• by Kate Kaye , April 28, 2004

Digital marketing services and technology firm aQuantive, Inc. (NASDAQ:AQNT) was on its best earnings behavior during the first quarter, which marked its eleventh consecutive profitable quarter. The parent company of Avenue A, i-Frontier, Atlas DMT, and DrivePM, a new behavioral marketing division, reported financial results on Wednesday for the quarter ending March 31.

aQuantive pegged first-quarter revenue at $22.6 million, up 52 percent over net revenue for the same period in 2003. Earnings before interest and other income, income tax, depreciation, and amortization (EBITDA) jumped 90 percent from first quarter 2003 to $5.1 million; while net income increased $4.1 million, or $0.06 per diluted share--up 121 percent over first quarter '03.

The company adjusted its reporting structure to accommodate recent acquisitions of Go Toast and NetConversions, as well as its new DrivePM offering. During its earnings call late Wednesday, aQuantive CEO Brian McAndrews alluded to the company's new three-pronged division among its digital marketing services, digital marketing technologies, and digital performance media segments.

Gary Stein, senior analyst with Jupiter Research, believes that aQuantive's acquisitions of Go Toast and NetConversions "give [aQuantive] a competitive advantage," adding that the company's move into the behavioral marketing space through DrivePM puts it "at the right place at the right time."

i-Frontier, part of the company's digital marketing services division, saw first-quarter revenue of $9.9 million, up from $7.2 million in net revenue for the same period a year ago. aQuantive's digital marketing technologies segment, which includes Atlas DMT, Go Toast, and NetConversions, rose from $7.7 million in the first quarter '03 to $12.0 million in the first quarter '04. DrivePM, the new digital performance media division encompassing aQuantive's behavioral targeting and inventory reselling service, saw revenues of $785,000, and an operating loss of $440,000.

Bowen Dwelle, founder and chairman of ad technology trade group AdMonsters, views the DrivePM offering from a publisher's perspective and sees some benefit, but questions: "Who's best able to determine the value of a publisher's inventory? In most cases it's the publishers."

With that in mind, aQuantive must balance its need to buy excess inventory at a low price with the need to provide an incentive to sell on the part of publishers. Jupiter's Stein suggests that aQuantive is "smart not to over-hype DrivePM too much," noting that in order for the new business to be successful, it has to "find inventory at a low price, but has to add value to it by adding the behavioral data."

Michael Vernon, aQuantive's chief financial officer, conceded during the earnings call that the company is taking things slowly when it comes to DrivePM, and wants to be sure it understands the business clearly before scaling it.

aQuantive projects second-quarter revenue in the $22 million-$24 million range, and has increased its full-year 2004 revenue expectations from earlier projections of $88 million-$98 million, to $94 million-$102 million.