Agency.com Pink Slips 190

In an ironic follow-up to Wednesday night’s holiday bash with New York employees, clients and media, the management of I-shop Agency.com Thursday announced job cuts and a restructuring, to position itself to better serve a “changing demand environment for Internet services.”

The New York-based company said it would reduce its workforce by about 12 percent, or 190 employees. 130 of the cut positions are billable consultants. As part of the reductions, the company will close its 40-person Vail, Colorado office.

The company said it expects the move, which it said will also include significant cuts in discretionary spending, will trim about $12 to $16 million from its 2001 expenditures.

“We are taking this opportunity to realign our business to respond to the rapidly changing demand environment for Internet consulting services,” said Agency.com chairman and chief executive Chan Suh. “We continue to manage this business prudently, and expect to deliver top-line growth in a difficult environment. We are taking these steps now to protect our profitability and in an effort to align our business to deliver revenue and earnings growth in 2001.”

Suh said most of the company’s troubles stemmed from macroeconomic conditions, citing reduced demand for interactive work in Europe and a lengthening sales cycle for its clients, as well as the seasonal spending downturns.

The company also gave guidance for its fourth quarter, saying that it expects to post revenues of between $56 million and $58 million. Agency.com said it anticipates positive earnings between $0.04 and $0.07 per share.

Wall Street estimates had been $0.07 per share. Both the management and analyst estimates don’t consider charges that include amortization and a fourth-quarter restructuring cost of about $11 to $14 million.

Chief financial officer Charles Dickson put 2001 revenues at $55 to $57 million for the first quarter, $60 to $63 million for the second quarter, and $66 to $69 for the third quarter. According to the company, fourth quarter 2001 should produce the smallest gain in revenues, with a two percent projected sequential increase due to seasonal effects.

During an analyst call Thursday evening, Suh said that he was optimistic about the company’s prospects.

“As the shakeout in the industry continues,” he said, “I firmly believe we’ll be one of the blue chip industries in our sector, and we’ll get there by focusing on our principles in the coming months.”

Suh also maintained that while the market for Agency.com’s services is “less robust” than it was just a few months earlier, the demand for its work “is not contracting, it’s only growing at reduced rate … and we’re still seeing companies step up, but it’s in a slower environment.”

Agency.com is the latest I-shop to post news of restructuring. This week alone, Organic, Razorfish, Red Sky Interactive, and Siegelgale announced cuts or revenue warnings.

Suh waved aside comparisons to its competition.

“Our Q4 revenue is flat-to-up compared to Q3, and we’re still coming out with a cash EPS position for Q4, so I believe, not to be macabre, that in a deteriorating environment, we’re holding our own fairly well,” Suh said. “And we’re taking proactive steps to make sure we’re not with a gun with our head. We’re doing this ahead of negative results.”

Interestingly enough, the first three of those four firms announcing bad news this week have a sizable investor in ad agency giant Omnicom Group, which has minority stakes in several interactive shops — including Agency.com.

Omnicom’s portfolio of I-shops, which it calls Communicade, is referred to on its Web site as, “a key strategic component of Omnicom Group’s professional services portfolio and a long-term shareholder value building block.”

At press time, shares of ACOM closed Thursday at $3.88, 6.3 percent of Agency.com’s 52-week high of $61.75. Omnicom closed down 1.6 percent, at $84.69.