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DoubleClick: Who's Next on its Buy List?
(6/15/99)
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Staff Writer: Judith Graham
DoubleClick (NASDAQ: DCLK - Quotes, News, Boards)
wasted little time doing deals since it became eligible on
June 4 to use its stock for pooling of interests acquisitions.
On Monday, the online advertising firm agreed to buy
Abacus Direct (NASDAQ: ABDR - Quotes, News,
Boards), a marketing and research company, for $1 billion
in stock to provide more marketing services to its clients.
DoubleClick is offering Abacus shareholders $93.25 per
share, a 25% premium to Friday's closing price.
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On Monday, investors punished DoubleClick along with the
rest of the Internet group, knocking its shares down $18.06
to $70.75.
However, the shares swiftly recovered by more than $4 in the
first hours of trading on Tuesday as investors recognize the
nice fit between the two companies.
DoubleClick's strength is online ad serving and ad sales.
Abacus, which manages the nation's largest proprietary
database of consumer catalog buying behavior, will provide
DoubleClick expertise in the data side of its business. 'I
think it's bringing them an expertise that they probably lack
in terms of ability to target customers for direct marketing,
and Abacus has a lot of expertise in that area,' says analyst
Tomas Isakowitz of Janney Montgomery Scott.
Abacus and DoubleClick sort of do the same thing. Both
provide marketing and ad solutions. Only one does business
online and the other, offline. Partnering with Abacus will also
enable DoubleClick to operate in both the online and offline
worlds, Isakowitz adds. And as media continue to integrate,
advertising clients will likely operate in both worlds. So each
of the two companies can now take advantage of what the
other brings to the table, and consequently emerge as a
leader in both online advertising and database marketing.
This deal came the same day that AdForce (NASDAQ:
ADFC - Quotes, News, Boards) and Engage formed a
data-sharing partnership.
'This transaction will enable DoubleClick to expand their
offerings to web advertisers, e-commerce vendors and web
publishers by providing additional services such as improved
web ad delivery, highly targeted direct mail, e-mail, etc.,'
notes a Deutsche Banc Alex. Brown report.
Adds a BancBoston Robertson Stephens report dated June
14: 'We believe this deal significantly enhances
DoubleClick's already strong strategic position, as Abacus'
database represents a big prize that is now unavailable to
competitors. We also believe it could lead to an increasing
pace of consolidation. It is faster to buy than build, and it is
easier to buy customers than win them away.'
In fact, Desiree Berenguer, DoubleClick's investor relations
coordinator, confirms that the company is currently looking
at 50 companies worldwide dealing in ad sales, ad serving
and data.
What will be Doubleclick's next deal? For one thing, look at
its smaller competitors. As the market leader, DoubleClick
reported revenue of $22.1 million in the first-quarter. This
compares with competitor 24/7 Media's (NASDAQ: TFSM -
Quotes, News, Boards) $11.5 million. Smaller competitors,
AdForce (NASDAQ: ADFC - Quotes, News, Boards),
Flycast (NADSAQ: FCST), and NetGravity (NASDAQ:
NETG - Quotes, News, Boards) each recorded revenue
under $5 million for the first quarter.
DoubleClick also might look to acquire media research firms
like Media Metrix (NASDAQ: MMIX - Quotes, News,
Boards), which would dovetail with Abacus.
Word on the street suggests NetGravity (NASDAQ: NETG -
Quotes, News, Boards), an ad server, might also be
DoubleClick's next target. 'Rumors are that they were going
to buy NetGravity, which has an extremely attractive
customer base,' says analyst Tara Long of C.E. Unterberg,
Towbin. 'NetGravity is attractive and its price has been a bit
depressed lately.' Its stock closed Monday at $17.06, down
from its high of $66.88.
DoubleClick management says the ad serving industry,
which currently includes seven players, will probably
consolidate to two or three either through acquisitions or
attrition. Indeed, at last month's eMarketing conference, Jeff
Esptein, DoubleClick's executive vice president of Internet
advertising, conceded that acquisitions are a priority.
'Given how fast the space moves, they really need to create
that broad ad solution portfolio,' Long says. 'But it's a matter
of finding the right company at the right price.' Long says the
ad serving side of DoubleClick's business is best suited for
sector consolidation because it will enjoy true economies of
scale as a larger entity. However, the ad sales side should
continue to see a lot of players as many companies
continue to handle ad sales in-house as opposed to
outsourcing the jobs to other firms.
'DoubleClick is open to changing strategy and I don't doubt
that it will make smart acquisitions which will enable them to
stay the market leader,' Long says.
Making acquisitions would also help DoubleClick grab a
bigger slice of the fast-growing online ad business. In 1998,
advertisers spent $1.6 billion online, and research firm
Jupiter Communications predicts online ad spending should
reach $9 billion by 2002. This compares with the overall
$180-billion U.S. ad market.
DoubleClick, which delivered eight billion ads in March,
predicts it will deliver 10 to 20 billion ads by the end of this
year and 40 to 80 billion by the end of 2000.
Bottom Line:
We like DoubleClick's long-term prospects and think it is
positioning itself well for the future.
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