GuruNet (ticker: GRU), owner of Answers.com, announced that traffic to its web site has topped a million queries per day. Here's the full press release, followed by some comments:
GuruNet's press release:
WESLEY HILLS, New York, March 1 /PRNewswire-FirstCall/ -- GuruNet Corporation announced growth in traffic for its newly-launched flagship site, Answers.com. Queries to its combined GuruNet and Answers.com services grew steadily to well over one million queries per day, representing an increase of over 1000% since it announced its Answers.com product and ad-driven business model on January 2, 2005.Comments:
"Our unaudited, internal metrics for the sites' traffic, unique users, and query count are quite encouraging," stated Bob Rosenschein, Founder and CEO. "They indicate more rapid growth than we had expected in such a short time. The growth has been bolstered by optimizing Answers.com pages to rank more prominently on search engines, as well as other traffic-driving strategies. Our metrics indicate that organic traffic - not driven by a single source - accounts for the lion's share of our direct traffic today."
GuruNet is currently recruiting a senior business development executive to help lead its growth strategy. The company has also recently added servers to accommodate its increased traffic and uses a scalable server infrastructure to enable additional hardware as required.
In mid-January, the company began featuring ads and receiving a revenue share from a single ad-vendor and recently added other suppliers. "We are testing ads from multiple suppliers for an optimal mix of inventory, relevance and revenue," explained Rosenschein. "While we are pleased with the growth in traffic, monetization is still at an early stage, and we will be focusing on optimizing our results over the coming months."
"We expect to share more information when we report our Q4 earnings on or around March 15," added Rosenschein. "As the Q4 report relates mainly to our previous revenue model of selling subscriptions, we plan to supplement the earnings data with an element of Q1 trends and additional metrics." Agenda and logistical details for the Q4 earnings call will be forthcoming.
- A million queries per day is good, but percentage increases ("an increase of over 1000%") are meaningless when measured off a small base.
- "Our metrics indicate that organic traffic - not driven by a single
source - accounts for the lion's share of our direct traffic today." In other words, GuruNet is claiming that it is not overly reliant on traffic from Google's use of Answers.com as a source for definitions.
But risks remain for holders of GRU stock:
1. Reliance on Google. Even if Answers.com is growing organically, it gets traffic and validation from Google.
2. What is Answers.com's ad click rate? The press release said nothing about ad revenue or the click rate on ads. Arguably, people go to Answers.com to find information directly, not to click on other links. In this way, Answers.com differs from other search engines, potentially leading to lower ad click through rates.
3. What is Answers.com competitive advantage? GuruNet doesn't own the content it displays on its pages (that often comes from Wikipedia), and the other search engines are also becoming answer-engines as they provide direct information (maps, movie listings) instead of links.
4. Valuation. Back of the envelope valuation calculation: if 1% of queries result in a click on an ad, and each click generates an average of $0.20 for GuruNet, GuruNet's revenue per day is currently about $2,000. Annual revenue, assuming that Answers.com traffic rises to 3 million queries per day, would be $2.2 million. But operating expenses for the nine months ending September 2004 (from the 10Q) were $2.1 million, so the company still won't be profitable. And GuruNet's current market cap is now about $84 million.