Doubleclick (DCLK)
Low Risk Internet Stock

Doubleclick (DCLK), an internet ad marketing and management company, recently plummetted due to disappointing 2nd quarter results and after lowering full year expectations. However, the drop in price brings the stock that much closer to its cash value, making it a promising long term buy. The company recently traded at $4.86 (low of 4.80), with a market cap of $640 million. The company has net cash of $3.02. And to top it all off, the company has been profitable for several quarters, with net income of $3.9 million and generating 15 million in cash this past quarter.

Investigating the balance sheet

market cap Market Cap: 640.39M
recent price: $4.86

Cash and cash equivalents $77,522
Investments in marketable securities 183,839
Total current assets 350,483

Investments in marketable securities (non-current asset) 264,822
Total assets $834,060

Total current liabilities 78,528
Convertible subordinated notes - Zero
Coupon, due 2023 135,000

Of relevance, I see roughly $615 million in cash and securities, of which
$350 million is made up of current assets. The company has 78 million in current liabilities, and another $135 million in debt due 2023. If you
back out the liabilites and debt from the cash and securities, you're left
with a company that has $402 million.

Below are excerpts from the most recent quarter, with a few added editorials.

Company's 2nd quarter disappoints and guides lower for full year.

Total Company revenue came in below DoubleClick's previously issued
outlook, primarily due to year-over-year declines in revenue from its
Abacus and Ad Management divisions. These declines were mainly a result of lower-than-anticipated mailings by customers in the U.S. retail
business-to-consumer (B-to-C) Abacus Alliance and continued softness in the Publisher portion of DoubleClick's Ad Management business. Due to an increase in planned investments in its businesses, coupled with lowered growth expectations in Abacus and Ad Management, the Company now expects revenue and net income for the full year 2004 to be below previous guidance.

Second Quarter Results

2nd quarter revenue of $69.2 million versus $63.6 million in the year-ago
period. GAAP net income for the most recent quarter was $3.9 million, or $0.03 per share, compared with $5.8 million, or $0.04 per share, in the second quarter of 2003.

Gross margins of 68.4% during the quarter compared to 64.7% in the
year-ago period. EBITDA(1) was $10.7 million for the second quarter of
2004 compared to $16.4 million in the year-ago period.

GAAP earnings and EBITDA for the second quarter of 2003 benefited from a net restructuring credit of $6.9 million associated with the Company's facilities. This credit was partially offset by a $4.4 million loss in connection with the redemption of the Company's 4.75% convertible subordinated notes.

Company floating in cash...and generating it too!

DoubleClick generated $15.0 million in cash flow from operations during
the second quarter. The Company had $541.6 million in cash and marketable securities, and had a net cash position of $403.2 million, or $3.06 per share, as of June 30, 2004. This reflects the net $49.6 million used for the acquisition of Performics Inc. and the $38.0 million used in
connection with the open market repurchase of approximately 4.7 million shares of DoubleClick's common stock in 2Q04.

"We have repurchased over $59 million in stock since our board authorized a $100 million buy-back program late last year," added Ryan. "We are currently generating positive cash flow from operations and have plenty of cash on hand to invest in the business."

However, a caveat. Motley Fool recently pointed out that the company was buying shares at upwards of nearly $10 a share...and was issuing shares as it was buying them back.

Revised 2004 Outlook

DoubleClick is adjusting its full-year 2004 outlook due to lower-than
anticipated results from its Abacus B-to-C Alliance and the Publisher portion of its Ad Management division. DoubleClick believes that the
recent addition of Performics will partially offset its reduced Abacus and
Ad Management revenue outlook. The Company expects the acquisition to reduce GAAP net income by $0.01 per share in 2004 due to integration costs and amortization of intangibles. DoubleClick believes that the acquisition will be immediately accretive in terms of EBITDA, and that it will be accretive to EBITDA and GAAP net income in 2005. Finally, the Company intends to increase spending in several key businesses, particularly in Ad Management, because the Company believes that additional investment in these areas is critical to improve growth in its core businesses.

Third Quarter 2004 Outlook

DoubleClick expects third quarter revenue to be between $76 million and
$82 million. The Company anticipates recording GAAP earnings of between $0.02 and $0.05 per share.

The Company expects total Company gross margins to be in the high 60s to low 70s percentage range. GAAP operating expenses are expected to be between $50 million and $53 million. Items in interest and other, net and taxes are expected to be neutral to earnings, based on an assumed tax rate of approximately 15%.

Full-year 2004 Outlook

DoubleClick expects 2004 revenue to be between $290 million and $305
million. The Company anticipates recording GAAP earnings of between $0.13 and $0.17 per share. Yes the company is profitable, with a full year P/E of roughly 35 ($5 /0.15).

The Company expects total Company gross margins to be in the high 60s to low 70s percentage range. GAAP operating expenses should be between $185 million and $195 million. Items in interest and other, net and taxes are expected to be approximately $3.5 million, based on an assumed tax rate of approximately 15%.

Buy?

Doubleclick is a true survivor of the internet bubble burst. It has survived by shifting its business focus and become profitable. Disappointing earnings and revenues in the face of an uncertain economy is to be expected. However, should the economy finally rebound, internet
advertising and marketing is ready to take off. And Doubleclick will once
again be at the forefront.

Buy? I would. I call it a low risk internet stock in a relative sense. The downside risk to the stock is $3. The upside? The stock has traded as high as 13 in the past year. That's a little risk for a big potential reward down the road.