Update: Inktomi Beats Second-Quarter Earnings Estimates

A 9-cent-a-share loss beats Street expectations but falls short of the whisper number.
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Inktomi

(INKT)

posted a second-quarter loss of $5.4 million, or 9 cents a share, beating the

First Call

consensus estimate, which called for a loss of 12 cents a share in the period ended March 31.

Revenue climbed 36% to $14.6 million from $10.7 million. In the year-earlier period, the company posted a loss of $4.7 million, or 13 cents a share.

The stock sold off ahead of the announcement, dropping 17 13/16, or 13%, to close at 119 3/16.

The following story was posted at 9:03 a.m. EDT:

Learning From Inktomi's Earnings -- or Not

SAN FRANCISCO -- When a highflying Internet start-up readily admits that it's going to lose money for the foreseeable future, should investors give a hoot about its earnings report?

The answer is a subject of metaphysical speculation on the Street. And the earnings report due from

Inktomi

(INKT)

Thursday provides two different ways to approach the valuation conundrum.

In one corner stands Emeric McDonald, the director of research for

Amerindo Investment Advisors

, which owns 2% of Inktomi, making it the stock's largest institutional shareholder, according to

CDA/Spectrum

. McDonald is keeping the faith for old-fashioned financial analysis. "I'm anticipating solid performance," says McDonald, who expects revenue growth in both the search engine and traffic server areas, Inktomi's two main product lines.

The

First Call

consensus calls for a loss of 12 cents a share, equal to its loss in the same quarter last year. The unofficial estimate, or whisper number, calls for a loss of 8 cents. That would fall in line with Inktomi's tendency to beat expected earnings by a few cents. Inktomi has come in ahead of First Call estimates by 1 to 3 cents every quarter since the stock went public last June.

As for revenue, McDonald expects to see sequential growth of 20% to 30%. That would put quarterly revenue in the range of $13 million to $14 million. During the most recent quarter, which ended Dec. 31, Inktomi reported revenue of $10.7 million, a 30% increase over the previous quarter, in which it generated revenue of $8.3 million. More specifically, McDonald says traffic-server revenue is likely to continue its upward march, accounting for more than 51% of the company's total revenue.

"Considering the strength of the fundamental trends, I'd be hard-pressed to come up with something negative," says McDonald.

As one of the leading providers of search-engine and data-networking technologies, San Mateo, Calif.-based Inktomi is riding the wave of the Internet to greater and greater heights.

Call it infrastructure. Call it plumbing. Or call it the Net economy's picks and shovels. Investors are eating up Inktomi and other Net infrastructure plays. Since March 24, when Inktomi closed at 67 1/2, the stock has been on a tear, more than doubling to a high of 159 1/8 earlier this week. Inktomi closed down 7 9/16, or 5%, at 137 3/8. Wednesday.

Despite this surge, which has jacked up Inktomi's market capitalization to more than $7 billion, the stock may advance even higher in the short term. That's because many analysts have not made room for revenue to come from Inktomi's shopping engine, a new product that has gotten off to a fast start.

On April 12, Inktomi announced that

pcOrder.com

(PCOR)

will integrate its computer products into the shopping engine, which offers more than 2 million products from 20 Web sites and 350 merchants. McDonald is not expecting any shopping revenue this quarter, but he says the first inkling of revenue may show up in next quarter's earnings.

Standing in the other corner is Mike LeCony, an analyst with

Security Capital Trading

. LeCony, like many other Internet analysts, is flabbergasted by the valuations that the market is bestowing upon .com darlings. He is not paying too much attention to Inktomi's earnings report.

"Earnings don't seem to be the issue," says LeCony. "It's whether you show momentum in the marketplace and partner with the right companies." Inktomi, says LeCony, is showing the necessary momentum to justify its valuation as a premier Internet company. As evidence, he points to Inktomi's "terrific technology" and its search partnerships with

Yahoo!

(YHOO)

,

HotBot

,

CNet

(CNET) - Get Report

and other major portals and Web sites. On March 25, Inktomi announced eight new search customers, including

BellSouth

(BLS)

, the

StarMedia Network

and

chello broadband

.

LeCony is so down on the value of earnings that he says it wouldn't matter much if the company blew its target. "This isn't

Compaq

(CPQ)

," he says. "I don't think anyone would care if an Internet company missed its earnings -- maybe for an hour."

Asked if he had a financial model for Inktomi, LeCony grumbled, "Forget about it. It's nuts."