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DoubleClick: Will Yahoo! Prove Ominous?

As I mentioned in Monday's column, it is probably a good idea to stay away from buying Net companies before they announce their earnings. Even companies that show better-than-expected earnings are getting whacked. Of course, this was the case with Yahoo! yesterday. The stock fell 20 percent.

The company generated $81 million in profits or 13 cents a share, which was one penny better than the consensus. Revenues were $295.5 million, which was up from $155 million from the same period a year ago. Analysts had expected $290 million in revenues.

But the concern was not last quarter. Rather, the concern is for the next few quarters. With online advertising slowing, it is hard to justify the substantial valuation of Yahoo! Actually, I would not be surprised to see further erosion in the stock.

Unfortunately, this will have a wide-scale impact on the whole online advertising industry. One company that looks vulnerable is DoubleClick , which reports its earnings on Thursday (after hours).

True, the company is not merely an online advertising network; rather, it has been diversifying its service offerings. One part is the traditional industry of customer data collection (this business was from the Abacus acquisition). In fact, Abacus typically has a strong third-quarter.

However, it seems inconceivable that DoubleClick will have a blow-out quarter. Analysts consensus show revenues to range from $130 million to $140 million. Earnings are forecasted at 3 cents a share, which is up from a 7 cent loss from last year.

DoubleClick does have the advantage of a $2.6 billion market cap and $881 million in the bank. With other online advertising companies at dire valuations, DoubleClick has a great opportunity for "cherry picking."

Actually, DoubleClick has already been snapping-up companies. One was the acquisition of NetCreations, which is a leader in opt-in e-mail marketing. The database has more than 15 million e-mail addresses from 350 client sites. The fact that the list is opt-in means that the users are definitely receptive to the content (known as permission marketing). Another important deal was for @plan, which has strong market research capabilities.

So, while I think DoubleClick is a great company, I think it is too early to buy the stock. The next few quarters will involve a serious transition from the company, as it integrates existing acquisitions and also makes new ones. But long-term, DoubleClick will likely be a winner.