Back to GetFilings.com
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NUMBER 000-23709
-------------------
DOUBLECLICK INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3870996
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
450 WEST 33RD STREET
NEW YORK, NEW YORK 10001
(212) 683-0001
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK $.001 PAR VALUE
-------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[x] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 6, 2001 was approximately $1,597,264,623 (based on the
last reported sale price on the NASDAQ National Market on that date). The number
of shares outstanding of the registrant's common stock as of March 6, 2001 was
128,454,449.
-------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2001 Annual Meeting of
Stockholders, which is to be filed subsequent to the date hereof, are
incorporated by reference into Part III.
________________________________________________________________________________
DOUBLECLICK INC.
2000 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
----
PART I................................................................ 3
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 27
Item 3. Legal Proceedings........................................... 27
Item 4. Submission of Matters to a Vote of Security Holders......... 28
PART II............................................................... 28
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 28
Item 6. Selected Financial Data..................................... 29
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 31
Item 7A: Quantitative and Qualitative Disclosures About Market
Risk...................................................... 41
Item 8. Financial Statements and Supplementary Data................. 43
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.................................. 72
PART III.............................................................. 72
Item 10. Directors and Executive Officers of the Registrant.......... 72
Item 11. Executive Compensation...................................... 72
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 72
Item 13. Certain Relationships and Related Transactions.............. 72
PART IV............................................................... 73
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................. 73
2
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT
EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT DOUBLECLICK AND OUR
INDUSTRY. THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES.
DOUBLECLICK'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, AS MORE FULLY
DESCRIBED IN THIS SECTION AND ELSEWHERE IN THIS REPORT. DOUBLECLICK UNDERTAKES
NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON,
EVEN IF NEW INFORMATION BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE.
PART I
ITEM 1. BUSINESS OVERVIEW
We provide the infrastructure that makes marketing work in the digital
world. Combining media, data and technological expertise, our products and
services enable marketers to deliver the right message, to the right person, at
the right time, while helping publishers maximize their revenue and build their
business online.
In 2000, we derived our revenues from three business units that share the
knowledge and experience gained through working with thousands of publishers,
advertisers, direct marketers and merchants every day. It is this sharing of
ideas that allows us to develop innovative ways to help marketers and publishers
grow their businesses online. These business units, TechSolutions, Media, and
Data (consisting of Abacus and Research), tackle all facets of the digital
marketing process, from pre-campaign planning, to execution, measurement and
campaign refinement. Through these units we offer a broad range of media,
technology, data and research products and services.
Our patented DART (Dynamic, Advertising, Reporting and Targeting) technology
is the platform for many of our solutions. The DART technology is a
sophisticated targeting and reporting tool, relied upon by our customers to
measure campaign performance and provide dynamic ad space inventory management.
We currently serve ads for over 2,000 clients worldwide, and in December 2000
delivered approximately 63 billion targeted advertisements to Internet users
worldwide.
Our three business units are as follows:
- DOUBLECLICK TECHSOLUTIONS. DoubleClick TechSolutions offers publishers,
advertisers and merchants worldwide the industry's leading technology
and service bureau solutions for their digital marketing needs. Our
solutions enable Web sites to generate advertising revenue with a choice
of an application service provider solution, the DART for Publishers
Service, or a licensed software solution, the DoubleClick AdServer
software. The DART for Publishers Service provides seamless ad delivery
and inventory management services for Web sites, and allows Web
publishers to offer their advertisers sophisticated targeting and
reporting capabilities. We also offer advertisers and their agencies an
application service provider solution, the DART for Advertisers Service.
Using the DART technology, the DART for Advertisers Service enables
advertisers and their agencies to increase their return on investment
and to streamline the ad serving process. Through our DARTmail Service,
we offer email publishers and merchants an application service provider
solution for their email marketing needs.
- DOUBLECLICK MEDIA. DoubleClick Media offers to advertisers worldwide a
broad range of media purchasing opportunities to satisfy a variety of
marketing objectives. DoubleClick enables publishers to outsource ad
sales for their Web sites worldwide to DoubleClick's ad sales force, and
to leverage the revenue generating potential of their media by joining
one of DoubleClick's Web site networks. The DoubleClick Network is our
flagship media product. This network established the standard for the
network model of advertising on the Internet. The DoubleClick Network is
a collection of highly-trafficked and branded sites on the Web.
Also included in the DoubleClick Media suite of products and services
3
are the DoubleClick Select Network, the Sonar Network, DoubleClick eMail
List Services, DoubleClick MediaMatch and DoubleClick Sweepstakes.
Advertisers and direct marketers buy advertising through these media
marketing vehicles for sales, brand building and lead generation.
DoubleClick Media uses the DART and DARTmail technologies to deliver,
target and report on our customers' campaigns.
- DOUBLECLICK DATA. DoubleClick Data is comprised of two components:
ABACUS. Abacus is a leading provider of information products to direct
marketers, both online and offline. Abacus applies advanced statistical
modeling techniques to the Abacus Alliance database of consumer
purchasing behavior to help Abacus Alliance members acquire and retain
customers. Based on this data modeling, Abacus identifies those
consumers most likely to purchase a particular product or service, and
enables its over 1,800 Abacus Alliance members to reach identified
consumers by direct mail and email. Abacus performs similar statistical
modeling services for the over 200 e-commerce merchant members of the
Abacus Online Alliance, and enables those members to reach likely
buyers through email. In addition, by combining an expertise in
database analysis with our DART technology, Abacus enables e-commerce
merchants and Web publishers to use our online preference marketing
technology to deliver Web advertising targeted to anonymous Internet
users.
DOUBLECLICK RESEARCH. DoubleClick Research offers to advertisers,
agencies and Web publishers sophisticated research about the online
market and advanced campaign measurement tools and planning systems.
Our targeting planning systems, including the Gutenberg Advertising
System and the Kepler E-Business System, provide advertisers with
market research to identify the Web sites visited by their target
audience, and allow Web publishers to better define their audience. Our
advertising effectiveness studies can help our clients to evaluate the
performance and effectiveness of their online marketing efforts,
through the use of branding-based measures. As a result of the
acquisition of @plan.inc in February 2001, we significantly expanded
our research capabilities.
DOUBLECLICK TECHSOLUTIONS
Since the successful launch of DoubleClick's first technology solution in
1997, DoubleClick, through our DoubleClick TechSolutions unit, has established a
track record of growth and innovation. In 2000, DoubleClick TechSolutions
reported revenues of $203.4 million, and added 1,125 clients globally. Our DART
ad serving technology served 621 billion ads worldwide in 2000. In addition, in
October 2000, DoubleClick TechSolutions introduced email marketing solutions
powered by a newly-developed platform based on the DART technology. Since the
introduction of the new platform, DoubleClick TechSolutions has signed over 60
customers to our email delivery service, and the technology has scaled to
deliver over 90 million emails per month.
DoubleClick TechSolutions addresses the rapidly-evolving needs of our
advertiser, Web publisher and merchant customers with sophisticated technology
offerings that include:
DART FOR PUBLISHERS SERVICE. Since January 1997, our DART for Publishers
Service has provided Web publishers with a comprehensive service bureau
solution for ad inventory management and ad targeting, delivery and
reporting. Deploying the DART technology platform in data centers all over
the world, the DART for Publishers Service offers the scalability,
reliability and power needed to deliver large volumes of ads.
DART FOR ADVERTISERS SERVICE. The DART for Advertisers Service offers
effective campaign planning, management and optimization to allow
advertisers and their agencies to streamline and control their online ad
campaigns, understand their customers, and act quickly on knowledge gained.
The DART for Advertisers Service uses the same DART technology and
globally-distributed infrastructure that support the DART for Publishers
Service.
4
DOUBLECLICK ADSERVER. Our DoubleClick AdServer software products offer an
online advertising and marketing management software solution for Web
publishers and merchants. AdServer software automates critical processes
needed to run a successful online marketing business, including
sophisticated inventory and order management, precision targeting, dynamic
delivery, tracking and detailed campaign reporting. DoubleClick AdServer
software enables our clients to customize and integrate this solution with
other key back-end systems.
DARTMAIL SERVICE. Our DARTmail Service offers advertisers and merchants a
service bureau solution for managing and delivering email direct marketing.
Our DARTmail Service enables advertisers and merchants to deliver highly
personalized email communications to their customers for the purposes of
building long-term, profitable relationships with their existing customers
and acquiring new customers. We first offered our DARTmail Service in
December 1999, following the acquisition of Opt-in E-mail.com. In October
2000, we introduced newly-developed technology based on the DART platform
to power the DARTmail Service.
DoubleClick TechSolutions' offerings are backed worldwide by support teams
offering service 24 hours a day, seven days a week. Through our professional
services group, we provide comprehensive education and consulting services
that help our customers to maximize the value of our DoubleClick TechSolutions
services and products. These services include customizing and extending
existing DoubleClick TechSolutions products and services in order to capitalize
on additional revenue opportunities, integrating DoubleClick TechSolutions
into existing infrastructure and data assets and training employees on
maximizing online advertising effectiveness.
DOUBLECLICK MEDIA
In 2000, DoubleClick Media launched an unprecedented number of offerings for
advertisers and Web publishers, including the Sonar Network, DoubleClick Email
List Services, DoubleClick MediaMatch and DoubleClick Sweepstakes. DoubleClick
Media generated revenues of $253.8 million in 2000, an increase of over 100%
from 1999. The proportion of revenues from traditional advertisers grew to over
55% in the fourth quarter of 2000.
DOUBLECLICK MEDIA SOLUTIONS FOR PUBLISHERS
DoubleClick Media offers outsourced ad sales solutions to Web publishers,
enabling them to use our global ad sales force and the DoubleClick advertising
networks to realize the revenue potential of their Web sites. By outsourcing
these functions, Web publishers can avoid the need to develop an internal ad
sales force, are relieved of ad management requirements, including billing,
tracking and reporting, and do not incur the expense associated with
establishing, maintaining, upgrading and operating the technology infrastructure
for ad delivery.
Our DoubleClick Media solutions offer Web publishers the opportunity to
participate in the following networks:
DOUBLECLICK NETWORK. The DoubleClick Network is a collection of highly
trafficked and branded Web sites. DoubleClick Media maintains country- and
region-specific versions of the DoubleClick Network in various markets in
the United States, Canada, Europe and Asia. Our representation of Web
publishers on the DoubleClick Network is typically on a non-exclusive basis
in the United States. Outside the United States, our representation may be
on a non-exclusive or exclusive basis.
DOUBLECLICK SELECT NETWORK. The DoubleClick Select Network features a
collection of high quality branded U.S. Web sites on which our experienced
sales force and sponsorship specialists sell advertising on an exclusive
basis. Inclusion in the DoubleClick Select Network positions Web sites for
high value, premium ad products, such as site-specific campaigns and
sponsorships.
5
SONAR NETWORK. Launched in February 2000, the Sonar Network consists of
over 900 Web sites, serving over 2 billion monthly impressions. Our
representation of Web publishers on the Sonar Network are all on a
non-exclusive basis, spanning small web-sites delivering 100,000 monthly
impressions to some of the largest Web sites on the Internet. The Sonar
network is currently offered only in the United States.
DOUBLECLICK MEDIAMATCH. Launched in August 2000, DoubleClick MediaMatch is
a solution that allows publishers to buy low-cost broad-reach advertising
across a network of well-branded sites and to maintain pricing integrity
to other advertisers. Web site publishers use their own unsold inventory to
cover most of the cost of advertising, resulting in a productive use of
otherwise unsold inventory. DoubleClick MediaMatch is currently offered in
the United States and the United Kingdom.
To take advantage of the global reach of the Internet, we have established
and may continue to establish DoubleClick networks in Europe, Asia and other
markets. DoubleClick Media currently offers our services in Australia, the
Benelux countries, Canada, France, Germany, Iberoamerica (Spain and Latin
America), Ireland, Italy, Scandinavia, and the United Kingdom and operates
through business partners in Japan and Asia (Hong Kong, Taiwan, Korea, China and
Singapore).
DoubleClick Media maintains criteria for membership in each DoubleClick
network and adjusts the categories of Web sites in a DoubleClick network based
on advertisers' needs.
DOUBLECLICK MEDIA SOLUTIONS FOR ADVERTISERS
DoubleClick Media provides advertisers and their agencies with the ability
to reach their desired audience online. Over 4,400 advertisers from a variety of
industries used the DoubleClick networks in 2000, including over 50% of the
Fortune 100 companies. DoubleClick Media maintains relationships with, and
focuses its sales and marketing efforts on, both advertisers and advertising
agencies.
DoubleClick Media's key solutions for advertisers include the following:
U.S. NETWORKS. In the United States, DoubleClick Media offers advertisers
the opportunity to advertise on a number of domestic networks, including
the DoubleClick Network, DoubleClick Select Network and the Sonar Network.
These networks are each divided into content categories, such as auto,
business, tech and travel. With special programs for mass reach,
run-of-category and site-specific targeting, advertising placements on the
sites in the U.S. networks can be customized to meet the needs of any
advertiser.
INTERNATIONAL NETWORKS. Our international DoubleClick Media operations
allow advertisers to target users worldwide or in specific countries. With
over 1,600 publishers featured in 19 separate networks worldwide, grouped
by country and area of interest, we offer advertisers the ability to run
global campaigns with one media placement.
DOUBLECLICK EMAIL LIST SERVICES. DoubleClick's eMail List Services is an
email marketing solution that comprehensively meets the needs of both list
renters and list owners. Leveraging DoubleClick's experience in driving
revenue for our clients, eMail List Services provides a platform for
publishers and merchants to build and monetize their consent-based email
lists.
Other DoubleClick Media solutions for advertisers include DoubleClick
Sweepstakes, Boomerang and the DoubleClick Local Network.
DOUBLECLICK DATA
DoubleClick Data consists of the Abacus division and DoubleClick Research.
ABACUS
Abacus is a leading provider of information products and marketing research
services to the direct marketing industry, helping merchants to reach their
customers through direct mail and
6
email. Abacus continued to grow in 2000, generating revenues of $72.4 million in
2000, an increase of 10% from 1999. The Abacus Alliance for direct mail
marketing ended the year with over 1,800 direct marketing members, while the
Abacus Online Alliance for email marketing, first introduced in late 1999, has
grown to over 200 e-commerce merchant members.
ABACUS SOLUTIONS FOR DIRECT MAIL MARKETING
Abacus helps direct marketing merchants to increase response rates and
profits from their direct mail marketing campaigns by applying advanced
statistical modeling techniques to the Abacus Alliance database of consumer
purchasing behavior, containing information contributed by over 1,800 direct
marketing members. The Abacus Alliance is a cooperative arrangement. Only those
members of the Abacus Alliance that contribute transaction information into the
Abacus Alliance database are entitled to purchase the full range of Abacus
direct mail modeling, prospect list and market research services. In addition,
Abacus, through a joint venture with VNU, has established the Abacus Alliance
for direct marketers in the United Kingdom.
The Abacus Alliance database contains over 90 million U.S. household
profiles compiled from records of over 3.5 billion purchasing transactions. This
database includes a combination of transactional, geographic, demographic,
lifestyle and behavioral profile data, enabling marketers to gain a better
understanding of consumer behaviors and conduct more effective marketing
campaigns. Abacus products and services support the direct mail and email
marketing efforts of Alliance participants.
The solutions we offer to our Abacus Alliance members include the following:
PROSPECT LISTS. Our prospect lists service provides a client with new
prospect names ranked according to the likelihood that the consumer will
respond to a particular direct marketing offer. The criteria for ranking
include recency, frequency, time of year and dollar amount of catalog
purchases. This service enables catalog companies to expand their business
base and offset consumer attrition.
DIRECT MAIL LIST OPTIMIZATION. Like our prospect lists service, our list
optimization service ranks names on a direct mail list according to
likelihood of response. This optimization service enables the client to
identify and target the most likely buyers. This process not only increases
the potential profitability of the lists a client currently uses (whether
a house list or acquired from another source), but permits the client to
use lists that were previously considered unprofitable.
MULTICHANNEL MARKETING: EMAIL AND DIRECT MAIL. We offer Abacus Alliance
members the ability to broaden reach by communicating an offer to a
prospect or customer via direct mail and targeted email.
MARKETING INSIGHT REPORTS. Our Marketing Insight Reports service offers our
clients detailed information regarding the catalog industry. These reports
allow Abacus Alliance members to accurately describe catalog market size,
share, activity and other key marketing data that allow clients to develop
their strategic marketing initiatives.
ABACUS SOLUTIONS FOR EMAIL MARKETING
The Abacus Online Alliance was formed in late 1999 to extend the Abacus
modeling techniques, alliance relationships and tools to the Internet and other
interactive media. The Abacus Online Alliance members contribute consent-based
email addresses for targeted email marketing and are eligible to purchase the
full range of Abacus' targeted email modeling and prospect list services.
The solutions we offer to our Abacus Online Alliance members include the
following:
TARGETED EMAIL PROSPECT LISTS. Similar to our service for direct mail
marketers, our targeted email prospect lists service provides a client with
a list of email addresses ranked according to the likelihood that the
consumer will respond to a particular email offer.
7
HOUSEFILE EMAIL MODELING. Our housefile email modeling service offers our
clients a ranking of the customers contained in a client's housefile email
list according to the probability that an individual customer will make a
repeat purchase. This service also allows our clients to identify inactive
customers who are most likely to respond to a renewed email offer. Our
housefile program helps enable our client companies to determine when to
solicit customers who have not made recent purchases.
ABACUS SOLUTIONS FOR WEB AD TARGETING
By combining an expertise in database analysis with our DART technology,
Abacus enables e-commerce merchants and Web publishers to use our Intelligent
Targeting technology to deliver Web advertising targeted to Internet users
based on user interests inferred from anonymous non-sensitive behavioral
information. To date, our Intelligent Targeting technology has over 120 million
anonymous behavorial profiles.
DOUBLECLICK RESEARCH
DoubleClick Research offers to advertisers and Web publishers sophisticated
research about the online market and advanced campaign measurement tools and
planning systems. In February 2001, we completed the acquisition of @plan.inc,
which significantly expanded our research capabilities.
As a result of our acquisition of @plan.inc, DoubleClick Research is now a
leading provider of targeting planning systems to advertisers, agencies and Web
publishers. DoubleClick Research's targeting planning systems are Web based,
allowing users to perform searches, queries and campaign planning on demand.
These syndicated research systems are populated with data from scientifically
sound recall-based marketing surveys, which are gathered using scientifically
sound recruitment methodology. DoubleClick Research is also actively developing
other tools to better enable advertisers and Web publishers to measure the
effectiveness of online advertising.
DoubleClick Research's targeting planning systems include the following:
GUTENBERG ADVERTISING SYSTEM. The Gutenberg Advertising System provides
target market research used in buying and selling Web advertising.
Advertisers and agencies use the system to locate audiences on Web sites
for the purpose of buying media, and Web publishers use the system to gain
competitive insights into the value of their audiences and to attract
advertisers.
KEPLER E-BUSINESS SYSTEM. The Kepler E-Business System is a customer
acquisition tool used by online retailers and consumer brand marketers to
develop effective branding and marketing strategies. Online retailers and
consumer brand marketers use the system to track differences in retailing
trends between traditional and online markets to better understand how the
online market differs from the traditional market in their particular
retail category.
EMERSON SITE PERFORMANCE SYSTEM. The Emerson Site Performance System is a
performance market research tracking tool that can help Web sites craft an
enduring business strategy to retain and grow its viewer base. The Emerson
System allows its users to understand the key components of their Web
sites' brand personality by target audience, determine how their users
evaluate and rank their performance in relationship to their competitors,
as well as perform Web site-to-Web site indexing to evaluate and benchmark
their competitive position.
Our advertising effectiveness studies supply advertisers and Web publishers
with tools to evaluate the performance and effectiveness of their online
marketing efforts using branding based measures. Using survey research, these
studies measure audience response to a marketing message. Survey results can be
combined with the results of a client's campaigns, as may be measured by the
DART Service for Advertisers, to further identify those elements of a campaign
that contributed to its success. Our offerings include 'How Internet Advertising
Works', a
8
comprehensive customized program designed to inform the online advertising
decisions of a single brand or marketer.
SALES AND MARKETING
UNITED STATES
We sell our solutions in the United States through a sales and marketing
organization that consisted of 660 employees as of December 31, 2000. These
employees are located at our headquarters in New York, and in our offices in
Atlanta, Boston, Broomfield (CO), Chicago, Detroit, Los Angeles, San Francisco,
San Mateo and Seattle. Our sales organization is divided into dedicated groups
that separately sell our service and product offerings, and within these groups,
our sales representatives are further divided into separate teams to serve the
needs of our diverse client base.
We conduct comprehensive marketing programs and support our direct sales
efforts to actively promote the DoubleClick brand. These programs include public
relations, print advertisements, online advertisements over our DoubleClick
networks and on the Web sites of Web publishers unaffiliated with our
DoubleClick Networks, Web advertising seminars, trade shows and ongoing customer
communications programs.
INTERNATIONAL
Our European operations are based out of our Irish subsidiary located in
Dublin, Ireland and our Asian operations are run through our branch office in
Hong Kong. We sell our services and products through our directly and indirectly
owned subsidiaries in Australia, the Benelux countries, Brazil, Canada, France,
Germany, Spain, Ireland, Italy, Scandinavia and the United Kingdom. We also
operate our media business through business partners in Japan and Asia (Hong
Kong, Taiwan, Korea, China and Singapore) and we generally operate our
technology business through our directly or indirectly owned subsidiaries in
these jurisdictions. We sell our services and products internationally in a
number of countries including France, Germany, Japan, Norway, Sweden and the
United Kingdom through our global sales organization. Our international sales
and marketing organization consisted of 380 employees as of December 31, 2000.
Please see our discussion of the risks attendant to our international operations
under 'Risk Factors' beginning on page 14.
CORPORATE HISTORY; RECENT MERGERS, ACQUISITIONS AND INVESTMENTS
We were incorporated in Delaware on January 23, 1996 as DoubleClick
Incorporated, and changed our name to DoubleClick Inc. on May 14, 1996. On
February 25, 1998, we completed our initial public offering of common stock,
receiving net proceeds of approximately $62.5 million. On December 10, 1998, we
received net proceeds of approximately $93.7 million in connection with our
first follow-on offering of common stock. On March 16, 1999, we completed the
sale of our 4.75% Convertible Subordinated Notes due 2006 through a private
offering under Rule 144A, and received approximately $244.7 million in net
proceeds. On April 2, 1999, we paid to stockholders of record on March 22, 1999
a stock dividend of one share of common stock for each share held. On January
10, 2000, we paid to stockholders of record as of December 31, 1999 a stock
dividend of one share of common stock for each share held. On February 24, 2000,
we received net proceeds of approximately $502.9 million in connection with a
follow-on offering of common stock. Our service and product offerings are
grouped into three segments for financial reporting: DoubleClick TechSolutions,
DoubleClick Media and DoubleClick Data. See Note 15 to the Consolidated
Financial Statements for revenues and gross profit attributable to each of our
lines of business and revenues and long-lived asset information by geographic
area.
On February 2, 2001, we acquired @plan.inc, a leading provider of online
market research planning systems. In addition, on February 22, 2001, we entered
into an agreement to acquire FloNetwork Inc., an email marketing technology
provider. The FloNetwork transaction is subject to
9
customary closing conditions, including approval by FloNetwork's shareholders
and Canadian governmental authorities, and is expected to close in the second
quarter of 2001.
COMPETITION
The market for digital marketing products and services is very competitive.
We expect this competition to continue to increase because there are low
barriers to entry. Competition may also increase as a result of industry
consolidation.
We believe that our ability to compete depends on many factors both within
and beyond our control, including the following:
the timing and acceptance of new solutions and enhancements to existing
solutions developed either by us or our competitors;
customer service and support efforts;
our ability to adapt and scale our technology, and develop and introduce
new technologies, as customer needs change and grow;
sales and marketing efforts;
the features, ease of use, performance, price and reliability of solutions
developed either by us or our competitors; and
the relative impact of general economic and industry conditions on either
us or our competitors.
DoubleClick TechSolutions' Web ad delivery products and services compete
with providers of outsourced ad delivery services and ad server software and
related services, including AdForce, Avenue A, L90, Engage (through its
Accipiter product), MatchLogic (a unit of Excite@Home), Mediaplex, Real Media
and Sabela Media (a unit of 24/7 Media). TechSolutions' email delivery products
and services compete with other providers of email delivery and list management
services, as well as providers of email delivery software and related services,
including Annuncio, Digital Impact, Exactis (a unit of 24/7 Media), FloNetwork,
Kana, Lyris, MessageMedia and Responsys.
DoubleClick Media competes for Internet advertising revenues with large Web
publishers and Web portals, such as AOL Time Warner, Microsoft and Yahoo!. We
also compete with the traditional advertising media of television, radio, cable
and print for a share of advertisers' total advertising budgets. Our DoubleClick
networks compete with a variety of Internet advertising network companies,
including 24/7 Media, Ad2One, CCI, Engage and L90. Our email list services
business competes with other email list brokers, including 24/7 Media,
MatchLogic (a unit of Excite@Home), NetCreations, and YesMail. We also
encounter competition from a number of other sources, including content
aggregation companies, companies engaged in advertising sales networks,
advertising agencies and other companies that facilitate Internet advertising.
DoubleClick Data, through the Abacus division, competes with a broad range
of companies that provide information products and marketing research services
to the direct marketing industry, including Z-24 (a unit of Experian), Engage,
iBehavior, Junkbusters, and Prefer.com. Because our customers have a choice of
information products, we also compete with data aggregation companies, such as
Acxiom, Dun & Bradstreet, InfoUSA, Harte-Hanks and TransUnion, for a share of
our customers' marketing data budgets.
DoubleClick Research competes with other providers of research and planning
tools for the online market, including Dynamic Logic, Jupiter Media Metrix,
Millward Brown Interactive, NetRatings (a unit of AC Neilsen) and Ipsos-ASI
Interactive.
In addition, customer relationship management companies, such as E.piphany
and Kana, offer products and services that compete functionally with those
offered by several of DoubleClick's business units, in particular DoubleClick
TechSolutions and DoubleClick Data.
10
PRIVACY AND DATA PROTECTION
We have been a leader in promoting consumer privacy, and are committed to
enhancing consumer understanding of the technologies that are used to provide
information to digital marketing companies like DoubleClick. Our consumer
privacy and data protection efforts are led by a full complement of experts
devoted to consumer privacy and data protection issues. In 2000, DoubleClick
appointed Jules Polonetsky as our Chief Privacy Officer. Mr. Polonetsky, former
Consumer Affairs Commissioner for New York City, reports directly to our Board
of Directors and leads our privacy and data protection department. Our privacy
team ensures that we are effectively implementing our privacy policies and
procedures, works with our clients to institute and improve their privacy
procedures and educates the public about our leadership with regard to privacy.
Mr. Polonetsky also serves as chair of the Chief Privacy Officer Council of the
Internet Advertising Bureau.
In addition, in 2000, we created a Privacy Advisory Board consisting of
consumer advocates, security experts and authorities in the field of online
privacy. The Privacy Advisory Board makes recommendations about how we can
improve privacy procedures through the adoption of policies aimed at protecting
the privacy interests of consumers online. In addition, we have engaged
PricewaterhouseCoopers LLP, which is widely known for its expertise in the
online privacy arena, to conduct periodic audits of our data protection
practices.
We have also been active in consumer education about privacy and data
protection. In addition to our educational Web site, we ran online and offline
ad campaigns, including approximately 150 million online ads, to inform
consumers about privacy and data protection issues.
As a founding member of the Network Advertising Initiative, we have helped
develop self-regulatory principles for the network advertising industry that
have been endorsed by the Federal Trade Commission and the Clinton
administration. In addition, we are involved in a number of organizations and
committees which address privacy concerns, including the Online Privacy
Alliance, the Platform for Privacy Preferences Project (developed by the World
Wide Web Consortium), the Privacy Leadership Initiative, the Responsible Email
Communications Alliance and the Direct Marketing Association.
We are a defendant in several pending lawsuits alleging, among other things,
that we unlawfully obtain and use Internet users' personal information, and that
our use of cookies violates certain federal and state laws. We believe these
claims are without merit and vigorously contest them. We are the subject of an
inquiry involving the attorneys general of several states relating to our
practices in the collection, maintenance and use of information about, and
disclosure of these information practices to, Internet users. In January 2001,
the Federal Trade Commission closed its inquiry into our ad serving and data
collection practices without recommending any further action. We may receive
additional regulatory inquiries and we intend to cooperate fully. Class action
litigation and regulatory inquiries of these types are often expensive and time
consuming and their outcome is uncertain.
SEASONALITY AND CYCLICALITY
We believe that our business is subject to seasonal fluctuations.
Advertisers generally place fewer advertisements during the first and third
calendar quarters of each year, which directly affects our DoubleClick Media and
DoubleClick TechSolutions businesses, and the direct marketing industry
generally mails substantially more marketing materials in the third calendar
quarter, which directly affects our DoubleClick Data business. Further, Internet
user traffic typically drops during the summer months, which reduces the amount
of advertising to sell and deliver. Expenditures by advertisers and direct
marketers tend to vary in cycles that reflect overall economic conditions as
well as budgeting and buying patterns. Our revenue has in the past and may in
the future be materially affected by a decline in the economic prospects of our
customers or in the economy in general, which could alter our current or
prospective customers' spending priorities or budget cycles or extend our sales
cycle.
11
PROPRIETARY RIGHTS
Our success and ability to effectively compete are substantially dependent
on the protection of our proprietary technologies and our trademarks, which we
protect through a combination of patent, trademark, copyright, trade secret,
unfair competition and contract law. In September 1999, the U.S. Patent and
Trademark Office issued to us a patent that covers our DART technology. We own
other patents, and have patent applications pending, for our technology.
We also have rights in the trademarks that we use to market our solutions.
These trademarks include DOUBLECLICK'r', DART'r', DARTMAIL'TM' and ABACUS'r'. We
have applied to register our trademarks in the United States and
internationally. We have received registrations for the marks DOUBLECLICK, DART
and ABACUS and have applied for registrations of others. We cannot assure you
that any of our current or future patent applications or trademark applications
will be approved. In addition, we have licensed, and may license in the future,
our trademarks, trade dress and similar proprietary rights to third parties.
In order to secure and protect our proprietary rights, we generally enter
into confidentiality, proprietary rights and license agreements, as appropriate,
with our employees, consultants and business partners, and generally control
access to and distribution of our technologies, documentation and other
proprietary information. Despite these efforts, we cannot be certain that the
steps we take to prevent unauthorized use of our proprietary rights are
sufficient to prevent misappropriation of our solutions or technologies,
particularly in foreign countries where laws or law enforcement practices may
not protect our proprietary rights as fully as in the United States. In
addition, we cannot assure you that we will be able to adequately enforce the
contractual arrangements that we have entered into to protect our proprietary
technologies.
Third parties may assert infringement claims against us, which could
adversely affect the value of our proprietary rights and our reputation. Such
claims could subject us to significant liability for damages, and we could be
restricted from using our intellectual property. Any claims or litigation from
third parties may also result in limitations on our ability to use our
intellectual property, unless we enter into arrangements with third parties
responsible for such claims, which may be unavailable on commercially reasonable
terms, if at all.
EMPLOYEES
As of December 31, 2000, we employed 1,929 persons, including 1,040 in sales
and marketing, 247 in engineering and product development, 290 in business
operations, consulting and customer support, and 352 in general administration.
We are not subject to any collective bargaining agreements and believe that our
relationships with our employees are good.
12
RISK FACTORS
An investment in our company involves a high degree of risk. You should
carefully consider the risks below, together with the other information
contained in this report, before you decide to invest in our company. If any of
the following risks actually occur, our business, results of operations and
financial condition could be harmed, the trading price of our common stock could
decline, and you could lose all or part of your investment.
RISKS RELATED TO OUR COMPANY AND OUR BUSINESS
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT
We were incorporated in January 1996 and have a limited operating history.
An investor in our common stock must consider the risks and difficulties
frequently encountered by companies in new and rapidly evolving industries,
including the digital marketing industry. Our risks include:
ability to sustain historical revenue growth rates;
ability to manage our expanding operations;
competition;
attracting, retaining and motivating qualified personnel;
maintaining our current, and developing new, strategic relationships with
Web publishers;
ability to anticipate and adapt to the changing Internet advertising and
direct marketing industries;
ability to develop and introduce new products and services and continue to
develop and upgrade technology;
attracting and retaining a large number of advertisers from a variety of
industries; and
relying on the DoubleClick networks.
We also depend on the growing use of the Internet for advertising, commerce
and communication, and on general economic conditions. We cannot assure you that
our business strategy will be successful or that we will successfully address
these risks. If we are unsuccessful in addressing these risks, our revenues may
not grow in accordance with our business model and may fall short of
expectations of market analysts and investors, which could negatively affect the
price of our stock.
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE CONTINUED LOSSES
We incurred net losses of $4.0 million, $7.7 million, $18.0 million and
$55.8 million for each of the years ended December 31, 1996 though 1999,
respectively. For the year ended December 31, 2000, we incurred a net loss of
$156.0 million and, as of December 31, 2000, our accumulated deficit was $265.8
million. We have not achieved profitability on an annual basis and may incur
operating losses in the future. We expect to continue to incur significant
operating and capital expenditures and, as a result, we will need to generate
significant revenue to achieve and maintain profitability. Although our revenue
has grown in recent quarters, we cannot assure you that we will achieve
sufficient revenue to achieve or sustain profitability. Even if we do achieve
profitability, we cannot assure you that we can sustain or increase
profitability on a quarterly or annual basis in the future. If revenue grows
slower than we anticipate or decreases in key business areas, or if operating
expenses exceed our expectations or cannot be reduced accordingly, our business,
results of operations and financial condition will be materially and adversely
affected.
13
WE DERIVE A SUBSTANTIAL PORTION OF OUR REVENUE FROM WEB SITES OF A LIMITED
NUMBER OF WEB PUBLISHERS AND THE LOSS OF THESE WEB PUBLISHERS AS CUSTOMERS COULD
HARM OUR BUSINESS
We derive a substantial portion of our DoubleClick Media revenue from ad
impressions we deliver on the Web sites of a limited number of Web publishers.
For the year ended December 31, 2000, approximately 17.3% of our revenue
resulted from ads delivered on the Web sites of the top five Web publishers on
our DoubleClick networks. Our business, results of operations and financial
condition could be materially and adversely affected by the loss of one or more
of the Web publishers that account for a significant portion of our revenue or
any significant reduction in traffic on these Web publishers' Web sites.
The loss of these Web publishers could also cause advertisers or other Web
publishers to leave our networks or cease to use our technology services. Either
result could materially and adversely affect our business, results of operations
and financial condition. Typically we enter into short-term contracts with Web
publishers for our offerings. Since these contracts are short-term, we will have
to negotiate new contracts or renewals in the future, which may have terms that
are not as favorable to us as the terms of the existing contracts. Our business,
results of operations and financial condition could be materially and adversely
affected by such new contracts or renewals.
OUR BUSINESS MAY BE MATERIALLY ADVERSELY AFFECTED BY LAWSUITS RELATED TO PRIVACY
AND OUR BUSINESS PRACTICES
We are a defendant in several pending lawsuits alleging, among other things,
that we unlawfully obtain and use Internet users' personal information, and that
our use of cookies violates various federal and state laws. We are the subject
of an inquiry involving the attorneys general of several states relating to our
practices in the collection, maintenance and use of information about, and our
disclosure of these information practices to, Internet users. We may in the
future receive additional regulatory inquiries and we intend to cooperate fully.
Class action litigation and regulatory inquiries of these types are often
expensive and time consuming and their outcome is uncertain.
We cannot quantify the amount of monetary or human resources that we will be
required to use to defend ourselves in these proceedings. We may need to spend
significant amounts on our legal defense, senior management may be required to
divert their attention from other portions of our business, new product launches
may be deferred or canceled as a result of these proceedings, and we may be
required to make changes to our present and planned products or services, any of
which could materially and adversely affect our business, financial condition
and results of operations. If, as a result of any of these proceedings, a
judgment is rendered or a decree is entered against us, it may materially and
adversely affect our business, financial condition and results of operations.
WE DERIVE A SIGNIFICANT PORTION OF OUR REVENUE FROM ADVERTISEMENTS WE DELIVER TO
WEB SITES, AND A DECREASE IN TRAFFIC LEVELS COULD HARM OUR BUSINESS
We derive a large portion of our revenue from advertisements we deliver to
Web sites on our DoubleClick networks and from the technology and services we
provide to Web publishers, advertisers and agencies. We expect that our
DoubleClick networks and our technology services will continue to account for a
significant portion of our revenue for the foreseeable future. Our contracts
with our customers are generally short-term. We cannot assure you that our
customers will remain associated with our DoubleClick networks or continue to
use our technology and other services, that the Web sites of our customers will
maintain consistent or increasing levels of traffic over time, that the number
of ad units on our customers' Web sites will not diminish over time, or that we
will be able to replace in a timely or effective manner any departing customer
with new customers with comparable traffic patterns, mix of ad impressions, or
user demographics. Our failure to successfully market our products and develop
and sustain long-term relationships with our customers, the loss of one or more
customers that account for a significant portion of our
14
revenue, the failure of our customers' Web sites to maintain consistent or
increasing levels of traffic or number of ad units, or the failure to keep pace
with the introduction of new technological developments would materially and
adversely affect our business, results of operations and financial condition.
OUR ADVERTISING CUSTOMERS AND THE COMPANIES WITH WHICH WE HAVE OTHER BUSINESS
RELATIONSHIPS MAY EXPERIENCE ADVERSE BUSINESS CONDITIONS THAT COULD ADVERSELY
AFFECT OUR BUSINESS
Some of our customers may experience difficulty in supporting their current
operations and implementing their business plans. These customers may reduce
their spending on our products and services, or may not be able to discharge
their payment and other obligations to us. The non-payment or late payment of
amounts due to us from a significant customer would negatively impact our
financial condition. These circumstances are influenced by general economic and
industry conditions, and could have a material adverse impact on our business,
financial condition and results of operations. In addition to intense
competition, the overall market for Internet advertising has been characterized
in recent quarters by increasing softness of demand, the reduction or
cancellation of advertising contracts, an increased risk of uncollectible
receivables from advertisers, and the reduction of Internet advertising
budgets, especially by Internet-related companies. Our customers that are
Internet-related companies may experience difficulty raising capital, or may be
anticipating such difficulties, and therefore may elect to scale back the
resources they devote to advertising, including on our system. Other companies
in the Internet industry have depleted their available capital, and could cease
operations or file for bankruptcy protection. If the current environment for
Internet advertising does not improve, our business, results of operations and
financial condition could be materially adversely affected.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS AND YOU
SHOULD NOT RELY ON THEM AS AN INDICATION OF FUTURE OPERATING PERFORMANCE
Our revenue and results of operations may fluctuate significantly in the
future as a result of a variety of factors, many of which are beyond our
control. These factors include:
advertiser, Web publisher and direct marketer acceptance and demand for our
solutions;
Internet user traffic levels;
number and size of ad units per page on our customers' Web sites;
changes in fees paid by advertisers;
changes in service fees payable by us to Web publishers in our networks;
the introduction of new Internet advertising products or services by us or
our competitors;
variations in the levels of capital or operating expenditures and other
costs relating to the expansion of our operations; and
general industry and economic conditions.
For the foreseeable future, our revenue from DoubleClick TechSolutions and
DoubleClick Media will also remain dependent on user traffic levels and
advertising activity on our DoubleClick networks. This future revenue is
difficult to forecast. Our operating expenses will include upgrading and
enhancing our DART technology, expanding our product and service offerings,
marketing and supporting our solutions and supporting our sales and marketing
operations. We may be unable to adjust spending quickly enough to offset any
unexpected revenue shortfall. If we have a shortfall in revenue in relation to
our expenses, or if our expenses exceed revenue, then our business, results of
operations and financial condition could be materially and adversely affected.
These results would likely affect the market price of our common stock in a
manner which may be unrelated to our long-term operating performance.
As a result, we believe that period-to-period comparisons of our results of
operations may not be meaningful. You should not rely on past periods as
indicators of future performance.
15
RAPID CHANGES IN OUR BUSINESS COULD STRAIN OUR MANAGERIAL, OPERATIONAL,
FINANCIAL AND INFORMATION SYSTEM RESOURCES
In recent years, we have experienced significant growth and other changes
that have placed considerable demands on our managerial, operational and
financial resources. We continue to increase the scope of our product and
service offerings both domestically and internationally, and to deploy our
resources in accordance with changing business conditions and opportunities. To
continue to successfully implement our business plan in our rapidly evolving
industry requires an effective planning and management process. We expect that
we will need to continue to improve our financial and managerial controls and
reporting systems and procedures, and will need to continue to train and manage
our workforce. We cannot assure you that management will be effective in
attracting and retaining additional qualified personnel, integrating acquired
businesses, or otherwise responding to new business conditions. As of December
31, 1999, we had a total of 1,386 employees and, as of December 31, 2000, we had
a total of 1,929 employees. We also cannot assure you that our information
systems, procedures or controls will be adequate to support our operations or
that our management will be able to achieve the rapid execution necessary to
successfully offer our products and services and implement our business plan.
Our future performance may also depend on our effective integration of acquired
businesses. Even if successful, this integration may take a significant period
of time and expense, and may place a significant strain on our resources. Our
inability to effectively respond to changing business conditions could
materially and adversely affect our business, financial condition and results of
operations.
OUR BUSINESS MAY SUFFER IF WE ARE UNABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS
MODEL
A significant part of our business model is to generate revenue by providing
digital marketing solutions to advertisers, ad agencies and Web publishers. The
profit potential for this business model is unproven. To be successful, digital
marketing will need to achieve broad acceptance by advertisers, ad agencies and
Web publishers. Our ability to generate significant revenue from our customers
will depend, in part, on our ability to contract with Web publishers that have
Web sites with adequate available ad space inventory, and with advertisers that
have continuing plans for Internet advertising. Further, the Web sites in our
networks must generate sufficient user traffic with demographic characteristics
attractive to our advertisers. We are affected by general industry conditions
governing the supply and demand of Internet advertising. The intense competition
among Internet advertising sellers has led to the creation of a number of
pricing alternatives for Internet advertising. These alternatives make it
difficult for us to project future levels of advertising revenue and applicable
gross margin that can be sustained by us or the Internet advertising industry in
general.
Intensive marketing and sales efforts may be necessary to educate
prospective advertisers regarding the uses and benefits of, and to generate
demand for, our products and services. Enterprises may be reluctant or slow to
adopt a new approach that may replace, limit or compete with their existing
systems. In addition, since online direct marketing is emerging as a new and
distinct business apart from online advertising, potential adopters of online
direct marketing services will increasingly demand functionality tailored to
their specific requirements. We may be unable to meet the demands of these
clients.
Acceptance of our new solutions will depend on the continued development of
Internet commerce, communication and advertising, and demand for our solutions.
We cannot assure you that there will be a demand for our new solutions or that
any demand would be sustainable.
DISRUPTION OF OUR SERVICES DUE TO UNANTICIPATED PROBLEMS OR FAILURES COULD HARM
OUR BUSINESS
Our DART technology resides in our data centers in New York City, New
Jersey, Virginia, California and Colorado, and in Europe, Asia and Latin
America. Continuing and uninterrupted performance of our technology is critical
to our success. Customers may become dissatisfied by
16
any system failure that interrupts our ability to provide our services to them,
including failures affecting our ability to deliver advertisements without
significant delay to the viewer. Sustained or repeated system failures would
reduce the attractiveness of our solutions to advertisers, ad agencies and Web
publishers and result in contract terminations, fee rebates and makegoods,
thereby reducing revenue. Slower response time or system failures may also
result from straining the capacity of our deployed software or hardware due to
an increase in the volume of advertising delivered through our servers. To the
extent that we do not effectively address any capacity constraints or system
failures, our business, results of operations and financial condition could be
materially and adversely affected.
Our operations are dependent on our ability to protect our computer systems
against damage from fire, power loss, water damage, telecommunications failures,
vandalism and other malicious acts, and similar unexpected adverse events. In
addition, interruptions in our solutions could result from the failure of our
telecommunications providers to provide the necessary data communications
capacity in the time frame we require. Despite precautions we have taken,
unanticipated problems affecting our systems have from time to time in the past
caused, and in the future could cause, interruptions in the delivery of our
solutions. Our business, results of operations and financial condition could be
materially and adversely affected by any damage or failure that interrupts or
delays our operations.
COMPETITION IN INTERNET ADVERTISING, DIRECT MARKETING AND RELATED PRODUCTS AND
SERVICES IS INTENSE AND LIKELY TO INCREASE IN THE FUTURE, AND WE MAY NOT BE ABLE
TO COMPETE SUCCESSFULLY
The market for digital marketing products and services is very competitive.
We expect this competition to continue to increase because there are low
barriers to entry. Competition may also increase as a result of industry
consolidation.
We believe that our ability to compete depends on many factors both within
and beyond our control, including the following:
the timing and acceptance of new solutions and enhancements to existing
solutions developed either by us or our competitors;
customer service and support efforts;
our ability to adapt and scale our technology, and develop and introduce
new technologies, as customer needs change and grow;
sales and marketing efforts;
the features, ease of use, performance, price and reliability of solutions
developed either by us or our competitors; and
the relative impact of general economic and industry conditions on either
us or our competitors.
We compete directly or indirectly with companies in the following
categories:
large Web publishers, Web portals and Internet advertising networks that
offer advertising inventory;
providers of software and service bureau ad delivery solutions for Web
publishers and advertisers;
email services companies, ISPs and other companies that enter the email
services business;
direct mail and email list providers, and providers of information products
and marketing research services to the direct marketing industry;
Web ratings companies, advertisement performance measurement companies,
providers of Web advertising management, online research and consulting
services and providers of syndicated market research in traditional
publishing; and
17
others, such as providers of customer relationship management services,
content aggregation companies, companies engaged in advertising sales
networks, advertising agencies and other companies that facilitate digital
marketing.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than us. These factors may allow them to respond more quickly than we
can to new or emerging technologies and changes in customer requirements. It may
also allow them to devote greater resources than we can to the development,
promotion and sale of their products and services. These competitors may also
engage in more extensive research and development, undertake more far-reaching
marketing campaigns, adopt more aggressive pricing policies and make more
attractive offers to existing and potential employees, strategic partners,
advertisers, direct marketers and Web publishers. We cannot assure you that our
competitors will not develop products or services that are equal or superior to
our solutions or that achieve greater acceptance than our solutions. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase the
ability of their products or services to address the needs of our prospective
advertising, ad agency and Web publisher customers. As a result, it is possible
that new competitors may emerge and rapidly acquire significant market share.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share. We cannot assure you that we will be able to
compete successfully or that competitive pressures will not materially and
adversely affect our business, results of operations or financial condition.
WE MAY NOT COMPETE SUCCESSFULLY WITH TRADITIONAL ADVERTISING MEDIA FOR
ADVERTISING DOLLARS
Companies doing business on the Internet, including ours, must also compete
with television, radio, cable and print (traditional advertising media) for a
share of advertisers' total advertising budgets. Advertisers may be reluctant to
devote a significant portion of their advertising budget to Internet advertising
if they perceive the Internet to be a limited or ineffective advertising medium.
In addition, in response to adverse economic or business conditions, many
advertisers reduce their advertising and marketing spending. These circumstances
would increase the competition we face to sell our products and services, and
could materially and adversely affect our business, results of operations or
financial condition.
OUR REVENUE IS SUBJECT TO SEASONAL AND CYCLICAL FLUCTUATIONS
We believe that our business is subject to seasonal fluctuations.
Advertisers generally place fewer advertisements during the first and third
calendar quarters of each year, which directly affects our DoubleClick Media and
DoubleClick TechSolutions businesses, and the direct marketing industry
generally mails substantially more marketing materials in the third calendar
quarter, which directly affects our DoubleClick Data business. Further, Internet
user traffic typically drops during the summer months, which reduces the amount
of advertising to sell and deliver. Expenditures by advertisers and direct
marketers also tend to vary in cycles that reflect overall economic conditions
as well as budgeting and buying patterns. Our revenue has in the past and may in
the future be materially and adversely affected by a decline in the economic
prospects of our customers or in the economy in general, which could alter our
current or prospective customers' spending priorities or budget cycles or change
our sales cycle.
Due to the risks discussed in this section, you should not rely on
quarter-to-quarter comparisons of our results of operations as an indication of
future performance. It is possible that in some future periods our results of
operations may be below the expectations of public market analysts and
investors. In this event, the price of our common stock may fall.
18
WE MAY NOT BE ABLE SUCCESSFULLY TO MAKE ACQUISITIONS OF OR INVESTMENTS IN OTHER
COMPANIES
We may acquire or make investments in other complementary businesses,
products, services or technologies. From time to time we have had discussions
with other companies regarding our acquiring, or investing in, their businesses,
products, services or technologies. We cannot assure you that we will be able to
identify other suitable acquisition or investment candidates. Even if we do
identify suitable candidates, we cannot assure you that we will be able to make
other acquisitions or investments on commercially acceptable terms, if at all.
Even if we agree to buy a company, we cannot assure you that we will be
successful in consummating the purchase. Reasons for failing to consummate a
purchase could include our refusal to increase the agreed upon purchase price to
match an offer made by a subsequent competing bidder. If we buy a company, we
could have difficulty in integrating that company's personnel and operations. In
addition, the key personnel of the acquired company may decide not to work for
us. If we acquire different types of businesses, we could have difficulty in
integrating the acquired products, services, technologies or personnel into our
operations. These difficulties could disrupt our ongoing business, distract our
management and employees, increase our expenses and adversely affect our results
of operations due to accounting requirements such as amortization of goodwill.
Furthermore, we may incur debt or issue equity securities to pay for any future
acquisitions. The issuance of equity securities could be dilutive to our
existing stockholders.
WE MUST MANAGE THE INTEGRATION OF ACQUIRED COMPANIES SUCCESSFULLY IN ORDER TO
ACHIEVE DESIRED RESULTS
As a part of our business strategy, we expect to enter into a number of
business combinations and acquisitions. Achieving the benefits of acquisition
transactions, including our recent acquisition of @plan, depends on the
successful execution of post-acquisition events including:
integrating operations and personnel;
offering the existing products and services of each company to the other
company's customers; and
developing new products and services that utilize the assets of both
companies.
In addition, acquisitions are accompanied by a number of risks, including:
the difficulty of assimilating the operations and personnel of the acquired
companies;
the potential disruption of the ongoing businesses and distraction of our
management and management of the acquired company;
the difficulty of incorporating acquired technology and rights into our
products and services;
unanticipated expenses related to technology integration;
difficulties in maintaining uniform standards, controls, procedures and
policies;
the impairment of relationships with employees and customers as a result of
any integration of new management personnel; and
potential unknown liabilities associated with acquired businesses.
We may not succeed in addressing these risks or any other problems
encountered in connection with business combinations and acquisitions. Our
failure to do so could have a material adverse effect on our business, financial
condition and operating results and could result in the loss of key personnel.
In addition, the attention and effort devoted to integration will significantly
divert management's attention from other important issues, and could seriously
harm our business.
19
IF WE FAIL TO SUCCESSFULLY CROSS-MARKET OUR PRODUCTS TO CUSTOMERS OF BUSINESSES
WE ACQUIRE, OR TO DEVELOP NEW PRODUCTS TO SERVE THOSE AND OUR EXISTING
CUSTOMERS, WE MAY NOT INCREASE OR MAINTAIN OUR CUSTOMER BASE OR OUR REVENUE
We offer to our collective customers the respective products and services
historically offered by DoubleClick and companies we have acquired. We cannot
assure you that any company's customers will have any interest in the other
companies' products and services. The failure of our cross-marketing efforts may
diminish the benefits we realize from these acquisitions. In addition, we intend
to develop new products and services that combine the knowledge and resources of
our company and the businesses we acquire. We cannot assure you that these
products or services will be developed or, if developed, will be successful or
that we can successfully integrate or realize the anticipated benefits of these
acquisitions. As a result, we may not be able to increase or maintain our
customer base. We cannot assure you that we will be able to overcome the
obstacles in developing new products and services, or that there will be a
demand for the new products or services developed by us after the acquisitions.
An inability to overcome these obstacles or a failure of demand to develop could
materially and adversely affect our business, financial condition and results of
operations or could result in loss of key personnel.
WE ARE DEPENDENT ON KEY PERSONNEL AND ON EMPLOYEE RETENTION AND RECRUITING FOR
OUR FUTURE SUCCESS
Our future success depends to a significant extent on the continued service
of our key technical, sales and senior management personnel. We do not have
employment agreements with most of these executives. The loss of the services of
one or more of our key employees could materially and adversely affect our
business, results of operations and financial condition. Our future success also
depends on our continuing to attract, retain and motivate highly skilled
employees. There is significant competition for qualified employees in our
industry. We may be unable to retain our key employees or attract, assimilate or
retain other highly qualified employees in the future. We have from time to time
in the past experienced, and we expect to continue to experience in the future,
difficulty in hiring and retaining highly skilled employees with appropriate
qualifications.
IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY OR FACE A CLAIM OF
INTELLECTUAL PROPERTY INFRINGEMENT BY A THIRD PARTY, WE COULD LOSE OUR
INTELLECTUAL PROPERTY RIGHTS OR BE LIABLE FOR DAMAGES
Our success and ability to effectively compete are substantially dependent
on the protection of our proprietary technologies and our trademarks, which we
protect through a combination of patent, trademark, copyright, trade secret,
unfair competition and contract law. Despite our diligent efforts, we cannot
assure you that any of our proprietary rights will be viable or of value in the
future.
In September 1999, the U.S. Patent and Trademark Office issued to us a
patent that covers our DART technology. We own other patents, and have patent
applications pending, for our technology. We cannot assure you that patents
applied for will be issued or that patents issued or acquired by us now or in
the future will be valid and enforceable, or provide us with meaningful
protection.
We also have rights in the trademarks that we use to market our solutions.
These trademarks include DOUBLECLICK'r', DART'r', DARTMAIL'TM' and ABACUS'r'.
We have applied to register our trademarks in the United States and
internationally. We have received registrations for the marks DOUBLECLICK,
DART and ABACUS and have applied for registration of others. We cannot assure
you that any of our current or future trademark applications will be approved.
Even if they are approved, these trademarks may be successfully challenged
by others or invalidated. If our trademark registrations are not approved
because third parties own these trademarks, our use of these trademarks will
be restricted unless we enter into arrangements with these parties which may
be unavailable on commercially reasonable terms, if at all. In addition,
we have licensed, and
20
may license in the future, our trademarks, trade dress and similar proprietary
rights to third parties. While we endeavor to ensure that the quality of our
brands are maintained by our licensees, our licensees may take actions that
could materially and adversely affect the value of our proprietary rights and
reputation.
In order to secure and protect our proprietary rights, we generally enter
into confidentiality, proprietary rights and license agreements, as appropriate,
with our employees, consultants and business partners, and generally control
access to and distribution of our technologies, documentation and other
proprietary information. Despite these efforts, we cannot be certain that the
steps we take to prevent unauthorized use of our proprietary rights are
sufficient to prevent misappropriation of our solutions or technologies,
particularly in foreign countries where laws or law enforcement practices may
not protect our proprietary rights as fully as in the United States. In
addition, we cannot assure you that we will be able to adequately enforce the
contractual arrangements which we have entered into to protect our proprietary
technologies.
Furthermore, third parties may assert infringement claims against us, which
could adversely affect the value of our proprietary rights and our reputation.
From time to time we have been, and we expect to continue to be, subject to
claims in the ordinary course of our business, including claims of alleged
infringement of the patents, trademarks and other intellectual property rights
of third parties by us or our customers. In particular, we do not conduct
exhaustive patent searches to determine whether our technology infringes patents
held by others. In addition, technology development in Internet-related
industries is inherently uncertain due to the rapidly evolving technological
environment. As such, there may be numerous patent applications pending, many of
which are confidential when filed, that provide for technologies similar to
ours.
Third party infringement claims and any resultant litigation, should it
occur, could subject us to significant liability for damages or restrict us from
using our intellectual property. Even if we prevail, litigation could be
time-consuming and expensive to defend, and could result in the diversion of
management's time and attention. Any claims from third parties may also result
in limitations on our ability to use the intellectual property subject to these
claims unless we are able to enter into royalty, licensing or other similar
agreements with the third parties asserting these claims. Such agreements, if
required, may be unavailable on terms acceptable to us, or at all. If a
successful claim of infringement is brought against us and we fail to develop
non-infringing technology or to license the infringed or similar technology on a
timely basis, it could materially adversely affect our business, financial
condition and results of operations.
OUR RIGHT TO KEEP AND USE INFORMATION COLLECTED IN OUR DATABASES MAY BE
CHALLENGED IN THE FUTURE, WHICH COULD ADVERSELY AFFECT OUR BUSINESS AND RESULTS
OF OPERATIONS
We collect and compile information in databases for the product offerings of
all our businesses. Individuals have claimed, and may claim in the future, that
our collection of this information is illegal. Although we believe that we have
the right to use and compile the information in these databases, we cannot
assure you that our ability to do so will remain lawful, that any trade secret,
copyright or other intellectual property protection will be available for our
databases, or that statutory protection that is or becomes available for
databases will enhance our rights. In addition, others may claim rights to the
information in our databases. Further, pursuant to our contracts with Web
publishers using our solutions, we are obligated to keep certain information
regarding each Web publisher confidential and, therefore, may be restricted from
further using that information in our businesses.
WE MUST ADAPT TO TECHNOLOGY TRENDS AND EVOLVING INDUSTRY STANDARDS OR WE WILL
NOT BE COMPETITIVE
The digital marketing business is characterized by rapidly changing
technologies, evolving industry standards, frequent new product and service
introductions, and changing customer demands. Our future success will depend on
our ability to adapt to rapidly changing technologies and to enhance existing
solutions and develop and introduce a variety of new solutions and
21
services to address our customers' changing demands. We may experience
difficulties that could delay or prevent the successful design, development,
introduction or marketing of our solutions and services. In addition, our new
solutions or enhancements must meet the requirements of our current and
prospective customers and must achieve significant acceptance. Material delays
in introducing new solutions and enhancements may cause customers to forego
purchases of our solutions and purchase those of our competitors. Our failure to
successfully design, develop, test and introduce new services, or the failure of
our recently introduced services to achieve acceptance, could prevent us from
maintaining existing client relationships, gaining new clients or expanding our
business and could materially and adversely affect our business, financial
condition and results of operations.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE FAIL SUCCESSFULLY TO MANAGE OUR
INTERNATIONAL OPERATIONS AND SALES AND MARKETING EFFORTS
We have operations in a number of countries. We have limited experience in
developing localized versions of our solutions and in marketing, selling and
distributing our solutions internationally. We sell our products and services
through our directly and indirectly owned subsidiaries in Australia, the Benelux
countries, Brazil, Canada, France, Germany, Spain, Ireland, Italy, Scandinavia
and the United Kingdom. We also operate our media business through business
partners in Japan and Asia (Hong Kong, Taiwan, Korea, China and Singapore) and
generally operate our technology business through our directly or indirectly
owned subsidiaries in these jurisdictions. A great deal of our success in these
markets is directly dependent on the success of our business partners and their
dedication of sufficient resources to our relationship.
Our international operations are subject to other inherent risks, including:
the high cost of maintaining international operations;
uncertain demand for our products and services;
the impact of recessions in economies outside the United States;
changes in regulatory requirements;
more restrictive privacy regulation;
reduced protection for intellectual property rights in some countries;
potentially adverse tax consequences;
difficulties and costs of staffing and managing foreign operations;
political and economic instability;
fluctuations in currency exchange rates; and
seasonal fluctuations in Internet usage.
These risks may have a material and adverse impact on the business, results of
operations and financial condition of our operations in a particular country,
and could result in a decision by us to reduce or discontinue operations in that
country. The combined impact of these risks in each country may also materially
and adversely affect the business, results of operations and financial condition
of DoubleClick as a whole.
WE HAVE INCURRED SIGNIFICANT DEBT OBLIGATIONS WHICH COULD HARM OUR BUSINESS
We incurred $250 million of indebtedness in March 1999 from the sale of our
4.75% Convertible Subordinated Notes due 2006. Our ratio of long-term debt to
total equity was approximately 32.5% as of December 31, 2000. As a result of the
sale of the notes, we have substantially increased our principal and interest
obligations. The degree to which we are leveraged could materially and adversely
affect our ability to obtain additional financing and could make us more
vulnerable to industry downturns and competitive pressures. Our ability to meet
our
22
debt service obligations will depend on our future performance, which will be
subject to financial, business, and other factors affecting our operations, many
of which are beyond our control.
EFFECTS OF ANTI-TAKEOVER PROVISIONS COULD INHIBIT THE ACQUISITION OF OUR COMPANY
Some of the provisions of our certificate of incorporation, our bylaws and
Delaware law could, together or separately:
discourage potential acquisition proposals;
delay or prevent a change in control;
impede the ability of our stockholders to change the composition of our
board of directors in any one year; or
limit the price that investors might be willing to pay in the future for
shares of our common stock.
OUR STOCK PRICE MAY EXPERIENCE EXTREME PRICE AND VOLUME FLUCTUATIONS
The market price of our common stock has fluctuated in the past and is
likely to continue to be highly volatile and could be subject to wide
fluctuations. In addition, the stock market has experienced extreme price and
volume fluctuations. The market prices of the securities of Internet-related
companies have been especially volatile. Investors may be unable to resell their
shares of our common stock at or above their purchase price.
IF OUR STOCK PRICE IS VOLATILE, WE MAY BECOME SUBJECT TO SECURITIES LITIGATION
WHICH IS EXPENSIVE AND COULD RESULT IN A DIVERSION OF RESOURCES
In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against that company. Many companies in our industry have been
subject to this type of litigation in the past. We may also become involved in
this type of litigation. Litigation is often expensive and diverts management's
attention and resources, which could materially and adversely affect our
business, financial condition and results of operations.
FUTURE SALES OF OUR COMMON STOCK MAY AFFECT THE MARKET PRICE OF OUR COMMON STOCK
As of December 31, 2000, we had 123,567,886 shares of common stock
outstanding, excluding 22,246,248 shares subject to options outstanding as of
such date under our stock option plans that are exercisable at prices ranging
from $0.03 to $124.56 per share. Additionally, certain holders of our common
stock have registration rights with respect to their shares. We intend to file
one or more registration statements in compliance with these registration
rights. We cannot predict the effect, if any, that future sales of common stock
or the availability of shares of common stock for future sale, will have on the
market price of our common stock prevailing from time to time. Sales of
substantial amounts of common stock (including shares included in such
registration statements, issued upon the exercise of stock options or issued
upon the conversion of our convertible subordinated notes), or the perception
that such sales could occur, may materially and adversely affect prevailing
market prices for our common stock.
RISKS RELATED TO OUR INDUSTRY
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF DEMAND FOR INTERNET ADVERTISING FAILS
TO GROW AS PREDICTED OR DIMINISHES
Our future success is highly dependent on an increase in the use of the
Internet as an advertising medium. The Internet advertising industry is new and
rapidly evolving, and it cannot yet be compared with traditional advertising
media to gauge its effectiveness. As a result, demand and acceptance for
Internet advertising solutions is uncertain. Many of our current or potential
23
advertising customers have limited experience using the Internet for advertising
purposes and they have allocated only a limited portion of their advertising
budgets to Internet advertising. The adoption of Internet advertising,
particularly by those entities that have historically relied upon traditional
media for advertising, requires the acceptance of a new way of conducting
business, exchanging information and advertising products and services. These
customers may find Internet advertising to be less effective for promoting their
products and services relative to traditional advertising media. In addition,
some of our current and potential Web publisher customers have little experience
in generating revenue from the sale of advertising space on their Web sites. We
cannot assure you that current or potential advertising customers will continue
to allocate a portion of their advertising budget to Internet advertising or
that the demand for Internet advertising will continue to develop to
sufficiently support Internet advertising as a significant advertising medium.
If the demand for Internet advertising decreases or develops more slowly than we
expect, then our business, results of operations and financial condition could
be materially and adversely affected.
There are currently no generally accepted standards or tools for the
measurement of the effectiveness of Internet advertising or the planning of
advertising purchases, and generally accepted standard measurements and tools
may need to be developed to support and promote Internet advertising as a
significant advertising medium. Our advertising customers may challenge or
refuse to accept ours or third-party's measurements of advertisement delivery
results, or the market research information that we provide. Our customers may
not accept any errors in such measurements. In addition, the accuracy of
database information used to target advertisements is essential to the
effectiveness of Internet advertising that may be developed in the future. The
information in our database, like any database, may contain inaccuracies which
our customers may not accept.
A significant portion of our revenue is derived from the delivery of
advertisements placed on Web sites which are designed to contain the features
and measuring capabilities requested by advertisers. If advertisers determine
that those ads are ineffective or unattractive as an advertising medium or if we
are unable to deliver the features or measuring capabilities requested by
advertisers, the long-term growth of our online advertising business could be
limited and our revenue levels could decline. There are also 'filter' software
programs that limit or prevent advertising from being delivered to a user's
computer. The commercial viability of Internet advertising, and our business,
results of operations and financial condition, would be materially and adversely
affected by Web users' widespread adoption of this software.
CHANGES IN GOVERNMENT REGULATION COULD DECREASE OUR REVENUE AND INCREASE OUR
COSTS
Laws applicable to Internet communications, e-commerce, digital advertising,
data protection and direct marketing are becoming more prevalent. Any
legislation enacted or regulation issued could dampen the growth and acceptance
of the digital marketing industry in general and of our offerings in particular.
Existing and proposed legislation in the United States, Europe (following the
directive of the European Union), Canada, and Japan may impose limits on our
collection and use of certain kinds of information about individuals, whether
collected offline or online. Various U.S. state and foreign governments may also
attempt to regulate our transmissions or levy sales or other taxes relating to
our activities.
Moreover, the laws governing the Internet remain largely unsettled, even in
areas where there has been some legislative action. It may take years to
determine whether and how existing laws such as those governing intellectual
property, data protection, libel and taxation apply to the Internet and Internet
advertising. In addition, the growth and development of Internet commerce may
prompt calls for more stringent consumer protection laws, both in the United
States and abroad, that may impose additional burdens on companies conducting
business over the Internet.
Our business, results of operations and financial condition could be
materially and adversely affected by the adoption or modification of laws or
regulations relating to our businesses.
24
CHANGES IN LAWS RELATING TO DATA COLLECTION AND USE PRACTICES AND THE PRIVACY OF
INTERNET USERS AND OTHER INDIVIDUALS COULD HARM OUR BUSINESS
New limitations on the collection and use of information relating to
Internet users are currently being considered by legislatures and regulatory
agencies in the United States and internationally. We are unable to predict
whether any particular proposal will pass, or the nature of the limitations in
those proposals that do pass. Since many of the proposals are in their
development stage, we cannot yet determine the impact these may have on our
business. In addition, it is possible that changes to existing law, including
new interpretations of existing law, could have a material and adverse impact on
our business, financial condition and results of operations.
The following are examples of proposals currently being considered in the
United States and internationally:
Legislation has been proposed in some jurisdictions to regulate the use of
cookie technology. Our technology uses cookies for ad targeting and
reporting, among other things, and we may be required to change our
technology in order to comply with the new laws. It is possible that the
changes required for compliance are commercially unfeasible, or that we are
simply unable to comply and therefore may be required to discontinue the
relevant business practice.
Data protection officials in certain European countries have voiced the
opinion that an IP address is personally-identifiable information. In those
countries in which this opinion prevails, the applicable national data
protection law could be interpreted to subject us to a more restrictive
regulatory regime. Although we believe our current policies and procedures
would meet these more restrictive standards, we cannot assure you that the
applicable authorities would make the same determination. The cost of such
compliance could be material, and we may not be able to comply with the
applicable national regulations in a timely or cost-effective manner.
Legislation has been proposed to prohibit the sending of 'unsolicited
commercial email' or 'spam.' We have a consent-based email delivery and
list services business that we believe should not, as a matter of policy,
be affected by this kind of legislation. However, it is possible that
legislation will be passed that requires us to change our current
practices, or subject us to increased possibility of legal liability for
our practices.
Legislation is under consideration that would regulate the practice of
online preference marketing, as practiced by DoubleClick and other Network
Advertising Initiative member companies. Such legislation, if passed, could
require DoubleClick to change or discontinue its plans for online
preference marketing services. The changes we are required to make could
diminish the market acceptance of our offerings.
The Federal Trade Commission is currently reviewing the need to regulate
the manner in which offline information about consumers is collected and
used by businesses. The value of the Abacus Alliance database, and the
future viability of the DoubleClick Data business, could be adversely
affected by legislation or regulation that limits the manner in which
offline information about consumers is collected and used.
These and other circumstances leading to changes in the existing law could have
a material and adverse impact on our business, financial condition and results
of operations.
In addition, DoubleClick is a member of the Network Advertising Initiative
and the Direct Marketing Association, both industry self-regulatory
organizations. Although our compliance with the these self-regulatory principles
to date has not had a material adverse effect on us, we cannot assure you that
these organizations will not adopt additional, more burdensome guidelines, which
could materially and adversely affect the business, financial condition and
results of operations of DoubleClick.
25
OUR BUSINESS MAY BE ADVERSELY AFFECTED BY PRODUCTS OFFERED BY THIRD PARTIES
Our business may be adversely affected by the adoption by computer users of
technologies that harm the performance of our products and services. For
example, computer users may use software designed to filter or prevent the
delivery of Internet advertising, or Internet browsers set to block the use of
cookies. We cannot assure you that the number of computer users who employ these
or other similar technologies will not increase, thereby diminishing the
efficacy of our products and services. In the case that one or more of these
technologies are widely adopted, our business, financial condition and results
of operations could be materially and adversely affected.
OUR BUSINESS MAY SUFFER IF THE WEB INFRASTRUCTURE IS UNABLE TO EFFECTIVELY
SUPPORT THE GROWTH IN DEMAND PLACED ON IT
Our success will depend, in large part, upon the maintenance of the Web
infrastructure, such as a reliable network backbone with the necessary speed,
data capacity and security, and timely development of enabling products such as
high speed modems, for providing reliable Web access and services and improved
content. We cannot assure you that the Web infrastructure will continue to
effectively support the demands placed on it as the Web continues to experience
increased numbers of users, frequency of use or increased bandwidth requirements
of users. Even if the necessary infrastructure or technologies are developed, we
may have to spend considerable amounts to adapt our solutions accordingly.
Furthermore, the Web has experienced a variety of outages and other delays due
to damage to portions of its infrastructure. These outages and delays could
impact the Web sites of Web publishers using our solutions and the level of user
traffic on Web sites on our DoubleClick networks.
DOUBLECLICK DATA IS DEPENDENT ON THE SUCCESS OF THE DIRECT MARKETING INDUSTRY
FOR ITS FUTURE SUCCESS
The future success of DoubleClick Data is dependent in large part on the
continued demand for our services from the direct marketing industry, including
the catalog industry, as well as the continued willingness of catalog operators
to contribute their data to us. Most of our Abacus clients are large consumer
merchandise catalog operators in the United States. A significant downturn in
the direct marketing industry generally, including the catalog industry, or
withdrawal by a substantial number of catalog operators from the Abacus
Alliance, would have a material adverse effect on our business, financial
condition and results of operations. Many industry experts predict that
electronic commerce, including the purchase of merchandise and the exchange of
information via the Internet or other media, will increase significantly in the
future. To the extent this increase occurs, companies that now rely on catalogs
or other direct marketing avenues to market their products may reallocate
resources toward these new direct marketing channels and away from
catalog-related marketing or other direct marketing avenues, which could
adversely affect demand for some DoubleClick Data services. In addition, the
effectiveness of direct mail as a marketing tool may decrease as a result of
consumer saturation and increased consumer resistance to direct mail in general.
INCREASES IN POSTAL RATES AND PAPER PRICES COULD HARM DOUBLECLICK DATA
The direct marketing activities of our Abacus Alliance clients are adversely
affected by postal rate increases, especially increases that are imposed without
sufficient advance notice to allow adjustments to be made to marketing budgets.
Higher postal rates may result in fewer mailings of direct marketing materials,
with a corresponding decline in the need for some of the direct marketing
services offered by us. Increased postal rates can also lead to pressure from
our clients to reduce our prices for our services in order to offset any postal
rate increase. Higher paper prices may also cause catalog companies to conduct
fewer or smaller mailings which could cause a corresponding decline in the need
for our services. Our clients may aggressively seek price reductions for our
services to offset any increased materials cost. Any of these occurrences
26
could materially and adversely affect the business, financial condition and
results of operations of our Abacus business.
ITEM 2. PROPERTIES
Our principal executive offices are currently located in a facility in New
York, New York consisting of an aggregate of approximately 240,000 square feet.
On January 26, 1999, we entered into a lease agreement with an initial term of
eleven years with an option to renew for an additional five years. We lease
approximately 75,000 square feet of office space in Broomfield, Colorado, under
a lease that terminates in April 2006 and is renewable for two consecutive five
year terms. This facility was the headquarters for Abacus before our merger and
is now the principal office for our Abacus operations. We also lease
approximately 26,500 square feet of office space in San Mateo, California under
a lease that expires in October 2005. This facility was the headquarters for
NetGravity before our merger and now is primarily used for technology
development of our TechSolutions products. In addition, we lease space for our
significant offices in California, Colorado, Georgia, Illinois, Massachusetts,
Michigan, Texas and Washington, as well as in Australia, Canada, China, Denmark,
France, Germany, Hong Kong, Ireland, India, Italy, Japan, Korea, the
Netherlands, Norway, Spain, Sweden and the United Kingdom. We are continually
evaluating our facilities requirements.
ITEM 3. LEGAL PROCEEDINGS
Following the announcement of our proposed merger with NetGravity
on July 27, 1999, a complaint was filed in the San Mateo County, California,
Superior Court against NetGravity and several of its directors. The complaint
alleges that the directors of NetGravity breached their fiduciary duties to
NetGravity's stockholders in connection with the negotiation of the proposed
merger. The complaint asked the court to enjoin the consummation of the merger,
or, alternatively, sought to rescind the merger or an award of unspecified
damages from the defendants in the event the merger was consummated. We believe
the claims asserted in this complaint are without merit and vigorously contest
them.
We are a defendant in 20 lawsuits concerning Internet user privacy and our
data collection and other business practices. These lawsuits were filed
throughout 2000. 18 of these actions are styled as class actions, one
action is brought on behalf of the general public of the State of California and
one is brought against us and ClearStation, Inc. on behalf of the State of
Illinois by the State's Attorney of Cook County, Illinois. The actions seek,
among other things, injunctive relief, civil penalties and unspecified damages.
Five of the actions were filed in California state court, 13 in federal
court, one in Texas state court and one in Illinois state court. On March 31,
2000, the plaintiff in one of the California state court proceedings filed a
petition, ordered by the court on May 11, 2000, to coordinate the four actions
then pending in the California state courts. The Judicial Panel on Multidistrict
Litigation has granted our motions to transfer, coordinate and consolidate all
thirteen federal actions before Judge Buchwald in the Southern District of New
York. We believe that these lawsuits are without merit and we intend to
vigorously defend ourselves against them.
Additionally, we received a letter from the Federal Trade Commission
('FTC'), dated February 8, 2000, in which the FTC notified us that they were
conducting an inquiry into our business practices to determine whether, in
collecting and maintaining information concerning Internet users, we have
engaged in unfair or deceptive practices. In January 2001, the Federal Trade
Commission closed its inquiry into our ad serving and data collection practices
without recommending any further action.
Our ad serving and data collection practices are also the subject of
inquiries by the attorneys general of several states. We are cooperating fully
with all such inquiries. We may receive additional regulatory inquiries and
intend to cooperate fully.
27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the security holders during the fourth
quarter of 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock has been quoted on the Nasdaq National Market under the
symbol DCLK since our initial public offering on February 20, 1998. The
following table sets forth, for the periods indicated, the high and low sales
prices per share of the common stock as reported on the Nasdaq National Market.
All prices have been restated to reflect our two-for-one stock splits effected
as stock dividends on April 5, 1999 and January 10, 2000.
HIGH LOW
---- ---
2000:
Fourth Quarter.......................................... $ 33.75 $ 8.00
Third Quarter........................................... 45.52 27.56
Second Quarter.......................................... 93.88 32.88
First Quarter........................................... 135.25 74.00
1999:
Fourth Quarter.......................................... 127.72 54.88
Third Quarter........................................... 62.63 30.25
Second Quarter.......................................... 88.00 33.75
First Quarter........................................... 50.00 11.00
On December 29, 2000, the last sale price of our common stock reported by
the Nasdaq National Market was $11.00 per share. On March 6, 2001, the last sale
price of our common stock reported by the Nasdaq National Market was $13.875 per
share. As of March 6, 2001, we had approximately 887 holders of record of our
common stock.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain future earnings, if any, to finance the expansion of
our business and do not expect to pay any cash dividends for the foreseeable
future.
28
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to
DoubleClick's consolidated statement of operations for each of the years ended
December 31, 2000, 1999 and 1998 and with respect to DoubleClick's consolidated
balance sheet as of December 31, 2000 and 1999 have been derived from the
audited financial statements of DoubleClick which are included elsewhere herein.
The selected consolidated financial data set forth with respect to DoubleClick's
consolidated statement of operations for each of the periods ended December 31,
1997 and 1996 and with respect to DoubleClick's consolidated balance sheet as of
December 31, 1998, 1997, and 1996 are derived from the audited financial
statements of DoubleClick which are not included herein. The selected
consolidated financial data set forth below is qualified in its entirety by, and
should be read in conjunction with, 'Management's Discussion and Analysis of
Financial Condition and Results of Operations' and the consolidated financial
statements and the notes to those statements included elsewhere herein.
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues.................................... $ 505,611 $258,294 $138,724 $67,926 $25,985
Income (loss) from operations............... (189,117) (58,715) (14,970) (3,828) (1,419)
Income (loss) before income taxes........... (155,131) (47,234) (10,973) (3,432) (1,565)
Net income (loss)........................... (155,981) (55,821) (18,039) (7,741) (3,954)
Basic and diluted net income (loss) per
share..................................... (1.29) (0.51) (0.21) (0.16) (0.07)
Weighted average shares used in basic per
share calculation......................... 121,278 109,756 86,248 49,048 56,516
Weighted average shares used in diluted per
share calculation......................... 121,278 109,756 86,248 49,048 56,516
DECEMBER 31,
----------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................ $ 562,510 $309,883 $184,408 $25,861 $ 4,959
Total assets............................... 1,298,543 729,407 260,361 53,641 19,749
Convertible subordinated notes and other... 265,609 255,348 2,067 742 711
Total stockholders' equity................. 817,057 361,662 206,771 31,428 7,256
29
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated quarterly
statement of operations data for the eight quarters ended December 31, 2000.
This information is unaudited, but in the opinion of management, it has been
prepared substantially on the same basis as the audited consolidated financial
statements appearing elsewhere in this report, and all necessary adjustments,
consisting only of normal recurring adjustments, have been included in the
amounts stated below to present fairly the unaudited consolidated quarterly
results of operations. The consolidated quarterly data should be read in
conjunction with our audited consolidated financial statements and the notes to
such statements appearing elsewhere in this report. The results of operations
for any quarter are not necessarily indicative of the results of operations for
any future period.
WEIGHTED WEIGHTED
INCOME AVERAGE AVERAGE BASIC AND DILUTED
(LOSS) NET COMMON COMMON NET LOSS
GROSS FROM INCOME SHARES-- SHARES-- PER
QUARTER ENDED REVENUES PROFIT OPERATIONS (LOSS) BASIC DILUTED COMMON SHARE
------------- -------- ------ ---------- ------ ----- ------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2000
March 31................. $110,056 $57,579 $(31,914) $ (18,374) 116,839 116,839 $(0.16)
June 30.................. 128,087 68,548 (29,763) (22,132) 122,265 122,265 (0.18)
September 30............. 135,169 77,953 (30,047) (10,724) 122,621 122,621 (0.09)
December 31.............. 132,299 54,961 (97,393) (104,751) 123,386 123,386 (0.85)
1999
March 31................. $ 39,412 $24,051 $ (8,919) $ (8,404) 106,877 106,877 $(0.08)
June 30.................. 49,856 28,841 (6,799) (5,406) 109,758 109,758 (0.05)
September 30............. 75,336 46,138 973 136 110,466 121,752 (0.00)
December 31.............. 93,690 52,108 (43,970) (42,147) 111,325 111,325 (0.38)
In the fourth quarter of 2000, DoubleClick recognized approximately $49.4
million in impairments associated with the write down of the goodwill generated
in its acquisitions of DoubleClick Scandinavia and DoubleClick Iberoamerica.
(See Note 5 to the Consolidated Financial Statements.) Also in the fourth
quarter of 2000, DoubleClick recorded an approximately $24.1 million impairment
charge related to the write down of its investment in ValueClick. (See Note 3 to
the Consolidated Financial Statements.) Additionally, DoubleClick incurred
approximately $2.4 million in restructuring charges associated with the
involuntary terminations of certain of its employees in December 2000. (See Note
7 to the Consolidated Financial Statements.) In December 2000, DoubleClick wrote
off the remaining balance of its advance to a Web publisher. The approximately
$18.5 million charge has been included in cost of revenues in the consolidated
statements of operations.
In the third quarter of 2000, DoubleClick recognized an approximately $3.9
million gain as the result of the initial public offering of ValueClick Japan, a
consolidated subsidiary of its equity method investee ValueClick. Also in the
third quarter of 2000, DoubleClick recognized an approximately $18.7 million
impairment charge related to the write down of its warrant to purchase
additional shares of ValueClick. (See Note 3 to the Consolidated Financial
Statements.) In July 2000, DoubleClick recognized an approximately $20.7 million
gain as the result of the partial sale of its interest in NetGravity Japan to
DoubleClick Japan. (See Note 2 to the Consolidated Financial Statements.)
In the first quarter of 2000, DoubleClick recognized an approximately $8.9
million gain related to the increase in its proportionate share of the net
assets of its equity method investee ValueClick as the result of ValueClick's
intital public offering in March 2000. (See Note 3 to the Consolidated Financial
Statements.)
In the fourth quarter of 1999, DoubleClick recognized direct transaction and
integration costs of approximately $38.7 million in connection with its
acquisitions accounted for as poolings of interest. Also in the fourth quarter
of 1999, DoubleClick incurred approximately $2.9 million in costs associated
with the relocation of its corporate headquarters. (See Note 6 to the
Consolidated Financial Statements.)
30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
our financial statements and related notes included in this report.
OVERVIEW
We provide the infrastructure that makes marketing work in the digital
world. Combining media, data and technological expertise, our products and
services enable marketers to deliver the right message, to the right person, at
the right time, while helping publishers maximize their revenue and build their
business online.
Our patented DART technology is the platform for many of our solutions. The
DART technology is a sophisticated targeting and reporting tool, relied upon by
our customers to measure campaign performance and provide dynamic ad space
inventory management. Our service and product offerings are grouped into three
segments:
DoubleClick Media (Media);
DoubleClick TechSolutions (Technology or TechSolutions); and
DoubleClick Data (Data).
COMPARABILITY OF RESULTS
ALTAVISTA AGREEMENT
In January 1999, we changed the manner in which we report the financial
results of the services we performed for the AltaVista Web site. Effective
January 1, 1999, we entered into an Advertising Services Agreement with
AltaVista Company's predecessor-in-interest (Compaq Computer Corporation) that
superseded the previously effective Procurement and Trafficking Agreement, date