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Lycos basks in profitability
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August 16, 2000: 9:46 a.m. ET
CEO Bob Davis discusses soaring revenue; Terra merger on track
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NEW YORK (CNNfn) - You can't blame Bob Davis, Lycos' president and chief executive officer, for sporting a huge grin Wednesday, a day after the network of Web sites reported its first profitable fiscal year ever.
"This was a remarkable quarter for the company, probably our best ever, and I'm proud to say our 18th consecutive quarter of beating estimates," Davis said.
In an interview with CNNfn, Davis talked about the company's fourth-quarter results, which included a quarterly pro-forma operating profit of $12.9 million, or 12 cents per share, blowing past analysts' expectations by 4 cents a share.
Revenues driven by Fortune 50 advertisers
Contributing to the rosy picture, revenue soared 89 percent to $87.9 million from $46.4 million a year earlier, as traffic to Lycos' 79 Web sites in 28 countries in July grew 36 percent to an average of 201 million page views per day.
 The revenue gain is even more extraordinary considering media reports about the demise of dot.com ad spending, especially by shaky Internet companies, which have been forced to cut spending and tighten belts. But Lycos also counts "old economy" firms buying ad space across its sites, contributing to its stability.
"Most of our revenue comes from advertising, and this was a great advertising quarter," Davis said. "We saw more and more companies come online. We have, right now, 21 of the Fortune 50 companies online with us today, and it's pretty solid."
Davis downplayed any concerns that a pullback among dot.com advertisers on Lycos would cause a dent in future ad spending and also said e-commerce activity helped generate revenue.
"I'm not at all worried. In fact, I'm very euphoric about what I see," Davis said. "We don't have any disproportionate number of contracts coming up for renewal, no more than we would have in any other given quarter. There's really a rush to marketplace with Fortune 500 companies coming online."
"The other half of revenues was commerce, and once again we saw a steady stream of companies looking to sell their goods and services through the Lycos network," Davis said.
Terra deal on track
In May, Lycos agreed to be acquired by Spanish Internet service provider Terra Networks SA in a stock transaction then valued at $12.5 billion, a deal Davis said is set to close in October.
Lycos currently is trading in 57, off its 52-week high of 93-5/8 but significantly better than its low of 34-1/8, with a market capitalization of $6.4 billion.
"I think the stock market's really been great to us," Davis said. "If you look over the course of calendar 2000, Lycos has been one of the best-performing stocks in the market today."
Davis said that investors examining the company's stock also should consider the added value that Terra brings to the story. (400KB WAV) (400KB AIFF)
"Any potential shareholder looking at us today and the Terra-Lycos merger, there's a $15 spread between the implied value and the trading price of Lycos at roughly $58 a share, so the implied value is really $73. So there's a lot of money to be made by somebody in the stock price, at least as of today," Davis said.
"Later this month will be the rights offering for Terra, which is that Telefonica, the parent company of Terra, is contributing $2 billion in cash into Terra. The result will be one of the strongest balance sheets in America, and I don't mean of Internet companies. I mean one of the strongest balance sheets period."
Although Terra stock has been squeezed somewhat since it announced its intended acquisition, Davis said the company's latest quarterly results include some solid returns.
"Terra has come under a little bit of pressure through just the actual number of new shares that are being issued with the Lycos merger, but it seems to have a great level of stability over the last few weeks," Davis said. "The stock has been performing well. Terra also just reported a quarter that didn't capture a lot of attention here in the U.S. but it did in Spain, showing a 51 percent increase sequentially over the last quarter and a 27 percent in revenues.
And, when the companies do merge, the picture only gets better, according to Davis.
"We'll have, as a combined company, $3.2 billion in cash. That would rank us 23rd on the Fortune 50 and in the time of consolidating markets, we're just exceptionally well-positioned," Davis said.
In early Wednesday trade, Lycos (LCOS: Research, Estimates) rose 2-13/16 to 60-3/4.
"It's great to be in the catbird seat looking out at the marketplace," Davis said. 
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