24/7 Media Misses Earnings Widely, But Scores Credit Deal
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Cash-strapped online ad network 24/7 Media got a reprieve from imminent shutdown, in the form of a $50 million line of credit -- despite missing its fourth-quarter and annual earnings projections by a wide margin.
For the quarter, the company posted a pro forma loss of $31.7 million, or $0.75 per share. That's well in excess of guidance given in December, when it said it would see fourth-quarter revenue in the $48 million to $55 million range, and a loss of $0.39 to $0.44 per-share loss, roughly $14.9 million to $16.8 million. Instead, revenue came in at $38.6 million, up 4.1 percent from the year-ago period but below third-quarter's $48.1 million. Last quarter, it posted a loss of $0.59 per share.
Net loss for the quarter was a whopping $677.1 million, which includes, among other one-time charges: intangible asset and investment impairment of $601.6 million, a restructuring charge of $12 million, and bad debt expenses totaling $4.5 million.
For the year, the New York-based company posted a loss of $78.8 million, or $2.36 per share, on revenue of $185.2 million -- 106 percent better revenues than in 1999, but a 340 percent greater loss.
Analysts were expecting the firm to post a loss of $0.50 for the quarter, and $2.03 for the year, according to Thomson Financial/First Call.
The fourth-quarter loss stems in large part from 24/7's Mail unit -- which fell short by $0.10 per share. That's surprising, since e-mail is one of the healthier areas of the troubled online marketing industry, but executives said that the problem wasn't that 24/7 Media's Mail unit underperformed, but that its performance suffered from "weakness in ... forecasting."
However, portions of the company's net quarterly loss were offset by $18.1 million it received through the sale of portions of 24/7 Media's portfolio last year, including a chunk of its stake in chinadotcom. At the end of the year, 24/7 Media has about $38 million in cash and marketable securities.
"No one could have anticipated the enormous challenges the Internet advertising industry has faced in the past year," said chief executive David Moore during a brief conference call with analysts after the market closed Wednesday. "The poor visibility within the industry has caused company after company to continually lower guidance re-defining the term 'rock bottom'. The rapid demise of many Internet companies was unexpected and the adoption of the online advertising medium by traditional advertisers has taken longer to materialize than we hoped."
"The combination of these two realities, in conjunction with the overall economic slowdown, has forced many new economy and traditional companies to slash discretionary spending budgets, especially advertising," he added.
Moore said the company "firmly believe[s] in the long-term viability of the interactive marketing space" because people are spending more time online than ever before.
Apparently, though, that won't be enough to help 24/7 Media and its peers avoid seeing another several quarters of sluggish revenues. The company said it was "moderating growth projections" and expected a 35 to 40 percent sequential decline in first quarter, with 5 to 10 percent quarterly growth thereafter.
24/7 Media said it's expecting $22 million to $29 million in revenue during first quarter, and $23 million to $30 million during second quarter.
But in good news for investors, 24/7 Media said it has secured an equity credit line, enabling the company to potentially raise up to $50 million of additional financing gradually over the next two years. The amount of financing available to the company is determined by the price per share and trading volume of its common stock.
The company did not disclose the name of the lender, nor did it take questions from analysts or journalists following Wednesday's call.
"We have secured additional financing to help 24/7 Media weather the storm," Moore said. "We are disappointed with the fourth quarter results as well as the revised forecast for 2001. However, we take pride in many of our accomplishments over the past year and with this additional financing, we are encouraged that our prospects remain strong in our goal to be the preeminent global provider of interactive marketing solutions."
Additionally, company executives said the firm would continue to consider various, unspecified "strategic and financial alternatives" to get more cash, since the equity is dependent on 24/7 Media's stock price -- which closed just above its 52-week low, at $0.70 per share.
"We continue to develop, invest and grow our business, firmly believing the old industry saying: ad dollars follow the eyeballs," Moore said.