Online ad companies suffer from weak market

Jennifer Laidlaw

NEW YORK: Online advertising companies are likely to paint a dismal picture

when they report fourth quarter results as the sluggish ad environment takes its

toll on companies such as market leader DoubleClick Inc.

New York-based DoubleClick will kick off the earnings season for online

advertising networks on Thursday, when analysts forecast it will meet its

already lowered estimates for the quarter of between break even and a 3 cent

loss per share. Before a recent warning, analysts had been expecting the company

to post a 2 cent per share profit.

In the fourth quarter of last year, the company posted a net loss before

charges of $3.1 million, or 3 cents a share on revenues of $93.7 million.

With leading online media site Yahoo! Inc. which depends heavily on online ad

revenues, expected to report disappointing fourth quarter earnings Wednesday,

analysts do not expect any surprises from the online ad sector after a quarter

that was peppered by earnings warnings, layoffs and plummeting stock prices.

Other companies reporting fourth quarter earnings over the next month or so

are ValueClick Inc., Mediaplex Inc., 24/7 Media Inc. and Avenue A Inc.

"It was a pretty terrible quarter by all accounts," said Chris

Hansen, an analyst at Banc of America Montgomery.

"Total industry revenues were probably flat to down," Hansen said.

"And you had better believe that they are going to see more of the same in

the first quarter."

Online ad companies took a hit from the collapse of many dotcom companies,

which had previously thrown money at advertising to raise their profiles,

analysts said. Weaker demand for advertising and lower ad pricing in the second

half of last year put pressure on earnings, they said.

There is a general consensus that the online ad market will continue to slow

in the first half of this year. Merrill Lynch analyst Henry Blodget in a recent

research report cut his 2001 online ad revenue projections to $8 billion from $9

billion, saying the market is doing worse than he expected.

Analysts will be closely watching DoubleClick's revenues, which are derived

from its media, technology and data services, to see how well it is weathering

the storm.

"While margins remain important, the direction of revenues in the three

segments of the business, media, tech and data is the most critical," said

Dana Serman of Lazard Freres & Co.

He expects DoubleClick to post revenues of $127 million in line with the

company's own estimates of between $126 million and $129 million. He forecasts

the company will see revenues in its closely watched media unit decline by 14

per cent from the third quarter to about $55 million.

Despite the gloom, analysts said DoubleClick should outshine the rest of the

sector as it remains one of the strongest players.

"DoubleClick is going to be one of the few survivors," said Larry

Hickey, analyst at First Analysis.

The company's strong cash position and balance sheet places it in a

competitive situation in a sector where many companies are struggling to

survive, he said. The company has about $900 million in cash.

Another online ad company that is expected to do better than most is L90 Inc.

Analysts on average expect the company's fourth quarter loss to narrow to 20

cents a share from 48 cents in the same period last year, according to research

firm First Call/Thomson Financial.

"L90 is probably having the best quarter," Banc of America's Hansen

said. "They position their goods and services very well."

The company has done the opposite of most in these troubled times - in late

November it said it was hiring 30 new employees after it beat third quarter

earnings expectations.

Other online ad players such as Avenue A, ValueClick, and Mediaplex are

expected to post more downbeat results, analysts said, with 24/7 and Engage at

the back of the pack.

Just last week, Engage said it would cut half its workforce as it seeks to

achieve profitability. In November, 24/7 said it would cut 200 jobs and expected

tempered growth until mid-2001. In December, Mediaplex announced plans to lay

off 28 per cent of its staff.

(C) Reuters Limited 2001.