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DoubleClick hot, set to expand

Having captured Wall Street's attention, DoubleClick now faces the challenge of proving the value of Internet advertising to mainstream America.

DoubleClick (DCLK) has captured Wall Street's attention, and now faces the challenge of proving the value of Internet advertising to mainstream America.

The company went public during a hot period for tech IPOs and its shares have risen along with those of other Internet stocks. But it still faces stiff competition in an unproven market, as well as a privacy controversy about its product. Like all Internet stocks, it also is subject to volatility.

The quiet period following the company's offering ended yesterday, and the three underwriters for the deal initiated official coverage of the company. Today BT Alex. Brown analyst Shaun Andrikopoulos picked up DoubleClick with a "buy" rating, Goldman Sachs initiated coverage with a rating of "market outperform," and Cowen & Co. analyst Jamie Kiggen yesterday initiated coverage with a "strong buy" rating.

DoubleClick shares, which gained 3/4, to 35-3/4, in morning trading, have jumped more than 110 percent since their IPO last month, up 18-3/4 from the $17-per-share price set by underwriters.

"DoubleClick is the dominant Internet advertising network, and is a proxy for the growth of advertising, direct marketing, and retailing on the Internet," Kiggen said in a research report, noting that he is projecting a 70-percent three-to-five year earnings-per-share growth rate. He predicted that the company will become profitable in 2000.

Since the company's public offering, DoubleClick has rounded out its executive team and has expanded its efforts to the West Coast. It also has weathered the controversy that erupted over its use of cookies, small data files written to hard drives by some Web sites in order to track Internet usage patterns, according to company executives.

DoubleClick last week named Jonathan Shapiro as vice president of business development and Robert Linsky as vice president of operations. Shapiro joined the company from McKinsey and Co.'s Interactive Multimedia Practice. Previously, he managed United Media's Internet business, which features "The Dilbert Zone." Linsky previously was vice president of Internet business development at American Express.

The chief financial officer position, however, remains vacant. Company president Kevin Ryan has been serving as acting CFO, but will move out of the position once it is filled. DoubleClick said it has some candidates in mind and hopes to fill the position within the next month, said chief executive Kevin O'Connor.

The company also announced plans to expand its Silicon Valley sales team. David Gwozdz, one of the founding members of DoubleClick's strategic sales team, will head up the Bay Area office as regional VP. Previously, Gwozdz was district sales manager for CMP Publications.

O'Connor said the company has aggressively moved a team out to the Valley because of the volume of Web and technology companies in the area.

"Today the Web is big national-brand advertisers, but the market is far bigger than that," O'Connor said. "The Web is the most superior medium for advertising. We aren't there today, but the potential?. Where else can you measure purchased products? That just doesn't exist elsewhere. The Internet has a real advantage."

O'Connor estimated the value of the worldwide ad market at $375 billion, including broadcast and print. DoubleClick's long-term goal is to prove the value of the Internet to advertisers, and O'Connor said the company must compete with print and TV in order to do so.

"The biggest barrier two years ago was that barely anyone was on the Web, but now companies are on the Web--their CEOs are on the Web. Today we don't go in and tell [clients] about the Web. They know it is big," O'Connor said. "Today the challenge is to demonstrate that Internet advertising works."

Despite the money to be made, Doubleclick has been dependent on a small number of advertisers for the bulk of its revenue.

Revenues from advertisements delivered on the AltaVista Web site represented about 45 percent of the company's revenues for the year ended December 31, 1997. Ads delivered on the top four Web publishers on the DoubleClick Network accounted for about 61.2 percent of the company's revenues for the year. The company anticipates that a substantial portion of its future revenues will be derived from ads delivered on the Web sites of a limited number of Web publishers, according to a filing with the Securities and Exchange Commission.

DoubleClick's sales offices in the United States are located in New York, Chicago, Boston, Dallas, Detroit, Los Angeles, and Atlanta. The company has eight offices internationally.

The biggest piece of the advertising solutions company is the DoubleClick Network. It currently is made up of about 60 sites, which include Travelocity, United Media, Edgar-Online, US News, AltaVista, and Fast Company.

The relationships with those partners are exclusive, so in order for businesses to advertise on those sites, they must go through DoubleClick. As a result, any revenue generated is shared between the content provider and DoubleClick.

DART, dynamic advertising reporting and targeting, is the backbone of the DoubleClick Network. The system, which allows advertisers to see how well their banners are performing, is what in the end serves the ads to all of the Web sites on the network. The technology also is licensed out to third parties, such as NBC Interactive, CBS, Wall Street Journal Interactive, Intuit (INTU), and RealNetworks (RNWK).

DoubleClick Direct, a division of the larger company, directs online marketing. It uses a system called Darwin that "learns" from consumers by recognizing what ads are being clicked on the most. In turn, it shows less of the ads that aren't working and follows the success of individual ads. The system benefits both the advertiser and DoubleClick because it affects the amount of revenue that ultimately will be shared.

Finally, the DoubleClick International Network is the same at the network in the United States, which is made up of 60 sites. Currently there are eight international networks.

A number of online advertising companies have consolidated in recent months. For example, Internet advertising service firms Focalink and ClickOver merged, just weeks after Web ad auditor Internet Profiles [I/Pro] bought its biggest competitor, NetCount.

DoubleClick was hit with negative press last year because of its use of cookies, which identify unique users and their surfing habits, to provide its clients with accurate numbers of unique visits to their Web sites. These files contain information the site can use to: track things like passwords, compile lists of pages visited, and reveal the date when a certain page was last viewed.

O'Connor argued that there was misinformation last year about what a cookie can and can't do, and said the controversy over the issue now is behind the company. DoubleClick now outlines its policy on privacy at its Web site. It also allows users to "opt out" of having cookies in their machines. At the company's Web site, users can deny or accept this feature.

"Now that people know what it can do, this is a non-issue," he said. "We don't have names, we don't know who you are, and it isn't important."

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