24/7 Media Misses Estimates, Announces Staff Cuts
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24/7 Media surprised analysts and investors with some bad news during its quarterly financial report on Wednesday, missing its third-quarter earnings by $0.12 per share and revising its future revenue and profitability estimates.
The Silicon Alley-based ad network and marketing technology company also confirmed rumors that it will be cutting nearly 200 jobs as part of "a strategic operating plan focusing on the company's drive to profitability."
24/7 reported $48.1 million in revenue for the quarter -- nearly double the year-ago quarter's revenues. Pro forma net loss in the third quarter was $22.5 million, or $0.59 per share, versus a $7.4 million, $0.35 per share pro forma lost in the same period in 1999.
Wall Street consensus expected the company to post a $0.47 per-share loss for the quarter.
"We are not satisfied with these results," said 24/7 chief executive David Moore. "We experienced challenging market conditions in the third quarter. We recognize that bottom-line performance is the focal operating metric and we are implementing a number of significant initiatives, ensuring our drive to profitability."
Revenues from the company's ad network proved to be a disappointment. They came in at $26.0 million, 19 percent up from the prior year. Some 16 billion ads were sold and delivered throughout the quarter, with average CPM rates of about $1.63.
24/7 Media execs cited several reasons for its network's sluggish revenue performance, including the relative growth of the online ad marketplace and the cutting of some low-margin accounts to direct attention to higher yielding clients.
"While the 24/7 Network was subject to the slow-down in the online advertising expenditures, we experienced continued strength in both mail and technology and we intend to focus more of our resources in these higher margin businesses," Moore said.
In particular, 24/7 Mail, which includes revenues from the firm's list management and list brokerage businesses, could prove to be a cash cow for the company. While revenues from the practice totaled only $9.7 -- nearly three times the take a year ago -- the number of permission-based e-mail addresses that the company controls increased 9 percent to 25 million, with access to an additional 5 million addresses from its mainland Asia partner chinadotcom. The company also said it achieves an average CPM of about $199 on e-mail marketing.
In more alarming news for investors, the company only has $23.1 million in cash. It holds $89.9 million worth of marketable securities, including investments in including chinadotcom, i3 Mobile and Network Commerce, all business partners important to 24/7 plans for global expansion and emerging media.
Clearly, the company is going to have to do something in addition to a restructuring, which management said it expects to shave only $20 million off annual losses. At the current burn rate, 24/7 will expend its cash holdings by next quarter, and then be forced to dip into its equity holdings -- unless revenues pick up for the company.
And there's little reason to assume that they will: the company also trimmed its future growth expectations, predicting zero to 15 percent overall growth until second quarter of 2001, when it anticipates the online ad market will pick up.
So, if 24/7 cashes in all its equity and continues to post similar losses, the company will run out of funds by the end of next year. Luckily, that's when the company now predicts profitability -- although it had previously said it would break even in mid-2001.
The sour news comes on the heels of management changes. Late last month, David Moore gave up the president post to Tom Detmer, formerly CEO of Exactis. At the time of the appointment, Detmer, who also holds the post of chief operating officer for the company, hinted at job cuts but declined to provide details.
Shares of 24/7 closed the day at $4.64, off 17.