely to consider outsourcing their paid inclusion initiatives. Finally, we note that LookSmart's growth continues and we expect a solid quarter in Q1, with the potential of increased guidance for the remainder of the year.
On the valuation front, LOOK is now trading at just under 11x our 2003 EPS estimates, in which we have a high degree of confidence. At such a low multiple, the stock is likely to be considered a good takeover candidate. In short, we believe the stock has been hit with the negatives winds of the changing search landscape, a view that underestimates the value of LOOK's offering. The stock was also hit by contract risks and negative impact of insider selling. None of these appear to be long-term fundamental problems and are likely to be proven to be overreactions. If you add to this the potential of the catalyst mentioned above, we believe it becomes clear that at the current price LOOK is a very attractive investment.
LOK
looksmart limited
