LookSmart on what went wrong (quotes from the conf call)

Jan.31.05 | About: LookSmart Group, (LKST)

LookSmart pre-announced that it would miss Q4 consensus estimates a couple of weeks ago. Here's the additional explanation provided by CEO David Hills on LookSmart's conference call:

...average CPC for the quarter was $0.14 compared to $0.17 in the preceding quarter.

All online company advertiser bases tend to reflect over time the audience of the network, regardless of whether that is a network based on affiliates or owned and operated traffic… networks that have strong audiences in particular advertising categories tend to attract advertisers in those categories over time. LookSmart's advertising base reflected MSN's distribution in number of advertisers in different categories, click pricing, and spending average of each account in each vertical. When LookSmart lost MSN, it went out and picked up other traffic to replace it. That traffic had different category concentration attributes that MSN did, plus, the network was obviously smaller with the loss of MSN at the outset.

As advertisers experience a new distribution, they adjusted their spending and CPC based on what they were getting in return. We did lose some advertisers who were with us for MSN only, but the bulk of our activity in the advertising base was not related to cancellations, but rather spend and CPC. What happened over time was that the match rate on the network fell.

(Quotes from the CCBN StreetEvents transcript.)