L90 Beats Street by a Penny

Online ad network and marketing firm L90 posted better-than-expected results and said its system revenue has grown for a twelfth straight quarter, despite the fact that the fourth quarter of 2000 has been one of the toughest yet for online marketing.

System revenue for fourth quarter was $18.3 million, up 203 percent from the fourth quarter of 1999, and 13 percent higher than third quarter.

Under generally accepted accounting principles, L90 can only claim about $16.5 million in revenue. But because L90 changed the nature of some of its contracts with publishers, it believes that “system revenue” — the full value of gross billing for ads that it sold — is a more accurate way of judging growth from quarter to quarter.

L90 can recognize the full amount it receives when it buys advertising space from a publisher and re-sells that space. Under other relationships, in which L90 acts as an agent and sells advertising space for the publisher, it can only recognize the service fee that it receives from the publisher. L90 said its use of “system revenue,” which represents the amount billed for all of the advertising L90 either sells or re-sells, gives a more complete picture of the value of the ad space it moves. But it doesn’t help distinguish how much it cost the company to bring in that revenue.

This issue of revenue recognition is a big one for Internet advertising representation firms, in that the revenues that actually show up on the balance sheet may not give a very accurate picture of what’s happening with the company. This problem becomes especially complex when investors seek to compare revenues between companies in the same space, without necessarily understanding how their differing contracts with publishers may affect the bottom line.

Fourth quarter net loss for the form was $4.6 million or $0.19 per share, excluding amortization of goodwill. That’s a penny better than what Wall Street was expecting, according to Thompson Financial/First Call estimates.

For the full year, L90 produced $58.9 million in system revenue, an increase of 283 percent over 1999, and posted a $0.90 per-share before-charges loss for the year, in line with Street expectations. Last year, it posted a loss of $1.34 per share.

“In posting our twelfth consecutive record quarter, L90 has demonstrated that we can continue to expand our market share in a strong market, as well as a challenging market,” said the company’s chief executive and president, John Bohan.

“L90’s Internet reach, technology tools, marketing expertise, and proven track record truly differentiate us as we continue to provide valuable solutions that help marketers and Web publishers succeed in the digital economy.”

During the quarter, L90 said it added 240 new clients to its portfolio, including Kraft, British Airways and Cablevision, bringing the total number of advertising clients to 1,301.

L90 also said it added 105 publishers to its ad network and was delivering 4.1 billion impressions per month on average.

“L90 continues to add to our blue chip customer base because of our next-generation advertising solutions and our full-service platform,” said Bohan. “This powerful combination positions L90 to take advantage of the further growth and evolution of this market.”

Bohan said he continues to expect profitability by the end of 2001, and that the company has enough cash and marketable securities — about $72.6 million — to get there.

As expected, L90 also announced its launched new corporate positioning, logo, Web site and messaging to emphasize its marketing products besides its ad network.