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The Honolulu Advertiser
Posted on: Tuesday, December 24, 2002

Yahoo! Inc. purchases search engine for $235M

By Adam Steinhauer
Bloomberg News Service

SUNNYVALE, Calif. — Yahoo! Inc. agreed to pay $235 million for Web search-engine Inktomi Corp.

Inktomi shareholders will get $1.65 a share, 41 percent above Inktomi's closing share price Friday.

Inktomi, which had a stock market value of $29.6 billion at its peak two years ago, owns a service that lets businesses pay to be listed in Internet search results. It also owns technology that Yahoo might use to improve its search service and win back customers from Google Inc.'s Web site, investors said.

Yahoo "paid a premium, so they're interested in the technology," said Paul Cook, director of technology investing at Munder Capital Management. "It makes sense for them to recognize that search is something they should stop ceding to competitors."

Google Inc. by some measures has eclipsed Yahoo as one of the most popular Internet sites for searches. Google's search sites were used by 41.3 million people in the United States last month, compared with 40.6 million for Yahoo's search page, according to ComScore Networks Inc.

At the same time, Yahoo has grown more reliant on its Internet-search page as a revenue source.

A service where businesses bid for top placement in Internet search results helped Yahoo boost revenue $248.8 million in the third quarter. That gave the company net income of $28.9 million, or 5 cents a share, compared with a loss of $24.1 million, or 4 cents, a year earlier.

"The bigger opportunity is to improve our market share in search," Yahoo Chief Financial Officer Susan Decker said yesterday. "That can be worth hundreds of millions of dollars in shareholder value."

Inktomi offers a service where businesses pay to have Web sites placed in search results. Decker said Yahoo will continue offering that service after integrating Intkomi's service.

Yahoo also will continue a partnership with Overture Services Inc., which provides the search listings where companies pay for prominent placement, as well as an arrangement with Google.

Inktomi has annual revenue of $40 million to $50 million. Its share price peaked at $241.50 in March 2000. Since then, Inktomi's situation has worsened. Its net loss ballooned to $500.8 million last fiscal year from $27.3 million in 2000.