Monday
No Complaints in the Online Ad Biz
Snazzier ads and better technology are luring more marketers to the Web, providing nice, steady growth for DoubleClick and aQuantive
DoubleClick CEO Kevin Ryan says he always seems to get the same reaction whenever he sees old friends: They'll offer a sympathetic handshake and cautiously whisper, "Times must be tough." Well, they were. But after two lean years, life is looking up again for Ryan and the online ad business.
Boosted by renewed advertiser and agency demand for DoubleClick's ad-serving technology, its fortunes are on the mend. "My human resources manager is pleading to hire more in-house recruiters because we can't fill all the open positions fast enough," says Ryan. "It reminds me a little of 1999. It's not the same scale, but times are good in a manageable way."
Manageable growth is just what DoubleClick (DCLK ) and its competitors aQuantive (AQNT ) and ValueClick (VCLK ) treasure these days. In its short history, the online ad biz has lurched from feast (1997 to 1999) to famine (2000 to 2002). Late last year, the industry started to pick up again. But the majority of new online ad dollars were directed toward paid search links, a market dominated by Overture (OVER ), recently acquired by Yahoo! (YHOO ), and Google (see BW Online, 7/15/03, "Why Google Should Be Worried").
YEARS OF GROWTH. Now, the old guard of the online ad biz may finally be getting its share. Research firm eMarketer projects that online ad spending will reach $6.3 billion in 2003, a 4.8% rise over 2002 and its first year-over-year increase since the dot-com heyday. Even better, the market is expected to continue to grow steadily through 2006 when spending will reach $8.1 billion, according to eMarketer.
DoubleClick's and aQuantive's earnings, announced this week, mirror the industry's steady rise: DoubleClick's revenues rose 5% sequentially, to $63.6 million -- though they were down 16% over a year ago due to divestitures in the business. AQuantive's second-quarter revenue hit $52.0 million, a 71% jump over the same period a year ago. Net income for aQuantive totaled $2.4 million, compared to a net loss for the year-ago second quarter of $1.8 million.
DoubleClick's shares rose 11%, from $10.19 to $11.38, on its earnings news and remains in the $11 range. aQuantive's stock shot up 22%, from $7.90 to $9.67, and closed at $10.75 on July 24. "We believe we're leading indicator of what will happen in the online ad space," says aQuantive president and CEO Brian McAndrews. "I don't think there will be a big hockey stick. Instead we'll see a gradual rise."
AGENCIES LOG ON. That gradual climb should be driven by several trends. First, a larger number of advertisers are shifting dollars to the online medium. In the fourth quarter, 286 of the 500 largest U.S. companies were spending money online, according to a January, 2003, report from research firm AdRelevance, up from 270 a year earlier. The reason: Big advertisers, including McDonalds (MCD ), Estee Lauder (EL ), and General Motors (GM ), are beginning to use the Net for traditional branding campaigns, not just a direct-marketing vehicle.
According to DoubleClick's own ad-serving report, which extracts trends from the 150 billion ads served this quarter, click-throughs, which measure when a computer user clicks on an ad, are being deemphasized. Instead, advertisers are focusing on -- and improving -- "view-through" rates, which assess whether the consumer took any action within 30 days of viewing an online ad. The average view-through rate in the second quarter was 0.63%, vs. 0.52% for click-throughs.
As the big advertisers move dollars online, ad agencies, too, are beginning to embrace the Net. Revenues from DoubleClick's ad-serving technology for agencies and advertisers jumped 22% last quarter compared to the previous quarter, and 12% year-over-year. Compare that to the numbers generated by the technology it sells to publishers -- its original business -- which saw revenues skid 2% last quarter and 18% year over year. aQuantive, which owns rival ad-serving technology called Atlas DMT, says it added 12 new customers -- primarily ad agencies.
ATTENTION TRACKER. Finally, the effectiveness of rich-media ads has put a sparkle in marketers' eyes. Though paid search links are still the most effective way to lure customers, advertisers are having increasing success with large-format animated ads, dynamic pitches that fly across Web pages, and pop-ups. According to research firm Dynamic Logic, rich-media ads are generally twice as effective as traditional banner campaigns in lifting brand awareness.
To take advantage of rich media, advertisers need technology from DoubleClick, aQuantive, and others. So, both have released new versions of their ad-serving software in mid-July that makes it easier for agencies to roll out rich-media ads and track their effectiveness.
aQuantive's new release allows agencies to track how long a user is exposed to each rich-media ad -- the equivalent of knowing that a TV viewer watched an ad for 15, 30, or 60 seconds. Atlas DMT President Tom Sperry says the technology will help agencies design better creative campaigns that fit the attention span of their viewers. It will also allow media buyers to compare how much exposure their ads get on various Web sites, as well as the different sections of each Web site. According to DoubleClick, the number of rich-media ads nearly doubled, from 17.3% of all ads in the first quarter to 31.7% in the second.
FEW BUYS. It's this kind of "manageable" growth that helps DoubleClick's Ryan sleep soundly at night. But should investors be tempted by the stocks? Unfortunately, that opportunity may already be lost. DoubleClick shares are up 46% since Mar. 31, while aQuantive's have skyrocketed more than 120% in the same period. No wonder Wall Street analysts remain cautious. According to Thomson Financial FirstCall, a consensus of 11 analysts rate DoubleClick a hold. Only two analysts cover aQuantive -- one rates it a strong buy, the other a hold.
Still, after a two-year depression, the online ad guys can't complain. For the first time in their history, company CEOs -- and their investors -- are pleased to see slow and steady growth. It sure beats getting consoled about how rough times must be.
Snazzier ads and better technology are luring more marketers to the Web, providing nice, steady growth for DoubleClick and aQuantive
DoubleClick CEO Kevin Ryan says he always seems to get the same reaction whenever he sees old friends: They'll offer a sympathetic handshake and cautiously whisper, "Times must be tough." Well, they were. But after two lean years, life is looking up again for Ryan and the online ad business.
Boosted by renewed advertiser and agency demand for DoubleClick's ad-serving technology, its fortunes are on the mend. "My human resources manager is pleading to hire more in-house recruiters because we can't fill all the open positions fast enough," says Ryan. "It reminds me a little of 1999. It's not the same scale, but times are good in a manageable way."
Manageable growth is just what DoubleClick (DCLK ) and its competitors aQuantive (AQNT ) and ValueClick (VCLK ) treasure these days. In its short history, the online ad biz has lurched from feast (1997 to 1999) to famine (2000 to 2002). Late last year, the industry started to pick up again. But the majority of new online ad dollars were directed toward paid search links, a market dominated by Overture (OVER ), recently acquired by Yahoo! (YHOO ), and Google (see BW Online, 7/15/03, "Why Google Should Be Worried").
YEARS OF GROWTH. Now, the old guard of the online ad biz may finally be getting its share. Research firm eMarketer projects that online ad spending will reach $6.3 billion in 2003, a 4.8% rise over 2002 and its first year-over-year increase since the dot-com heyday. Even better, the market is expected to continue to grow steadily through 2006 when spending will reach $8.1 billion, according to eMarketer.
DoubleClick's and aQuantive's earnings, announced this week, mirror the industry's steady rise: DoubleClick's revenues rose 5% sequentially, to $63.6 million -- though they were down 16% over a year ago due to divestitures in the business. AQuantive's second-quarter revenue hit $52.0 million, a 71% jump over the same period a year ago. Net income for aQuantive totaled $2.4 million, compared to a net loss for the year-ago second quarter of $1.8 million.
DoubleClick's shares rose 11%, from $10.19 to $11.38, on its earnings news and remains in the $11 range. aQuantive's stock shot up 22%, from $7.90 to $9.67, and closed at $10.75 on July 24. "We believe we're leading indicator of what will happen in the online ad space," says aQuantive president and CEO Brian McAndrews. "I don't think there will be a big hockey stick. Instead we'll see a gradual rise."
AGENCIES LOG ON. That gradual climb should be driven by several trends. First, a larger number of advertisers are shifting dollars to the online medium. In the fourth quarter, 286 of the 500 largest U.S. companies were spending money online, according to a January, 2003, report from research firm AdRelevance, up from 270 a year earlier. The reason: Big advertisers, including McDonalds (MCD ), Estee Lauder (EL ), and General Motors (GM ), are beginning to use the Net for traditional branding campaigns, not just a direct-marketing vehicle.
According to DoubleClick's own ad-serving report, which extracts trends from the 150 billion ads served this quarter, click-throughs, which measure when a computer user clicks on an ad, are being deemphasized. Instead, advertisers are focusing on -- and improving -- "view-through" rates, which assess whether the consumer took any action within 30 days of viewing an online ad. The average view-through rate in the second quarter was 0.63%, vs. 0.52% for click-throughs.
As the big advertisers move dollars online, ad agencies, too, are beginning to embrace the Net. Revenues from DoubleClick's ad-serving technology for agencies and advertisers jumped 22% last quarter compared to the previous quarter, and 12% year-over-year. Compare that to the numbers generated by the technology it sells to publishers -- its original business -- which saw revenues skid 2% last quarter and 18% year over year. aQuantive, which owns rival ad-serving technology called Atlas DMT, says it added 12 new customers -- primarily ad agencies.
ATTENTION TRACKER. Finally, the effectiveness of rich-media ads has put a sparkle in marketers' eyes. Though paid search links are still the most effective way to lure customers, advertisers are having increasing success with large-format animated ads, dynamic pitches that fly across Web pages, and pop-ups. According to research firm Dynamic Logic, rich-media ads are generally twice as effective as traditional banner campaigns in lifting brand awareness.
To take advantage of rich media, advertisers need technology from DoubleClick, aQuantive, and others. So, both have released new versions of their ad-serving software in mid-July that makes it easier for agencies to roll out rich-media ads and track their effectiveness.
aQuantive's new release allows agencies to track how long a user is exposed to each rich-media ad -- the equivalent of knowing that a TV viewer watched an ad for 15, 30, or 60 seconds. Atlas DMT President Tom Sperry says the technology will help agencies design better creative campaigns that fit the attention span of their viewers. It will also allow media buyers to compare how much exposure their ads get on various Web sites, as well as the different sections of each Web site. According to DoubleClick, the number of rich-media ads nearly doubled, from 17.3% of all ads in the first quarter to 31.7% in the second.
FEW BUYS. It's this kind of "manageable" growth that helps DoubleClick's Ryan sleep soundly at night. But should investors be tempted by the stocks? Unfortunately, that opportunity may already be lost. DoubleClick shares are up 46% since Mar. 31, while aQuantive's have skyrocketed more than 120% in the same period. No wonder Wall Street analysts remain cautious. According to Thomson Financial FirstCall, a consensus of 11 analysts rate DoubleClick a hold. Only two analysts cover aQuantive -- one rates it a strong buy, the other a hold.
Still, after a two-year depression, the online ad guys can't complain. For the first time in their history, company CEOs -- and their investors -- are pleased to see slow and steady growth. It sure beats getting consoled about how rough times must be.
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