Overture (Goto), A Good 
Long-Term Investment?

The company Overture has drawn a lot of attention lately.  First, for their controversial decision to change the company name from the widely recognized Goto.com to Overture.  Second, for being able to defy the odds and become a profitable company in three short years (Goto.com went public in 1989).  How does a pure Internet company like Overture avoid the dot com bust and actually prosper during what could become the worst economic recession in 20 years?

Overture has succeeded where others have failed for three reasons: 

• The pay per click business model pioneered by Overture is focused almost entirely on generating revenue and is simple to operate.

• The Overture business model serves a strong need for small and large businesses, providing a way to immediately generate targeted traffic to a web site.        

• The Overture business model targets search engines, the main doorway for potential Internet customers.

Combine these factors and you have a catalyst for future growth.  Overture’s competitors seem to echo this observation.  In addition to providing sponsored search engine listings for AOL, MSN and AltaVista, Overture recently signed a deal to provide listings for Yahoo!  For potential investors, however, two big questions remain: Where does Overture go from here? and Is Overture a good long-term investment?

The answer to the first question is up.  Overture is the first, biggest and, by far, the best pay per click search engine.  In business, first is always difficult to dethrone. By striking deals with most of the other main search engines, Overture has a formidable competitive advantage.  Their business model can also effectively serve almost any type of business that desires an Internet presence and targeted traffic.

The answer to the second question for the Rogue Investor is maybe.  Why?  Because Overture has only been profitable for one quarter.  Purchasing Overture’s stock now (without a consistent operating history) could only be considered speculation.  However, when you use Overture’s estimated future earnings ($30 million for 2002) and future growth rate (30 percent per year for the next five years for the low average estimate), there is a small investing margin of safety (using Warren Buffet's favorite stock evaluation model [John Burr, The Theory of Investment Value, 1961].  

The verdict: Give this company time to build a consistent operating history and grow into its stock price, and Overture could become a sound investment.