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Internet search firms surge
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April 3, 1998: 1:57 p.m. ET
Move to content aggregation boosts shares of search engines
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NEW YORK (CNNfn) - Stocks of Web search engine companies continue to skyrocket, despite the fact that the technology itself is far from perfect.
A study published Friday by Science magazine and NEC Corp.'s research lab reported that even the best search engine -- Wired Ventures Inc.'s HotBot -- found only about a third of the pages on the Web. And users have always complained that they have difficulty finding the pages they want, regardless of how specific they make their search queries.
But companies such as Yahoo! Inc., Excite Inc., Lycos Inc. and Infoseek Corp. are undaunted as their stocks continue to climb and climb. Although their market performance appears to be proof that success isn't always a reflection of the quality of the product, analysts say there's another factor at work.
Internet search engine companies are moving away from the search business and moving into the content business, and that's what's making them so attractive to investors.
"The idea is to try to capture the eyeballs of viewers," said Aydin Tuncer, Internet and telecommunications equipment analyst at S&P Equity Group.
"I use Excite to get stock quotes, news and other information. That makes it more attractive for ad revenues."
Even with the negative implications of the study, analysts say it's a great time to buy Internet search engine stocks.
"They're [search engine companies] focusing on aggregating useful content and becoming destination sites," said Andrea Williams, an analyst at Volpe Brown Whelan. "They can offer greater value to consumers. The value in the last six months for these companies is coming from areas other than searching."
The month of March alone was rife with activity from search engine companies.
- Yahoo! launched Yahoo! Online, a joint venture with MCI Corp.
- Excite teamed up with Prodigy Internet to be the content aggregator for Prodigy's revamped site.
- Lycos signed a $4.25 million deal with Preview Travel, under which the online travel agent will become Lycos' exclusive travel reservation provider.
- Infoseek signed deals with Realtor.com and Microsoft Corp.'s Expedia travel site.
Nonetheless, at least one analyst believes investors should proceed with caution.
"Yahoo is operating on revenues of about $25 million," said David Readerman, a technology analyst at NationsBanc Montgomery Securities. "I have them on a hold rating right now because I'm scared at the valuation of their stock. But people want to invest in the Web and the branded franchise name, and Yahoo is the franchise leader."
Everything certainly looks bright right now. Shares of Yahoo (YHOO) broke the 100 mark Thursday, although they were down 1-1/4 to 102-5/8 in midday trading Friday.
Excite (XCIT) shares were up 1-5/8 to 57; Lycos (LCOS) stock rose 2 to 60-7/8; and Infoseek (SEEK) shares gained 1 to 21-7/16.
"All these companies are signing new deals. They're all doing the right things," Tuncer said. "If you said two years ago that these companies would be large market caps, people would laugh at you." 
-- by staff writer John Frederick Moore
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