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DoubleClick rises on analyst talk despite 2001 warning

    DoubleClick (Nasdaq: DCLK) rose 29 percent Friday despite a mediocre quarter that guided downward for fiscal 2001. Most analysts said the warning was expected, and saw several positives for the company, while one analyst suggested investors forsake the stock in favor of the bond.

    Shares of DoubleClick were up 3.13 to 14.37 in Friday morning trading.

    DoubleClick reported a breakeven fourth quarter on revenue of $132 million, above the company's earlier guidance. Analysts praised the company for giving detailed guidance for 2001 on the call, following an extensive bottom-up review.

    As expected

    "The fallout of dot-com ad spending has taken its toll on DoubleClick, as expected, and will continue to do so through most of fiscal 2001," said Goldman Sachs analyst Vik Mehta, who reiterated his "market outperform" rating.

    Mehta saw several positives for the Media business, including the increasing revenues from non dot-com sources. The proportion of revenues from traditional advertisers has grown from 50 percent in the third quarter to 55 percent in the fourth quarter, and could make up as much as 66 percent of Media revenue by the end of 2001.

    He called the media business "the key area of uncertainty within DCLK and also a potential precursor of upward momentum in DCLK shares."

    Deutsche Bank Alex Brown analyst Vivian Kuan also maintained her "buy" rating while lowering estimates in accord with the company's projections for 2001.

    Kuan said the reductions for 2001 were expected, and maintained he rating based on the view that DoubleClick "will emerge from the dot-com shakeout with a solidified leading market position." She said the company also has a strong cash position with $873 million in cash and equivalents, or $6.65 per share.

    Turnaround?

    Analysts were mixed on whether a turnaround for the stock and the online advertising market are in the books for 2001, but all agreed the company will be a survivor.

    Kuan said she believes the estimate reductions are already priced into the shares and that "the market will heave a sigh of relief that the company still projects healthy growth for its Tech and Data units."

    Mehta predicted shares will stay in the $10 to $15 range over the next few months. However, the analyst added that DoubleClick's strong cash holdings and the fact that its competitors are ailing may boost the stock perhaps as early as the second quarter.

    "We believe that it may be some time before there is a catalyst for the stock," said Robertson Stephens analyst Lowell J. Singer, who reiterated a "buy" rating.

    He predicted online ad spending may not rebound until mid to late 2001 at the earliest. But DoubleClick's nearly $900 million in cash will allow it to withstand the period of advertising softness, Singer said.

    "We believe that the company s ability to outlast its competitors and make strategic acquisitions will allow the company to grow its market share and emerge from the current ad spending slowdown with an even stronger leadership position," he wrote.

    Struggling competitors

    Mehta said problems with ValueClick (Nasdaq: VCLK)and Engage's (Nasdaq: ENGA) would help DoubleClick.

    Other analysts agreed. "Leading competitors such as 24/7 Media (Nasdaq: TFSM) struggle with cash flow issues and ENGA struggles with top-line growth, integration issues and restructuring," Kuan said.

    Stock or bond?

    Credit Suisse First Boston analyst Jamie Kiggen took a slightly more bullish stance, but said the company's convertible bond may now be more attractive.

    "The stock is likely to trade sideways for the near-term," Kiggen said. "The bond's yield implies greater credit risk than actually exists for company; and the convertible has historically traded in close parity with the stock, making it an attractive way to capture any upside in the stock while earning a yield on the coupon."

    "The stock is dead money," Kiggen said, adding that he "remains confident in the long-term prospects for DoubleClick given their competitive position and ample liquidity."

    "If you think the company is a survivor (which we do) and you think the stock will do better someday (which we do) but you're not sure when that is (we're not sure either), then buy the convert and get paid to wait for the recovery," he concluded.