DoubleClick Gets Double-Pounded

DoubleClick's disappointing third-quarter results will not help return investor confidence to the already down and battered dot-coms. Following this week's third-quarter results from Yahoo!, which were similarly haunted by the Ghost of Advertising Future, it appears the ad crunch that took such a big bite out of this year will crunch-on into next.

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By Nico Detourn (TMF Nico)
October 13, 2000

Online ad services firm DoubleClick (Nasdaq: DCLK) turned in third-quarter results Thursday amid investor and industry concerns over the health of online advertising. Those concerns were not eased by what the company had to say, despite having managed to meet consensus earnings and revenue estimates in a difficult advertising environment.

Shares of DoubleClick got double-pounded Friday morning, at one point trading down nearly 40%, at $11 a share. The stock has traded as high as $135 over the last year, and has not seen current levels since early 1999.

In the third quarter, DoubleClick's revenues grew to $135.2 million, a 79% increase from the same quarter last year, and up 5.5% over the second quarter. Excluding non-cash and non-recurring items, the company reported earning $3.7 million, or $0.03 a share, in the quarter. This compares to a loss of $3.8 million, or $0.03 a share in last year's third quarter.

DoubleClick ended the third quarter with $894 million in cash and marketable securities, a $12 million increase over the second quarter that the company emphasized was driven by $34 million of cash from operations.

Bumpy road ahead
This was DoubleClick's first profitable quarter. But the company generally guided expectations down because of a market that will remain difficult for at least a few quarters. CFO Stephen Collins said revenues would grow between 4% and 6% in the fourth quarter and that earnings will be flat with the third quarter's $0.03 a share. Analysts had been estimating earnings of $0.05 a share for the traditionally stronger fourth quarter.

Indicating the bumpy road ahead and the industry-wide lack of visibility, Collins also said earnings in the first quarter of 2001 would dip back into the red before again turning positive in the second quarter.

Longer-term, the company was reasonably upbeat in its view of the $10 billion Internet ad industry which it leads. CEO Kevin Ryan stressed that online advertising works and that it "isn't going away." Nevertheless, company execs were more certain that a hoped for turnaround in the ad market was not at hand than they were about when that turnaround would come.

During the third quarter, DoubleClick's DART (Dynamic Advertising Reporting and Targeting) system served 162 billion ads worldwide, an 8.7% increase from the 149 billion ads served in the previous quarter and a 268% increase from 44 billion ads served in Q3 of last year.

However, the total number of advertisers fell 10% during the third quarter, to 4,927 from 5,461 in the second quarter. The positive take on this is that the company's exposure to "financially questionable" companies was minimal.

The company's data business, which includes the Abacus Direct catalog database business, has not lived up to expectations. "We're disappointed in its performance to date," CEO Ryan said. Abacus, which DoubleClick acquired last year, was supposed to help the company integrate conventional catalog marketing with its online marketing services. But it has been unable to develop new business as well or as quickly as hoped for. As a result, DoubleClick has changed management at Abacus and will restructure and refocus the division.

As the name most associated with online advertising, DoubleClick's third quarter results, which were mixed at best and on-balance disappointing, will not help return investor confidence to the already down and battered dot-coms. Following this week's mixed third quarter results from Yahoo! (Nasdaq: YHOO), which were similarly haunted by the Ghost of Advertising Future, it appears the ad crunch that took such a big bite out of this year will crunch on into next.

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