Laguna Hills-based Interchange Corp. has defied the expectations of skeptics who lived through the dot-com bust.
The company, which links online advertisers to Internet searchers, went public in October and saw its shares shoot up 340% in the following weeks. Chat room posters and other investors fueled the stock’s gain, calling it “Baby Goog,” a reference to Mountain View-based Google Inc.
Interchange’s shares since have pulled back some. But last week they still were up more than 150% since their debut. The company had a recent market value of $150 million.
“It’s nice to be able to check out your net worth,” said Chief Executive Heath Clarke, a Canadian who founded Interchange in 1999.
Clarke owns about 17% of Interchange’s shares, a stake with a market value of $25 million as of last week.
Part of the reason behind Interchange’s big surges on Wall Street: Clarke and other insiders control about half of the company’s shares. That leaves a small amount of shares for trading, making the stock prone to swings amid chat board speculation and small buying.
Interchange’s short time on Wall Street has brought back memories of the wild dot-com days. That’s prompted some to wonder whether Interchange is set to follow a similar boom and bust scenario.
So far, that hasn’t been the case.
Interchange’s fourth-quarter results are due out next week. If they follow the recent trend, Interchange could see its shares bound higher again. The two analysts who follow Interchange expect the company to post a profit of about $420,000 for the quarter.
For the third quarter, Interchange reported $5.4 million in revenue, more than double that of the year-ago quarter. The company made $288,000 in profit for the quarter, up from $93,000 a year earlier.
“We’re doing extremely well,” Clarke said.
Clarke doesn’t shy away from the mentions of Interchange in the same breath as Google, which held the most widely anticipated public offering of 2004.
“The timing was right,” he said. “That was a market opportunity and it was time to capitalize so we could grow.”
Interchange operates a database of some 5,000 direct advertisers. It supplies those listings to 200 Web sites and search engines, which show the advertiser’s name along with the search results.
Like Google, Interchange makes money each time an Internet user clicks on a paid listing. Industry insiders consider the company part of the second-tier search market, with Google in the first tier. Another rival is Florida’s FindWhat.com.
Interchange lived through the Internet implosion. The company was started in 1999 as eWorld Commerce Corp. Later that year, it became eLiberation.com Corp.
The business boomed in its first year, Clarke said. He boosted the company’s ranks to about 75 people. Then the tech wreck hit in 2001. Clarke said he was forced to pare down to a bare bones staff of 20, many of whom passed up paychecks while the company tried to stay on its feet.
“We were just trying to stay alive through 2001 and 2002,” Clarke said. “Those 20 people are still employed with us today. They’ve all been through the tough times. In the sense that we didn’t get salaries, it was all out of our pockets.”
In 2003, the company changed its name to Interchange. It now has 65 workers.
Before starting the business in 1999, Clarke was vice president of e-commerce at LanguageForce Inc., a maker of language translation software. That was when he moved down to Orange County from Toronto.
“I hadn’t even heard of Orange County before that,” said Clarke, who’s a member of conservative policy think tanks Heritage Foundation and the American Enterprise Institute.
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Interchange’s HQ: 65 workers |
Interchange has been funded through loans and investments. Backers include San Francisco-based Sutler Capital Management, Monterey’s Bear Flag Ventures and Toronto’s Frastacky Associates Inc., among others.
Private equity investor Frastacky is one of the company’s bigger shareholders at about 7% of Interchange’s stock.
Clarke was reticent to discuss Interchange’s stock price. Investors likely see Interchange as a “growth company,” he said.
Interchange has put its stock to work. Earlier this month, it announced plans to buy Inspire Infrastructure 2i AB, a Swedish Internet and wireless search technology company, for $15 million in cash and stock, plus up to $7.5 million more in stock depending on performance in the next two years.
“We’re actively looking at M & A; from this point forth,” Clarke said. “That’s one of the beauties of being public. We think this acquisition was extremely strategic for us.”
Clarke, 35, said his father started several businesses.
“He was in a wide variety of businesses from off-track betting to the recycling business,” Clarke said.
