24/7 Media Sees Loss, Promises Merger Benefits

Ad network and technology player 24/7 Media — now 24/7 Real Media — appears to be betting heavily on future dividends from its recent merger with Real Media, as it reveals sizable losses for its third quarter.

During the quarter, which doesn’t take into account Real Media operations, 24/7 Media posted $8.3 million in revenues and an $11.6 million net loss, or $0.26 per share — both within guidance.

Revenues declined 40 percent from last quarter, but per-share losses also shrunk by $3.7 million, or $0.09 per share. Contributing to that performance, New York-based 24/7 reported greater success in trimming quarterly operating expenses, to $12 million — down from nearly $20 million last quarter.

The success in reducing costs prompted executives to tout the firm’s strength going forward, especially now that it’s coupled with a major competitor, which it acquired Oct. 30.

“The third quarter represents a continuation of our laser-like focus on controlling costs to drive profitability,” said 24/7 Real Media chief executive David Moore.

However, the quarter also shows just how critical the merger with Real Media will prove in coming quarters. Eighty five percent of revenue came from the company’s low-margin Integrated Media Solutions division — which includes its site representation, e-mail list management and brokerage, the promotions and sweepstakes group, and its search engine optimization unit.

Like many in the online ad field, that division’s primarily CPM-based revenue was sorely hammered by the downturn in online ad spending. Earlier on Tuesday, larger rival DoubleClick exited the network business in Europe, citing media losses; 24/7 Media had done the same in August, for similar reasons.

Meanwhile, 24/7 Media’s Broadband Professional Services Group brought in the remainder of the company’s revenue at margins almost three times greater than the company’s primary media business. Hence, the need for more non-media revenues — which the firm expects to glean from Real Media’s OpenAdStream software-based ad server and its own recently-unveiled 24/7 Connect ASP server.

Indeed, 24/7 Media anticipates $10 million to $12 million in fourth quarter revenues, and a pro forma loss of $6.3 million to $6.8 million, or $0.19 to $0.21 per share. For all of 2002, the firm anticipates about $70 million in revenue.

24/7 Media also exited third quarter with only $7.5 million in cash. With $1.5 million from Real Media’s coffers and up to $7.5 million in loans from PubliGroupe (Real Media’s former owner and a minority shareholder in the merged company,) executives said the firm should have enough cash to make it to profitability in the fourth quarter of 2002.

“24/7 Real Media has a sustainable business model built with a long-term focus,” Moore said. “We are poised to capture a greater allotment of advertisers’ media buys, as well as a significant share of the publisher market due to our strength in each of the product lines represented in our suite of solutions.”

During the conference, 24/7 Real Media chief operating officer Tony Plesner also added that the company was rethinking the sale of its Broadband Professional Services Group, which he said had shown signs of promise during the quarter. When 24/7 Media sold its e-mail unit Exactis in May, Moore also hinted that the broadband unit, which does consulting and sells content delivery software, would be next.

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