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Avenue A profit bodes well for Net ads

In what analysts say is a sign of a turnaround for the industry, the Web-advertising company reports that it swung to a profit of 3 cents per share in the fourth quarter.

In what analysts said is a sign of a turnaround for the online-advertising business, industry bellwether Avenue A reported that it swung to a profit of 3 cents per share in the fourth quarter, as revenue from its traditional-advertising clients rose.

The Seattle-based company, which plans and implements digital marketing campaigns and provides the technology to deliver online ads, reported Tuesday net income of $1.7 million, or 3 cents per share, on revenue of $44.4 million, in accordance with Generally Accepted Accounting Principles (GAAP) for the fourth quarter, ended Dec. 31. That compares with a net loss of $4.5 million, or 8 cents per share, on revenue of $24.4 million for the fourth quarter of 2001.

Analysts surveyed by First Call expected Avenue A to earn 1 cent per share in the fourth quarter.

The company's GAAP net loss for the full year, including the impact of a change in accounting principles associated with intangible assets, was $4.6 million, or 8 cents per share, on revenue of $132.7 million. That compares with a GAAP net loss of $40 million, or 70 cents per share, on revenue of $89.6 million for the full year 2001.

Financial analysts said Avenue A's fourth-quarter profit was an indication that the online-ad industry may be coming back, given that the company handles digital marketing for many Fortune 500 companies and traditional advertisers.

"It confirms our thesis that the Internet-ad industry is the fastest growing medium compared to traditional advertising," said Stewart Barry, equity analyst at Delafield Hambrecht.

"Particularly in a down economy, marketers want more measurable media, so this is the result of dollars moving away from traditional media, as well as Avenue A's ability to demonstrate the effectiveness of online advertising," Barry added.

Avenue A expects the coming year to bring similar good tidings. It anticipates first-quarter gross profit to be in the range of from $11 million to $13 million on revenue of between $36 million and $40 million. For the full year 2003, the company expects gross profit of between $53 million and $60 million on revenue of between $160 million and $180 million.

Avenue A President Brian McAndrews remarked that the company had reached a milestone, particularly given the economic times, by achieving GAAP net income for the first time in the fourth quarter.

"By aggressively working our business plan, while carefully managing our resources, we have emerged not only as a survivor, but as an industry leader," McAndrews said.

The 6-year-old company operates the interactive agency Avenue A and an advertising technology unit called Atlas DMT. Earlier this year, it bought Philadelphia-based i-Frontier, which specializes in Web design and development.

During a recent interview, McAndrews said the company has seen significant growth this year despite the economic doldrums because of its relationships with large advertisers, including Microsoft's MSN, AT&T Wireless, Parkplace Entertainment and Weightwatchers. The company recently hosted a publishers' summit in Seattle to thank its customers and discuss industry issues, which have focused of late on the continuing losses at Internet titan AOL Time Warner.

"The legacy of AOL Time Warner--that revenue is down for a major player--clouds the fact that traditional advertisers are joining the Web and traditional agencies are getting online and increasing their spending," said McAndrews.

"A great portion of our growth in 2002 came from agencies spending more money with us," McAndrews added. "Atlas DMT is still a small part of our business."

One of the trends Avenue A wants to capitalize on in 2003 is online-advertising analytics. It's working on building tools that help advertisers measure online ads that resulted in offline sales, while protecting Web surfers' privacy.

Avenue A ended the year with $121.4 million in cash and short-term investments.