Wall St. still waiting on interactive

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The leader of the pack of publicly traded interactive ad agencies may come as a surprise.

It's not CKS Group, which was the market leader in March, when investment firm AdMedia Partners evaluated the stock performance of five publicly traded agencies.

In terms of revenues and multiple of earnings, the leader is TMP Worldwide, the world's largest Yellow Pages agency and one of the largest in recruitment advertising. It made an initial public offering in December, and today it sells at 63% above its IPO price. Market value is about $540 million, and the price/earnings ratio (market price divided by earnings per share), is 100.

A key valuation element is TMP's Monster Board career center. TMP's Internet advertising revenues are running at an annual rate in excess of $16 million. A secondary offering is planned shortly.

CKS ON BUYING SPREE

Of the five publicly traded agencies evaluated earlier this year by AdMedia, only two are selling above their IPO price. One is CKS Group, Cupertino, Calif., whose stock is currently selling at a price/earnings ratio of 76.

CKS has been extremely acquisitive, buying five agencies this year, including McKinney & Silver, a traditional agency based in Raleigh, N.C., and interactive shop SiteSpecific, New York.

While new-media fees account for only 24% of total revenues so far this year, investors seem to be happy with CKS's strategy of adding traditional creative services to its interactive expertise. Another plus: CKS's quarterly earnings have consistently exceeded analysts' expectations since going public.

The other IPO companies have found the public market more challenging, and three are selling at a discount to their initial offering prices. Here are some key developments at these agencies:

Think New Ideas has grown substantially in volume, but has yet to earn a profit. The stock is now selling at 39% above its offering price. Its recent acquisition from Omnicom Group of Fathom, formerly Ketchum's Los Angeles office, may have contributed to the boost in Think's stock price from a low of $2.50 to the current $9.75. Omnicom now owns about 19% of Think.

Eagle River Interactive announced plans to sell off its interactive agency business to Omnicom, and will instead focus on computer training. Its stock is now 19% below offering level.

Leap Group stock has been hit hard and sells at a 75% discount from its offering price. The decline is due in part to a loss of Nike, a major client, as well as disappointing earnings.

NOT MUCH ENCOURAGEMENT

Its $20 million acquisition of YAR Communications, a New York-based multicultural specialty agency, and recent purchase of Kang & Lee, which specializes in Asian-American markets, have apparently not given investors much encouragement as to Leap's interactive strategy.

Recent interactive account business from MSNBC and American Airlines have not yet impacted the stock price.

K2 Design, despite strong revenue growth, continues to post losses and sells at a discount of 23% of its IPO price.

Last fall, Poppe Tyson and TN Technologies, two of the biggest interactive communications players in terms of revenues, filed registration statements for public offerings. Both delayed their plans indefinitely because of market conditions.

Now that True North Communications has announced the acquisition of Bozell, Jacobs, Kenyon & Eckhardt, Poppe and TN Technologies will soon be part of the same parent company. That transaction is due to close by Dec. 1.

It isn't yet clear whether these two interactive giants will merge. If they do come together, they could create a powerhouse with a broad client base, revenues of more than $100 million, and offices in several U.S. and overseas markets.

It could be an interesting platform for an IPO, but with big question marks. Account conflicts could hurt the top line. Profitability of a merged TN Technologies and Poppe is uncertain; according to Securities & Exchange Commission filings last year, neither company was making money.

WINDOW OF OPPORTUNITY MAY SHUT

The biggest unknown is whether the stock market will be conducive to another IPO if and when the merged company is ready. The only thing stock market pundits can agree upon is that market valuations today are high.

When the market finally does cool off, the current shakeout in the interactive agency business could accelerate. The so called "window of opportunity" for new media business to go public just may be ready to slam shut.

Abbott C. Jones is managing director at New York investment bank AdMedia Partners.

Copyright September 1997, Crain Communications Inc.

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