DoubleClick has announced below-target Q3 revenues.
DoubleClick reached profitability for the first time, with an operating profit of three cents per share. However, the company’s shares immediately fell by 30% because this was not seen as good enough. There is a great deal of skepticism about web advertising firms due to the belief that failing dotcoms are no longer able to afford to advertise to the same extent as before. The medium is also seen as suffering from a low response rate, with only 1% of viewers clicking through to view advertised pages.
However, there is obvious potential for online marketing. It tells advertisers far more about whether they are reaching their target markets than traditional media advertising, and is less intrusive than direct mail. Firms that currently advertise conventionally are moving online to replace the burnt-out eTailers. But this is a slow process, and analysts expect web advertising companies to experience falling revenues over the next six months.
Despite this, DoubleClick has a very strong and immediate alternative source of revenue. The firm has always been driven by technology, but over the last two years has changed its business model so that it licenses technological solutions to rival advertising companies. Revenues for DoubleClick’s TechSolutions department have grown by 171% over the last year, and this department now accounts for around half of profits. Unlike the advertising division, this revenue growth is expected to continue. Its revenues are dependent on other companies’ belief in the long-run viability of web advertising, which still appears quite strong.
Despite investors’ misgivings, DoubleClick looks to be in a strong position. Internet advertising will eventually be a profitable business, and the company is the best-known brand and therefore most likely to succeed. And licensing technology ensures a revenue stream even while the core business is going through temporary difficulties.
