DoubleClick Posts Q1 Loss

by Wendy Davis, Apr 22, 2005, 7:00 AM

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Despite posting a 12 percent year-over-year increase in revenue, DoubleClick announced first quarter losses of $917,000 or one cent per share, on Thursday--which fell short of analysts' predictions of a 2-cent profit. Last year's first quarter earnings came to $7.7 million, or 5 cents a share.

The earnings report was issued as rumors swirled that San Francisco investment firm Hellman & Friedman was poised to pay $1.2 billion for DoubleClick, which has a market capitalization of $926 million. In a conference call with analysts, DoubleClick executives declined to address news of the deal, which was first reported Thursday in the New York Post. Last October, DoubleClick announced at had hired Lazard Freres & Co. to "explore strategic options."

Total revenue for the quarter was $76.3 million, up about from $68 million last year, but expenses also increased by $13.8 million, from $42.9 million last year to $56.7 million this first quarter. DoubleClick's efforts to find a buyer accounted for at least a portion of the additional expenses; the company stated that net income was "negatively impacted by the accrual of retention payments and professional fees associated with the company's ongoing review of its strategic options."

The company also spent money on personnel, increasing its headcount to 1,540 as of March 31, from 1,275 in March 2004. The extra employees resulted from acquiring Performics last June and SmartPath last March, as well as from hiring for ad management, Abacus, and data management solutions businesses.

DoubleClick additionally incurred expenses in anticipation of a deal announced earlier this month to serve ads on America Online properties, said Bruce Dalziel, DoubleClick's chief financial officer, in a conference call Thursday. Chief Executive Officer Kevin Ryan said that DoubleClick likely won't see revenue from the AOL deal until it's fully implemented--likely, in the fourth quarter.

Collectively, payments associated with the ongoing review, combined with investment in Performics and SmartPath and the costs of gearing up for the AOL deal, reduced first quarter earnings by 4 cents, Dalziel said.

Ad serving revenue declined to $31.7 million, from $33.3 million in the first quarter of 2004. DoubleClick attributed the fall-off to a drop in pricing that outweighed an increase in volume.

Industry observers said that ad-serving prices have dropped significantly in the last several years. "The pricing in that business is going through the floor," said Jim Nail, principal analyst at Forrester Research. In the last two years, prices are believed to have fallen from 30 cents per thousand impressions to between 3 cents and 11 cents.

DoubleClick also served about one billion rich media impressions in the first quarter--more than in all of 2004--Ryan said during the conference call. While some of those ads were banners with built-in flash--for which advertisers don't usually pay premiums--others likely included streaming video, or other features that marketers will pay extra for, said Nail.

If DoubleClick is sold to Hellman & Friedman, one possible result is that the company will be broken up and sold off piecemeal, say industry observers. Currently, DoubleClick is a collection of disparate businesses. About half of the company's revenue comes from serving online ads, but DoubleClick also does e-mail marketing and analyzes catalog purchases--the latter a result of DoubleClick's 1999 acquisition of direct mail company Abacus. When DoubleClick purchased Abacus in a stock transaction then valued at $1.7 billion, DoubleClick planned to merge Abacus's database of 90 million consumer names with DoubleClick's online database. But objections from privacy advocates led the company to abandon those plans.

Not everyone thinks DoubleClick will be broken up and sold right away. Ken Marlin, managing partner of Marlin & Associates, a New York investment bank, said his firm was "not convinced that that is the immediate plan."

In the past, Hellman & Friedman has invested in other advertising companies, including Young & Rubicam and Digitas. General Atlantic LLC of Greenwich, Conn., and Cerberus Capital Management of New York, are reportedly considering issuing a joint bid for the company.

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