The Morning Report - December 13, 2000

Bouncing On Bad News

By Chris Nerney

Internet ad services market leader DoubleClick wasn't the biggest gainer
Tuesday among members of internet.com's Internet Stock Index - that honor
belonged to PSINet, which soared 49% after announcing another round of
layoffs and on rumors that Sprint may be interested in buying the
beleaguered access provider.

But the fact that DCLK gained at all after issuing a warning for Q4 after
Monday's market close is almost shocking, given the current bearish
outlook for online advertising growth.

Surely no other Internet company is more vulnerable to a downturn in Web
ad spending than DoubleClick, whose business plan from Day One was based
on becoming the premiere provider of services for companies advertising on
the Internet.

DoubleClick certainly has achieved that goal, but the company still has no
profits to show for it. And with concerns about the future of online
advertising intensifying throughout the year as one 'Net firm after
another lowered their ad-revenue forecasts, DCLK has become one of the
biggest losers among large-cap 'Net players. Even with Tuesday's 16% gain
(to $13.88), DoubleClick is down 89% this year.

So why the post-warning spike? Perhaps investors feel DCLK shares already
have been discounted enough. With a market capitalization of $1.7 billion,
DoubleClick is valued at 3.2x trailing 12 months' revenue of $433 million.
Not a bad price for a company that dominates its sector.

Or it could be Wall Street expected worse than DoubleClick's Q4 advisory,
which warned that revenues will be 8% to 10% below expectations and that
the bottom line will range from break-even to a net loss of 3 cents per
share.

While those latter numbers may be well short of consensus Q4 estimates
calling for a net profit of 2 cents per share, they hardly are indicative
that the sky is falling on DoubleClick. Yet.

It looks as if investors will have to wait at least until April for
evidence that DoubleClick can turn a profit. Until then, don't expect many
days like Tuesday for DCLK shares.

Getting back to PSINet, its nearly 50% gain (or 53 cents) on Tuesday
helped slash its year-to-date loss to 94.7% from 96.5%. The layoff of 300
workers clearly is intended to help position the company for a sale. In
November, PSINet said it had hired Goldman Sachs to explore strategic
options.

As a group, the 50 members of the Internet Stock Index, or ISDEX, gained
6% in the week of trading ended Tuesday, closing at 501. For the year, the
ISDEX has fallen 41.8%.

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