UPDATE Vanguard Internet consulting firm Razorfish reported earnings Thursday that barely beat expectations and announced that top executives Jeff Dachis and Craig Kanarick have abruptly resigned.
Dachis stepped down as the CEO and Kanarick as chief strategic officer, though both will remain as co-chairmen of the company's board. Razorfish's board named Jean-Phillippe Maheu to the CEO position and a seat on the board, elevating him from his previous post as COO.
In the first quarter of 2001, Razorfish took in $42.7 million in revenues, less than the $52 million consensus estimate reported by Thomson Financial/First Call. On a pro-forma basis, the New York-based firm lost $6.6 million (7 cents per share) in the first quarter of 2001. That compares to consensus estimates by Thomson Financial/First Call of an 8-cent loss, and first-quarter 2000 pro-forma net income of $6.5 million (7 cents).
As the Internet consulting business grew, Razorfish and Dachis came to epitomize the often brash and arrogant firms that helped dot-com companies put up Web sites and formulate business strategies. A year ago, however, Razorfish's business began to unravel and the firm began to lose credibility with investors. Analysts say the company's executives lost support by repeatedly missing expectations and failing to cut costs quickly in response.
"After much examination and discussion with the board, I am confident this leadership change is in the best interest of Razorfish," Dachis said. "I am proud of what Craig and I founded six years ago, and I have total confidence in Jean-Phillippe's demonstrated ability."
Razorfish shares, which are traded on the Nasdaq, lost 39 cents, or almost 25 percent, to $1.22 after the New York Times online edition reported the executive departures. In after-hours trading at 5:41 pm EDT, Razorfish had climbed as high as $1.41.
Razorfish executives said that during the coming quarter, the company expects to take in between $32 million and $37 million in revenues, and to lose $5 million or between 0 cents to 3 cents per share. During the past quarter, just under 40 percent of the company's consultants were working on paying projects.
"The market continues to be unsettling," Maheu told analysts during a conference call Thursday evening. "It is a very difficult time for everyone."
In an internal e-mail sent to Razorfish employees earlier this week, Kanarick wrote that the management team had asked him to head up all of the firm's communications internally and externally. Until now, Dachis has been the very outspoken spokesman for the company.
"I will be working with a team to ensure that Razorfish gets the most positive spin possible and that all of you are informed as possible," Kanarick wrote in the e-mail.
Dachis and Kanarick grew up together in Minneapolis and together formed Razorfish as a Web design firm in 1995. A year later, the pair sold a stake in the company to global advertising company Omnicom. The company expanded in 1998 through acquisitions, buying London firms Sunbather and CHBI, and U.S. companies Plastic and Avalanche Systems. The next year, the company bought Swedish company Spray. In 1999, Razorfish went public, and the stock hit an all-time high of $56.94 in February 2000 before the market turned south.
But the company's importance as an icon of the Internet consulting world fell rapidly as the Internet economy bubble burst. In December, Razorfish said it would miss expectations by a large amount, and analysts skewered Dachis for pledging not to lay off employees, charging him with not acting aggressively enough to cut costs. The company then backpedaled, notifying employees at the end of January that cuts were coming.
In the beginning of February, Razorfish laid off 400 employees, or 20 percent of its 1,900-strong workforce at the time, and announced that it was cutting expenses across the board. In March, three of the company's top European executives stepped down.
Although the company has now lost its founding executives and top cheerleaders, Razorfish is likely to stick around for
