"All advertising agencies will become digital agencies." Brian McAndrews, CEO of aQuantive (NASDAQ:AQNT), told me that in an interview last week. Of course, his company is one of the first digital agencies, and with the surge in online advertising, it's experiencing significant growth.
In the second quarter, revenues increased 37% to $105.6 million, while profits surged 59% to $12.3 million, or $0.15 per share. The consensus on the Street called for earnings of $0.11 per share, and revenues of $99.6 million.
aQuantive has three lines of business. Digital Marketing Services (DMS) provides an army of high-end consultants who help major clients -- like Nike (NYSE:NKE), Coca-Cola (NYSE:KO), and Disney (NYSE:DIS) -- with website development, branding, and creative development. DMS is the biggest part of aQuantive's business. In the second quarter, revenues increased 33% to $64.1 million, and operating income rose 80% to $12.9 million.
Digital Marketing Technologies (DMT) is the tech side of aQuantive's business, handling campaign management, display ads, and website optimization, among other things. It also provides tools to help manage search-engine campaigns on leading search services. In the second quarter, DMT revenues increased 32% to $29.7 million. Because it primarily sells technologies, the division has high operating margins of 43%.
Finally, Digital Performance Media (DPM) provides clients with targeted online advertising and performance analytics.
"We have a complete end-to-end offering for our clients," said McAndrews. "And we are seeing strength on all three parts of our business."
aQuantive's current big initiative is to expand its global footprint, which likely means buying foreign interactive agencies to bolster the DMS segment. Over the past few years, aQuantive has learned how to acquire such companies, which can be a tricky task; when the company bought Razorfish two years ago, Wall Street slammed aQuantive's stock.
DMS is a labor-intensive business, with relatively low margins compared to technology businesses, and management complexities such as handling major contracts and employee turnover. Yet aQuantive has been quite successful with DMS. It employes about 1,160 people and has a standout operating margin of 20%.
The company's future deal-making is already revving up. Last week, aQuantive purchased Amnesia, an interactive agency based in Australia. It also recently bought Neue Digital, based in Frankfurt, Germany.
In addition, aQuantive aggressively upped its guidance. The company expects full-year revenues of $420 million to $430 million, up from its prior guidance of $390 million to $405 million. The earnings are forecast at $0.54 to $0.58 per share, an increase from the previous $0.44 to $0.48 per share.
aQuantive's unique model combines high-end consulting with a complete offering of online marketing technologies. It's a different approach than that of competitors like ValueClick (NASDAQ:VCLK) and 24/7 Real Media (NASDAQ:TFSM).
The novel model is resonating with customers. According to McAndrews, the design of a company's website is absolutely critical for effective online marketing. As he likes to say, the website is the replacement for the 30-second commercial. Now aQuantive is pushing to expand this model into foreign markets. With a rising stock price and $307.6 million in the bank, the company has the firepower to make this ambition a reality.
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Coca-Cola is a Motley Fool Inside Value selection, and Disney is a recommendation of Motley Fool Stock Advisor .
Fool contributor Tom Taulli does not own shares mentioned in this article.
