Answers Corp's Lofty Valuation (ANSW)

| About: Answers Corporation (ANSW)

Answers Corporation (Nasdaq: ANSW) operated answers.com which has aggregated three million searchable answers for questions in categories including business, technology, science, the arts, and entertainment. The model is supported by the advertising that runs on the answers.com website. The company's software also allows users to click on words on their screen and get instant explanations. The application is impressive.

Answers has the rare distinction of trading at 45 times sales, even though the stock has come down from its 52-week high of $23.20 to about $12.

The company had Q4 05 revenue of $889,000 and GAAP loss of almost $2 million. If one backs out stock-based compensation, amortization of acquired technology and write-offs of in process R&D, the operating loss gets closer to $1.1 million. The company had about $14 million of cash and securities at year-end. The company has forecast a very small revenue increase to about $1 million in Q1 06.

The company 10-K lists some of its competitors including Yahoo! (YHOO), Google (GOOG), MSN (MSFT), LookSmart (Nasdaq: LOOK), Dictionary.com, WebMD (Nasdaq: WBMD), and Wikipedia.com.

Answers.com technology works well, no question. But, this company came to the "search" market very late and is so small that, even with the continued growth of online advertising, it is very difficult to see how they can carve out a profitable niche. The other companies in the market are too large, have too much brand loyalty, and have too much of a head start.

Google's price-to-sales ratio is 19, and they are the market leader in this business. That should give investors some idea of where Answers should trade.

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