Inktomi's Down, but DoubleClick's Not Up

Early disappointment on Microsoft news sends the stock reeling.
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Microsoft (MSFT) - Get Report taketh away from Inktomi (INKT) , but it giveth not to DoubleClick (DCLK) .

That's the odd upshot of this morning's announcement that Microsoft is replacing Inktomi with

AltaVista

as the primary search engine used for the MSN network of Web sites. Inktomi shareholders took the news badly, pushing the stock down more than 21% once trading resumed this morning after a temporary halt.

But shares in DoubleClick, which derives nearly half its revenue from selling ads for the AltaVista site, fell in the afternoon. DoubleClick stock had moved sharply higher last week on news of a firmer contract with AltaVista.

Inktomi's fall today -- the stock traded as low as 116 but had recovered to 133 7/8 in afternoon trading -- came despite the company's insistence that the financial impact of Microsoft's move is minimal. "There's no need for

analysts to change any of their models -- either revenues or profits -- for Inktomi in 1999," says Inktomi CEO David Peterschmidt.

The company's track record backs up Peterschmidt's insistence that Inktomi, which also provides searching services for

Yahoo!

(YHOO)

and

GeoCities

(GCTY)

, is far from financially dependent on Microsoft. The company has 18 different customers for its searching services and is adding two or three new search customers each quarter. The searching services accounted for 49% of Inktomi's revenue in its latest fiscal quarter. The balance from Inktomi's network services, which improve the efficiency of computer networks, is growing at a faster rate.

Outsiders joined the company in downplaying the negatives of Microsoft's switch, which was disclosed as PC maker

Compaq

(CPQ)

said it intended to spin off its AltaVista search engine as a publicly traded company. "I don't think it has anything to do with the credibility and performance of the Inktomi search product," says Emeric McDonald, director of research for

Amerindo Investment Advisors

, an Inktomi shareholder. He termed the Microsoft switch to AltaVista as a comment on Microsoft's desire to bolster its relationship with Compaq, a major distributor. "Maybe search

revenue goes flat from Q1 to Q2 ... then continues on upward," McDonald says.

The timetable for the changeover is yet to be announced. Marty Taucher, Microsoft Network's director of network communications, says the company isn't publicizing its plans, but adds that the switch will take place "over the course of months."

Meanwhile, DoubleClick's stock had fallen in afternoon trading despite the insistence of the company and an analyst that the news of Compaq's efforts with AltaVista, including its alliance with Microsoft, was a positive. "I think it's going to take a little while for the news to sink in," says Ken Winston, a vice president at

Needham & Co.

"They've got a company here that's absolutely investing a lot of money into making it the leading full-blown portal on the Web."

Selling ads for AltaVista amounted to 48% of DoubleClick's revenue over the first three quarters of 1998; the company last Wednesday announced a three-year deal continuing its relationship with AltaVista.

Today, with DoubleClick at 93 13/16, down about 3%, the company's president, Kevin Ryan, said that Compaq's disclosures mean AltaVista would be able to raise capital for promotion, an international rollout and additional content. "All of that is fantastic for AltaVista, and therefore fantastic for us," he said.

But why wasn't DoubleClick's stock moving up? "I don't know why day-to-day movements happen," Ryan said. "I'm not sure people understand all the implications."

Flatiron Partners, a minority shareholder in TheStreet.com, is also an investor in GeoCities.