Fastclick Might Click Away

Given that Fastclick (Nasdaq: FSTC  ) is in the red-hot search business, it made sense that it would have a strong IPO in April, right? Well, not really.

On its first day of trading, the stock was unchanged at $12. Now? It's at $9.50. The low was $7.30.

Unfortunately, yesterday's earnings report did not inspire investors -- the stock fell 8% to $9. In the second quarter, revenues increased 58% to $19.3 million. Net income was $1.5 million, or $0.07 per fully diluted share, which compares with net income of $1.7 million, or $0.15 per fully diluted share in the same period a year ago. In all, the company has about $81.2 million in the bank.

It's worth noting that the results handed the company something of a backhanded compliment. Operating margins were roughly even net of the effect of stock-based compensation, and earnings before interest and taxes were up 5% (including the effect of options). So it's not to say this points to strength in the business, but this doesn't necessarily point to weakness. All said, if the company could make a bit more of a graceful transition to life without tax-loss carryforwards (which ran out) and quit issuing options or restricted stock, things might look a lot better.

Fastclick has a technology that helps companies advertise on the Web via search words, with a network of about 9,000 third-party websites and a reach of 72% of unique U.S. Internet users. In the second quarter, Fastclick served 27 billion impressions, which was up 17% from the first quarter.

One of Fastclick's competitors, Advertising.com, decided to sell out last year for $435 million in cash from AOL. And in my opinion, Fastclick should have done the same thing, particularly given its market cap, now languishing at around $194 million.

Also, how hard is it for a company like Google (Nasdaq: GOOG  ) or Yahoo! (Nasdaq: YHOO  ) to provide Fastclick-type services? With these companies hiring top-notch programmers -- and with enormous resources -- a company like Fastclick would likely come under pressure.

In light of this, it seem reasonable (to me) for Fastclick to explore selling out. For example, ValueClick (Nasdaq: VCLK  ) could certainly benefit from having its own search business for its customer base, and it appears to be fairly strong in terms of integrating acquisitions. What it would get is a massive network of sites, advertiser relationships, and technologies that allow advertisers to optimize campaigns.

Other companies in Fastclick's space -- such as Interchange (Nasdaq: INCX  ) and MIVA (Nasdaq: MIVA  ) -- have come under fierce competition pressures. In only a matter of time, the same will go for Fastclick.

Fool contributor Tom Taulli does not own shares mentioned in this article.


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