Creeping Costs Put Overture Under the Gun
An ostensibly positive preannouncement that looked negative to Wall Street sent Overture Services' (OVER) stock down as much as 13% Tuesday.
Overture, operator of a pay-per-click search engine used by Yahoo! (YHOO) and other online properties, said revenue for the fourth quarter ended Dec. 31 will be nearly $200 million, surpassing the $190 million figure the company had previously forecast.
Unfortunately for Overture, which is slated to report full results Feb. 6, investors focused instead on another figure in Overture's Monday night release: the percentage of fourth-quarter revenue that Overture paid to companies for placing the search engine on their sites. Instead of paying the forecast 61% of revenue for what Overture calls "traffic acquisition costs," Overture paid 62%.
That increase, though slight, corresponds to what is probably the strongest bearish critique of Overture. Despite the company's revenue and income growth in what is otherwise a difficult environment for online advertising, short-sellers argue that Overture will have to spend an inexorably rising percentage of its revenue on traffic acquisition costs. They argue that this trend will ultimately keep the company from meeting the aggressive profit projections that bulls bandy about.
Overture suffers a setback
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