DoubleClick Can't Shake Doubters

Though the company's fourth quarter was strong, it's not clear how good the news is for its peers.
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DoubleClick's (DCLK) news certainly isn't bad for the rest of the onlinebusiness, but just how good it is remains fodder for debate.

The advertising and marketing tools company, which spent most of 2004failing to meet Wall Street's expectations, issued an upside supriseThursday, saying that revenue and earnings for the quarter ended Dec. 31would exceed forecasts. The preannouncement boosted DoubleClick's shares 6%Friday.

On Friday, at least one analyst indicated that DoubleClick'sannouncement helped support recently raised estimates for Internetadvertising giants

Yahoo!

(YHOO)

and

Google

(GOOG) - Get Report

.

But another analyst cautioned that because DoubleClick had shown noneof the business growth enjoyed by Yahoo! and Google throughout 2004,DoubleClick is of little value in forecasting those companies' prospectsanytime soon.

DoubleClick's shares were trading at $7.87 Friday, up 47 cents.

In the spotlight Friday was DoubleClick's forecast ofgreater-than-expected fourth-quarter revenue from its Internet-focusedTechSolutions segment. The company, which had previously forecast revenuein the range of $46 million to $50 million for the December quarter, raisedthat range Thursday afternoon to $55 million to $55 million.

Behind the $6 million to $7 million upside, says DoubleClick, arehigher-than-projected revenue from its Performics, Ad Management and Emailproducts. Those businesses assist companies in advertising on searchengines, delivering advertisements to Web surfers and send marketingmessages via email, among other functions.

Goldman Sachs analyst Anthony Noto, who on Monday

raised estimates for Yahoo! and Google, wroteThursday evening that the better-than-expected TechSolutions growthsupported those estimate increases for the larger companies. "We believeYHOO & GOOG will benefit to a greater extent from the strong yetcompetitive online retailing environment this holiday season that droveincreased spending on both search and branded online advertising to acquireonline shoppers," writes Noto. (Noto has an outperform rating on Yahoo! andGoogle, and an underperform rating on DoubleClick. His firm has had aninvestment-banking-services client relationship in the past 12 months withall three companies.)

Also encouraged by the results was J.P. Morgan analyst Imran Khan. "Webellieve strong online advertising trends also bode well for other onlineadvertising companies such as Yahoo!, Google,

CNet

(CNET) - Get Report

and

iVillage

(IVIL)

," writes Khan, "and as such, we continue to maintain our fundamentally positive views on online advertising." (Khan, whose firm hashad J.P. Morgan Securities as a client within the past 12 months, has aneutral rating on the stock.)

American Technology Research analyst Mark Mahaney, however, minimizesthe "derivative implications" of DoubleClick's preannouncement for otherInternet advertising stocks. "It's hard to argue that there's muchcorrelation between DCLK and the other stocks," he writes, "when DCLKposted organic revenue decline in September, while Yahoo!, Google,CNet and

Ask Jeeves

(ASKJ)

all had strong double-digit growth. Sothis is a positive, but a very muted one." (Mahaney has a hold rating onDoubleClick.)

Piper Jaffray's Safa Rashtchy remained unimpressed by DoubleClick'sresults. While Rashtchy allowed that the preannouncement could be anindicator that DoubleClick has hit bottom, he didn't believe it indicatedDoubleClick could necessarily grow at the market rate. DoubleClick had alow bar to clear, says Rashtchy, who says the new guidance at best implieszero growth for delivering advertising.

"Furthermore," writes Rashtchy, "we believe that the fundamental issuesfacing DCLK (pricing pressure, lack of clear growth strategy and amultitude of unprofitable business lines) continue to pose seriouschallenge to the company." (Rashtchy has an underperform rating onDoubleClick.)

Also skeptical of the significance of the results was CIBC WorldMarkets analyst Michael Gallant. The biggest driver of the stock, writesGallant, is DoubleClick's hiring of the Lazard investment bank last year topotentially sell all or part of the company. Gallant, who previouslyestimated DoubleClick's takeout value at $8 a share, says the fourth-quarter numbers have the potential to raise that target price. But withoutadditional information on the sustainability of the improvements, hewrites, "it would be careless to revise

the target at this time." (Gallant has a sector underperformer rating on DoubleClick.)