At GoTo.com, Trying to Shed the Portal Baggage

GoTo.com's(GOTO Quote) business concept makes it one of the more intriguing stories among Internet stocks. Unfortunately, few investors have been hanging around to notice.

The company crosses a search engine with online advertising -- two businesses that haven't been thrilling Wall Street, unless they belong to America Online(AOL Quote) or Yahoo!(YHOO Quote). Shares in GoTo.com, which spiked as high as 114 1/2 last November, have drifted downward this year. The stock was trading at 15 5/8 Monday, following a bounce back from its 52-week low of 10 in early July.

But the market's distaste for GoTo.com masks a palatable story, as far as Internet stocks go. The company reported positive cash flow from operations in its latest quarter (thanks to settlement of a lawsuit against Disney(DIS Quote)), it has nearly $100 million in the bank and analysts' predictions that the company will be regularly cash-flow positive by early 2002 don't appear to be a stretch. In the second quarter ended June 30, the company reported an operating loss of $43.3 million -- $30.6 million of that in the form of noncash amortization charges -- compared to an operating loss of $8 million one year earlier.

A Different Plan

GoTo.com's business proposition is that capitalism makes for a half-decent search engine. Whatever you search for on GoTo.com, the listings you see are from the sites that are paying the most to be seen: They're listed in order of the amount of money each site has agreed to pay GoTo.com each time an Internet user clicks on that listing to go to the company's site. (Companies bid for top placement through ongoing, automated auctions of the search terms they're interested in.) As an entertaining feature of the site, users can see how much companies are paying each time users click on their GoTo.com listing. ...