Google Beats Microsoft, Again

Google's (NASDAQ:GOOG) announcement over the weekend that it's purchasing privately held DoubleClick for $3.1 billion won't cause as much controversy as its $1.65 billion YouTube deal did. That move has brought the online-search star equal parts opportunity and litigation. This time around, the only pain in snapping up DoubleClick -- beyond the price tag -- will lie squarely on Microsoft's (NASDAQ:MSFT) aching shoulders.

In fact, this pairing may ultimately be more about denying Mr. Softy a bigger role in online marketing than it is about Google's own opportunities. Sure, DoubleClick is a welcome addition to Big G's arsenal. DoubleClick will help Google expand in the graphical online marketing area, where it was just starting to get its feet wet. And it will give the company a huge presence in rich media, banner, and video advertising.

But it's also letting Google steal online-ad space from Microsoft again. Microsoft was the interested DoubleClick suitor three weeks ago, with The Wall Street Journal tossing around a $2 billion buyout possibility. Then Google entered the bidding war, just as it pushed its way into the battle for a piece of AOL when Microsoft and Yahoo! (NASDAQ:YHOO) were volleying offers.

Deal or no deal
Google knows that it doesn't have a cheap date on its hands. DoubleClick was struggling in the summer of 2005, when it was acquired by a private-equity consortium in a $1.1 billion. The company doesn't appear to be nearly three times as valuable today.

The sector itself has been a mixed bag, save for ValueClick's huge run. That's significant, because ValueClick is the best match to DoubleClick in terms of publicly traded companies. Both firms offer a wide array of online-advertising solutions. ValueClick is also the only public survivor of the three "something-click" graphical-ad specialists, having snapped up troubled rival Fastclick shortly after DoubleClick went private in 2005.

Despite ValueClick's ascent, few will call Google's weekend deal a bargain. Reports have pegged DoubleClick's annual top line in the $100 million to $200 million range. That is essentially what Google could be generating in passive pre-tax interest income on the $3.1 billion that it will be spending on the purchase.

That doesn't necessarily make this a bad deal for Google, though. The company was already making inroads beyond its text-based contextual-marketing stronghold. Google has been broadening its offerings for a couple of years now, and even the purchase of YouTube was seen as a way to create billable space for video ads. The company has also been testing affiliate marketing -- in which advertisers pay by the purchase, not by the click -- and having DoubleClick on board will help it grow quicker on all of those fronts. With Google's heavy Rolodex of sponsors, DoubleClick's growth may be substantial under Google's wings.

And Google won't be panhandling anytime soon. The company closed out 2006 with $11.2 billion in cash and short-term marketable securities. Like the New York Yankees, it can afford to overpay for Alex Rodriguez.

And just like the Yankees, acquiring players at insane prices keeps them away from competing teams. That has driven many of the dot-com deals lately, but we're certainly not done yet.

The battle for ValueClick
Microsoft wants a bigger slice of the high-margin online-advertising pie, while Google keeps buying up all of the available properties on the Monopoly playing board. This now finds us turning our attention to ValueClick. It may not be the Boardwalk or Park Place in online advertising, but it's probably one of those green-colored properties. At worst, it's Marvin Gardens.

ValueClick is the better DoubleClick. Its revenues soared 79% higher last year to $545.6 million. A lot of that was acquisition-related, yet organic top-line growth still clocked in at an impressive 34%. Earnings per share inched 38% higher to $0.62 a share. The bottom-line boost would have been 56% without the expensing of stock-based compensation.

The good times should continue in 2007. ValueClick is projecting $645 million to $665 million in revenue, at least $175 million in adjusted EBITDA, and $0.78 to $0.80 per share in net income this year. If DoubleClick is worth $3.1 billion, one can only wonder how much ValueClick is worth. Hint: It's a lot more than the $2.9 billion market cap that ValueClick was worth on Friday before the deal was announced.

This doesn't mean ValueClick will be sold, only that its timing couldn't be any better if it wanted to go that route. Then you have the digital marketing companies like aQuantive and 24/7 Real Media (NASDAQ:TFSM). I can't claim to be an original here. Tim Beyers gets the credit for tagging all of these three companies as big winners in the DoubleClick sweepstakes two weeks ago. He also recommended aQuantive to Rule Breakers subscribers several months ago.

Microsoft isn't happy. It will try to derail the merger by arguing that it is anti-competitive. However, there are other fish out there for Mr. Softy to catch instead. If it doesn't want to be bumped toward irrelevance in online advertising, it would be better served in snapping up a rival than in bellyaching about the one that got away.

Yahoo! is a Motley Fool Stock Advisor newsletter pick. Microsoft is an Inside Value recommendation, and aQuantive is a Rule Breakers selection. Try sampling any or all of the three newsletters with a free 30-day trial subscription, if only to see which one suits your investing style the best.

Longtime Fool contributor Rick Munarriz is a huge fan of Google, and it would be his homepage if not for Fool.com taking up that piece of real estate. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.