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Mediaplex, MessageMedia Add to Woes of Net Ad Business

As if the Internet advertising industry needed any more indicators of hard times, two advertising infrastructure firms set layoffs Thursday morning as part of cost-cutting efforts.

Coming on the heels of a disappointing quarter for Engage (ENGA), the news makes it perfectly clear that the advertising downturn hurting the ad revenues of Internet content companies like Yahoo! (YHOO) is also hurting the companies supplying services and technology to advertising.

Mediaplex's slide

Mediaplex (MPLX - Get Report), developer of technology that lets advertisers modify ad campaigns automatically in response to internal data, says it's laying off 28% of its staff. That would amount to about 83 employees out of 297, as of Sept. 30. The company had nearly tripled in size from a year earlier, when it had 109 employees. In early afternoon trading Thursday, Mediaplex shares fell 44 cents to $1.31. Engage shares were up 3 pennies to $1.38.

Mediaplex says it's tracking the low end of fourth-quarter earnings estimates, and per-share results will be worse than expected, due in part to a one-time restructuring charge. The company says it expects to cut expenses by about $10 million during 2001 as a result of staff and operating cost reductions.

Analysts had been expecting Mediaplex to lose 16 cents a share in the fourth quarter, according to the consensus figure from First Call. Mediaplex, which had an operating loss of $8.3 million on revenue of $13.5 million in the third quarter, is expected to have revenue of $15.5 million to $16.2 million in the fourth quarter, according to First Call's three-analyst estimate.

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MessageMedia plummets

Meanwhile, permission-based email marketing firm MessageMedia (MESG - Get Report) says it's cutting 100 positions domestically and embarking on other cost reductions that are estimated to save $3.5 million to $4 million per quarter. The company had 498 employees, including 417 domestic workers, as of Wednesday. MessageMedia was off a half dollar to 94 cents.

The company says it expects to make money before interest, taxes, depreciation and amortization in the third quarter of 2001, and positive earnings one quarter later. In the quarter ended Sept. 30, the company reported revenue of $10.2 million and a net loss, excluding amortization of goodwill, of $6.3 million, or 11 cents a share.

The single-broker First Call estimate for fourth-quarter revenue was for $12.2 million, but the company says it expects fourth-quarter revenue will range between $7 million and $8 million. MessageMedia says the revenue hit is due to a lower number of large application service provider, or ASP, software contracts and the adoption of more conservative revenue recognition policies, in itself cutting revenue by $800,000. Fourth-quarter per-share losses, which analysts had expected to amount to 13 cents, will amount to 43 cents to 44 cents, according to MessageMedia, before a one-time restructuring charge.

On Tuesday, Engage, a subsidiary of CMGI (CMGI), reported revenue of $41 million for its fiscal first quarter that ended Oct. 31. That figure hit the target Engage set on Nov. 8, when it preannounced that revenue would fall from $66.7 million the prior quarter to between $40 million and $42 million. At the same time, Engage had said, a week after the quarter had closed, that cash earnings per share -- excluding amortization of goodwill and other intangible assets, stock compensation, in-process R&D and acquisition costs -- were expected to be a loss of "no greater than $0.25." On Tuesday, the company reported, before amortization, stock compensation, in-process research & development and restructuring costs, a loss of 26 cents a share.

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