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DoubleClick Sees Another Year Of Weakness

Earnings season is barely underway, but so far the only second-half recovery that companies are talking about is the second half of 2002.

Corning on Monday said the telecom equipment spending slowdown could last another 12-18 months.

And on last night's conference call, DoubleClick CFO Stephen Collins said "the best-case scenario is for growth to return in mid-2002." Not the best preview for Yahoo's earnings report tonight, and it certainly casts doubt on recent analyst comments that the bottom may be in for online advertising.

But before you rush out to sell your DCLK stock, consider this: the company is swimming in cash. $814 million of it, to be exact. With a $1.5 billion market cap, that's a lot of cash. The company has $256 million in long-term debt, but that balance sheet is enough to get the company through a couple more years of an advertising slowdown.

On to the numbers, which merit closer scrutiny. DoubleClick beat pro forma estimates by a penny with a 7-cent loss, or $9.5 million, and guided forward estimates slightly lower. But the emphasis in those results should be on "pro forma," which essentially means "hypothetical."

DoubleClick, as every other company does in its earnings press release, excluded charges that the company considers to be a one-time affair. However, that's not the GAAP accounting that the company will report to the SEC. DoubleClick lost an additional $28 million in "non-recurring" items last quarter (such as acquisition and restructuring charges), for a total loss of just under $38 million, or 29 cents a share.

That $28 million charge was on top of another "non-recurring" charge of about $50 million in the first quarter. All told, the company has lost almost $100 million in the first half of the year under GAAP accounting, up from a $40 million loss in the first half of 2000. Good thing it has that $800 million cash cushion. In fairness to DoubleClick, the company did report the GAAP numbers in its press release, which more and more companies are doing. But the message is clear: always read the press release thoroughly.

A look at DoubleClick's chart (below) indicates that it likely will open right on critical support at 11.50. A move much below that level would likely move the stock from a neutral to a bearish bias.

Online advertising is still in its infancy. The industry has done a good job experimenting with new formats and placements (with the exception of those annoying pop-up ads) to make online ads more appealing and effective. Eventually those efforts should pay off, and DoubleClick will likely still be around when they do.



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