Don't think DLJ's Jan 20th, 1999 report was posted here yet:
RATING: Buy / Change: None / 12-Mo. Target: $160
IMPORTANT POINTS
1. DoubleClick reported strong December quarter results, generating $29.1 million in revenue (up 40% sequentially and well above our $23.8 million estimate) and earnings per share of ($0.25), a penny above consensus of ($0.26) and $0.02 above our ($0.27) estimate. DoubleClick ended 1998 with $80.2 million in revenue (up 162% y/y) and EPS of ($1.13).
2. Even more significant than the strong financial results, DoubleClick announced today that it had restructured its agreement with Compaq's AltaVista, effective January 1, 1999. The major overhang on DoubleClick has been lifted as the uncertainty of the AltaVista relationship disappears. Under the three year, non-cancelable deal, DoubleClick will continue to deliver ads on AltaVista, which accounted for $12.9 million, or 44% of DoubleClick's revenue in Q4 (unchanged on a percentage basis from Q3).
3. The economics of the deal are comparable to the previous agreement with a 70%/30% split between Compaq and DoubleClick. DoubleClick will retain ad sales responsibilities for the domestic, international and local core search and directory sections; however, AltaVista may eventually assume full ad responsibility for a small number of clients. In addition, a non-termination clause has been added to this agreement, which replaces the previous agreement's three-month cancellation notice. Due to the structuring of the relationship, GAAP will require DoubleClick to account for AltaVista revenue as “billings” rather than revenue; we will be publishing our model with the new format later this month. Our current model retains the old format to allow an apples-to-apples comparison.
4. Key underlying metrics demonstrated robust growth, including 172 million ad impressions served per day during December (up 59% from 108 million per day in September) and 2,300 unique advertisers (up from 2,200 in the September Q). Advertiser retention rate decreased slightly to 92% from 93% last quarter.
5. DoubleClick's customer base for its DART product (DoubleClick's proprietary ad serving technology) increased from 440 to 570, up 29.5% sequentially. Total number of unique sites increased from 4,200 to 6,400, up 52% sequentially.
6. International markets represent a growing opportunity for the company, with DoubleClick's international network revenue at $4.1 million, up 64% q/q. The company continues to expand internationally, with over 23 offices in 14 countries. Having a majority of the international network covered gives DoubleClick the advantage of offering publishers representation across multiple territories, and its international publishers now stand at 230, up from 170 in Q3. International advertisers similarly increased from 625 last quarter to 700 in December.
7. DoubleClick's Closed-Loop Marketing Solutions, which provides advertisers with control over the delivery and measurement of their ad campaigns, is another growing opportunity with over 200 million ads served in the first three months since its launch in the third quarter.
8. We are raising our price target to $160, based on a discounted cash flow approach. Reflecting the leverage in the business model, we use a cost of capital of 14.9% and a terminal value growth rate of 12.9%, arriving at our $160 price target.
9. We are increasing our Q1'99 revenue estimate from $22.5 million to $26.9 million, and are increasing our loss per share estimate from ($0.23) to ($0.26), based on higher expense assumptions. (Also reflected in our G&A line for the March '99 quarter, but not in our EPS estimate, is a $3.2 million charge for office relocation expense.) We are similarly raising our 1999 revenue estimates from $106 million to $131.7 million, and our loss per share estimate from ($0.66) to ($0.83), as the company continues to invest in expanding the business. DoubleClick is the dominant franchise in the ad selling and ad serving category and is extremely well positioned for a strong March quarter. With the uncertainty of DoubleClick's AltaVista relationship a memory, we strongly reiterate our Buy rating. |
