"THAT'S NOT TRUE

at all," said Bob Davis, president and CEO of

Lycos

site itself, over the last year it grew 65%.... We are growing very rapidly on an organic basis."

Davis was elaborating on his company's acquisition of gaming site Gamesville.com in a conference call Tuesday, and his New England bray may have been tinged with a certain aggressive cheerfulness because of the pervasiveness of such assertions. Conventional wisdom has it that Lycos' recent acquisition binge has bloated its top line and page views without expanding its core property or net earnings. And to a large extent, Lycos' stock has reflected that conventional wisdom: After shooting up to $68.50 in early February, the shares have spent most of the last nine months between $40 and $60. On today's announcement, the stock bounced up $2.25, or 4.0%, to $58.25 on a bad market day.

Lycos, which was an early Net baby, went public in April 1996 and now encompasses a network of sites that includes four of the top 21, according to Media Metrix. These are Lycos.com (a net portal); Angelfire.com and Tripod.com (both homepage-building sites); and HotBot (a search engine).

In this most recent acquisition, Lycos will pay $207 million in stock and assume a stock-option plan in order to acquire Gamesville, the second-most-visited gaming site on the Web. At Gamesville, which will be connected with the Lycos network of sites, members play multiplayer, real-time games, including poker, bingo, football pools and the like, in order to win prizes. In addition and by far most interesting to investors game players are bombarded by two-to-three minute "e-mercials" between games. According to company statements, Gamesville is the second-"stickiest" site on the Net (average usage is 17.9 minutes a day), has 2.2 million registered users and adds 10,000 daily.

The site's demographics are also "very mainstream, very desirable," says Steve Kane, CEO of Gamesville, with an average age in the mid-30s and 63% of membership female. (Kane says of his site, "It's about taking the best facets of a traditional advertising model and the best facets of a traditional marketing model and kind of putting them on steroids.")

Was it these steroids that led to today's bounce? It had to be something. After Lycos reported a combination of surging revenues and underwhelming earnings last week, the stock dropped 3.4% the next day and kept sliding. It seems that a gaggle of acquisitions, including music site Sonique and financial site Quote.com, have done wonders for the company's revenue and audience numbers, but the money hasn't flowed to the bottom line.

In a fairly damning note put out after the earnings report, Salomon Smith Barney analyst Lanny Baker pointedly noted that despite beating his revenue expectations by 10%, the company "only matched expectations" for earnings because of money-losing acquisitions it was integrating and contrasted it less than positively with fellow portal Yahoo!.

"Although Lycos has delivered 'top of the class' revenue growth over the past several quarters topping the revenue growth achieved by America Online, Yahoo!, Infoseek and Excite At Home we remain unconvinced that Lycos is gaining considerable and sustainable growth in the Online Media mass audience race," Baker writes.

Perhaps in response to such sentiment, Lycos took a different tack today. Gamesville is in fact profitable, and once the deal closes (which should happen by the end of the year, Davis says), it should add $25 million annually to Lycos' revenues and after the first quarter or two would add to the company's bottom line.

"That's why I like this one," says CS First Boston analyst Lise Buyer. "This is one that isn't just about page views and revenue; it's about profitability."

Whether there will be any giant turnaround in Street sentiment on the company will likely depend on whether this purchase and its attention to the bottom line is a sign of a new Lycos. Many analysts hailed the deal as a positive it's hard to question the profitable purchase of a company that somehow manages to get its members to sit through several-minute Internet infomercials between games but without the same cheering that greeted CMGI's purchase of AltaVista from Compaq, for example. Still, bullish Merrill Lynch Internet analyst (and Wall Street Journal All-Star) Henry Blodget, raised his estimates for earnings for next year from 40 cents to 45 cents and revenues from $361 million to $385 million. "We are encouraged to see Lycos continuing to use its market cap to increase its functionality, stickiness and reach," he wrote.

But there's still a little "wait-and-see" feel about the stock, which CS First Boston's Buyer summed up in a thumbnail description of her advice to investors: "The challenge is now for management to take all the acquisitions they've made and merge them into a compelling network that can not only produce top line revenues but also significant bottom line results," she says. "So the investment thesis is, 'Hey, they're beginning to focus on monetizing the traffic that they have, now let's see what happens.'"

Indeed, compared to fellow portal Yahoo!, Lycos is treated warily by investors and trades at a multiple most suitable to the Internet version of a steel maker. Where Yahoo is trading at a price-to-sales multiple of 128.3 on trailing numbers, Lycos is trading at a paltry 32.4. Though this means that there's a lot of possible upside to Lycos, it seems the Street is going to make Lycos earn every ounce of premium it gets. "Lycos is significantly undervalued compared to Yahoo, but it also historically hasn't performed as well," says Buyer.

Perhaps the most damning condemnation of Lycos-as-investment comes from Salomon's Baker, who wrote that, "From an investment standpoint, we believe Lycos' appeal is more closely tied to the company's potential for acquisition or a major partnership, rather than its current financial performance."

In other words nice try kid, but sorry.

But that was before this acquisition.

Still, despite Gamesville's flypaper-like stickiness, and despite the additional reach and revenues it will generate, Lycos will likely continue to be judged on the growth of its bottom line. That's tough for an Internet stock to accept it just doesn't seem fair but considering Lycos' furious growth, it's only to be expected. Sure, it's pulling in more money, investors might say, but what's it doing with it?

It is those ruffled feathers that Lycos tried to smooth today. It worked for now, but more of the same might be needed in the future.