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Stock of the Day: aQuantive

By ANN M. MACK

November 9, 2004 – ALI VELSHI, CNNfn ANCHOR, THE MONEY GANG: aQuantive is an internet advertising company. It`s in the business of driving traffic to it`s customer`s web sites. The company reported earnings last week, but is guiding lower for the fourth quarter and the full year. aQuantive is our "Stock of the Day".

We`re going to speak to the company`s CEO in just a moment. First, take it over to Chris Huntington with more. He is our stocks editor, and he is thanking his lucky stars he got stocks editor today, and not the guy doing video games.

CHRIS HUNTINGTON, CNNfn STOCKS EDITOR: Not Halo 2?

VELSHI: Good credit to Mary.

HUNTINGTON: I hope she brings back a copy of the game back so we can check it out.

VELSHI: And something to play it on.

HUNTINGTON: And something - that would help too. They are taking our computers away too. You may not know the company by name, aQuantive, but if you ever surf the web, you are familiar with online advertising. It`s a huge business, and it`s not going away. And aQuantive is right smack in the middle of it. Recently bought Razorfish , that is a name you may be aware of.

aQuantive is essentially an online advertising agency, but it also handles all of the incredible technology that allows for pop-up ads, for tracking, demographics, and all sorts of trends that advertisers want to know about.

The company has been growing, particularly by purchasing Razorfish which accounts for 40 percent of the sales. Razorfish perhaps, by some estimation growing a little more slowly than perhaps the company would like. We`ll ask CEO Brian McAndrews that in just a second.

The stock had a nice run-up in 2003. It sort of chopped around $10 for a while. It`s had a bit of a sell-off in the last month or so, perhaps a buying opportunity. The company is lowering guidance slightly for the fourth quarter, now says it is looking for about four cents a share. The street had been thinking in the neighborhood of six cents a share. Looking for revenue - the street was looking for 57 in revenue, $57 million.

aQuantive now saying in the neighborhood of 54.5, 55. So I`ll get a little more detail on that. Basically the company is right in the middle of what is clearly a technology and force field that is not going away. And it is only going get bigger as people understand how to harness it`s power. So this is a company for the long haul. It is feeling it`s way through a difficult period. The company went public basically right, I think, pretty much at peak or near the peak of internet bubble. So it learned some tough lessons right out of the shoot. And we`ll hear more from Brian McAndrews in a second. The stock as I mentioned down a little bit in the last month, but still holding to levels significantly above where it was about a year ago.

VELSHI: All right. There`s the chart from the IPO to now. Brian McAndrews is the CEO of the company. We`re talking about him. Let`s bring him into the conversation. Brian good to see you. Thanks for being with us.

BRIAN MCANDREWS, PRESIDENT & CEO, AQUANTIVE: Thank you, ali.

VELSHI: When you look at that history, that chart will always be part of history. Strange time to come out. That`s the reality. It`s a different world out there. The internet did survive, and you get to be one of the survivors. What does this business hold for you right now? We talk about DoubleClick is one of your competitors.

In some ways, we`re seeing a resurgence of advertising to the internet, in another. We`re seeing software that stops -- software that stops other software that tracks people`s spending behavior. Where are you? What does this world look like to you, right now?

MCANDREWS: We`re in three different business areas first of all, as Chris alluded to Razorfish. We have an interactive advertising agency; we call Avenue A Razorfish, which is the largest independent interactive agency. Our atlas technology division serves and tracks advertising online, and helps you do media planning and buying. And that is the piece that competes with a part of DoubleClick . And we have a performance media business called Drive Performance Media, which is involved in the behavioral targeting space, and allowing people to buy highly targeted media.

VELSHI: Is it based on people`s behavior?

MCANDREWS: Behavior yes. Anonymous behavior, as well as things like demographic and geographic information, but all anonymous. And we feel very good about where we`re positioned. We feel we have capabilities across the different business areas from our agency side, web site design and development. Avenue A has historically been great at what we call outbound marketing, bringing people it a web site. Razorfish is good at taking people to the web site, converting them into loyal customers. By combining those entities, we feel we have the full cycle, the full purchase funnel, if you will, from awareness all the way through to a purchase.

With Atlas DMT, we`re making significant inroads. And we`ve actually been stealing significant market share from DoubleClick in that business. And then Drive Performance Media is our newest business area, which we are excited about. Because we think that this whole targeting is coming back into vogue, and has been a very powerful tool to drive results. That is our smallest business and newest.

HUNTINGTON: Treat me as your average internet user. I use it every day. I`m not savvy to every possible thing one can do on the web. But I think I speak for a lot of people, I`m annoyed with pop-up ads. I just simply look through them, or click through them. I get a little annoyed at the notion of a search engine that is stacking stuff at top based on who paid for it.

Tell me about those types of advertising. Is that even a major bit of what we`re going to deal with on the internet going forward? Are there other ways you can get advertising out there that in a sense perhaps, don`t present a hurtle for users to have to go around or get over?

MCANDREWS: The internet as you know is a young medium, and unlike television where you have a pretty standard way to present advertising now. And of course, with television evolution, they`ll probably have to find new ways. The internet is still finding its way in terms of formats that work and make sense. I think you do find certain ones that are more intrusive and annoying to people. Pop-ups, I think part of the issue there is that there`s not frequency capping. In other words, not only do you see a pop-up. You may see the same one over and over again. What we try to do is work with publishers to frequency cap, so that you don`t see the same one repeatedly. Pop-ups actually can be very effective. Although in truth –

VELSHI: Come on! Come on! Tell me you don`t have software on your computer at home that stops them. Or do you just want to do internet research. Come on.

MCANDREWS: I`m just telling you. They can be effective. Listen, our company buys advertising.

VELSHI: Spam, nobody likes it.

MCANDREWS: We`re not in the pop-up business specifically. That is not our business.

VELSHI: But you are in the business of targeting people`s behavior.

HUNTINGTON: Pop-ups make a lot of sense if you are -- let`s say you`re searching for airline tickets or a vacation or something. And if an ad were to come up that relates to that, that`s relevant information. But if you`re searching for as in our business, we`re searching for information on a company, and something out of left field comes up on mortgages and something to - nothing that is where your thoughts are, that`s a nuisance.

MCANDREWS: That`s exactly right. Advertising in general needs to be better targeted. And that is what we try to do. We use our technology so that`s number one. Number two, I think frequency. And number three, I think there are formats that just are annoying. And we should cut down on them and certainly pop-ups have diminished significantly as a percent of overall. I just think for some advertisers, they are effective.

HUNTINGTON: Talk a little bit about the search engine Optimization if I have that right. Am I speaking correctly that this is basically in essence paying for space, paying to have your site pop up.

VELSHI: A shelf space kind of thing? It`s kind a shelf space kind of thing. I mean, Google makes a hefty amount revenue on that, doesn`t it?

MCANDREWS: Yes. We call it paid search, and people bid on a key word. So you might say finance TV, you want CNNfn to come up at top. You say I`ll pay a dollar for every click if someone clicks on that. That`s how Google makes most of their money.

And back to your point of annoyance if you will, I think if people clearly say these are the sponsored listings, and these are the natural listings, that`s fine. I think that`s legit, if people can decide which one to go to.

HUNTINGTON: We are running out of time. But we`ve been jumping down your throat about what`s annoying. Tell us where you see the dynamic successes in your business?

MCANDREWS: Sure. I think big growth areas; search will continue to be a growth area. We do search Optimization , meaning helping people decide between Google, Overture and the different search engines. Rich Media, more motion and video and things like that online are becoming stronger and I think will be a powerful trend. And behavioral targeting. And our company through our different business areas is involved in all three of those areas in meaningful ways.

VELSHI: Are you guys looking at DoubleClick ?

MCANDREWS: Wouldn`t comment at all specifically.

VELSHI: All right. Good to see you. Thanks for being with us. Appreciate it.