Three Isn't a Crowd in Net Ad Sales, 24/7 Proclaims

Though dwarfed by competitors such as CMGI and DoubleClick, the ad-network firm vows to push on independently.
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You might be able to predict the future of online advertising, if only you could figure out where 24/7 Media (TFSM) fits in.

The company operates in a rapidly consolidating area that is dominated by two players:



, which Wednesday agreed to acquire email marketer


, and leader



, which is also bulking up by acquisition.

Many people in the industry expect 24/7, which primarily sells ads on other companies' Web sites, to end up a part of DoubleClick or CMGI, which jumped in after-hours trading Wednesday as investors salivated over its latest quarterly financials and the announcement of a stock split. Though he doesn't rule out a deal, David Moore, 24/7's president and CEO, insists the company can remain independent, even in the face of arguments that suggest a smaller player is doomed in the hyperintense Net advertising field. With 24/7 trading at a steep discount to peers like DoubleClick and

Engage Technologies


, the centerpiece of CMGI's marketing services empire, 24/7 has to persuade people it's undervalued, not overmatched.

No Pressure

The issue is whether 24/7 can get big enough, or is big enough already, to survive on its own. Some think not. "It's hard to envision three years from now they'll be independent," says Rich LeFurgy, chairman of the

Internet Advertising Bureau

and general partner of venture capital firm


, an investor in both marketing analysis firm


and a company, which LeFurgy won't identify, that has a business relationship with DoubleClick.

Fueling speculation about 24/7's fate is the belief that, in the long run, it won't suffice for 24/7 and other companies to offer a single service -- in 24/7's case, an online advertising network. Instead, companies will have to offer a full suite of services to online advertisers and publishers. That's why CMGI has made deals to acquire direct marketer



and to roll AdKnowledge into Engage. It's why DoubleClick recently bought direct marketing research firm

Abacus Direct

and why Jeff Epstein, DoubleClick's executive vice president, says DoubleClick could expand into research, consulting and consumer promotion.

Bringing different companies under one roof, says Perry Boyle, an analyst at

Thomas Weisel Partners

, makes it easier for advertisers to assemble different elements of an online ad campaign, such as delivering ads and analysing their performance. (Boyle has a buy on DoubleClick, for which his firm hasn't done underwriting.)

24/7's relatively small size hurts, too, says Charles Moldow, general manager of


, a subsidiary of


(ATHM) - Get Report

, another ad services company. "Dollars flow from the top down," Moldow says.

Cheap Date

The market is clearly valuing DoubleClick's lead over 24/7; DoubleClick is trading at about 21 times estimated 2000 revenue, while 24/7 trades at about 9 times next year's revenue and Engage trades at roughly 70 times estimated revenue for its fiscal year ending next July, reflecting investor confidence in the ultimate success of the anonymously targeted advertising system it is rolling out.

"We get painted as the prettiest girl at the prom without a date," says 24/7's Moore. But the company is under no financial pressure to sell itself "unless the economics are right," he says.

Declining to discuss specifics, Moore certainly indicates a willingness to consider deals. "Everybody has their price, and we haven't seen ours," he says. Speaking generally, Epstein comments: "I think you can assume we're interested in running any well-run business in our industry. ... If we haven't done it yet, you can assume either they're not for sale or the price is too high." A CMGI executive vice president, Bill White, declined to comment on the subject.

Moore says he has a head start on CMGI as it integrates all its acquisitions. And he says he can gain ground on DoubleClick, thanks to factors such as an email advertising business that took off in the third quarter and a forthcoming ad-serving business he says will undercut DoubleClick.

More About Moore

He's also trying to make acquisitions, though with a market cap of about $1.3 billion, 24/7 doesn't have a war chest of stock certificates like DoubleClick, which has an $8 billion market cap, and CMGI, which has a $23 billion market cap and is picking up for about $500 million in stock. "The toughest thing to do is buy a company that's filed to go public," Moore says. "We've tried. We couldn't do it."

In the meantime, 24/7 is losing money like its competitors, but it's not doing so bad. The company burned $3 million in cash in operations in the quarter ended Sept. 30, and it spent an additional $5.2 million on property and equipment. But it still had $76.3 million in cash and cash equivalents. Moore says he's comfortable with analysts' estimates that the company will have revenue of $150 million to $160 million in 2000, nearly double their estimates for 1999.

All that remains is finding out who its prom date is, or whether it's going solo.