October 13th, 2007
Battered MarchFirst Drops Pure Play Biz - Brief Article
MarchFirst, the beleaguered i-shop giant, dropped its other shoe last week, projecting a fourth-quarter loss of 25 to 30 cents per share, forecasting lower-than-expected 2001 results and detailing plans to scale back its operation to 500 key clients and seven vertical markets.
The announcement follows the Chicago based agency’s previous week’s statement that it would need to borrow an additional $50 million this year and next to meet its short-term cash needs. The company also plans to lay off 1,000 employees, or about 10 percent of its staff, in an effort to trim $100 million from its costs next year.
The scale-back plans come as the agency blames significant losses on both market weaknesses and the shifting desires of major clients to large-scale, high-value projects. Not that marchFirst hasn’t done its share of such projects: In the past year, the agency has created online presences for such established brands as Pottery Barn, Williams Sonoma and Audi.
But according to some analysts, the company, created from a merger last December of Whittman Hart and USWeb/CKS, has yet to find firm traction among either clients or investors. “They just weren’t very aggressive about what this [merger] meant,” Preston Dodd, a senior analyst with Jupiter Communications told IQ recently. “And I think we’ve seen that reflected in client confusion and ultimately, their stock price.”
The company said it will now focus on serving its top 500 existing clients–which account for about 80 percent of marchFirst’s revenue–while determining which relationships with more than 1,000 smaller clients should continue.
“It’s not that we’re letting people go,” said a company spokeswoman, noting that marchFirst serviced 1,700 clients in its third quarter alone. “We’re just not going to be chasing the small guys anymore.”
With this change, marchFirst said it will also follow the lead of many of its competitors in walking away from Internet pure plays. The company said it will focus instead on helping traditional companies build their e-commerce businesses.
“We will be doing some business with pure plays,” the spokeswoman said. “But they will have to be spinoffs.”
Overall, marchFirst said it will shrink the industries its serves to seven: manufacturing, financial services, high-tech and telecommunications, health care, consumer products/retail, media, entertainment and communications, and transportation/travel and leisure.
MarchFirst also said it will concentrate on “six core strengths”: brand and market development, customer acquisition and retention, revenue channel expansion, supply chain integration, intellectual capital optimization, and technology optimization and management. It will also centralize its global operations and streamline its geographical profit centers from 72 to four.
Following the announcement last Tuesday, marchFirst shares continued their slide, closing at $1.06, down 69 cents. At the time of the merger last March, marchFirst stock was trading at $48.31.
Going forward, the company said its expects to generate revenues ranging from $235 million to $250 million in its fourth quarter, although losses will hover around 25 to 30 cents per share. Additionally, the company said it would take a one-time restructuring charge of $25 million to $35 million in the fourth quarter to pay for its reorganization. Analysts had expected a 7 cent per share profit in the fourth quarter.
For 2001, the company foresees revenues of $1.2 billion to $1.3 billion and earnings per share of 25 to 35 cents.
According to Robert Bernard, marchFirst chairman and CEO, the changes follow a four-month strategic study of marchFirst’s internal assets.
“We are concentrating on leveraging our core capabilities and pursuing the most lucrative opportunities in our markets,” he said. “The restructuring supports this new strategic focus and also signals a renewed commitment to the sound business principles of cost containment and operational efficiency.”