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AOL Buying Advertising.com
Washington Post Staff Writer Thursday, June 24, 2004; 11:15 AM
America Online is buying Advertising.com Inc. for $435 million in cash, the first major acquisition for the Dulles-based Internet firm since its ill-fated merger with Time Warner and a signal that the company is investing for growth amid a surge in online advertising and commerce. Advertising.com, based in Baltimore, operates the nation's largest third party ad network, reaching an estimated 70 percent of all U.S. Internet users, according to comScore Media Metrix. The company uses proprietary technology to help more than 800 advertisers optimize the effectiveness and reach of their online ad purchases, as well as licensing its ad serving technology to online publishers. "Online advertising is showing very strong growth across the industry, and the acquisition of Advertising.com underscores AOL's determination to strengthen its competitive position," Jonathan F. Miller, AOL chief executive officer, said in a statement. "Advertising.com has built a profitable, scalable and highly attractive business. This acquisition is a strategic move that will bolster AOL's advertising business, building on the strides made in the past year." Advertising.com, which earlier this year filed papers with the Securities and Exchange Commission indicating plans to go public, had sales of $132 million last year, an increase of 80 percent over the prior year, and a net loss of $25.8 million. Almost all of the loss in 2003 was related to a non-cash accounting adjustment; the company posted an operating income of $12.1 million. The company's optimization technology enables advertisers to plan, place, track and adjust ad campaigns. AOL said the acquisition complements its own advertising business by bolstering its presence in the increasingly popular pay-for-performance segment of online marketing. "We're looking forward to the opportunity to build on what we've accomplished -- taking our company from startup to industry leader in six years -- as part of America Online," said Advertising.com CEO Scott Ferber. "We're excited about growing the size of our advertising network, continuing to provide advertisers with creative solutions that meet their needs, and helping AOL increase the value of their inventory." AOL's ad revenue in the first quarter of this year was $214 million. After a drought, the quarterly ad performance by the nation's biggest Internet service marked the first time it has had back-to-back quarterly increases in ad revenue in four years. A major driving force in that growth was AOL's partnership with Google, which provides search for AOL users and shares substantial ad revenue with the firm. Advertising.com, which has 300 employees, will continue to be based in Baltimore. It will report to Michael J. Kelly, president of AOL Media Networks. "We now have all of the pieces in place- premium inventory, a strong and growing search business, and the ability to deliver customized pay for performance programs," Kelly said in a statement. In the first quarter of 2004, Advertising.com had sales of $46.1 million and a net loss of $47.3 million, compared to sales of $26.6 million and a net income of $9.1 million in the same period a year earlier. The loss was attributable to a $50.8-million charge related to another non-cash accounting adjustment. The operating income in the period was $5.6 million, versus $1.4 million in the first quarter of 2003. The parties hope to complete the deal by the late summer, following regulatory approval.
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