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LookSmart Plunges After Microsoft Bails

Updated from Oct. 6

Investors in LookSmart (LOOK - Get Report) weren't looking too smart Tuesday after Microsoft (MSFT - Get Report) declined to renew its contract with the Web search engine outfit.

LookSmart shares plunged 58% following Monday's postclose announcement. LookSmart conceded that its "business and financial results will be materially and adversely affected following the end of the MSN relationship. Microsoft accounted for approximately 65% of listings revenue and all of LookSmart's licensing revenue in the second quarter of 2003.

"At this time," the company added, "LookSmart is not revising its revenue and earnings guidance for the full-year 2003, given that the MSN agreement runs through Jan. 15, 2004."

The Internet search business has been in flux throughout 2003, as rumors have had Microsoft looking to move more forcefully into the fast-growing paid-search arena. That talk picked up in earnest this summer after the industry's leader, Overture (OVER), agreed to be acquired by Yahoo! (YHOO). On Tuesday, the America Online unit of AOL Time Warner (AOL) expanded its relationship with closely held search industry star Google.

LookSmart sought to strike a hopeful note amid the misery. "We are very disappointed with the outcome of efforts to renew our agreement with Microsoft," said Chief Executive Jason Kellerman. "Despite losing a key partner, LookSmart will maintain its focus on the search business."

LookSmart shares dropped $1.80 to $1.22.

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