Analyst reports: Wall Street scolds online media company

After a disappointing earnings report and a round of layoffs, 24/7 Media may wish it could stop the clock.

3 min read
After a disappointing earnings report and a round of layoffs, 24/7 Media may wish it could stop the clock.

The New York-based Internet advertising company woke to a raft of negative analysts reports on Thursday, the day after it announced that third-quarter losses widened to $56.8 million from $11.7 million in the same quarter a year ago.

In early trading, the stock bottomed out at a new 52-week low, hitting $2.81 before a tepid rally pushed the stock price up to $3.59. That's down 22.3 percent since Wednesday's closing price and 95.7 percent below the company's 52-week high of $65.25. The stock has slipped 36.8 percent since Monday.

On Wednesday, 24/7 Media said it would slash 200 jobs, or 17 percent of its work force, over the next two months to help make the company profitable and save an estimated $20 million per year.

The company also said that it lost $22.5 million, or 59 cents a share, in the third quarter, excluding special costs. Analysts polled by First Call/Thomson Financial expected it to lose 47 cents per share.

Executives blamed the shortfall on a sharp slowdown among Internet advertising clients. Chief executive David Moore said the slowdown would continue to sap revenue for the "near term."

Tough times
24/7 Media is one of many Internet media companies that have stumbled into tough times as corporate customers question the effectiveness of banner ads and other online marketing efforts. Internet Capital Group and Engage also missed earnings targets and announced layoffs this week.

"The Internet advertising stocks are all trading lower because of the news," said Todd Clark, head of list trading at WR Hambrecht. "We're seeing weakness across the board."

Although many online advertising companies are struggling, 24/7 Media hogged the Wall Street spotlight Thursday as analysts rushed to pen negative reports.

Analysts typically downgrade companies in cautious increments of one step--from "strong buy" to "buy," for example. But several analysts ratcheted 24/7 Media down multiple steps--from "strong buy" to "hold," for instance.

UBS Warburg downgraded 24/7 Media from "strong buy" to "hold." Pacific Crest bumped it down from "strong buy" to "market perform."

Deutsche Banc Alex Brown downgraded it from "buy" to "market perform." Credit Suisse First Boston and Wit SoundView downgraded it from "buy" to "hold." Adams Harkness downgraded it from "accumulate" to "market perform."

Analyst Rudolf A. Hokanson at CIBC World Markets took a different tack than the 24/7 Media naysayers. He remained bullish and reiterated his "strong buy" position and 12-month target price of $50 per share.

In a research report titled "Risk and Reward Time," Hokanson said he recently traveled with 24/7 Media management and came away feeling good about the company.

"We continue to believe that this is a viable story and that Internet advertising is alive and well," he wrote in a research report. "While this sector has risks, we believe 24/7 is attractive when properly examined...Weak players are falling off, but traditional advertisers are warming to the medium due to its ability to provide rewarding marketing and branding solutions. 24/7 Media is one of the solutions providers that is expected to continue to show meaningful growth."