Engage Axes 175

Following a quarter of increased revenues — but still weighty costs — CMGI ad network and technology company Engage said it plans to cut about 175 positions, or 13 percent of its workforce, and restructure in an effort to accelerate profitability.

During an analyst conference call yesterday, Engage executives said most of the position cuts were to correct redundancies introduced in the company’s recent acquisitions. The company did not specify which areas would be cut.

Engage executives said the company expects the moves will shave about $21 million from its annual operating costs, pushing profitability to third quarter of fiscal 2001 — about eight months from now — according to the company’s own “conservative” estimates.

“Engage has acted quickly to conform to the new realities of the global Internet economy, which requires all Internet companies to show a solid plan and progression toward profitability,” chief executive officer Paul Schaut said.

During a conference call with analysts Wednesday evening, Shaut and Engage chief financial officer Stephen Royal pointed to disappointing media sales revenues, based on slagging dot-com ad spending, as one of the factors contributing to its difficulties.

As industry-wide ad inventory supply exceeded demand for much of the quarter, Engage opted not to follow most of its competitors’ examples by cutting pricing, Royal said, contributing to slowed sales for the quarter.

But he added that the company saw significantly increased sales of its enterprise software, and that the increasing numbers of traditional marketers moving to online media partially compensated for drops in media sales.

As a result, Engage’s fourth fiscal quarter cash operating loss totaled $23.9 million, or 14 cents a share, beating analysts’ estimates of a cash loss of 28 cents a share. For the fiscal year ending in July, Engage posted a loss of $96.8 million, or 67 cents a share, beating the street’s estimates of 84 cents per share.

In addition to the cuts, Engage officers said profitability should be hastened by the company’s decision to roll its five divisions into two units — Engage Media and Engage Software.

Engage Media will combine the company’s Engage Media ad network, Engage Business Media B2B ad network, its network profiling and optimization platforms, and its email products. Engage Software will include the company’s enterprise ad serving and optimizing platforms, and recently acquired Media Bridge, which makes software allowing businesses to manage ad buys and campaigns across on- and offline media.

“The company’s new structure positions it to take full advantage of the rapidly growing marketing infrastructure and media businesses,” Shaut said. “Engage is the company that will provide solutions to transition traditional marketers to the interactive world and enable companies to deliver a consistent message throughout a consumer’s online and offline experience.”

The news makes Engage the second company in the CMGI fold to make cuts and reorganization. Last week, portal AltaVista said it would cut 25 percent of its staff and refocus on its more-profitable search engine business.

CMGI itself announced a sweeping reorganization earlier this month, consolidating its 17 companies into six segments.

Shaut commented only vaguely on whether the reorganizations were related in ways other than timing.

“I’m a big fan of the consolidation of 17 companies into five segments, with [CMGI venture group] @Ventures making up a sixth segment. I think you can see a little bit of that in Engage,” he said.

CMGI’s reorganization also raises some questions regarding Engage’s role in its parent’s new corporate structure.

Shaut declined to comment on the closer corporate presence of email marketer yesmail and ad network AdForce — both of which seem to compete with some Engage operations, and both of which would be operating alongside Engage in CMGI’s new structure — other than to say the move creates synergies that allow the three companies to quickly, efficiently and jointly service other CMGI companies and their clients.

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