A Quiet Comeback for DoubleClick

By Amey Stone Remember DoubleClick (DCLK)? Investors haven't heard much lately about this once high-flying online advertising play. Formerly ranked among the Internet's blue chips, the stock fell from grace, along with hopes that online ads would ever become a profitable business. DoubleClick traded as low as $5 in the depths of the bear market in 2002.

Now it's early 2004, and the online ad business is enjoying a handy comeback. Most analysts expect 20% growth in 2004, even better than the 15% jump in 2003 spending. And DoubleClick, which provides technology to Web marketers and media outfits rather than acting as an online ad agency itself, just posted its first full year of profitability. It earned 12 cents a share, or $17 million, on revenues of $271 million in 2003.

CONFIDENCE BOOSTER. For 2004, DoubleClick forecasts that earnings will at least double -- perhaps even nearly triple -- to a range of $38 million to $45 million. Revenues should increase $20 million to $40 million over 2003 sales, it says. "We really are seeing an uptick in business across the board," says Kevin Ryan, DoubleClick's chief executive. "The number of bookings in the fourth quarter gives us confidence that revenues will be increasing in 2004 more than we would have thought as recently as a quarter ago."

However, DoubleClick's stock, which closed Feb. 9 at $11.54, is seriously lagging behind the broader run-up in Internet stocks -- although it's up nicely from its lows. While Yahoo! (YHOO) and aQuantive (AQNT), a competitor to DoubleClick in ad serving, are both up about 160% in the past year, DoubleClick is up just 80% in that time.

That makes DoubleClick, though hardly inexpensive by conventional measures, quite a bit cheaper than most Internet survivors. It's one of the main reasons Safa Rashtchy, a Piper Jaffray analyst, rates the stock outperform. He estimates that DoubleClick is trading at 20 times 2004 EBITDA (earnings before interest, taxes, depreciation, and amortization), while Internet portal Yahoo is trading at 24 times 2004 EBITDA. He adds: "I also expect online advertising spending to increase and think DoubleClick finally has the right mix of products to take advantage of that."

NEW TOOLS. Having the right mix is a crucial part of DoubleClick's growth strategy. As the ad-serving business becomes increasingly commoditized, DoubleClick's goal is to get customers to add its proprietary tools for tracking and analyzing Web ad campaigns. In the fourth quarter of 2003, it reported that 28% of clients used more than one of its product, up from 24% in the third quarter and 18% a year ago.

Investors are especially excited lately about prospects for a new DoubleClick tool called DART Motif. Launched in November, it serves and tracks multimedia advertising campaigns. Ryan says the outfit will continue to enter new markets, including providing tools to help with ad campaigns tied to Web searches. So-called paid search was one of the fastest-growing online ad markets in 2003. "That's something we're going to add to our product line this year," says Ryan.

The biggest risk to DoubleClick's plans is the growing cadre of nimble competitors that are creating cutting-edge technology products to help with online ad campaigns. Chad Bartley, an analyst with Pacific Crest Securities who has a neutral rating on the stock, cautions that competition is only increasing. He worries that some investors may be building hopes too high for the DART Motif product, which hasn't yet been widely adopted. "We're going to keep monitoring it," he says.

SURVIVOR STATUS. Still, Doubleclick's rebound has captured the positive attention of other analysts. Late in 2003, Rashtchy upgraded the stock, as did analysts from Smith Barney and CIBC World Markets. After DoubleClick's fourth-quarter report, those upgrades look pretty smart. Indeed, since it reported earnings on Jan. 28, its stock has climbed more than 10%. In the same time, aQuantive has dropped nearly 20%, and Yahoo has crept up just 1%.

DoubleClick is still far from the Internet darling it once was. But the online advertising and stock-price momentum may be starting to shift in its favor. And it has earned a status as an Internet survivor, which is important for corporate customers starting to believe that online advertising really works. For investors nervous about Net stocks that have already ballooned back to bubble levels, DoubleClick may be a sleeper. Stone is a senior writer at BusinessWeek Online and covers the markets as a Street Wise columnist and mutual funds in her Mutual Funds Maven column

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