Lately, it's been a grueling experience waiting for a tech company to announce its earnings. But not with Modem Medium (NASDAQ:MMPT).
Yesterday, on the day of its earnings release, the company also announced that it is selling out to Digitas (NASDAQ:DTAS) for $200 million. The stock surged 26% to $5.42.
As is usually customary, the shareholders of the buyer, Digitas, experienced the opposite fate; that is, the stock price plunged 18% to $8.05.
Digitas and Modem Media are interactive marketers. It's a space that has been active with mergers and acquisitions, such as with aQuantive's (NASDAQ:AQNT) recent deal to buy SBI.Razorfish for $160 million.
The Digitas/Modem Media deal will add to the list of marquee clients, such as Delta Air Lines (NYSE:DAL), General Motors (NYSE:GM), Kraft (NYSE:KFT), Michelin, and Home Depot (NYSE:HD). No doubt, the Internet is becoming a key element for marketing for mainstream companies.
Mainstream customers are exceedingly demanding. And that means an interactive agency needs to scale its operations and service offerings.
Modem Medium is a relatively small player. In the past quarter, revenues were $15.9 million, which was an increase from $15.3 million last year. Net income was $1.8 million, which was up from $1.7 million a year ago.
As for Digitas, revenues were $96 million last quarter, which was up from $73 million last year. During this time, profits increased from $3 million to $7.6 million.
Digitas announced it is increasing its share buyback to $70 million from the original $20 million. But this was not enough to stabilize the stock. The deal for Modem Media is definitely pricey. But it is probably more costly if Digitas does not continue to scale its business.
Fool contributor Tom Taulli is the author of The EDGAR Online Guide to Decoding Financial Statements . He does not own shares in any of the stocks mentioned.
