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When Google [GOOG
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] and Microsoft [MSFT
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] go to war, who wins? Right now the two are digging the trenches in anticipation of a bidding war for DoubleClick, the biggest broker of display advertising on the Internet. The winner of this war will be one of two companies, Cramer says, and he isn’t talking about Microsoft or Google.
Cramer thinks Valueclick [VCLK
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] and aQuantive [AQNT
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]have potential to come out on top here. He thinks one of these companies, which are in the same business as DoubleClick, is likely to be bought.
Companies don’t like to lose – and this is especially true for rivals Microsoft and Google. They have institutional momentum pushing them forward to buy DoubleClick, but only one of them will get it. It doesn’t even matter which one, because the other will be ultra-committed to making another deal happen for the big payday that always comes with a successful acquisition, Cramer says. He believes Valueclick and aQuantive are the most likely targets for a consolation prize to whichever tech behemoth loses the DoubleClick deal.
But anyone who knows Cramer’s strict rules will know that this isn’t enough reason to go out and buy either VCLK or AQNT. And while Cramer says that Internet advertising is one of the greatest secular growth stories of our time, you’ve still got to look at these companies’ fundamentals. In this case, they happen to be quite good.
Both companies are reasonably priced: Valueclick trades at 4.12 times this year’s sales estimates with 22% sales growth. aQuantive trades at 3.85 times this year’s sales estimates with 50% sales growth. At these prices, Cramer sees some upside even if there isn’t a takeover in their future.
But if Cramer is right, and at least one of the two does end up being acquired, the upside is even better. DoubleClick will probably go for about $2 billion, making its price-to-sales ratio 6.67. If that price-to-sales multiple were applied to aQuantive, it would go 33% higher than it is right now. Valueclick would go 31% higher.
Bottom line: Cramer thinks the loser of the bidding war for DoubleClick – whether its Microsoft, Google or someone else – is likely to go after Valueclick or aQuantive. Either of these would go much higher on a takeover, but they are stocks that could hold their own even if they aren’t bought.
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