Advertising Sector Feeding Frenzy

That online advertising service leader DoubleClick Inc. (DCLK) may be willing
to buy 24/7 Media, Inc. (TFSM) at twice its recent valuation is a good sign it
takes the CMGI (CMGI) threat seriously.

DoubleClick is rumored to be in talks with 24/7 Media regarding a
buyout, with a price of $1.5 billion reported by one source. The
whispers sent 24/7 Media shares skyrocketing Friday, as TFSM rose to
$47.38 Friday in heavy trading. (The price was down to $46 early Monday
afternoon in lighter trading.)

Even at the elevated price range, 24/7 Media still has a market
capitalization below $1 billion. But DoubleClick could be willing to pay
a premium because 24/7 Media is one of the largest online advertising
companies still available in the wake of CMGI’s September spending

Last month CMGI announced its intentions to purchase three Internet ad
companies: Flycast Communications (FCST) for $690 million, AdForce (ADFC) for $500 million and — through portfolio company Engage
(ENGA) — AdKnowledge for $193 million.

The feeding frenzy surrounding online advertising services and software
providers has made Advertising/Marketing the hottest Internet stock
sector in the past month, based on figures from the weekly Internet
StockTracker newsletter.

In the issue released Friday, the Advertising/Marketing sector was up
13.2%, well ahead of the runner-up sector, E-Commerce Enablers, which
rose 8.9% from the previous week. (And that first figure includes
neither 24/7 Media’s nor DoubleClick’s Friday gains.)

When the Flycast purchase was announced Sept. 30, CEO David Wetherell
said CMGI’s goal was to provide full, end-to-end solutions for online
advertisers and Web publishers.

Of course, its real goal is to dominate that market. CMGI’s lineup now
includes the three companies acquired last month, as well as Engage, a
marketing services firm, and Adsmart.

DoubleClick, for its part, has not been idle. The company announced in
July it would buy rival NetGravity (NETG) for $530 million, and in June said it would buy marketing research firm Abacus Direct for $1 billion.

In terms of revenue, DoubleClick is still the clear market leader, with
$44 million in sales in Q2. In contrast, Flycast had revenues of $6.4
million, while AdForce had $4.2 million and Engage Technologies had $9
million in their most recent quarters.

Hanging over DoubleClick’s head, however, is the AltaVista problem. CMGI
owns AltaVista, which is DoubleClick’s biggest customer, accounting for
more than 40% of the company’s revenues. A CMGI executive wasn’t kidding
last week when he told Bloomberg News, “We have the ability to move
about half the current business that DoubleClick is doing over to the
CMGI family.”

With AltaVista all but gone from its stable when its contract expires in
two years, DoubleClick must broaden its revenue base. With $17 million
in revenue in the most recent quarter, 24/7 Media would roughly make up
for loss of AltaVista earnings.

In the meantime, look for both CMGI and DoubleClick to size up and
perhaps snatch up some of the remaining companies in the dwindling
Advertising/Marketing sector. Among those are @plan (APLN) and The
Cobalt Group
(CBLT). Neither can match 24/7 Media’s revenues, but when
the name of the game is to buy companies before your main competitor
does, that may not matter.

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