Online marketing companies have been living large on the billions of ad dollars rushing online. One such beneficiary is 24/7 Real Media (NASDAQ:TFSM), which had a strong second quarter. But its growth stems from more than just being in the right market. 24/7 is also making key moves to make that growth sustainable.
In the second quarter, 24/7 saw its revenues increase 42% to $48.2 million, beating consensus estimates of $47.1 million. Net income was $500,000, or $0.01 per share, up from a loss of $200,000, or less than a penny per share, in the year-ago period. However, after adjusting for things like stock option expenses and restructuring charges, the second-quarter pro forma operating income was $4.8 million, or $0.09 per share.
24/7 is a technology platform that helps monetize Web traffic. Its Media Solutions segment comprises a network of more than 1,500 heavily trafficked websites. Media Solutions helps these customers streamline the process of getting revenues from advertisers. What's more, advertisers can use Media Solutions to better target their campaigns on affiliate sites (based on demographics, geography, subject matter, and so on), and track those campaigns' performance using analytical tools.
24/7's Search segment consists of a variety of tools that allow advertisers to select the right keywords, make cost-effective bids, and take other steps to get more value from their campaigns on major search engines such as Google (NASDAQ:GOOG), Yahoo! (NASDAQ:YHOO), and Microsoft's (NASDAQ:MSFT) MSN.
24/7 is not the only company with such technologies. Its competitors include aQuantive (NASDAQ:AQNT), ValueClick (NASDAQ:VCLK), and DoubleClick. But 24/7 does have some key competitive advantages. About 60% of its revenues come from abroad; 24/7 has forged a profitable joint venture with Dentsu to provide search services in Japan, a difficult market to enter. In addition, 24/7 built its technology to embrace the complex character set of Asian languages, which should help broaden its international opportunities.
24/7 also has a business model that allows for strong operating leverage. Even as revenues increase rapidly, operating expenses remain relatively stable. "Over the past year, our headcount has been flat," CEO David Moore told me in a phone interview yesterday. "Back in 1998, we expanded headcount significantly and paid the price. We run a frugal operation and always look to improve performance."
Moore is also optimistic about the surge in online video, both from upstarts like YouTube and traditional media companies like Time Warner (NYSE:TWX), NBC, and CBS. It helps that 24/7 has operations in South Korea, which has high broadband adoption and plenty of rich-media advertising. "We see South Korea as a microcosm of what to expect in the U.S. and other parts of the world," said Moore. "And our technology can handle rich-media advertising."
24/7 forecasts quarterly GAAP earnings per share between $0.00 and $0.01, on revenues of $49 million to $50 million. The full-year guidance calls for a GAAP net loss between $0.12 and $0.14 per share, and revenues of $195 million to $200 million.
Things seem to be going well for 24/7. Over the past quarter, it signed some major customers for its search business, and it appears its Japanese joint venture is gaining traction. There may also be strength from the online video space. The company's operating leverage could help transform these factors into a boost in profits over the next year. That would be good news for shareholders, since the stock has been stuck trading mostly between $7 and $9 in the past few months.
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Fool contributor Tom Taulli does not own shares mentioned in this article.
