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By rjf53
October 20, 2003

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[This message is in reply to an article by Rick Aristotle Munarriz]

don't dismiss DoubleClick. While it is looking to earn just $0.25 a share next year, it's also packing nearly $4 a share in cash and it has momentum on its side. All it needs now are willing sponsors.

I'm a bit confused just where the "momentum" you speak of is. Is it the share price appreciation? If so I would point out just how badly DCLK has under-performed it's peers. This despite the fact that DCLK owns Abacus a solid business with solid growth. Is it momentum in the fundamentals of the business? I THINK NOT!

The reason IMO for such a severe haircut is the continued deterioration of the DART business...specifically the pricing. For several quarters the CEO has claimed that pricing had stabilized. The problem...this claim has never jived with a comparison to ads served (and the implied affect on revenues) and the affect of new products and acquisitions increasing revenues.

For several quarters now when asked: "If prices are stable and ads served are going up, why combined with the new revenues aren't your total revenues going up?"

The explanation has always been that it is a function of mix. While it is true that pricing is stable (in their eyes) a shift from smaller clients (who pay more on a CPM basis) to larger clients who receive a lower rate for volume is responsible for this. The spin has always been that while larger clients pay a lower CPM the actual gross margins can be maintained due to efficiencies derived from volume.

My take on the reaction is that many Analysts and investors have finally determined that when a blip becomes a trend the negative results are the same...spin be damned.

Next I've got to ask...what is a sponsor?

Since they pulled out of the media business last year they are no longer involved in anything where the term sponsor was used. Perhaps you meant Investor sponsorship? If so I agree wholeheartedly they could of used a bunch of it Friday, otherwise I don't have a clue what you mean.

On to the cash...it's a wonderful thing...sometimes.

Very few people on this planet are as enamored with the concept of buying undervalued companies with large piles of cash as I am. This concept has resulted in me having the best year (last 12 rolling months) of returns (by a factor of 2) in my investing career. That being said...

Not all companies are created equal. Cash burn, return of capital to shareholders, or investing the capital are the "Big Three" when it comes to determining just how much the cash is worth and in this regard DCLK receives a D for a grade IMO.

While it is true that DCLK is not burning the cash through operations, the positives end there.

Excluding, using the profits from repurchasing their bonds at a discount to buy a few shares, there has not been a buyback. The repurchased shares (using past history) will do nothing but help subsidize the option abuse (and it's been massive) that has occurred at DCLK the last few years. This despite the fact they could of purchased them near cash value (a real vote of confidence IMO.)

Investing capital...all investors love to believe that management will deploy capital wisely and to the benefit of shareholders. It even happens on occasion, but it hasn't at DCLK that's for sure. They promised their cash would be used to clear the chasm, take advantage of their weaker competitors and consolidate the industry.

What's happened? They abandoned (pretty much gave it away) the media business to their weaker competitors and now offer that as an excuse as to why they won't rebound as fast as others. They invested nearly 200 million dollars and subsequently have written off nearly 150 million of it (most, barely six months after spending it). What value remains is their email business that amounts to approximately 6 million a quarter in new revenues...with no profits. And it is stuck squarely in the mud! This link will show most of the details, although it doesn't reflect the sordid details of their email foray. (That disaster hadn't completely developed yet.)

http://boards.fool.com/Message.asp?mid=17137035

None of this reflects the hundreds of millions in related real estate charges that have been part and parcel of their crossing the chasm...or the fact that despite being the one company that had their fingers on every aspect of Internet advertising, they managed to miss (it's a niche) the one success story (search) that has developed.

So yeah, cash is nice. But I'd think twice about whom I let hold it, because the only chasm this company management successfully crossed appears to be the one their personal finance faced. There they came out smelling like roses!

DCLK may turn out to be a reasonable investment at some point, but you would due well to demand a stiff discount for past performance IMO.

B


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