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DoubleClick Beats Lowered Estimates

Despite one of the harshest quarters for the ad market to date, online ad giant DoubleClick posted results in line with guidance it reduced late last month.

The Alley-based firm saw a net loss of $103.5 million, or $0.77 per share, on $92.7 million in revenue. That net loss includes a $63.3 million impairment writedown and other one-time charges, and, as a result, is about $1.6 million more than last quarter and a staggering 90 percent greater than year-ago net losses.

Excluding those one-time charges, DoubleClick posted a pro forma loss of $12.6 million, or $0.09 per share, a penny better than analysts actually expected, according to Thomson Financial/First Call.

Yet, in a reminder of the industry's woes, DoubleClick's revenues were down 31 percent from last year, and 9 percent lower than last quarter. Last quarter, the industry bellwether posted a pro forma loss of $9.5 million, or $0.07; a year ago, DoubleClick saw a pro forma profit of $3.7 million, or $0.03.

Another fact should be similarly troubling for online media players. DoubleClick said a whopping 40 percent of its revenue came from its direct marketing businesses -- its Abacus database division and its DARTmail e-mail unit.

Media, meanwhile, made up only 12 percent of DoubleClick's profits -- 22.2 million. That's down 65 percent from last year and 34 percent from last quarter. (DoubleClick's ad and e-mail serving unit, TechSolutions, comprised 52 percent of the company's revenues -- three percent less than last quarter, while the firm's Abacus and Diameter operations comprised 26 percent of the company's total revenue, up 4.8 percent.)

Executives painted the new importance of the firm's e-mail and Abacus divisions as a major strategic win, with chief executive Kevin Ryan saying it was proof that DoubleClick "has successfully executed a diversification strategy." For the past several months, he and other executives had spoken at length about the importance of enhancing the company's e-mail program -- which earlier this year bought FloNetwork and currently is planning to close a purchase of another competitor, MessageMedia.

Now, such talk would appear to be vindicated.

"Marketers tend to shift dollars into direct response marketing in tough market environments, and DoubleClick will benefit from this trend," Ryan said. "DoubleClick is in the right position. Ultimately, there's no one better placed than us, whether it's a good economy or a down economy."

But for weeks, critics have contended that DoubleClick -- like other companies that revised their earnings guidance downward after the Sept. 11 terrorist attacks -- had used the tragedy as an excuse for lower-than-expected earnings. (Previously, the firm had expected a $0.05 to $0.07 per share loss.)

Naturally, DoubleClick refuted the allegation.

"Let me be clear that despite a weak environment, prior to the week of Sept. 11, we fully expected to meet guidance," said chief financial officer Bruce Dalziel. "Immediately following Sept. 11, domestic media volume fell more than 60 percent and [DART for Advertisers] volume fell 30 percent ... When all was said and done, our revenues recovered ... not too far from our original guidance."

Executives said that such market woes were forcing the company to engage in very strict expense reductions. Dalziel said DoubleClick had reduced general and administrative expenses 21 percent from last year, and headcount down 21 percent to 1,659.

Following layoffs last week, that figure is now at 1,580, a spokesperson said. The company also disputed published reports alleging that it would cut 100 posts during the next quarter.

"The number will certainly decrease, but we haven't determined the amount," the spokesperson said.

Added Dalziel, "We are running a very tight ship ... DoubleClick will continue to manage costs and remains strongly committed to delivering profitability in whatever economic environment 2002 brings."

As a result, Ryan waxed optimistic about the company's future results, saying that DoubleClick anticipated fourth quarter revenue between $84 million to $92 million, with projected pro forma losses between $0.03 and $0.05 per share. That's better than the consensus estimates of an $0.08 per share loss, though slightly below previous revenue guidance.

Next year, Ryan added, would be profitable.

Exiting the quarter, DoubleClick had $778 million in cash and marketable securities, and said it retired $20.3 million of its long-term convertible debt.

Separately, DoubleClick announced earlier on Thursday that it had shaved millions off the amount it had originally offered for MessageMedia.

In the original purchase offer, made in early June, DoubleClick said it would issue 4.36 percent of a share for each share of Louisville, Colo.-based MessageMedia's stock. That offer represented a 42 percent premium over MessageMedia's 10-day average closing price of $0.42 per share, based on DoubleClick's stock price of $13.89 on the day of the offer. All told, that's about $41.6 million in stock that DoubleClick would have been handing over.

Now, however, DoubleClick will issue a million shares of its stock, worth about $7.4 million at press time. Additionally, the online ad server and network said that it could make up to $1.5 million in financing available to MessageMedia, though it did not disclose the conditions under which it would pay.

As of press time, that means that DoubleClick would be spending only about 18 percent of what it originally offered, and actually 17 percent less than the price at which MessageMedia currently trades.

At the day's opening, the deal represented less than half of MessageMedia's market capitalization, which dropped by half on the news.

Like the earlier agreement, the revised deal is subject to the approval of MessageMedia's shareholders, which will likely come -- if ever -- during the firm's annual shareholder meeting in fourth quarter.

It's difficult to know exactly the reasoning behind the change, although it's likely that DoubleClick realized it can now get away with paying much less for MessageMedia.

"The terms of the deal changed due to prevailing conditions over the past three months which impacted the market and each of the companies, so both companies decided to go back to the negotiating table," said the spokesperson. "We remain really excited about the partnership ... and MessageMedia has approved it, and is favorable toward it."

Despite the radical change in valuation -- from a premium over MessageMedia's stock price to significantly below that price, the spokesperson added, "It's only normal that once both stock prices go down ... both companies want to renegotiate terms. Times are what they are."