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Playing Double or Nothing at DoubleClick The Web ad service company's merger with offline Abacus could bring huge rewards -- or big headaches -- and that's making investors jumpy DoubleClick (DCLK), the largest company serving Web advertisers and publishers, is one of the Internet's so-called trading stocks. With nearly a $4 billion market cap, it moves in tandem with investor sentiment about the entire Internet group. Many shareholders in the company probably figure that the Internet is going to be big, advertising will be important on the Net, and DoubleClick will thus prosper. Conversely, short-sellers of the stock argue that advertising is failing as a business model on the Web. Those conflicting opinions make for a lot of volatility. Since May, DoubleClick's trading range has been especially wide -- between about $110 and $65. Both analytical extremes, though, fail to take into account major changes taking place at DoubleClick that could cement its leadership position in this highly competitive space -- or destroy it. Among a slew of recently announced deals and partnerships, the most significant for the company's long-term future -- and perhaps the biggest risk if it doesn't go well -- is DoubleClick's pending $1 billion merger with database marketing firm Abacus Direct (ABDR).
While there are hundreds of database marketing firms with demographic information, Abacus is the only one with such an extensive purchase-history database, says Jeff Epstein, DoubleClick's executive vice-president in charge of mergers and acquisitions. "Our plan is to take that to the Internet," he says. Prior to the acquisition, which was announced on June 14 and is expected to be completed in October, DoubleClick's own database had amassed information on where consumers were spending time online and if they had indicated intent to purchase services or goods. By combining this information with Abacus' data, Epstein says, DoubleClick can "get the right ad to the right people at the right time." PRIVACY PERILS. What's holding back DoubleClick's stock -- which closed on Sept. 1 at 93 7/8 -- is the fear that pulling this off may be easier said than done. Many investors are skeptical about combining online and offline companies. "Even if you know someone's buying history, how do you know when they are on the Web?" asks Steve Harmon, chief executive of e-harmon.com, an Internet investment and research firm. "Marrying Abacus' transaction history to DoubleClick's database and Internetizing it is certainly not an easy thing to do," he says. "But if they can build the bridge [between the two databases], they have something nobody else has." Not only will DoubleClick have to struggle with technical issues but it will also have to deal with concerns that targeted advertising violates consumers' right to privacy. "Integrating online and offline data is both a challenge and an opportunity," says H. Perry Boyle, an analyst with Thomas Weisel Partners. "It is very important how they do it -- to allay any privacy concerns and yet get maximum return on what they do." Boyle rates the stock a buy and has a $110 price target.
And it has to do all this while integrating its acquisition of NetGravity, which sells adserving software to Web sites. Due to be completed in November, that $530 million deal will be "plug and play," says Harmon, unlike the Abacus deal, "which will require elbow grease." But doing two such large transactions so close together will be a challenge, says Boyle. Finally, DoubleClick's management will have to manage these acquisitions in an advertising environment where the success of ad banners is being increasingly called into question and ad rates at some of the highest-trafficked Web sites are dropping. Meantime, competitors such as 24/7 Media (TFSM) and Flycast Communications (FCST) are fighting to serve the same marketers. Despite cries that online advertising doesn't work, however, Forrester Research predicts that U.S. online ad spending will grow from $2.8 billion in 1999 to $22 billion in 2004. That leaves room for several competitors. And if DoubleClick can make its Abacus acquisition work, it stands to gain a big chunk of that market. "The opportunity is not about what either company is doing today," says Harmon. "It is about what both can do uniquely tomorrow." Amey Stone is an associate editor at Business Week Online _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ |
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 Amey Stone covers the markets and investing for Business Week Online WEB POINTERS To visit some of the sites mentioned in the story, click here: DoubleClick Abacus e-harmon NetGravity 24/7 Media Flycast Forrester Research | ||||||||||||
