New Q4 Guidance, Cuts, Management Changes at 24/7 Media

New York-based ad and marketing technology firm 24/7 Media dropped a few New
Year surprises on investors, analysts and employees — cutting fourth
quarter earnings estimates, announcing a new round of layoffs and the
departure of a top executive.

While Chief Financial Officer Andy Johns confirmed that he does not have
another position lined up after he leaves 24/7 at the end of the year, he
waved away suggestions that linked the departure to 24/7’s valuation or

“I can assure you that the decision has nothing to do with 24/7 Media,
its financial performance or its future prospects,” Johns said. “Instead,
this decision has everything to do with the fact that I have a beautiful
wife and three great kids, and I want my career to properly balance my
desire to give 100 percent at work with my need to be with my family.”

“I feel the opportunities ahead for the company are outstanding and
really are not accurately reflected in the current market valuation. The
operating plan, the long-term market outlook and the management team …
really position the company for solid growth,” he said.

Stu Shaw, senior vice president for finance and administration will be
filling Johns’ position until a permanent replacement can be found.

Surprise number two came in the form of fourth-quarter earnings cuts —
less than a month after several reiterations that its earlier fourth-quarter
estimates would live up to previous guidance.

On top of the seemingly interminable and often-cited effects of the
downturn in ad spending, macroeconomic conditions, and the slowness of
traditional advertisers to step forward, 24/7 Media management pointed to a
seasonal, holiday upturn in advertising spending that never came for the

Officers also cited problems with a recent acquisition. Website Results,
snapped up by 24/7 for $95 million in stock in August, optimizes companies’ pages for
higher placement on third-party search engines. However, the company said
the unit required extensive technology modifications and testing earlier in
the quarter — costing about $2.5 million. Company execs said the changes
would help 24/7’s bottom line in the future.

The company also lowered revenue and EPS outlook for the fourth quarter.
24/7 now expects quarterly revenues in the range of $43 million to $45
million, down from previous guidance of between $48 million and $55 million.

The firm also expects to post a loss of $0.46 to $0.49 per share, lower
than its $0.39 to $0.44 per-share loss it gave earlier in the month. Last
quarter, 24/7 Media posted a net loss of $56.8 million, or $1.49 per-share.

The company also said that it would write down a goodwill charge of $400
million, rather than the $150 million it gave in early December.

“The bulk of the current projected weakness is in the particularly
market-sensitive segments of the business, namely, network and mail
revenues,” Johns said. “We’re cautiously optimistic for the combined
rebound in the advertising marketplace with the greater adoption of Internet
marketing solutions by traditional advertisers will result in a stronger
second half of next year,” he added.

Johns added that the company has raised about $31 million in cash from
the sale of non-core assets, including 3.7 million shares of chinadotcom
stock. 24/7 Media now retains about 1.2 million shares.

That cash injection is good news for the company — at the end of third
quarter, the company reported only about $20.1 million in the bank. But
even with an additional chunk of cash on hand, the questions loom about
whether that cash can carry the company through profitability, projected for
fourth quarter, 2001.

“We recognize … that the cash reserves currently do not provide the
cushion we would like to enjoy as we fund operations to profitability,”
Johns said. “To address this concern, we’ll continue to diligently

cash expenses and identify means to monetize other non-core assets.”

Chief executive officer David Moore said the company would continue to
“rationalize” its business — by cutting unprofitable clients, capturing new
ones and adding incremental revenue streams from remaining clients.

Moore also said the firm would continue its efforts to “optimize” — by
cutting about 100 additional positions, or 10 percent of its workforce. The
new round of layoffs, expected to shave $12 million from the company’s
projected 2001 costs, brings the total eliminated from the Alley-based firm
in recent months to 300.

“We’re deploying our assets to best capitalize on the near-term biz
opportunities,” chief operating officer Tom Detmer said. “We’re focusing on
our key biz competencies … of customer acquisition solutions, …
technology solutions, … ad serving and broadband professional services.”

At press time, shares of TSFM were trading at $0.56, down 18 percent from
its previous close and well off its 52-week high of $65.

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