SportLine USA Shares Sink

A pair of Santa Barbara, Ca. police department SWAT team members exit a United States Postal Service mail facility in Goleta, Calif., Tuesday morning, Jan. 31, 2006 following a fatal shooting of three employees Monday evening at the facility. The suspect was believed to be a former postal employee and all of the victims were believed to be current employees.
AP
SportsLine USA shares dropped 37 percent Wednesday morning after the Internet sports publisher blindsided investors with news its third-quarter revenue won't match its target because of weak advertising sales.
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SportsLine USA (SPLN)
The company (SPLN), which also announced the long-awaited renewal of its pact providing news on America Online (AOL), said it sees a loss of 41 cents a share on $7.4 million in revenue. Analysts' consensus estimate called for a loss of 40 cents a share, according to Zacks Investment Research.

SportsLine, which will release its official quarterly report next week, said stronger-than-expected e-commerce revenue partially offset the ad sales decline.

"Although we continued to experience strong traffic over the summer, lower CPM [ad] rates and a lower than budgeted inventory sell-through rate affected advertising revenue during this period," said SportsLine CEO Michael Levy in a statement. "In addition, because the Web advertising market outside of the United States has not yet matured, strong traffic generated from our international sites did not result in a corresponding increase in advertising revenue."

SportsLine's stock, as low as 10 1/8 in early trading, fell 4 3/8 to 12 Tuesday. The Ft. Lauderdale, Fla.-based company went public last fall at 8.

The news sent shock waves through many stocks in the Internet sector, including top-tier companies like Yahoo! (YHOO) and AOL. SportsLine is the first pure-play online media company to warn that results would fall short of expectations.

But analyst Scott Ehrens, who downgraded SportsLine last week to "attractive" from a "buy," said much of the weakness is unjustified.

"The largest companies are getting a disproportionate share of the rewards and the small companies are challenged," he told CBS.MarketWatch.com. CBS Inc. (CBS), a half-owner of CBS.MarketWatch.com, owns a stake in SportsLine USA.

Ehrens said Yahoo's quarterly results, due out after the market closes Wednesday, should provide a boost for the sector.

The AOL pact will give SporsLine a continued presence on AOL's popular online service. SportsLine is paying more than $23 million in cash, stock and incentive-based warrants for the three-year agreement. The old 14-month deal (valued at an estimated $4 million) expired at the end of August, but SportsLine remained on the service as the companies negotiated for a renewal.

Written By Darren Chervitz