After GoogleClick: Who's Next?

Shares of aQuantive and other Web advertsing outfits gained Monday in the wake of the search engine's pricey acquisition of DoubleClick

Market players saw aQuantive (AQNT) through rosier glasses on Apr. 16, after Google's (GOOG) acquisition of DoubleClick signaled the potential for major change in the digital advertising industry's competitive landscape.

To be sure, some wondered if the Internet search giant had overspent on the online ad agency. The Mountain View, (Calif.) based Google said on Friday Apr. 13 that in exchange for DoubleClick, it would pay $3.1 billion to San Francisco-based private equity firm Hellman & Friedman and JMI Equity and management. While financial details are not widely available about the privately held company, DoubleClick went private in July 2005 for $1.2 billion and has sold $525 million in businesses since. Standard & Poor's Corp. analyst Scott Kessler called Google's proposed price for DoubleClick "excessive." (S&P, like BusinessWeek.com, is owned by The McGraw-Hill Companies.)

But Google and DoubleClick say their combination will give online publisher customers access to more advertisers, while the agencies and advertisers served here will be able to manage their search and display ads in one place using one set of metrics. Some Wall Street players thought the recent deal corners rival Internet giants like Yahoo (YHOO) and Microsoft's (MSFT) MSN into thinking about similar moves – and pointed out that aQuantive has the same kind of clients as DoubleClick.

"AQNT's technology division has suddenly been vaulted into a critical role for MSN, YHOO and any player seeking to compete with "GoogleClick" for the role of leading online ad service provider," CIBC World Markets analyst Paul Keung wrote in a research note. Keung upgraded aQuantive to Sector Outperformer from Sector Performer.

aQuantive's stock rose more than 13% to $32.26 per share in New York midday trading on the Nasdaq. Shares of other Web advertising players also climbed: 24/7 Real Media (TFSM) rose 12% to $9.60, while ValueClick (VCLK) added 2.7% to $30.30.

Investors were also seeing positives for the industry beyond the potential for further consolidation. JP Morgan analyst Imran Khan pointed out that Google's move spares aQuantive from the risk of pricing pressure related to its competition against DoubleClick. Now Khan is betting that aQuantive's pricing environment remains stable in fiscal year 2007 and 2008. "As DoubleClick prepares to be part of Google, we think we will see that they are more focused on integration issues rather than pricing strategies." Khan upgraded aQuantive's stock to overweight from neutral.

Khan wasn't the only one. UBS, for example, upgraded aQuantive to Buy 2 from Neutral 2. The "acquisition significantly raises the value of AQNT's ad serving business," UBS analyst Benjamin Schachter said in a research note, adding that "value is driven by the same things that drove DoubleClick: competitive bidding, strategic synergies, and scarcity value."

There was at least one skeptic, however.

"The aQuantive upgrades, excuse me, are just plain embarrassing," Jim Cramer, host of CNBC's Mad Money, wrote on TheStreet.com. "The stock would have been up big on Google's deal for DoubleClick today, so it's just a pile-on. Wouldn't it have been better to do it last week? Couldn't it have been predicted? Would that have been more helpful? Duh."