On the Record with William Park

With sales continuing to grow and losses shrinking, why is e-mail marketer Digital Impact only trading for its cash value?

Based on the company’s recent price of $2 a share and market capitalization of approximately $53 million, the market seems to be suggesting that Digital Impact could be another dot-com that’s worth more dead than alive. After all, the company ended the most recent quarter with $54 million in the bank.

After becoming public in November of last year at $15 a share, the company has watched its stock price implode from a 52-week high of $48 a share to its recent disappointing levels of $2 a share. While Digital Impact has managed to beat analyst estimates each quarter, recent earning warnings out of e-marketing bellwethers like DoubleClick have definitely not helped the company’s share price.

Even in the face of slowing corporate spending for online marketing, Digital Impact reported sales for the quarter ended September 30th of $9.4 million, a 400% increase over last year’s numbers. In addition, with a pro forma loss of $5.2 million for the quarter, the company is still on track to reach profitability by December of 2001.

With global clients ranging from Dell Computer and Hewlett-Packard to Citibank and MasterCard, Digital Impact would appear to be well insulated from the current shakeout among dot-coms. Still, though, it remains to be seen if Digital Impact can actually meet its breakeven target for next year in such a tough online environment or if it will soon be forced to also join the growing pre-announcement parade.

That’s why we recently sat down with Digital Impact chairman and CEO William Park to discuss his company’s plans to reach profitability on target, as well as the carnage this year among Internet stock
valuations.

ISR: Why don’t we begin this interview with a short overview of your company’s business today?

Park: We help our clients use e-mail to acquire customers and to convert and retain these customers. We also provide a number of analytics so that our clients can better understand their customers and create better marketing programs for them.

ISR: Can you take us through an example of the acquisition and retention results that some of your clients have experienced after using your company’s services?

Park: The retention side is very clear to measure because our clients are usually already doing something e-mail related. So we tell them to keep doing it their way, but to give us a portion of that business so that we can demonstrate how much better we are. Generally speaking, we will triple our clients’ results. So if they were normally getting a 2% click through rate, we will pick that up to a 6% or 10% click through rate.

ISR: What do you see as the barriers to entry in your business? What is separating Digital Impact long term from someone like Message Media or FloNetwork?

Park: There are three things that make us the leader. One is technology. Technology is being able to deliver large, high volume customized messages that are personalized. The second one is service and expertise. Our clients speak for themselves, which include Fidelity, The Gap, Target, Hewlett-Packard , Wells Fargo , and Datek. The best global marketers are using Digital Impact. The fact that we’ve sent 2 billion messages in the past year and managed over 1,000 campaigns in the past year is a huge advantage for us. The third thing is the credibility that we have. If you look at our client list, I think it validates us even further.

ISR: Well, I think another interesting point is that you’re one of the only e-marketing messaging players that are already public and well funded. Most of your competitors are still private.

Park: Yes. The other piece is that we are the leader and we’re a public com

pany. As of last quarter, we had over $50 million in cash and we’re on an accelerated path to profitability. What that means for our clients is that when they hand over their customer data to us, they want to make sure that they hand it over to a company that’s going to be around long term!

ISR: We’ve seen a bloodbath in the valuations of e-marketing stocks this year and earnings warnings out of everyone from DoubleClick to NetCreations . What’s your take on what has happened this year?

Park: My thoughts are one of sympathy and also frustration. I have sympathy for the investors because they have been burned. I think a lot of companies have made claims that they really had no ability to achieve. This is why you are seeing them all lay people off and pre-announce bad quarters. I also have frustration because our company is getting hit by association with these companies. Marketing becomes digital. There is no question. Digital marketing is so much more effective and so much more efficient than trying to send paper or make phone calls. So this $160 billion dollars that takes place each year in the United States in the form of advertising and direct marketing is going to go online. It may not go online as fast as everyone thought it would, but there’s no question that it’s moving online.

ISR: Okay. Digital marketing is definitely going to be huge, but why are investors to believe that Digital Impact will be a great stock to own in this sector?

Park: Since we’ve been public, we have beaten the Street every single quarter. We are ahead of our original plan of getting profitable. We expect to be profitable by December of 2001. We have plenty of cash to last well into 2002. We have a hundred percent cash cushion. In other words, we have enough cash to last us through the end of 2002 at our current spending levels. Our revenue has grown every quarter and our operating margins have improved every quarter. However, investors are jaded and I can empathize with them.

ISR: Yes. But can you keep up these improvements in revenue and margins every quarter with the slowdown we’re now seeing across the economy and especially in the advertising sector?

Park: Obviously, the plan is an emphatic- yes! The reason why we can keep it up is because what we do for our clients work. You have to ask about any company – are they providing value to their clients and are clients going to be willing to pay for that value? Advertising in general is not very measurable, as opposed to direct e-mail marketing, where clients can calculate an exact return on investment. We’re not driving clicks, and we never talk about traffic, we talk about return on investment because that’s what business is about. Generally speaking, in times of recession, most businesses take down their advertising and take up their direct marketing and they outsource more, which plays right into our sweet spot!

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