Ah, the vagaries of Internet-era investing. Just when you think you've got your price-to-revenue model all worked out and your name-brand company reports another bang-zoom quarter, the shares take a miss you can't quite figure.
That was the story today with Internet advertising company DoubleClick (Nasdaq: DCLK), shares of which were down approximately 5% this morning. Last night, the company turned in fourth-quarter results: Revenues more than doubled to approximately $94 million year-over-year -- a 24% sequential boost -- and loss per share came in at $0.03, two cents better than projected by Wall Street.
The company used its high-flying stock to snare several acquisitions during the quarter -- including direct marketing database operator Abacus Direct, a June purchase that closed in Q4 -- boosting not only its customer rolls but its service offerings, increasing the company's ability to better direct ad spending. And DoubleClick's roving eye hasn't gone away in 2000, the company earlier this month spending $85 million of its cash on a 30% stake in pay-per-click banner ad company ValueClick.
So why'd the shares go down? Well, if it must be something, it's probably because of the significantly broader losses the company reported when the cost of acquisitions and moving its facilities were figured in.
But unless those moves don't eventually lead to value creation over time, investors should probably just stick to the more upbeat operational figure as an indicator of the business' strength and direction -- and not worry too much about today's move.
Remember, DoubleClick stock is a pretty volatile piece of ownership; that's something you should already have accepted if you bought it. You can put together any number of "up A% over the last B trading sessions" and "down X% over the last Y trading sessions" statements to make just about any point you want since the start of 2000, the shares opening the year upwards of $130 before quickly falling below $100 apiece. It's the long-term chart you should care about anyway.
Also behind DoubleClick was a bullish interview in this week's issue of Barron's that notes, generally speaking, that Internet usership is way ahead of ad spending, suggesting that as companies move more of their advertising onto the Web, firms like DoubleClick stand to benefit significantly.
What's generally accepted is that Internet advertising's newness means advertisers are still learning what works and what doesn't, which is why some studies suggest that for the moment it works far better as a means of branding than as a means of driving sales. It's a shift in that balance companies such as DoubleClick are waiting for and hope to facilitate.
Through the end of September, according to an Internet Advertising Bureau (IAB) survey conducted by PricewaterhouseCoopers that was released yesterday, nearly $3 billion was spent on online ads, reflecting a 125% jump from 1998 levels. The survey group believes the year-end tally, due in April, will carry the number beyond the $4 billion threshold.
On a percentage basis, DoubleClick's revenue growth has outpaced the IAB figure, a sure sign of industry leadership. And some observers believe that with fledgeling banner advertising widely ignored by Web surfers, it is the pay-per-click model -- in conjunction with improved content and usability -- that might eventually flourish. The ValueClick investment positions DoubleClick well to capitalize on that.
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