ValueClick Japan Starts Strong

TOKYO (05/31/2000) - ValueClick Japan, a subsidiary of the U.S. online advertising company ValueClick, made a strong debut on Wednesday on the Tokyo Stock Exchange's "Mothers" market for high-growth stocks.

The stock, the ninth for Mothers, finished its first trading day at 3.52 million yen ($33,052), up 17.3 percent from its initial public offering price of 3 million yen ($28,169). The debut came amid concerns that newly created markets such as Mothers and Nasdaq Japan, which is set to open its first phase of trading on June 19, can win investors' hearts. People have criticized the new markets' low liquidity and loose listing standards. "You may ask us, 'Why now?' and 'Why on Mothers?' " Jonathan Hendriksen, the 30-year-old president and CEO of ValueClick Japan, says in fluent Japanese. "You cannot really predict the future of new markets, even Nasdaq Japan. It is more important that investors will look at our track record instead of simply judging us by the image of the market on which we are listed. I would like investors to closely look at each stock. 'A Mothers stock equals a tarnished stock' - you have to get rid of that presumption."

Hendriksen says his 18-month-old company has been in the black since September of last year and that he is confident his company's business model will enable it to succeed in the public market.

The Tokyo-based company, which has 53 employees, reported sales revenue of 202 million yen ($1.9 million) for the first quarter. Its paid-up capital would be 1.13 billion yen ($10.5 million) with this public offering. "There are many companies on Mothers that have digressed from their core businesses," Hendriksen says. "Unlike them, our management team has been and will be focusing on our core business." Like its U.S. parent, ValueClick Japan provides banner advertising and uses a "cost-per-click-through" pricing model.

Advertisers pay only when a person clicks on a banner to reach their Web site.

The company's rival, Cyber Agent, has announced that it will become a general online ad agency. Cyber Agent posted a net loss of 229 million yen ($2.1 million) for the six months that ended in March. Its stock closed at 5.6 million yen ($52,449) on Wednesday, down nearly two-thirds from its peak of 15.9 million yen ($148,918) in late March. Japan's Internet advertisement market has grown at a rapid pace in the past several years. According to Dentsu, Japan's largest ad agency, Internet-related ad spending reached 24.1 billion yen ($226.5 million) in 1999, four times the total in 1997.

Cyber Communications, an Internet ad agency founded by Dentsu and Softbank, says the future will be even rosier. "The Internet advertising market will become a 40 to 50 billion yen ($375.8 million to $469.8 million) industry by the end of this year," says Tetsuji Suda, an executive at Cyber Communications.

By 2003, he says, Net advertising will account for 5 percent of the entire advertising market.

"We and other marketmakers certainly know that the growth will be created fast," Suda says. "Our sales revenue has tripled in a year." ValueClick Japan says it plans to use proceeds from the IPO to expand its performance-based online ad business and its ad-distribution business for mobile devices, create a new data center in Osaka, and possibly expand to other parts of Asia. "They have grown as fast as or faster than the U.S. headquarters, and they have been as much as or more profitable than the U.S.," said Jim Zarley, chairman and CEO of ValueClick. "We are so proud and thrilled about Japan's management team."

The parent company went public on Nasdaq on March 31. Its stock closed at $10.25 a share on the Friday before Memorial Day weekend, down $8.75 from its IPO price of $19 per share. ValueClick Japan pays a monthly to the parent, which owns about 57 percent of the subsidiary. Three of the parent company's top executives also serve as board members of its Japan unit.

Masahiro Nakagawa, VP of corporate development and the finance department at Nomura Securities, ValueClick Japan's lead underwriter, says the company's IPO outlook became brighter after it hired top executives away from prominent firms such as Dentsu, an ad agency, and Recruit, a human resource services company.

He says ValueClick will face challenges in coming months as it tries to increase its turnover, or the ratio of annual sales to its net worth, which measures the extent to which a company can grow without additional capital investment.

"They are a niche player now, and it is one of the premier IT-related corporate stocks among 300 or so I follow," Nakagawa says. "It has a good track record, and their business is very focused. Their potential will positively affect our portfolio for the first year. The real question is how the company adjusts its business plan for its second year and ahead, when it decides to diversify its businesses. That is crucial for the fate of the company."

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