Key quotes from the Fastclick S-1

Here are some key quotes from online ad company Fastclick's S-1 (proposed ticker: FSTC). The quotes cover its reliance on pop-under ads, different types of online ads, its revenue share with publishers, its advertiser customers, its acquisition strategy, click fraud, and its rising sales and marketing expenses:

Key quotes from the S-1

On reliance on pop-up ads:

New technologies could block our ability to serve advertisements, and may reduce demand for our technologies and services.

Technologies have been developed and distributed that are designed to block the appearance of pop-up and pop-under ads on website pages viewed by Internet users. For the years ended December 31, 2003 and 2004, we derived approximately 57% and 51%, respectively, of our revenue from our deployment of pop-under ads across our network. These ad-blocking technologies may become more effective and their use may become more widespread, and they may block the display of other current or future formats that we may use to deploy our ads. Substantially all of our revenue is derived from fees paid to us by advertisers in connection with the display of ads on websites. As a result, ad-blocking technology could reduce demand for our technologies and services and harm our business.

On cost-per-click, cost-per-action, and cost-per-impression:

Our advertisers can purchase advertising space on our network based on the following pricing options:

• Cost-per-action, where the advertiser pays us a fee based on the number of specified Internet user responses, such as registrations, requests for information or sales that its ads produce;
• Cost-per-click, where the advertiser pays us a fee based on the number of clicks its ads generate; and
• Cost-per-thousand impressions, where the advertiser pays us a fee based on the number of times its ads are displayed, referred to as impressions.

Regardless of how an advertiser pays for space, we pay the vast majority of our website publishers on a cost-per-thousand impressions basis.

On revenue share with publishers:

We typically pay a vast majority of our publishers within 25 business days after the end of the month under the revenue-sharing provisions of our publisher's agreement pursuant to which we generally pay them up to [my italics] 65% of the advertising revenue we generate from ads placed on their websites.

On customer stickiness and visibility:

We depend on websites for advertising space, and any decline in the supply of advertising space available through our network could cause our revenue to decline or the cost to acquire advertising space to increase.

We generate a significant portion of our revenue from the advertising space provided by a limited number of websites. Expenses for our top ten website publishers accounted for 22.6% and 21.6% of our publisher expenses for 2003 and 2004, respectively. In most instances, website publishers can change the amount of advertising space they make available to us at any time and therefore impact our revenue... If a website publisher decides not to make advertising space available to us, or decides to demand a higher revenue share or places significant restrictions on the use of such advertising space, we may not be able to replace the space with advertising space from other websites that satisfy our requirements in a timely and cost-effective manner. In addition, the number of competing Internet advertising networks that acquire space from websites continues to increase. We cannot assure you that we will be able to acquire advertising space that meets our advertisers' performance, price and quality requirements. If any of these things occur, our revenue could decline or our cost of acquiring advertising space may increase.

On advertiser customer concentration:

A
substantial portion of our revenue is generated from a limited number of advertisers, and if we lose a major advertiser our revenue could decrease.

A substantial portion of our revenue is generated from a limited number of advertisers and advertising agencies. Our advertisers can generally terminate their contracts with us at any time, with no penalty upon one business day prior notice. Our top ten advertisers accounted for 47.6% and 45.8% of our advertising revenue for 2003 and 2004, respectively.

On acquisitions:

A component of our strategy is to acquire other businesses in order to grow our advertiser and website base and access technology and talent.

On click fraud:

We could lose advertisers if we fail to detect click-through fraud on advertisements in a manner that is acceptable to our advertisers.

We are exposed to the risk of fraudulent clicks on our ads by individuals seeking to increase the advertising fees paid to our website publishers. We may in the future have to refund revenue that our advertisers have paid to us and that was later attributed to click-through fraud...  From time to time we have experienced fraudulent clicks on our network and we do not charge our advertisers for such fraudulent clicks. This negatively affects our profitability, and this type of fraudulent act could hurt our brand. If fraudulent clicks are not detected, the affected advertisers may experience a reduced return on their investment in our advertising programs, which could lead the advertisers to become dissatisfied with our advertising campaigns, and in turn, lead to loss of advertisers and the related revenue.

On rising sales and marketing expense:

We anticipate that our sales and marketing expenses will increase over the next several quarters. In addition, as we continue to grow, we expect to hire additional sales and marketing personnel and expand to new facilities to accommodate our growing sales and marketing team.