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Answers Corp. Finally Gets One Right (ANSW)
Answers Corp. (Nasdaq: ANSW) has run its small, search-based Answers.com business for years. Once it went public, it found that its style of finding things on the web was not very popular. And, that meant almost no revenue. So, it bought something bigger than itself, Lexico Publishers Group (the parent of Dictionary.com).
Bad Model
Answers' online business, Answers.com, delivers content on over four million topics in the areas of health, finance, entertainment and business. It is a poor-man's search engine. And, that shows up in the company's financial results. In the first quarter of 2007, the company had revenue of only $3.4 million, and an operating loss of $388,000. The company guided flat for the June quarter.
In late May, there was some speculation that Google (Nasdaq: GOOG) might buy the firm. But, nothing happened, and the stock sold off from $17 down to $12 in less than a month. The company had reached a deal end.
Necessity Is The Mother Of Invention
Answers Corp. had a market cap of about $100 million. But, it needed something to jump-start its business, so it made a bold move.
The company agreed to buy Lexico Publishing Group, the parent of popular website Dictionary.com, for $100 million. Answers Corp. said Lexico generated net income of $2.8 million in 2006 on revenue of $7 million. At the same time Answers made the purchase, it cut its own quarterly estimates, a sign that its core business was going nowhere.
Investors reacted badly to the acquisition, probably due to the huge dilution.
To raise funds, Answers filed a shelf offering saying it might periodically sell up to $140 million in debt securities, common stock, preferred stock, warrants and units. In reaction, the company's shares fell from $13 to $11 over a two day period.
The Answer
Investors may not have liked the idea of such tremendous dilution, but Answers was a company without a future. At least, it now owns a significant web presence and has the opportunity and potential to build a sustainable business. It is better to be unhappy than out of business.
Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!
Bad Model
Answers' online business, Answers.com, delivers content on over four million topics in the areas of health, finance, entertainment and business. It is a poor-man's search engine. And, that shows up in the company's financial results. In the first quarter of 2007, the company had revenue of only $3.4 million, and an operating loss of $388,000. The company guided flat for the June quarter.
In late May, there was some speculation that Google (Nasdaq: GOOG) might buy the firm. But, nothing happened, and the stock sold off from $17 down to $12 in less than a month. The company had reached a deal end.
Necessity Is The Mother Of Invention
Answers Corp. had a market cap of about $100 million. But, it needed something to jump-start its business, so it made a bold move.
Investors reacted badly to the acquisition, probably due to the huge dilution.
To raise funds, Answers filed a shelf offering saying it might periodically sell up to $140 million in debt securities, common stock, preferred stock, warrants and units. In reaction, the company's shares fell from $13 to $11 over a two day period.
The Answer
Investors may not have liked the idea of such tremendous dilution, but Answers was a company without a future. At least, it now owns a significant web presence and has the opportunity and potential to build a sustainable business. It is better to be unhappy than out of business.
Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!
by
Douglas McIntyre
Douglas A. McIntyre is the editor of 24/7 Wall St., a financial commentary site. He has been president of Switchboard.com, which was the 10th most visited website in the world, and publisher of Financial World Magazine. He has served on the board of TheStreet.com. McIntyre graduated from Harvard magna cum laude.
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