Engage analysts hold off for further guidance

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Analysts couldn't commit to Engage (Nasdaq: ENGA) Wednesday after the company reported a weak quarter and said it would give further guidance after it sorts out a restructuring; most maintained their ratings while holding out for what is expected to be yet another negative pre-announcement.

Shares in the online marketing company were down 22 percent, or 0.44 to 1.53 following its announcement; competitor DoubleClick (Nasdaq: DCLK) actually got a boost from its warning Tuesday.

Engage reported first quarter earnings that were below analysts already reduced estimates, and said current quarter revenues are tracking below expectations. It also declined to give second quarter or 2001 guidance, but said it expects to lower numbers again after completing a restructuring under new CEO Tony Nuzzo in 3 to 4 weeks.

Analyst Jim Pettit at Chase H&Q reiterated a "market perform" rating on Engage and suspended estimates due to market conditions, recent executive changes, and Engage's announcement that it has moved to an "assessment" phase aimed at streamlining several of the company's divisions.

"Since its...conference call on September 21, Engage has 1) pre-announced, and 2) revised its already-lowered forward estimates. The disappointing results posted yesterday, combined with management's inability to give forward guidance and an increasingly difficult market give us little choice but to remain on the sidelines...We remain cautious in the near-term until we receive further evidence from management that conditions are improving," Pettit stated in a research note.

Pettit noted that the company's cash burn of $28 million in Q1 leaves it with $107M in the bank. On the conference call, management reiterated its goal to reach profitability by July1, something Pettit said is "obtainable."

Goldman Sachs analyst Vik Mehta reiterated a "market perform" and went ahead and forecast revenue for the company's second quarter and fiscal year, despite the expected restructuring.

In the near-term, he lowered second quarter and fiscal 2001 revenue and operating earnings estimates to $40 million and 18 cents a share, and $170 million and 65 cents a share, respectively. Previous numbers for the periods were for $46 million and 15 cent share, and $190 million and 0.55 cents a share, respectively.

"We believe ENGA shares will continue to trade in the sub-$2.0 range until concrete evidence of revenue growth, product adoption, and cost reduction is made apparent," Mehta stated in a report.

Banc of America Securities analyst Christopher Hansen also reiterated a "market performer" rating and lowered estimates significantly, noting that the "future looks bleak."

He said first quarter results "have confirmed our worst fears for the company," including a dramatic decline in the gross margins of each of the company's lines of business, and a re-acceleration of the company's cash burn rate.

"While Engage continues to believe it has adequate cash to achieve profitability (i.e. $101 million), given the severe deterioration in fundamentals we remain thoroughly unconvinced and continue to recommend investors AVOID the stock until signs of a turnaround are clearly evident," Hansen stated.

Deutsche Bank Alex Brown analyst Vivian Kuan also held a "market perform" rating and held off on making any changes to fiscal 2001 estimates.

"The outlook relies heavily on the extent that management wishes to invest in each segment," Kuan said.

Kuan maintained the company could make it to profitability if it further reduces its cash burn rate, and uses the $50 million commitment available from CMGI.

On an upbeat note, Kuan added that "the hiring of turnaround specialist Nuzzo and the pending organizational changes... appear to be positive steps in the right direction."