just found while searching here that I hadn't posted BTAB's
Andrikopoulos' comments (on FC) from a couple weeks back:
from 1/21:
--RAISING REVENUE ESTIMATES, ADJUSTING OPERATING LOSS ASSUMPTIONS:
Our 1Q'99 revenue estimate increases to $27.6mm from $25.0mm on an
operating loss per share estimate that goes to ($0.26) from ($0.23).
Our CY'99 revenue estimate increases to $126.6mm from $115.0mm on an
operating loss per share estimate that goes to ($0.92) from ($0.73).
--KEY METRICS WERE STRONG: Average daily ad impressions delivered
climbed to 177 mm from 108 mm (q/q) up 64% sequentially, DART
customers climbed to 225 from 174 (q/q), and advertisers climbed to
2,300 from 2,200.
--RISKS: Aside from the AltaVista risk (which we believe has been
completely mitigated) we feel that DoubleClick faces two primary
risks: (1) Uncertainty surrounding the overall interactive advertising
market and (2) the management of hyper-growth as the Company continues
to expand rapidly into new markets.
DETAILS:
COMPANY REPORTS SOLID 4Q RESULTS
DoubleClick reported solid 4Q operating results before todays's market
open.
Revenues of $29.1 mm were well above our $24.0 mm estimate. Gross
margins of 33% were in line with our estimates and an operating margin
of -18% was significantly better than our -20% estimate. The Company's
operating loss per share of $0.25 was in-line with our estimate and
slightly better than the Street's consensus $0.26 estimate.
Overall we believe the Company is executing well ahead of plan.
DoubleClick continues its aggressive international expansion and its
forays into higher margin products (e.g. DoubleClick DART and Closed
Looped Marketing). We note that the Company has exceeded our revenue
estimates every quarter since being a public company and has met or
exceeded our bottom line forecasts as well, demonstrating its ability
to deliver consistent and steady results.
THE 1,000 POUND GORILLA HAS BEEN LIFTED--UPGRADING TO "STRONG BUY"
FROM "BUY" We are upgrading our investment rating to "Strong Buy" from
"Buy" based on three key points: 1) the Company's newly signed 3-year
agreement with AltaVista, 2) the Company's ability to consistently
deliver better than expected operating results and 3) DoubleClick's
commitment to building its franchise through scaling its industry
leading sales force and product development efforts.
1) The Company announced today that it has signed a 3-year
advertising services agreement with AltaVista. We have consistently
held that the main risk surrounding DoubleClick's story was its
dependency on AltaVista (44% of 4Q revenue) and the ability of
AltaVista to cancel the agreement with 90-days notice. We emphasize
that the Company's new agreement with AltaVista is binding for the
duration of the contract (i.e., it cannot be cancelled by either
party).
We believe that the investment community, including ourselves, has
focused heavily on the AltaVista issue in the last 12-months. We feel
now that the 1,000 pound gorilla has been lifted, investors will be
able to focus on the tremendous growth opportunities that the Company
should be able to capture.
2) The Company has delivered significant upside to our revenue
estimates every quarter since becoming a public company. In 4Q
DoubleClick delivered 21% revenue upside, posting impressive 40%
sequential growth. We also remind investors that we have raised our
revenue estimates four consecutive quarters, a sign that the Company
continues to execute on new market opportunities. We highlight the
Company's ability to grow International revenues to $4.1 mm from
$2.5 mm (64% sequential growth), and believe this represents a solid
indication that the International advertising markets could represent
a larger opportunity (vs. domestic) longer-term.
3) We believe DoubleClick is committed to capturing increased market
share and monetizing its growth opportunity by scaling its impressive
advertising sales force. We further recognize the Company's
dedication to developing cutting edge advertising technology tools.
For example DoubleClick had the strategic foresight to develop a
leading solution for advertisers (Closed Loop Marketing), when it had
historically focused on solutions for Web publishers. We believe the
Company is continually redefining its position within the interactive
advertising industry and feel aggressive spending should enable it to
distance itself from the competition. DoubleClick had 109 new hires
in 4Q, of which most were in its sales force and development team.
VALUATION--THE MARKET LEADER WITH A MAJOR CONCERN LIFTED
DoubleClick stock currently trades at 8.7x our 2000 revenue forecast.
If we apply our 10% long-term operating margin assumption to our $187
mm 2000 revenue forecast and fully tax it, we arrive at a current 142x
2000 TEMA (theoretical earnings multiple analysis) P:E multiple. This
represents a 89% premium to our 75% 3-5 year revenue growth
assumption. We are placing a 12-18 month price target of $140 on the
shares of DoubleClick, which represents a 14x multiple of our 2000
revenue forecast and a 233x 2000 TEMA P:E multiple (211% premium to
our 75% LTGR). Importantly, other leading Internet franchises such as
Yahoo!, AOL, Amazon.com and eBay are 'currently' trading at premiums
to their 2000 TEMA P:E multiples of 222%, 81%, 193% and 279%,
respectively. We continue to believe that DoubleClick should
represent a core holding for investors seeking solid exposure to the
interactive advertising industry. In our opinion DoubleClick could
trade higher, especially now that it has fully mitigated the AltaVista
risk.
RAISING REVENUE ESTIMATES, ADJUSTING OPERATING LOSS ASSUMPTIONS
We anticipate continued revenue momentum, as such we are raising our
revenue estimates across the board. We are, however, maintaining our
mid-2000 break-even assumption. DoubleClick has demonstrated that it
can maintain its leadership position in the advertising services
market by launching new innovative services that are in demand by
advertisers and publishers. As such, we believe that the Company will
continue to invest heavily, over the next 24 months, in both product
development and sales and marketing. We are adjusting
our estimates as follows:
New Old New Old
EPS EPS Revenue* Revenue*
----- ----- ------- -------
4QA 1998 UNCH. ($0.25) $29.1 $24.0
FY 1998 UNCH. ($1.13) $80.2 $75.1
1Q 1999 ($0.26) ($0.23) $27.6** $25.0**
2Q 1999 ($0.25) ($0.21) $30.0** $27.0**
3Q 1999 ($0.24) ($0.18) $32.0** $29.0**
4Q 1999 ($0.17) ($0.10) $37.0** $34.0**
FY 1999 ($0.92) ($0.73) $126.6** $115.0**
FY 2000 (0.16) $0.00 $187.0** $175.0**
* $ in millions
** Represents gross billings
PRIMARY VARIANCES
Higher than expected revenues were offset by incremental investments
in product development and sales and marketing, a wise move in our
view. Within operating expenses Product Development costs of $2.3mm
were above our $1.9mm forecast as the Company invested in DoubleClick
Local and Closed Loop Marketing. Sales and Marketing costs of $9.1mm
were above our $7.8mm forecast as the Company rapidly expanded its
sales force. General and Administrative costs of $3.5mm above our
$3.0mm estimate as the Company incurred legal and consulting fees
surrounding its follow-on equity offering.
Overall, we are impressed that the Company continues to over deliver
on the operating margin line (18% vs our 20% loss forecast), a sign
that the model does scale.
KEY METRICS WERE STRONG
Average daily ad impressions delivered climbed to 177mm from 108mm
(q/q) up 64% sequentially. We note that this sequential growth far
exceeds Yahoo!'s 16% growth in page views and we remind investors that
the Company now serves more ads per month than Yahoo! receives page
views. The number of the DART customers climbed to 225 from 174
(q/q), a clear sign that the market is accepting DoubleClick's
outsourcing ad serving solutions. Advertisers climbed to 2,300 from
2,200 and, importantly, the retention rate of $10,000+ advertisers
remained flat at 92%, a sign that DoubleClick is delivering an
attractive audience for potential advertisers.
The Company's International revenue of $4.1mm (14% of revenue)
reaffirms our thesis that international network sales is particularly
fertile ground for DoubleClick given the rapid international expansion
plans of U.S. Web publishers and the difficulty and expense of
establishing independent international salesforces. The Company ended
the quarter with $136.8mm in cash, up from $49.9mm last quarter as
the Company completed a successful $86mm follow-on equity offering.
NEW REVENUE RECOGNITION POLICY
Under its new agreement with AltaVista the Company will be unbundling
its services and charging AltaVista separately for U.S. DART,
International DART, U.S. ad sales, International ad sales, Local ad
sales and billing and collection services. The change in bundling
structure for the AltaVista revenues has raised a GAAP issue that will
require the Company to distinguish its gross revenue from its net
revenue. What had been characterized as revenues historically will
now be called "Billings". A new line item will be created called "Net
Revenue", which is the portion of the "Billings" that the Company
retains. We note that this accounting policy will only be applicable
to the Company's AltaVista revenue. As such the difference between
"Billings" and "Net Revenue" will be the portion of the AltaVista
gross revenue that the Company remits back to AltaVista. For example
in 4Q the Company's billings were $29.1mm, of which 44% was derived
from AltaVista (or $12.9mm).
DoubleClick retains approximately 30% of all AltaVista revenue
(remitting the remaining 70% back to AltaVista). Therefore, "Net
Revenue" for the 4Q would have been $20.1 mm (Billings minus 70% of
AltaVista gross revenue).
We emphasize that this accounting change DOES NOT effect the Company's
gross profit or operating model. As a result of the accounting change
gross margins, which will be calculated on the "Net Revenue" figure,
should be in 48-50% range moving forward, as opposed to the current
33% levels. The Company will not restate historical financials as the
new AltaVista agreement (which became effective on January 1, 1999)
triggered the accounting change. We continue to believe that the
Company can deliver a 9-10% long-term operating profit.
RISKS
Aside from the AltaVista risk (which we believe has been completely
mitigated) we feel DoubleClick faces two primary risks: (1)
Uncertainty surrounding the overall interactive advertising market and
(2) the management of hyper-growth as the Company continues to expand
rapidly into new markets.
Within the interactive advertising market we believe the industry
could experience CPM pricing pressure as AOL or other large players
cut prices to sell more of their unsold inventory of impressions. We
also see the potential for cyclicality in the industry and note that
interactive advertising dollars could be the first area companies pare
back in tough economic conditions.
Finally we note that the entire interactive advertising industry is
still in its infancy and that marketers are not fully convinced that
the new medium has intrinsic value. This is particularly true in the
consumer brand area where major advertisers (e.g. Unilever, Procter
and Gamble) are just beginning to step up to the plate.
We also highlight the risk of operational missteps as the Company
continues to experience double-digit revenue and employee growth. We
believe DoubleClick's solid management team and its combined extensive
industry experience in advertising, publishing and technology mitigate
this risk. |
