COMMENTARY -- DoubleClick (Nasdaq: DCLK) and 24/7 Media (Nasdaq: TFSM) have a message for their suffering shareholders -- prospects may be looking up in 2001. Of course, that's only because things can't get too much worse.
While acknowledging the slowdown in online ad growth, execs from DoubleClick and 24/7 Media reiterated that they would be long-term players.
At the USB Warburg media investment conference this week, DoubleClick and 24/7 Media talked about resetting short-term expectations and the long run. Both companies are learning from the market downturn, but DoubleClick is in the best position.
DoubleClick, which has plenty of cash to weather a storm, confirmed that it cut its workforce by about 100 to 150 people, or less than 10 percent, but noted that the reductions put the company at its June 2000 headcount. That's more than enough people to grow the business. Jeffrey Epstein, executive VP at DoubleClick, preferred to call the layoffs "right-sizing the business," but the implications were clear -- the company didn't have the revenue to support the headcount.
DoubleClick spends about $160,000 per year per employee, Epstein said. That includes compensation, benefits, the cost of providing office space and other expenses. More cuts are possible.
Analysts took DoubleClick's cuts as evidence that the company is prudent. "Management is extremely focused on accelerating profitability and monitors very carefully revenue per employee," said SG Cowen analyst Scott Reamer, who stuck to his "buy" rating.
Epstein also said something that's worth considering -- DoubleClick is a leader. Even though DoubleClick is in rough waters for the foreseeable future, it fully expects to grab market share, especially for its technology business. "Would you go with a company that has three months of cash left and just laid off 30 percent of its engineering staff?" he asked.
You may find DoubleClick's optimism a bit strange since doom and gloom abounds, but the company has the ammunition to come out of this downturn looking better. Market leaders in downturns all make a grab for market share and normally look pretty good when conditions rebound. We've seen it with many tech companies such as Micron Technology and Applied Materials, which used the Asia financial crisis a few years ago to increase their dominance.
Online advertising also has a few trends on its side -- Internet usage is increasing and online advertising is still growing, but at a more rational pace. When online advertising picks up again sometime in the second half of 2001, DoubleClick could become even more dominant. However, don't be surprised if analysts continue to cut estimates for DoubleClick.
24/7 Media CEO David Moore sang the same song as Epstein, but had a harder sell. When Epstein made the reference about competitors running low on cash, he could have highlighted 24/7 Media, which had $23 million in cash at the end of the third quarter.
Moore took on last quarter's debacle with a bit of gallows humor. Moore quipped that DoubleClick was following 24/7 Media with its layoffs (24/7 Media announced a 30 percent cut). The third quarter was a "hiccup," he said.
Talk about reality distortion fields. That hiccup knocked 24/7 Media to below $2 a share, but Moore remained upbeat. "In spite of a rocky last six months, 24/7 has more opportunity than ever," he said.
Moore noted trends indicating that online usage is growing in the U.S. and abroad. He also talked up Europe, which didn't experience the dot-com frenzy. Europe is seeing measured growth in online advertising, highlighted by traditional advertisers.
The 24/7 Media CEO also reiterated the company's guidance for sales in the range of $48 million to $53 million in the fourth quarter and break even by the end of 2001. But that guidance only shows that 24/7 Media projected its problems correctly with its last warning.
Will 24/7 Media survive? Moore thinks so, but DoubleClick's argument that leaders survive downturns carries a lot more weight. 24/7 Media's assets would make a nice acquisition target, but Moore wasn't into that idea. "I'm fearful that someone would want to buy us," he said. "I'd rather go it alone, there's more upside."
Shareholders may disagree.
Odds and ends
Did you notice the profit warnings from newspaper companies Dow Jones & Co. and Tribune Co.?
It's just another piece of the dot-com domino effect we highlighted two months ago.
The column is worth revisiting -- I may have to add a few more dominoes in there. Now if real estate in Silicon Valley will become more reasonable, we'll know we're almost done with the shakeout.TDAIN
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