Think of today's Doubleclick Inc. (Nasdaq: DCLK) price decline as a positive event.
Positive because the online advertising company's 12 percent retreat means the Give-Me-Returns-Now crowd has been purged from Doubleclick's body of shareholders, giving real investors a bargain for a company that stands to improve itself immensely with the purchase of Abacus Direct (Nasdaq: ABDR).
| Doubleclick-Abacus: Good or bad? |
Issuing almost 11 million shares to give Abacus shareholders 20.5 percent of Doubleclick obviously carries some immediate dilutive effects for the buyer. The same holds true in varying degrees for any stock swap acquisition, but investors were quick to bless Yahoo's plays for Geocities and Broadcast.com, At Home's grab of Excite, and America Online's absorption of Netscape.
Yet none of those deals holds the immediate promise of today's Doubleclick announcement. Abacus not only offers an obvious match for Doubleclick, but also offers it at a fair price: just a 25 percent premium from Friday's close.
Granted, Abacus seemed to carry a heavy price-to-estimated-1999-earnings multiple for an offline company. But a P-E of roughly 50 isn't that high relative to online stocks, and considering Abacus has been growing at Internet-like rate of 50-plus percent since going public three years ago, the comparison to Internet companies is fair.
Merely the fact that Abacus can be valued at a P-E multiple -- the company earned a $1.12 a share last year and First Call's survey of six analysts predicts profits of $1.51 a share this year -- gives it something that the money-bleeding dot-coms lack. If Doubleclick and Abacus were combined last year, the operation would have seen revenue growth of 100 percent and operating margins hovering near 50 percent -- excellent numbers by any standard.
And that's just playing the numbers game. This deal's real value lies in the Big Picture. Abacus offers Doubleclick the world's largest warehouse of buying patterns, based on data from 1,100 merchants, mostly catalogue retailers. Abacus' ability to pull information out of companies' receipts, combined with Doubleclick's DART ad delivery service, forms an advertiser's dream.
Unlike USA Networks-Lycos, today's announcement would join an offline business that can really can be easily shifted online. For Doubleclick's website customers, Abacus' data mining technology improves their ability to target ads, which presumably improves their effectiveness. The net result? "We expect people to be able to charge higher" advertising rates, says Kevin O'Connor, Doubleclick's chairman and CEO.
This is not some potential service that could, possibly, maybe, might add something. Abacus works now. It's the biggest of its kind in the advertising world. It's one of the top small corporations in the United States, according to separate rankings from Business Week and Forbes. And Doubleclick's about to own it. "I think it's a perfect marriage," said one analyst on this morning's conference call, echoing comments from several of his colleagues.
Rather than forever holding its peace, the market has spoken now and frowned on the wedding announcement. Too bad for them, because this couple is going to raise some rich kids.
The overall technology market continued in the red despite blue chip strength. With two hours left in regular trading, the tech-heavy Nasdaq Composite Index was down 27.68 to 2420.2, the S&P 500 had gained 4 to 1297.64, and the Dow Jones Industrial Average was up 101.32 to 10591.82. 22GO>