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Despite Shortfall, Jupiter's Forecasts Still Ring True to Many

The research firm, fresh off a financial shortfall, maintains the missed forecast doesn't hurt its credibility.

If Internet research and analysis firm Jupiter Media Metrix (JMXI) gets blindsided by slowing revenue, what does that say about its ability to predict what's going on in the rest of the Internet?

That's the question raised by the company's announcement Wednesday that it would miss its fourth-quarter revenue estimate by about 6%, leading to a loss of 22 or 23 cents a share. Forecasts had Jupiter losing a penny a share, excluding amortization.

Jupiter, which defends the quality of its research and dismisses any connection between in-house financial and industrywide analytical forecasts, certainly isn't alone among Internet-related companies in missing numbers and toning down optimistic 2001 forecasts. After all, the oncoming truck that is the economy is hitting a lot of Internet companies these days,

even those as established as

Yahoo!

(YHOO)

.

Decaying Orbit
Jupiter shares' long decline

But Jupiter -- formed from the online research firm

Jupiter Communications

and Internet audience measurement company

TheStreet Recommends

Media Metrix

-- stands apart in trumpeting its analytic and predictive abilities. Billing itself as "the global leader in market intelligence for the new economy," the company regularly forecasts, for instance, that business-to-business Net market infrastructure spending in the U.S. will grow to $80.9 billion by 2005, or that the consumer online health market will reach at least $11 billion by 2004.

Shares in Jupiter, which closed at $8.44 before the Wednesday night warning, slid a quarter to close at $7.13 Friday.

The Logical Song

If the company gets surprised in its own back yard, that reflects badly on its ability to see what's going on in the rest of the neighborhood, says one sell-side Internet analyst, speaking on condition of anonymity. "It does seem to make logical sense," says the analyst, who doesn't follow Jupiter but is using its research. That analyst likens the situation to that faced by e-consulting firms: "They've all seen their value tank. They're supposed to come in and advise you how to be a successful company" on the Internet. But "they can't even do that for themselves."

The extent to which Jupiter erred in its assessment is debatable, however.

The company said Wednesday it overestimated growth in the fourth quarter, getting caught off-guard by the slowing economy. On the Wednesday conference call, Chief Financial Officer Jean Robinson told analysts that as the fourth quarter progressed, the marketplace softened "even more quickly and more dramatically than we anticipated." That said, only 30% of the shortfall was attributable to softening market conditions, she said. By contrast, half of the loss was related to the costs and challenges of international expansion.

And it may simply be unfair to judge a company's product on the basis of business difficulties.

Change in the Weather

Jupiter itself says the shortfall, which led the company to announce it would cut its staff by 80 employees, or 8%, doesn't reflect any shortcomings in its services. "Jupiter research analysts are not equity analysts," a spokeswoman says. "Really, a driver of the slowdown was a change in sentiment in the equity markets."

Robertson Stephens

analyst Lowell Singer says it's unfair to judge Jupiter's forecasting on the basis of this preannouncement. "I'm reluctant to point that finger at them," he says. "They're in the business of measuring usage. They're not in the business of measuring marketing research spending by traditional and dot-com companies." Singer rates Jupiter long-term attractive, his firm's third-highest rating; his firm was an underwriter of Media Metrix's IPO, and his research group subscribes to Media Metrix audience measurement data.

Singer says Jupiter's research is still credible. In the realm of online advertising, for example -- one area where Jupiter publishes growth estimates -- Singer says that over the next 12 months, the market may not hit estimates made by Jupiter and other independent forecasters, though he still thinks longer-term forecasts are achievable.