Online advertiser DoubleClick (NASDAQ:DCLK) suffered mightily on Friday, losing 27% of its stock value, after disappointing Wall Street by failing to repeat its excellent first quarter of three months ago. DoubleClick posted a nearly 9% increase over its Q2 2003 revenues, but that failed to translate into higher earnings, which declined 33.5% for the quarter.

When you see a company post sales growth but report a decline in earnings, the logical assumption is that the company is getting squeezed on margins. Raw materials prices may be increasing (ask steelmakers Nucor (NYSE:NUE) or Allegheny Technologies (NYSE:ATI) about that), or customers may be demanding price discounts (a practice for which megabuyers Home Depot (NYSE:HD) and Wal-Mart (NYSE:WMT) are famous). Yet in DoubleClick's case, none of the above appears to be happening. The company actually increased its gross margins from 64.7% to 68.4% year over year -- a 370 basis point jump.

Proceeding down the statement of operations to look at DoubleClick's operating margins, we can see what really happened this quarter -- and also what appeared to happen. Operating margins apparently slumped drastically, from 14.2% to 4%. But operating margins were never really as high as 14.2% -- they only looked that way because of the effect of a $6.9 million restructuring credit in the year-ago quarter. Take out that credit, and the Q2 2003 "continuing" operating margin was 3.3%. Thus, DoubleClick became more, rather than less, efficient in its operations over the past year! It just didn't look that way by the time the numbers fell to the bottom line.

The free cash flow news supports that view. DoubleClick generated $15 million in cash from operations last quarter (vs. a nearly $570,000 loss in the year-ago quarter) and spent $6 million on capital expenditures. Result: $9 million worth of free cash flow vs. negative $3.6 million a year ago. (But bear in mind that DoubleClick remains free cash flow negative by more than $40 million over the past 12 months.)

Despite that cash burn, DoubleClick has a net cash position of about $400 million -- more than $3 per share. So to sum up, the company has become free cash flow positive, increased its "real" margins, and, at $5 and change, is trading for less than twice its cash. Sounds like a potential "green gene" to me, and more than a little reminiscent of one green gene idea that worked out very well for Foolish investors once upon a time: ValueClick (NASDAQ:VCLK).

Fool contributor Rich Smith owns no shares in any company mentioned in this article. A frequent visitor to The Motley Fool's Green Gene Stocks board, he encourages you to drop by and contribute a couple of cents to the discussion of DoubleClick's candidacy. Also, check back on the Motley Fool's main page tomorrow for a look at a less attractive aspect of DoubleClick's earnings report.