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  As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

 4/02/04  Advertising Com                   S-1                    7:266                                    RR Donnelley/FA

Document/Exhibit                   Description                      Pages   Size 

 1: S-1         Registration Statement (General Form)               HTML  1,217K 
 2: EX-4.2      Instrument Defining the Rights of Security Holders  HTML     77K 
 3: EX-4.3      Instrument Defining the Rights of Security Holders  HTML    271K 
 4: EX-10.1     Material Contract                                   HTML    157K 
 5: EX-10.3     Material Contract                                   HTML    113K 
 6: EX-10.4     Material Contract                                   HTML    123K 
 7: EX-23.2     Consent of Experts or Counsel                       HTML      6K 

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As filed with the Securities and Exchange Commission on April 2, 2004

Registration No. 333-          

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM S-1

REGISTRATION STATEMENT

Under

THE SECURITIES ACT OF 1933

ADVERTISING.COM, INC.

(Exact name of Registrant as specified in its charter)

1020 Hull Street

Ivory Building

Baltimore, MD 21230

(410) 244-1370

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive office)

Scott A. Ferber

Chief Executive Officer

Advertising.com, Inc.

1020 Hull Street

Ivory Building

Baltimore, MD 21230

(410) 244-1370

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Approximate date of commencement of proposed sale to the public:    As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box.    ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.    ¨

CALCULATION OF REGISTRATION FEE

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject To Completion. Dated April 2, 2004.

             Shares

Common Stock

This is an initial public offering of shares of common stock of Advertising.com, Inc. All of the              shares of common stock are being sold by us.

Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $         and $        . Application has been made for quotation on The Nasdaq National Market under the symbol “ADCM.”

See “Risk Factors” on page 6 to read about factors you should consider before buying shares of our common stock.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

To the extent that the underwriters sell more than              shares of our common stock, the underwriters have the option to purchase up to an additional              shares from us at the initial public offering price less the underwriting discount.

The underwriters expect to deliver the shares against payment in New York, New York on                         , 2004.

Goldman, Sachs & Co.

Deutsche Bank Securities

Piper Jaffray

Prospectus dated                 , 2004.

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 PROSPECTUS SUMMARY

The following is a brief summary of selected contents of this prospectus. It does not contain all the information that may be important to you. You should read the entire prospectus, including our consolidated financial statements and related notes appearing elsewhere in this prospectus. You should carefully consider, among other things, the matters discussed under the caption “Risk Factors” before making an investment decision. Unless otherwise indicated, the terms “Advertising.com,” the “company,” “we,” “us,” and “our” refer to Advertising.com and its subsidiaries.

Our Company

Advertising.com is a leading provider of results-based interactive marketing services. The results we deliver benefit both advertisers and interactive publishers, such as websites and search engines. We develop, target and place web, search engine and email marketing campaigns under which advertisers pay us only if we deliver the results they specify, such as customer purchases or leads. We deliver these services through our network of advertising space, known as inventory, that we purchase from interactive publishers. For publishers, we are a significant and consistent buyer of large quantities of inventory, primarily at fixed prices with no performance or other contingencies. Using our proprietary AdLearn yield management and optimization technology, we automatically match our advertisers’ campaigns to our inventory in a manner designed to maximize the revenues produced by our network.

As estimated by comScore Media Metrix, advertisements we delivered across our web inventory alone reached 70% of all U.S. web users in February 2004. In that month, our network was estimated to be the largest third-party Internet advertising network in the United States, as tracked and defined by comScore Media Metrix.

Market Opportunity

Advertisers desire a measurable return on their marketing investment. The Internet, as an advertising medium, gives them the potential to obtain direct information about consumers’ responses to advertisements. It also enables advertisers to reach large audiences with targeted messages in a cost-effective manner. IDC, a market research firm, projected that the percentage of U.S. households with Internet access will grow from 58% in 2003 to 73% in 2006. However, correlating online advertising expenditures to identifiable consumer actions remains challenging, due largely to the prevalence of the traditional cost-per-thousand impressions pricing model, which only measures the number of advertisements shown without regard to their effectiveness. We believe this has led to the emergence of results-based pricing models, such as cost-per-action and cost-per-click.

Our Strengths

Since our founding, our business has been the delivery of measurable results to Internet advertisers. In 2003 alone, the advertisements we delivered generated over 60 million consumer actions, primarily purchases, registrations and requests for information.

Our ability to deliver effective results-based interactive marketing services is based on the following strengths:

Network reach. The size and diversity of our network enhance our ability to reach the consumer segments that are most likely to respond to advertisements placed on our network. As the volume of our network inventory grows, our ability to reach specific audiences with targeted messages improves.

AdLearn technology. We have developed a proprietary technology that uses the results of prior advertising campaigns to select and schedule the optimal advertisements for our inventory. As the number of advertising campaigns executed increases and our network inventory grows, AdLearn’s ability to predict the most effective advertising placements improves.

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Interactive marketing experience. Over the past five years, we have acquired data and expertise that enhance our ability to plan, price, execute and evaluate interactive marketing programs that meet our advertisers’ specific objectives.

Publisher relationships. We are able to secure the volume and quality of advertising inventory necessary to support our marketing services by offering interactive publishers primarily fixed-rate pricing. We believe this provides them with greater predictability than arrangements that subject their return to advertising performance risk.

Our Strategy

Our objective is to be the leading provider of results-based interactive marketing services for advertisers and publishers. Specific elements of our strategy include:

Aggressively pursue new advertiser clients. We intend to expand our client base by aggressively pursuing advertisers seeking to obtain measurable results from their marketing efforts.

Increase revenues from existing advertiser clients. We will seek to increase revenues from our advertiser clients by selling them additional products and services designed to further increase the return from their interactive marketing investment.

Aggressively add new publisher inventory to our network. We intend to expand our network by aggressively pursuing new advertising inventory from our existing publishers as well as pursuing new publishers.

Develop new products and services. We plan to increase our research and development efforts in order to add new products and services that respond to emerging market opportunities and changing advertiser demands.

Continue to develop new technologies. We plan to continue to develop technologies that will enable us to plan and execute more effective interactive advertising programs for our clients.

Expand our international presence. We intend to continue to invest in markets based outside of the United States and to expand our service offering for our domestic clients to include advertising on websites directed at international audiences.

Company Information

We were incorporated in Maryland in August 1998. The address of our principal executive office is 1020 Hull Street, Ivory Building, Baltimore, Maryland 21230 and our telephone number is (410) 244-1370. We maintain a website at www.advertising.com on which we will post all reports we file with the Securities and Exchange Commission under Section 13(a) of the Securities Exchange Act of 1934 after the closing of this offering. We also will post on this website our key corporate governance documents, including our board committee charters, our ethics policy and our principles of corporate governance. Information on our website is not, however, a part of this prospectus.

“ADVERTISING.COM”, “ADLEARN”, “ACE PRO”, “ACE SERVE” and “ACE DIRECT” are our trademarks and “ADLEARN” is our registered trademark in the United States and other countries. All other trademarks, trade names or service marks appearing in this prospectus are the property of their respective owners. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of use by, these other parties.

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The Offering

The share information in the table above is based on 4,624,051 shares outstanding as of December 31, 2003 and excludes:

Except as otherwise noted, all information in this prospectus:

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Summary Consolidated Financial Data

(in thousands, except share and per share data)

You should read the following summary consolidated financial data together with our consolidated financial statements and the related notes, and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this prospectus. The statement of operations data for the years ended December 31, 2001, 2002 and 2003, and the balance sheet data as of December 31, 2003, are derived from, and are qualified by reference to, our consolidated financial statements that have been audited by Ernst and Young LLP, our independent auditors, and that are included in this prospectus.

We computed unaudited pro forma net income available to common stockholders per share for the year ended December 31, 2003 by using the weighted average number of shares of common stock outstanding, including the pro forma effects of the automatic conversion of our convertible preferred stock into shares of common stock effective upon the closing of the offering as if such conversion occurred on January 1, 2003.

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The following unaudited pro forma consolidated balance sheet data gives effect to the conversion of our outstanding convertible preferred stock into common stock upon the closing of this offering as if such conversion had taken place on December 31, 2003. The following unaudited pro forma as adjusted consolidated balance sheet data adjusts the pro forma balances to give effect to our sale of shares of common stock in this offering at an assumed initial public offering price of $         per share, which is the mid-point of the range set forth on the cover page of this prospectus, and our receipt of the net proceeds therefrom after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

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 RISK FACTORS

This offering involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information in this prospectus, including the consolidated financial statements and related notes, before making a decision to invest in our common stock. If any of the following risks actually occurs, our business, financial condition or operating results could suffer. As a result, the trading price of our common stock could decline and you may lose all or part of your investment in our common stock.

Risks Related to Our Business

General Risks Related to Our Business

Our limited operating history makes it difficult to evaluate our business and prospects and may increase your investment risk.

We commenced operations in 1998 and, as a result, have only a limited operating history upon which you can evaluate our business and prospects. Although we have experienced significant revenue growth in recent periods, we may not be able to sustain this growth. We will encounter risks and difficulties frequently encountered by early-stage companies in rapidly evolving industries, such as the Internet advertising industry. Some of these risks include the need to:

If we do not successfully address these risks, it could cause a significant decrease in our revenues and negatively affect our ability to generate income.

If we fail to maintain our position as an intermediary between interactive publishers who supply advertising inventory and Internet advertisers who purchase results-based marketing programs, our business could suffer.

We purchase advertising inventory from interactive publishers and sell results-based interactive marketing programs to advertisers. Our business will suffer to the extent our advertiser and publisher clients purchase and sell Internet advertising directly from each other or through other intermediaries that compete with us. Our ability to maintain our position as an effective intermediary between publishers and advertisers depends on several factors, including:

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Our business will suffer if the market for results-based Internet marketing services fails to develop.

Most of our services are offered to advertisers using results-based pricing models. The market for results-based Internet advertising has only recently developed, and the viability and profitability of this market is unproven. If advertisers fail to understand the value of results-based marketing services, the Internet advertising market could move away from these services, and our revenues could decline or fail to grow.

We may not be able to manage the risk inherent in our business as an intermediary of results-based marketing services, which could result in losses.

Each time we enter into a contract to deliver results-based advertising programs or to purchase advertising inventory, we assume risks such as:

We could lose money if we are unable to accurately evaluate and manage these risks, especially as our business increases in size and complexity.

We have only recently become profitable and may not maintain our level of profitability.

Although we have generated net income in recent quarters, we may not be profitable in future periods, either on a short- or long-term basis. We have incurred substantial operating losses since our inception, and had cumulative losses of $15.1 million as of December 31, 2003. We can give you no assurance that operating losses will not recur in the future or that we will maintain our level of profitability for a substantial period of time.

Our quarterly operating results have fluctuated in the past and may do so in the future, which could cause our stock price to decline.

Our prior operating results have fluctuated due to changes in our business and the advertising industry. Similarly, our future operating results may vary significantly from quarter to quarter due to a variety of factors, many of which are beyond our control. You should not rely on period-to-period comparisons of our operating results as an indication of our future performance. Factors that may affect our quarterly operating results include the following:

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Our operating results may fall below the expectations of market analysts and investors in some future periods. If this happens, even just temporarily, the market price of our common stock may fall.

We may not be able to promptly reduce our overall expenses in response to any decrease in our revenues, which could cause us to incur operating losses.

Our expenses related to selling, general and administrative functions and the costs of operating our network are generally fixed in the short-term. As a result, we may not be able to reduce promptly our overall expenses in response to a decrease in our revenues, and our failure to do so would affect our operating results and could cause operating losses.

Furthermore, any efforts to reduce costs might include a restructuring of our business, reduction in the number of employees, office closings and the reduction or elimination of various administrative functions. These efforts could give rise to significant accounting charges, contract termination fees, and separation or severance benefits payments.

Risks Related to Our Internet Marketing Services

Any decrease in demand for our Internet marketing services could substantially reduce our revenues.

To date, substantially all of our revenues have been derived from Internet advertising. We expect that Internet advertising will continue to account for a substantial portion of our revenues in the future. However, our revenues from Internet advertising may decrease in the future for a number of reasons, including the following:

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If our pricing models are not accepted by our advertiser clients, we could lose clients and our revenues could decline.

Most of our services are offered to advertisers based on cost-per-action, or CPA, or cost-per-click, or CPC, pricing models. These results-based pricing models differ from the cost-per-thousand impressions, or CPM, pricing model used by many Internet advertising companies. Our ability to generate significant revenues from advertisers will depend, in part, on our ability to demonstrate the effectiveness of our primary pricing models to advertisers, who may be more accustomed to a CPM pricing model.

Furthermore, intense competition among websites and other Internet advertising providers has led to the development of a number of alternative pricing models for Internet advertising. The proliferation of multiple pricing alternatives may confuse advertisers and make it more difficult for them to differentiate among these alternatives. In addition, it is possible that new pricing models may be developed and gain widespread acceptance that are not compatible with our business model or our technology. These alternatives, and the likelihood that additional pricing models will be introduced, make it difficult for us to project the levels of advertising revenues or the margins that we, or the Internet advertising industry in general, will realize in the future. If advertisers do not understand the benefits of our pricing models, then the market for our services may decline or develop more slowly than we expect, which may limit our ability to grow our revenues or cause our revenues to decline.

We depend on a limited number of advertisers for a significant percentage of our revenues, and the loss of one or more of these advertisers could cause our revenues to decline.

For the year ended December 31, 2003, revenues from our ten largest advertisers accounted for 34% of our total revenues. Although no single advertiser accounted for 10% or more of our revenues in 2003, two companies affiliated with the Apollo Group, in the aggregate, accounted for 13% of our total revenues that year. We believe that a limited number of clients will continue to be the source of a substantial portion of our revenues for the foreseeable future. Key factors in maintaining our relationships with these clients include our performance on individual campaigns, the strength of our professional reputation, and the relationships of our key executives with client personnel. To the extent that our performance does not meet client expectations, or our reputation or relationships with one or more major clients are impaired, our revenues could decline and our operating results could be adversely affected.

Because our advertiser client contracts generally can be cancelled by the client with little or no notice or penalty, the termination of one or more large contracts could result in an immediate decline in our revenues.

We derive substantially all of our revenues from marketing services under short-term contracts, most of which are cancelable upon 90 days or less notice. In addition, these contracts generally do not contain penalty provisions for cancellation before the end of the contract term. The non-renewal, re-negotiation, cancellation or deferral of large contracts, or a number of contracts that in the aggregate account for a significant amount of revenues, could cause an immediate and significant decline in our revenues and harm our business.

Any limitation on our use of data derived from our clients’ advertising campaigns could significantly diminish the value of our services and cause us to lose clients and revenues.

When an individual visits our clients’ websites, we use technologies, including cookies and web beacons, to collect information such as the user’s IP address, advertisements served by us that have

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been viewed by the user, and responses by the user to such advertisements. We aggregate and analyze this information to determine the placement and to schedule the delivery of advertisements across our network. Although the data we collect from campaigns of different clients, once aggregated, are not identifiable, our clients might decide not to allow us to collect some or all of this data or might limit our use of this data. Any limitation on our ability to use such data could make it more difficult for us to deliver results-based marketing programs that meet client demands.

In addition, although our contracts generally permit us to aggregate data from advertising campaigns, our clients might nonetheless request that we discontinue using data obtained from their campaigns that have already been aggregated with other clients’ campaign data. It would be difficult, if not impossible, to comply with these requests, and such requests could result in significant expenditures of resources. Interruptions, failures or defects in our data collection, mining and storage systems, as well as privacy concerns regarding the collection of user data, could also limit our ability to aggregate and analyze data from our clients’ advertising campaigns. If that happens, we may lose clients and our revenues may decline.

Risks Related to the Supply of Advertising Inventory

We depend on interactive publishers for inventory to deliver our clients’ advertising campaigns, and any decline in the supply of advertising inventory available through our network could cause our revenues to decline.

The websites, search engines, and email publishers that sell their advertising space to us are not bound by long-term contracts that ensure us a consistent supply of advertising inventory. We generate a significant portion of our revenues from the advertising inventory provided by a limited number of publishers. In most instances, publishers can change the amount of inventory they make available to us at any time, as well as the price at which they make it available. In addition, publishers may place significant restrictions on our use of their advertising inventory. These restrictions may prohibit advertisements from specific advertisers or specific industries, or restrict the use of certain creative content or format. If a publisher decides not to make inventory available to us, or decides to increase the price, or places significant restrictions on the use of such inventory, we may not be able to replace this with inventory from other publishers that satisfy our requirements in a timely and cost-effective manner. If this happens, our revenues could decline or our cost of acquiring inventory may increase.

Our growth may be limited if we are unable to obtain sufficient advertising inventory that meets our pricing and quality requirements.

Our growth depends on our ability to effectively manage and expand the advertising inventory in our network. To attract new advertisers, we must increase our supply of inventory that meets our performance and pricing requirements. Our ability to purchase sufficient quantities of suitable advertising inventory will depend on various factors, some of which are beyond our control. These factors include:

In addition, the number of competing Internet advertising networks that purchase advertising inventory from websites, email and search engine publishers continues to increase. We cannot assure you that we will be able to purchase advertising inventory that meets our performance, price and quality requirements, and if we cannot do so, our ability to generate revenues could be limited.

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Any limitation on our ability to post advertisements throughout our network could harm our business.

We execute advertising programs for clients primarily by placing advertisements, which we refer to as ad serving, on our network inventory. Our business could suffer from a variety of factors that could limit or reduce our ability to serve advertisements across our network, including: