Forbes published a glowing review of Fastclick's (proposed ticker: FSTC) upcoming IPO based on information from its S-1, claiming that investors should "Expect the company's IPO to turn in a solid first day", and concluding that "Fastclick looks like a winner". Here's what Forbes mentioned about Fastclick, with some comments about what it didn't mention:
Forbes' summary of Fastclick:
- Fundamental business model: Fastclick places ads from advertisers on its network of publishers' web sites, using its "optimization engine" to intelligently place the ads.
- Fastclick's network covers about 1,000 sites and clocked-up 115 million unique users in January.
- Sells ads into 18 content channels.
- Offers advertisers cost-per-click, per-action or impression-based ads.
- Profitable since 2001.
- 2004 net income of $5.1 million on revenue of $58 million.
- Risks: "Fastclick could crash and burn if its technology gets stale, if it can't sign up new customers, if it loses existing clients or simply if a competitor delivers its services more efficiently at a better price." "Long-term, Fastclick faces significant challenges in establishing itself in the Internet advertising market," says Tom Taulli, co-manager of Oceanus Value Fund in Newport Beach, Calif. "While already a solid player, the mass consolidation going on in the market is creating large-scale online ad companies with the capital backing of major corporations in the case of Advertising.com and Time Warner. However, with Fastclick's unique technology and variety of pricing models, I feel it should be able to weather the competition."
- Both Forbes and the quote from Tom Taulli fail to mention that 51% of Fastclick's 2004 revenue came from highly unpopular "pop-under" ads, which (perhaps due to their intrusiveness) have higher click-through rates and profitability than other forms of ads.
- Also failed to mention that new browsers, including Firefox, Safari and likely the next version of Internet Explorer, block pop-under ads.
- Full Forbes article here.
Implications for the stock?
- Don't assume that risks to Fastclick's business will be priced in to the stock if respectable publications and IPO experts have failed to notice the company's dependence on pop-unders.
- If the stock "turns in a solid first day" as Forbes predicts, will smart shorts pile in?