*Wall Street Pounds 24/7 Media, Engage After LossesTwo of the Internet ad industry's heavyweights took it on the chin last week, as Engage Inc. and 24/7 Media Inc. each suffered significant stock decreases after issuing ill-received statements about their respective struggles in a weakening online media market.
Engage, Andover, MA, fell 29 percent to $2.47 per share Nov. 9 after warnings that it would report lower than expected revenues and higher than anticipated per-share losses for its fiscal 2001 first quarter, which ended Oct. 31. The CMGI majority-owned online media firm also announced the resignation of president/CEO Paul Schaut and the hiring of former Fidelity executive Anthony Nuzzo to replace him.
24/7 Media, New York, closed at $2.94 on Nov. 9, a 37 percent drop from the previous day's close. The plunge came less than 24 hours after it revealed that its third-quarter 2000 decrease more than quadrupled its loss from the same period last year and that it planned to lay off 200 employees as part of a corporate restructuring plan.
The news also led to stock downgrades for both firms -- Goldman Sachs and ING Barings lowered Engage, and Merrill Lynch, J.P. Morgan and CS First Boston did the same for 24/7 Media.
Even DoubleClick, the leading online ad network, which did not issue any financial statements or meaningful press releases last week, absorbed a small blow to its stock price by association. DoubleClick's stock fell 17 percent to $15.50 on Nov. 9.
Executives for 24/7 Media and Engage attributed much of their difficulties to softening market conditions characterized by decreased spending by dot-coms and a slowdown of traditional offline marketers entering the online marketing space. The companies also expressed internal challenges ranging from sales force integration to redundancies across their global operations.
"We had hoped for improved industry trends, but based on continued softness in the media industry and the seasonal weakness traditionally associated with the first part of our financial quarter, we anticipate revenues will fall below original expectations," said Bob Bartlett, chief financial officer at Engage. Additionally, he warned, "We believe many of these conditions could persist into the next three quarters."
Based on preliminary data, Engage officials said its revenues for its fiscal 2001 first quarter are expected to fall somewhere between $40 million and $42 million. The company's first-quarter cash earnings per share are expected to be a loss in the range of 25 cents. By comparison, Engage reported revenues of $67 million and a cash earnings per share loss of 14 cents for its previous fiscal year's fourth quarter, which ended July 31.
Engage did not provide any details for the departure of Schaut, stating only that he left to "pursue other interests." Its new chief, Nuzzo, is a 25-year veteran of the marketing industry and has worked for Fidelity, American Express and Johnson & Johnson, among others.
At 24/7 Media, company officials also bemoaned the current state of the industry.
"We experienced challenging market conditions in the third quarter," said David Moore, CEO of 24/7 Media.
For the quarter ended Sept. 30, the firm reported that revenues rose 98 percent to $48 million, but that its net loss grew to $57 million from $12 million one year ago. Its net loss per share climbed to $1.49 from 55 cents per share during the third quarter of 1999.
"We are not satisfied with these results," explained Moore. "We recognize that bottom-line performance is the focal operating metric, and we are implementing a number of significant initiatives [designed] to ensure our drive to profitability."
Foremost among those initiatives is a so-called "operating plan" that includes laying off 200 employees and an unspecified effort to leverage its synergies across its many business units and eliminate redundancies. 24/7 Media said it expects to save $20 million annually as a result of the restructuring.