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TWST: Lauren, tell us how you view the state of the advertising and marketing services industry today. What are the indicators that you monitor most closely, and what are they telling you?

Ms. Fine: It’s a tale of two cities right now. The advertising market itself is very sluggish. Media expenditures were down in the first quarter. The decline was faster and greater than anybody could have anticipated, which has frightened the market. But the agency/marketing services holding companies themselves are doing beautifully. That’s why I suggested that it’s like a tale of two cities.

TWST: Are there any other companies in this area that you would like to highlight, particularly among the marketers? And are there any in the e-world?

Ms. Fine: Thematically, the e-world could be very interesting if the more traditional companies plan to rationalize and invest in it. So many companies were able to go public on the hope of long-term growth and growing into their business model. The key will be to leverage a larger base of revenues over the right size cost base, which can be achieved through consolidation. We had thought it would play out this way for some time. The fact that the agency/marketing services holdings companies are coming in and starting to consolidate the industry should be suggestive to investors that the businesses are good. It’s just that at the size they’re operating at, they can’t be profitable because you need more revenues through their cost base. So if you can get somebody to buy them at the right price and put them together, and strengthen the management team, you would probably start to get some pretty good returns out of them. So I think that’s not only an acknowledgement that holding companies are a very smart and good investment but also, not to give up on some of these names, because if they’re good companies just now getting a fair shake on Wall Street, maybe there’s somebody out there to buy them.

TWST: What went wrong, Lauren? Was it the business model?

Ms. Fine: I think that the capital markets allowed too many companies to go public that didn’t have the right scale. And at the time they went public, they were willing to underwrite the losses. But unless these companies could scale up, meaning that the industry was going to continue to grow at the same rate it had been growing, they just don’t make sense as stand-alone investments today. It doesn’t mean that their business isn’t a good one, but you can’t apply the same growth rate expectations because there isn’t as much business to go around, and there are just too many companies in the space.

TWST: Lauren, are there any other companies in the space that you would like to bring to our attention?

Ms. Fine: We don’t cover Catalina (NYSE:POS), but we’ve always done a lot of work on it, and it continues to be a very good growth name. It is suffering a little right now because as investors look at the quarterly projections for POS, the growth is very back-end weighted. My hunch is that it will be a more interesting stock as we get to the latter half of the year. But the business model they have on the in-store coupon side and the other directions that they’re going in continues to be a tremendous model. So we’ve been very impressed.