Internet 2001: Few Survivors Likely In Advertising Sector

In last Friday’s Morning Report, I noted that no other Internet sector saw more casualties this year than the E-tailers.

Next year that dubious honor may belong to the Advertising/Marketing sector, most of whose members have seen their share prices, market capitalizations and cash reserves shrink to fatally low levels as the very future of online advertising has been questioned.

Of the 14 Advertising/Marketing companies trading since last Dec. 31, nine have lost at least 91% of their value, while another four are down 69% or more.

Check out some of the share prices and market caps in the group:

                 Share Price     Market Cap
Prime Response     $0.88       $17.9 million
Aptimus             1.22       $19.2 million
24/7 Media          0.56       $23.9 million
Cobalt Group        1.41       $28.3 million
Mediaplex           0.94       $33.6 million     1.00       $39.1 million        1.25       $50.3 million

There aren’t any long-term bets in that bunch, nor in most of the rest of the sector, especially given that every one of its members is losing money. Actually, there’s one exception: Opt-in e-mail direct marketer NetCreations , which posted a profit of 4 cents per share in the third quarter.

However, late last month NTCR warned it would report a net loss for the fourth quarter, its first negative quarter ever. Further, revenues are expected to drop for the second consecutive quarter, and earnings per share for the fourth consecutive quarter.

Making the entire question moot, NTCR announced this week that it will be acquired by Italian media conglomerate Seat Pagine Gialle SpA for $107 million in cash, or $7 per share, about what it’s worth now. This comes after NetCreations had accepted, and then rejected, a buyout bid by Internet ad services market giant DoubleClick .

Indeed, DoubleClick, which dominates the ad-services market and currently faces no viable contenders – sorry Engage Technologies fans (if there are any) – is the only company in the sector that investors should look at seriously.

DCLK has a market cap of $1.3 billion, giving it a value of 3.0x trailing 12 months’ revenue of $433 million. Shares closed at $10.38, down 92% from last Dec. 31’s price of $126.53.

A tempting entry point, but remember DoubleClick’s recent 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. Consensus estimates had called for DCLK to post a net profit of 2 cents per share in Q4.

DCLK appears to be closing in on profitability, but investors should wait until first-quarter figures come in before placing any bets. DCLK’s stock price isn’t straying far (except perhaps down) until then.

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