After Heavy Cost-Cutting, Razorfish, 24/7 Media Beat Street

Two Alley firms posted results that emphasized the slacking spending in marketing and IT spending, with Razorfish and 24/7 Media both seeing hefty losses.

Tuesday, i-shop Razorfish posted a pro forma loss of $3.7 million, or $0.04 per share, on $28.7 million in revenue. Wall Street had expected a $0.05 loss per share, according to Thomson Financial/First Call.

Last quarter, the company saw $42.7 million in revenue and posted a loss of $6.6 million, or $0.07 per share.

At the same time, ad network 24/7 Media reported revenues of $17.5 million, amounting to a pro forma loss of $0.44 per share, or $17 million. The pro forma loss is three cents better than Wall Street estimates; last quarter, the firm posted a $0.58 per share loss.

Almost half of its revenues came from media sales, with technology clients and email list services generating $6.6 million and $2.3 million, respectively.

Both firms’ better-than-expected performances came largely as a result of massive efforts at cutting costs.

Razorfish, for instance, announced Tuesday the closure of its Helsinki and Milan offices, and a headcount reduction of about 600 people, all but 170 of which came from the billable employees. As a result, the company said it’s going forward with about 670 employees and a cash horde of about $15.1 million.

Accordingly, Razorfish recorded a $70 million restructuring charge comprised of severance, a one-time charge associated with real estate and equipment leases, and a write off of unutilized equipment. But executives said the changes were necessary and should have an immediate bottom-line impact.

“While we will not be satisfied until we generate positive cash flows, our [second quarter] results demonstrate our commitment to our goal of returning to profitable operations and our progress towards it,” said Razorfish chief executive Jean-Philippe Maheu.

Earlier on Tuesday, 24/7 Media said that it would cease funding of its European unit, which contributed $4.1 million in revenues, most of which were media sales. Without 24/7 Media Europe, the company will make most of its income from technology — long a promise of the firm, as media sales continue to see weakness in pricing and margins.

“This quarter is characterized by 24/7 Media’s continued progress in efforts to reduce costs and focus on core business lines,” said 24/7 Media CEO David Moore. “We have made cost management an important and permanent factor of our operations in our drive to expand margins and achieve profitability.”

During a conference call with investors and analysts, chief operating officer Tony Plesner also reiterated 24/7 Media’s commitment to sell its broadband services unit and bring the company down to 259 employees in all.

In total, the cost-cutting will shave about $11 million quarterly in expenses — needed breathing room as 24/7 Media continues to tap into its $14.4 million in cash and marketable securities, and a $50 million structured equity credit deal with Creon Management.

“We have made market penetration, along with cost management, central tenets in our drive to achieve profitability,” Moore said. “Going forward, we will continue to reap the benefits of these strategic initiatives.”

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