Francis,
Again, another liberty taken. From Red Herring.
DOUBLECLICK IPO A HIT
DoubleClick went public amid a huge
amount of hype and publicity. Now the
company must live up to expectations
as competition waits in the wings.
By Peter D. Henig
February 20, 1998
DoubleClick's stock (DCLK) went on a tear right out of
the gate. Originally priced at 12 to 14 for 2.5 million
shares, the company bumped it up to 17 per share for
3.5 million after the underwriters, led by Goldman Sachs,
realized what a hot commodity the IPO had become.
Trading opened at 29.13 and reached as high as 31.75
before settling up 9.75 (57.35 percent) on a huge volume
of 6.15 million shares.
With volume over 6 million on its first day of trading,
clearly a lot of the institutions were flipping their shares
and taking profits. But to the company's credit, investor
are buying this stock because DoubleClick has an
established brand image and was the first in the market
to carve out the web advertising services niche. With
$30 million in sales for 1997, $10.9 million of which
came in the December quarter, DoubleClick has clearly
hit a home run with its IPO after only its second year of
operations. The obvious question now is not how high
the stock can go, but how long the hype can last.
According to some, when the hype dies down, it may
reveal some lurking competition. Francis Gaskins of
Gaskins & Co. understands the rationale behind
opening-day exuberance because he sees it all the time
with hot Internet IPOs: "Right now DoubleClick has the
advantage and therefore deserves the premium."
However, Mr. Gaskins suggests that "the people in the
market don't realize the competition that exists." He
notes that other web advertising companies, like 24/7
and Softbank Interactive Marketing, will really fire up
after this IPO and that each has a fairly impressive list of
clients and sites. Unlike DoubleClick, which considers its
space the first-tier sites, these two competitors offer
networks of upper-end second- and third-tier sites,
including AT&T WorldNet, Rolling Stone, and Reuters
News for 24/7 and some top advertisers including
Disney, Microsoft, Sprint, and Toshiba for Softbank
Interactive. Mr. Gaskins further claims that while
DoubleClick is firmly in the top position right now, "the
distance between Number One and Number Two will be
a lot smaller than most people think."
Value added
After today's trading, DoubleClick now has a rough
valuation of $450 million based on the 15 million shares it
has outstanding; that's some big coin for a $30 million
revenues company which, according to its prospectus,
foresees losses into 1999 as it reinvests in international
expansion. However, Mr. Gaskins notes that "such a
valuation is at the top end for primarily a service
company that has little proprietary software which could
offer high gross margins."
By most accounts, market analysts remain bullish on
DoubleClick. Its established brand image, its technical
knowhow, and savvy management skills in an exploding
industry counter the inherent riskiness of any Internet
IPO. But will DoubleClick continue to dominate the
market for Internet advertising? That's a question
investors may have to ask further down the road; for
now, DoubleClick will bask in the limelight as
competition waits in the shadows. |
