Internet advertising firm

Engage

(ENGA)

is hoping that the news it disclosed Thursday won't have a return engagement. But one analyst following the company says the company isn't out of the woods yet.

The publicly traded subsidiary of Internet incubator

CMGI

(CMGI)

says after Thursday's

announcement that it's cutting half its workforce in a reorganization that it will be equipped to survive in what's turned out to be an ugly environment for advertising.

"We have rightsized for the difficult conditions in the marketplace today," says Tony Nuzzo, who became Engage's CEO in November. "If the market goes up, great. If it doesn't, we'll still be fine."

After Engage disclosed its cost-cutting measures, its stock rose 6 cents to close at $1.19 on Thursday.

Key to the reorganization, says Nuzzo, is that the company is shrinking what had been essentially four companies within Engage into two groups, one devoted to software and one to media sales. With the new structure, "We as a management team are much closer to the business and closer to the customer than ever before," Nuzzo says.

The company is hoping it will be able to attract customers by selling software that enables customers to synchronize marketing efforts in print media, in direct mail and online, and by offering a network of online sites that advertisers can use for marketing.

Tricky

Kevin Wagner, an analyst at

Adams Harkness & Hill

, says Engage's move was appropriate, but he points out that the company still has several difficulties ahead of it. Software, as Engage has indicated, may be a profitable, high-margin business. But software sales are tricky to forecast and manage, he says: If customers take their time in placing orders, that could wreak havoc with revenue expectations.

"In a market like this, sales cycles fluctuate," Wagner says. "You could have some visibility issues there if the company is not used to selling software." Wagner rates Engage a market perform, his firm's third-highest rating; Adams Harkness hasn't done underwriting for the firm.

Engage, which says it had $100 million in cash on hand as of the end of November, also runs the risk of running out of money, Wagner says. The company says its reorganization will save it $120 million to $150 million annually, but Wagner says it's unclear when the savings will begin. If it's not soon, that could eat into the company's cash. But the situation isn't necessarily bad for Engage, Wagner suggests. "If by the middle of the year the interactive advertising market turns around," he says, "that could help them out."

Engage says it's on track to be profitable on a cash-flow basis by the close of its fiscal fourth quarter, which ends July 31, and says the money it has on hand is enough to see it through to profitability.