Engage, 24/7 Continue to Slide

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The bad news for ad targeting networks continues unabated from the pace begun last year.


The latest to succumb to the "dot-com malaise" is Engage Inc., Andover, MA, which said Jan. 4 that it plans during the next few months to eliminate nearly 50 percent of its work force, or about 550 positions. Those cuts will be achieved through attrition, job elimination and layoffs, the company said in a statement.


Engage did not specify how many jobs would be eliminated outright and how many would be reduced through attrition. Company spokesman Mike Mayzel did say, however, that layoffs began Jan. 4 and "will continue during the next few months." He would not be more specific.


The work force reduction is part of Engage's previously announced reorganization, which the company hopes will help it achieve profitability by the fourth quarter of fiscal 2001. The company said in mid-December that it would eliminate some of its work force and would consolidate its three ad serving platforms into one.


"Once fully implemented, the work force reduction and other operational changes are expected to generate annualized improvements in operating margins and cost reductions of approximately $120 million to $150 million," the company said in the statement.


In a conference call Dec. 13, Engage said its loss for the fiscal 2001 first quarter, which ended Oct. 31, would be larger than it previously had warned. Engage said in late November that its first-quarter earnings per share would come in at a loss of 25 cents. However, it revised that figure to a loss of 26 cents per share on revenue of $41 million. The loss was 3 cents below analysts' estimates.


As a result of this restructuring, Engage said it expects to incur charges that would reduce its cash on hand by $17 million to $20 million.


The company's cash burn rate is most troubling to analysts, many of whom think it is going through too much too quickly to survive more than a few months. Engage said it had $107.9 million in cash at the end of October and $101 million at the end of November. Even a $50 million commitment from parent CMGI Inc. does not do much to assuage analysts' fears.


Meanwhile, 24/7 Media Inc., New York, said in late December that it expects its fourth-quarter revenue to be lower than previously expected and that it would eliminate another 100 jobs.


At the same time, chief financial officer Andy Johns announced his resignation. In a conference call with analysts and the media, Johns said he was leaving not because of 24/7 Media's financial problems, but to spend more time with his family.


On top of that, some analysts believe 24/7 Media is ripe for a takeover.


The company said in its conference call that for the fourth quarter that ended Dec. 31, it expects total revenues to be between $43 million and $45 million, down from its previous forecast of $49 million. Earnings per share for the quarter were lowered to a loss of 46 cents to 49 cents, from the previously expected loss of 39 cents to 44 cents.


The company blamed its poor performance on lower advertising spending during the holidays, when revenues generally rise.


"Our short-term outlook for the online advertising market looks cloudy," said David Moore, CEO of 24/7 Media.


He said that by cutting 100 additional employees, the company would realize about $12 million in savings in the fourth quarter and about $30 million for the year. 24/7 Media laid off 200 employees during the third quarter.


On an optimistic note, the company forecast that its revenues this year would only decline between 10 percent and 15 percent.


However, analysts disagree.


Henry Blodget, Merrill Lynch's Internet analyst, said in a recent research report that he expects the company's revenue to decline by 35 percent this year.


"Clearly, the industry remains weak, particularly in both the banner and e-mail business," Blodget said. "For '01 we are looking for a 35 percent decline in network revenues for 24/7."


The analyst also said that 24/7 Media is in such a weakened state financially, and its stock is so depressed, that it is ripe for either a breakup or a takeover. He mentioned the recent acquisition of NetCreations by SEAT Pagine Gialle SpA, Turin, Italy, for $111 million.


"This bodes well for a breakup or takeover, which is still a possibility," Blodget said. "With the stock [recently trading] at 70 cents, the entire company is valued at about $30 million."


24/7 Media's stock was trading at $1.03 Jan. 4 in the afternoon, no doubt boosted by the Nasdaq's record performance the previous day. Its stock closed Jan. 3 at 87 cents, on a day that saw the Nasdaq rise 324 points, its largest increase ever.
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