Internet ad services market leader DoubleClick
wasn’t the biggest gainer Tuesday among members of internet.com’s Internet Stock Index – that honor belonged to PSINet
, which soared 49% after announcing another round of layoffs and on rumors that Sprint may be interested in buying the beleaguered access provider.
But the fact that DCLK gained at all after issuing a warning for Q4 after Monday’s market close is almost shocking, given the current bearish outlook for online advertising growth.
Surely no other Internet company is more vulnerable to a downturn in Web ad spending than DoubleClick, whose business plan from Day One was based on becoming the premiere provider of services for companies advertising on the Internet.
DoubleClick certainly has achieved that goal, but the company still has no profits to show for it. And with concerns about the future of online advertising intensifying throughout the year as one ‘Net firm after another lowered their ad-revenue forecasts, DCLK has become one of the biggest losers among large-cap ‘Net players. Even with Tuesday’s 16% gain (to $13.88), DoubleClick is down 89% this year.
So why the post-warning spike? Perhaps investors feel DCLK shares already have been discounted enough. With a market capitalization of $1.7 billion, DoubleClick is valued at 3.2x trailing 12 months’ revenue of $433 million. Not a bad price for a company that dominates its sector.
Or it could be Wall Street expected worse than DoubleClick’s Q4 advisory, which warned that revenues will be 8% to 10% below expectations and that the bottom line will range from break-even to a net loss of 3 cents per share.
While those latter numbers may be well short of consensus Q4 estimates calling for a net profit of 2 cents per share, they hardly are indicative that the sky is falling on DoubleClick. Yet.
It looks as if investors will have to wait at least until April for evidence that DoubleClick can turn a profit. Until then, don’t expect many days like Tuesday for DCLK shares.
Getting back to PSINet, its nearly 50% gain (or 53 cents) on Tuesday helped slash its year-to-date loss to 94.7% from 96.5%. The layoff of 300 workers clearly is intended to help position the company for a sale. In November, PSINet said it had hired Goldman Sachs to explore strategic options.
As a group, the 50 members of the Internet Stock Index, or ISDEX, gained 6% in the week of trading ended Tuesday, closing at 501. For the year, the ISDEX has fallen 41.8%.