Possibility of Sale Props Up InfoSpace Stock Price

InfoSpace, of Bellevue, Wash., is probably best known for its web sites, including Dogpile.com, MetaCrawler.com and WebCrawler.com. So-called metasearch sites, they select results from several search engines at once, notably big boys Google (GOOG) and Yahoo (YHOO).

The company also sells private-label search services, meaning that when you run searches on Nasdaq's (NDAQ) or Verizon's (VZ) web sites, it's actually InfoSpace's search engine that's doing the work. In the mobile business, for example, InfoSpace powers the Media Net service for Cingular, owned by AT&T (T), allowing the carrier's cellphone customers to send instant messages and download games, among other life-sustaining necessities.

So InfoSpace has two businesses — online and mobile — and both of them have issues. The online business, made up of the metasearch and private-label services, is the company's cash cow, generating more than 60% of its gross profit last year. One of the biggest difficulties facing that business is that the search service ain't that great.

"The problem with that product is that it offers an inferior search experience," says Mark May, an analyst with Needham. "Rather than always delivering you the most relevant results, it delivers you the most relevant advertisements, which aren't always the same thing. From a consumer perspective, they don't compare favorably to the bigger names like Google."

The mobile business's problems are more extreme. In late September InfoSpace disclosed that Cingular, its largest ringtone customer, wouldn't renew its contract. (Carriers have moved to sign deals directly with major record labels, cutting out InfoSpace as the middleman.) Three weeks later the company decided to exit the mobile content business, which contributed the bulk of the division's revenue.

Shares plunged nearly 22% on Sept. 21, the day after InfoSpace disclosed the loss of the Cingular contract. They have recovered and then some since that time, including a 13% run-up so far in 2007, but for the trailing 12 months they're essentially at break-even, inching up a little more than 1% to $25.17 as of Wednesday's close. That puts the market cap at $792 million. By comparison, the small-cap benchmark Russell 2000 index gained about 8% over the past 12 months.

At first glance, that's not too bad, considering all the red ink. Last week InfoSpace said it swung to a first-quarter loss of two cents a share, wider than analysts' average forecast for a loss of a penny a share, according to Thomson Financial. For the second quarter the company forecasts a loss of 12 cents to 15 cents a share; for the full year, InfoSpace projects a loss of three cents to nine cents a share. Analysts, for their part, see the company posting a loss of 12 cents a share for all of 2007.