InfoSpace’s Slide Down

It all began exactly 12 years back in August 1995 when Netscape Communications came out with an IPO. With no profit in its book to show, Netscape nevertheless sold stocks worth $2.2 billion. Thus commenced the Dotcom era.

InfoSpace founder Navin Jain, who then worked for MSN, soon left to start his own company in 1996, its business being no more than building online e-mail and telephone directories that would generate revenue from ads.

Navin however was in a great hurry to take InfoSpace public, which when he did in December 1998, the stock was priced at $15 and closed at $20 on the opening day making InfoSpace (NASDAQ: INSP) a $400 million market cap company overnight. Among the early investors was Microsoft co-founder Paul Allen.

There was no clear business strategy at INSP but it rode the dotcom boom. The stock price reached heaven and at one stage in March 2000 at $1,000 a share, INSP was worth more than the aerospace giant Boeing.

As the dotcom bubble burst, the happy times ended dramatically and the INSP stock was reduced to a paltry $2.67 by June 2002, making the company’s worth equivalent to the value of 2 Boeing 777s.

In December 2002 Jim Voelker took over as INSP CEO. Jim started off by selling a number of the company’s businesses to focus on 5 core segments. Presently INSP has 2 main divisions – Mobile and Search & Directory.

The S&D division uses metasearch technology to power its own branded websites (Dogpile, WebCrawler, and MetaCrawler among others) and provide private-label online services to the distribution partners. Dogpile was remodeled on June 1, and a month later, to add more value, INSP inked a partnership with video search engine, Blinkx, to offer video search capabilities for its family of metasearch brands.

However, it is the INSP’s Mobile division that holds some promise. The Mobile division offers services like portal, storefront, messaging and mobile search.

On July 27, INSP launched a new iPhone application called FindIt! that users say is better than Google Search. You have to just type the zip code you want to find information on, and select one of the 8 options – Dine Out, Go Out, Shop, Travel, Health, Services, Number, and Person.

Each option has several sub-options, and when you zero in on your choice, you get the full address and phone number, which you can dial directly from the browser. Pretty cool.

How will innovations like Findit! boost INSP’s revenue is something that remains to be seen. It is liked, no doubt. But the technology is fluid and fast shifting, and so it’d need constant value-addition to ward off challenges from numerous worthy competitors. I am not sure if there is anything defensible or proprietary. Probably not. I am very bullish about the Local Search space, but INSP is not my bet for the sector at all.

Meanwhile, the stock has remained range-bound for more than a year that typically reflects a lack of momentum. It finished Q1-03/07 with a negative operating income (-$4.64 million) and a net loss of $0.54 million on an uninspiring quarterly revenue of $86.64 million. They lost $28.1 million, or 86 cents per share, in the second quarter, which compares with net income of $1 million, or income of 3 cents per share, a year earlier. Revenues dropped to $70.5 million from $96 million in 2006.

Not surprisingly, all the stock’s vital parameters continue to be in the red. Amid an all-pervading dullness, there was a sudden splash of color when on May 29 a Spanish newspaper reported that the Spanish cell phone and Internet content company LaNetro Zed SA intends acquiring INSP for €800 million or about $1.08 billion.

The INSP stock jumped 20% to scale $24.72 but soon the zing fizzled out, and the stock has since dropped substantially. I have not detected any strategy in the company to warrant any confidence, and frankly, always thought it was a bit of a scam.