When I saw the Wall Street Journal report that Microsoft may pay $2 billion for DoubleClick, I thought it might be a negative for Seattle online ad company aQuantive to have the folks in Redmond expanding their online ad services portfolio.
But Merrill Lynch analyst Lauren Fine said the opposite. In a note to clients today she said the $2 billion valuation for DoubleClick suggests that aQuantive may be undervalued:
aQuantive’s current market cap is around $2.4bn and its ad serving business, Atlas, is expected to generate approximately $150mn in revenues in FY07 as well. If DoubleClick can fetch $2bn, this could imply that aQuantive shares are highly undervalued and its agency business is worth only $400mn. Most interactive agencies have fetched more than 20x-25x EBITDA. Valuing aQuantive’s agency business at these multiples implies a value of approximately $1.7bn and including $2bn would suggest upside potential of 54%! However, we do note that it is hard to know what DoubleClick’s financials truly look like today.
AQNT was down with the rest of the market before her note came out but it has recently leveled out, to unchanged at last check.
What I want to know is whether Dow Jones ought to get a cut of the increased value of Internet companies that use its pages to pit Microsoft, Google, Yahoo! and others against each other and land a better deal.
It’s getting to be standard practice whenever a big deal goes down — remember how AOL and eBay negotiated up their search partnerships? It has to be worth a fortune to the companies. Call it the $200 million press release.
Don’t get me wrong. I’d love to break stories like this, and the reporters did a great job getting this one out first. But the pattern is troubling.