Inktomi Delivers the Goods

The company beat second-quarter estimates and gave signs of more strength in coming quarters.
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SAN FRANCISCO -- It took

Inktomi

(INKT)

two years to sign up 10 customers for its search-engine technology. By comparison, the San Mateo, Calif.-based company has signed up 20 Web sites to deploy its shopping engine before the product is even launched.

That rapid growth rate, in a nutshell, is what has wowed the Street as Inktomi pulled back the curtain on a spectacular quarter.

"All of the products are growing at rates faster than we anticipated," said David Peterschmidt, Inktomi's president and CEO.

The company posted a loss of 9 cents a share in its second quarter ending March 31, beating the

First Call

consensus estimate of 12 cents a share. In the year-earlier period, the company posted a loss of 13 cents a share.

Inktomi reported $14.6 million in revenue for the quarter, up 322% from the same quarter a year before and 33% from the previous quarter. The company makes money from two main products: its flagship search-engine technology and its newer yet faster-growing traffic server. Revenues from its search engine, in which the company gets paid less than a penny per search query, grew a healthy 22% over last quarter to $6.4 million. Those gains were essentially identical to the 22% sequential growth realized in the quarter's search queries, which increased to 2.2 billion from 1.8 billion.

Even more impressive are the revenue gains realized by the company's traffic server, which now account for 56% of Inktomi's revenue, up from 51% last quarter. Revenue from caching software soared to 8.2 million from 5.5 million, a whopping 48% increase over last quarter. "Europe and Asia are showing great acceptance of the product," Peterschmidt says, pointing to a new contract with

Yahoo! Japan

as well as other new customers in Europe such as

At Home

(ATHM) - Get Report

-clone

chello broadband

.

Also driving the server's success are old customers such as

AOL

(AOL)

renewing contracts as well as new customers coming on board. In contrast to its first-stage customers, which tended to be telecommunications companies or ISPs, Inktomi's new server customers are in the content or broadband side of the business.

"In 1998 there were no budget line items, so

executives had to scrounge around and dig up funds," explains Peterschmidt. "People have budget line items now. Caching is considered a must-have technology on the network."

Analysts were hard-pressed to criticize the company. Asked about his impressions of the quarter,

BT Alex. Brown

analyst James Wade was unusually succinct: "Fabulous," says Wade, who was impressed by the company's revenue and the successful rollout in the shopping engine. "I see no signs of concern." BT Alex. Brown has an underwriting relationship with Inktomi.

Some items to look forward to in the current quarter: more value-added services on the traffic server, the full-on launch of the shopping engine and a new fourth product that will fit inside the company's portal services box, which now includes the search and shopping engines. "I think you'll see Inktomi grow at a pretty fast clip," says Peterschmidt, who was formerly a chief operating officer of

Sybase

(SYBS)

.