Lycos Buys Gamesville.com in $207 Million Stock Deal

Updated from 1:34 p.m. EST

The Internet portal Lycos (LCOS Quote) said Tuesday that it would acquire Gamesville.com, a Web site that gathers personal information for direct marketing, for stock valued at $207 million.

With offerings like "Three-Eyed Bingo" ("Bingo from Outer Space") and "Quick-Draw Poker" ("Poker on Steroids"), Gamesville lures users with cash prizes. According to the company's Web site, an average of $95,000 is disbursed monthly in a format the online gaming industry calls "massively multi-player," an arbitrarily alliterative term that means a lot of people can play at the same time.

"This appeals to the blandest mainstream person you could get," said Cory Wade, research director for Alexander & Associates, which covers the video game industry. "Sitting around playing blackjack or bingo online is pretty fun," but the prizes are the real draw.

The games are free to play, but the Web site says users must register to win prizes "so we know how to send you winnings."

Registration queries include gender, marital status, occupation, education and whether the user would like to receive offers from advertisers.

"I like to tell people that Gamesville.com is a direct marketing company that has the face of a games company," said Steve Kane, Gamesville CEO, in a conference call. Kane will become Lycos' general manager of gaming.

Gamesville (Slogan: "Wasting Your Time Since 1996") is aimed in part at bored office workers, incorporating features like a panic button -- for use when the boss walks by -- that switches the screen to display a news story and stock quotes.

The site has 2.2 million registered users, and it adds 10,000 new members a day, Lycos said. Users stay for 17.9 minutes on average, and can be stuck watching advertisements for up to three minutes between games, the company said.

"The addition of Gamesville to the Lycos Network adds to our revenues, grows our average daily usage minutes by nearly 20% and adds depth to our direct marketing efforts," said Bob Davis, chief executive and president of Lycos.

He said the deal would add to the company's earnings and revenues this year, but he did not give specifics.

Lycos stock rose following the announcement, hitting a high of 61 before tapering off to close at 58 1/4, up 1 15/16.

Analysts interviewed throughout the day were skeptical at first, but several Wall Street firms began revising their predictions for the company's prospects later in the afternoon.

That was partly due to an elaboration on revenue expectations the company delivered in a conference call with analysts.

Lycos officials told analysts to expect an additional $9 million-$10 million in revenues for the remaining three quarters of the year, then an additional $25 million next year, according to Deutsche Bank analyst Shaun Andrikopoulos, who rates the stock a strong buy.

"This puts a little bit of sizzle on the steak for Lycos' advertising model," said Andrikopoulos, whose firm hasn't done underwriting for Lycos. "It is incremental and it is a new revenue opportunity. It's one to get excited about both for the financial reasons and the strategic reasons."

Following the guidance, he planned to raise his price target, the price an analyst expects the stock to reach within a year, to $85 from $75. Meanwhile, PaineWebber raised its price target to $135 from $94.

Citing figures from Media Metrix, the Internet research firm, Lycos said Gamesville reaches 4.5% of the "monthly Web audience," or all the people using the World Wide Web in a given month. The acquisition should increase Lycos' monthly Web audience to 47%, the company said.

Analysts noted that figure could include duplication of visitors counted on both sites. "There can be a lot of overlap," said Dalton Chandler, an analyst for Needham & Co. He said Media Metrix could eliminate duplication historically. "But that doesn't necessarily tell you what it will be going forward," he said. Chandler rates the stock a buy. His firm hasn't done underwriting for Lycos.

A spokesman for Media Metrix said the figures were based on a survey of 52,000 Web users. The results were then used to extrapolate a percentage using an assumption that 63.374 million Americans use the Web in a month.

As part of the deal, Lycos will also acquire Gamesville's stock options plan. Lycos said that could cost an additional $25 million at the most.