This column was originally published on RealMoney on Aug. 16 at 12:40 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.
I've written several times in the past six months about
(formerly called FindWhat.com), and I've been doomed on most of those occasions to watching Miva shares subsequently fall.
Miva has had accounting issues, regulatory issues (Eliot Spitzer going after adware firms), customer issues (Miva has decided to drop a lot of its online gambling customers, and that has hurt profits) and litigation issues -- particularly its patent suit with
On top of all that, it's clear that Miva is a second-rate search company, nowhere near the tier occupied by
But second-tier does not necessarily mean bad. In the past, I've written about both Ask Jeeves and Terra Lycos. Both companies had great balance sheets and strong management teams, and they were growing their businesses, though their customer base and technology were clearly second-tier. Both companies were acquired shortly after I wrote about them.
I continue to think a similar destiny will befall Miva, particularly as media companies realize it's better to be late than never when it comes to the search space. Recently,
CEO Rupert Murdoch announced he was in talks to buy a search company. And companies such as
, with its acquisition of Ask Jeeves,
New York Times Co.
(About.com) have demonstrated that media companies are willing to pay up to get into the interactive game.
Meanwhile, Miva has been consistently addressing its woes and putting the past behind it. On Monday, the company made two key announcements that have changed the picture significantly.
First, it settled its patent-litigation lawsuit with Yahoo!'s Overture division. Miva agreed to make a one-time payment of $8 million and agreed to pay royalties on some of Yahoo!'s patents going forward. Patent enforcement is a pretty good business for Overture, and Miva is in good company: Last year, Google, immediately prior to its IPO, settled a similar case by giving Yahoo! 2.7 million shares of the company. The patent in question allows advertisers to place ads in a search engine through a bidding system.
Also on Monday, Miva announced its results for the latest quarter after the close. Earnings came in lower than estimates, but revenue for the quarter and guidance on revenue for the year came in higher. Revenue came in at $48 million, up 76% from the same period in 2004. Analysts had expected $43 million.
Excluding items, the company lost a penny a share. Analysts had expected a profit of 3 cents a share. Although the income number was net of litigation settlement charges and other noncash impairment charges, my guess is that earnings also were hit by legal costs relating to Spitzer's adware investigation and the recent elimination of some customers. Earnings were also affected by the company's rebranding from FindWhat into Miva and the consolidation of their various divisions.
As far as guidance goes, Miva sees $185 million to $200 million in revenue for the year. Analysts had expected full-year revenue of $182 million. Additionally, active customers went from 67,000 in the second quarter of 2004 to 83,000 in the second quarter this year.
I've always thought of the search companies in three categories: the "winners," Yahoo! and Google; the second-tier guys, Ask Jeeves, Terra and FindWhat, now Miva; and the "losers," into which I lump
As long as Miva continues to add customers, build revenue and improve its balance sheet (currently at $50 million in cash and no debt), I believe the company still has the potential to join its colleagues Ask Jeeves and Terra and get acquired -- probably by a media company interested in getting into the space.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider Miva, LookSmart and Mamma.com to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
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James Altucher is a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of
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Trade Like Warren Buffett. At the time of publication, neither Altucher nor his fund had a position in any of the securities mentioned in this column, although positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback;
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