aQuantive Plunges as Forecast Falls Short

Updated from 11 a.m.

Internet advertising firm aQuantive AQNT nailed estimates for the latest quarter but provided guidance below analysts' expectations.

The news hammered aQuantive's shares, sending them down as much as 20% early Thursday morning. Recovering somewhat, the shares traded at $11.42, down $1.46, or 11%.

Commenting on the discrepancy between Wall Street's expectations and the company's earnings forecast, aQuantive CEO Brian McAndrews attributed the difference to spending related to paid-search technology and the opening of a new office.

"We are investing more in the business, perhaps, than the analysts suspected we would," McAndrews told TheStreet.com.

The Seattle-based company, which operates two full-service interactive advertising agencies and a provider of advertising technology, has emerged to challenge DoubleClick DCLK as a bellwether of branded online advertising. For its part, DoubleClick boosted 2004 guidance Wednesday, sending its shares surging.

Shares in aQuantive have more than tripled over the past year, partly in a sign of confidence in the online advertising recovery, confidence that hasn't been limited to paid-per-click search business dominated by Yahoo!'s YHOO Overture Services and the privately held Google.

For the fourth quarter ended Dec. 31, the Seattle-based aQuantive reported revenue of $63.9 million, up 44% from the corresponding quarter in 2002 and matching the consensus of four analysts surveyed by Thomson First Call.

Net income, based on generally accepted accounting principles, amounted to $4.1 million, up from $1.7 million one year earlier. Latest-quarter earnings met the First Call estimate of 6 cents per share.

For 2004, however, aQuantive's numbers appear to be diverging from those of the limited number of analysts whose forecasts are on file at First Call. The company forecast full-year revenue of $88 million to $98 million, beating a three-anayst consensus of $90 million. But on the bottom line, the company is expecting net income of 28 to 33 cents per basic share or 24 to 28 cents, fully diluted. Both those ranges fall below the 5-analyst 36-cent EPS consensus, derived from individual estimates ranging from 28 to 42 cents.

For the first quarter of 2004, the company's revenue expectation in the range of $17 million to $19 million falls below the two-analyst estimate of $20 million; aQuantive's basic-share EPS forecast of 3 to 4 cents falls below the four-analyst consensus of 7 cents.

McAndrews, who noted that the company hadn't previously supplied Wall Street with any 2004 guidance, specified three areas affecting the company's earnings forecast.

Part of the greater-than-expected expenses, he said, come from aQuantive's opening of a new office in Chicago, an expansion announced this week. The first client of the new office, he said, is J.C. Penney JCP. "So there's an investment that goes in there," he said.

Following its recent acquisition of paid-search management firm Go Toast, aQuantive is spending money to integrate Go Toast's technology into aQuantive's Atlas digital marketing suite for managing interactive advertising, McAndrews said. The company is also developing further capabilities for the management of rich media advertising -- large-size ads that often involve moving video or some form of interactivity.

In addition, said McAndrews, amortization expenses from the Go Toast purchase will also affect the company's bottom line. The costs are "not trivial," he said, but he wouldn't be more specific.

Overall, said McAndrews, the business climate is continuing to improve for online advertising. As recently as a year ago, he said, the standard question was, "Why should I advertise online, or should I at all?" Now, he said, the question is, "How should I advertise online?"