Monday, April 25, 2005
Why the Interest in DoubleClick?
asks my friend Daniel? Although Heller & Friedman on the face of itpaid a hefty valuation to acquire DoubleClick for $1.1 billion (about 40x profits and 3.5x revenue), the deal looks reasonable:
1. H&F basically bought at market value, without paying an acqusition premium (DCLK had put itself up for sale six months ago).
2. DCLK's valuation is comparable to FSTC's (see FastClick's IPO)
3. DCLK's seems poorly managed making scant margins of 9% on what should be a very scalable business.
The guys at H&F are probably thinking that with a one-two punch of cleaning out the old .com management and coming up with some text-based ad serving they can get a valuation similar to GOOG. GOOG is trading today at 90x on profits (OK 40x on a forward basis) and 16x revenue. What this really tells us that GOOG is profitable as a conventional business - so if the H&F team can lift the DCLK margins from their current anemic 9% to even halfway close to GOOG's 19%, they will be laughing all the way to the bank.
Bonus question - are GOOG's margins too low?
1. H&F basically bought at market value, without paying an acqusition premium (DCLK had put itself up for sale six months ago).
2. DCLK's valuation is comparable to FSTC's (see FastClick's IPO)
3. DCLK's seems poorly managed making scant margins of 9% on what should be a very scalable business.
The guys at H&F are probably thinking that with a one-two punch of cleaning out the old .com management and coming up with some text-based ad serving they can get a valuation similar to GOOG. GOOG is trading today at 90x on profits (OK 40x on a forward basis) and 16x revenue. What this really tells us that GOOG is profitable as a conventional business - so if the H&F team can lift the DCLK margins from their current anemic 9% to even halfway close to GOOG's 19%, they will be laughing all the way to the bank.
Bonus question - are GOOG's margins too low?
