Digitas Execs: "We're Insulated" From Industry Turmoil
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Interactive agency Digitas said it's faring better than others in the current Internet marketing slump, despite a slight decline in revenues and widening losses.
Before-charges cash earnings from the company's first quarter of 2001 totaled $1.8 million, or $0.03 per share. That's well below the $4.5 million in earnings brought in a year ago, and the $4.3 million it garnered last quarter.
But as compared to the rest of its sector, it's actually not that bad.
In addition to marchFIRST's spectacular burnout, recent weeks have seen ad agency holding company Omnicom Group announcing plans to reorganize its interactive agency portfolio -- which includes Organic, Razorfish and Agency.com -- because of its poor performance in the face of sector-wide revenue woes. Razorfish, for one, posted its first pro forma net loss in fourth quarter, a sizable $19.8 million.
Boston-based Digitas hasn't been bulletproof. Execs said in a call Tuesday that senior management would take a temporary 5 percent pay cut, and that the company would be cutting 65 positions from its administrative personnel, and "realigning" real estate contracts to slim overhead. But the company has yet to make cuts in its billable employee roster, and remains one of the few interactive agencies not to have done so.
Overall, Digitas reported a net loss of $6.6 million, or $0.11 per share, for the quarter, compared to a loss of $7.5 million, or $0.14 per share, in the year ago period, and $5.5 million last quarter.
While Digitas conceded that clients have trimmed their spending by an average of 10 percent -- resulting from reduced work volume, rather than pay cuts -- the company says it's kept its client roster largely intact, and even added new names like FleetBoston Financial and BestBuy.com.
"In a tougher-than-expected economic environment ... market share continued to rise with demand for the Digitas platforms and programs that help our clients attract, retain and cross-sell customers," said David Kenny, the company's chairman and chief executive.
Digitas' ability to keep revenues largely in check comes as other players in Internet marketing and advertising -- including big boys like Yahoo! -- admit to seeing slowing business from increasingly cost-conscious traditional clients.
"We are gaining share of our clients' marketing and marketing technologies investments, even as they constrain these budgets to accommodate the current economic environment," said Kenny, who added that Digitas is in final discussions with "major clients."
"Our business model, based on long-term strategic partnerships with our clients, has helped insulate us from the impact of the economic slowdown," said chief financial officer Jeff Cote.
Additionally, Kenny said that Digitas is shifting its work for many clients from technology services to marketing and strategy -- work that competitors might be less able to do easily.
"I think that a number of corporations feel that they've overinvested in technology infrastructure, and need to spend more on applying results," Kenny said. "We're seeing a little shift. People want to get more use out of what they've built."
"I am happy with the state of the business, and our business model continues to hold," he added. "And I remain very confident that we've taken steps to stay cash positive as an enterprise."