ValueClick 2Q results mixed

Although earnings for the online ad company comfortably beat estimates, revenue falls short.

By Aug 3, 2012 1:59PM

‎By Zacks Equity Research

ValueClick Inc. (VCLK) reported mixed second-quarter 2012 results. Although earnings comfortably beat the Zacks Consensus Estimate by 15 cents, revenue was well short of the estimate of $173 million.

Revenue increased 28.7% year over year to $160.9 million in the quarter and was ahead of management's guided range of $155 million to $160 million. ValueClick realigned its business segments during the second quarter. The company now reports in three segments: Media, Affiliate Marketing and Owned & Operated. Media now includes the erstwhile Mediaplex technology business.

The year-over-year growth in revenue was primarily driven by strong performance from the Media and Affiliate Marketing segments, which fully offset a weak result from the Owned & Operated segment.

Media surged 75.2% year over year to $91.1 million, driven by strong performance from traditional business as well as new acquisitions. Mediaplex technology contributed $9.1 million in the quarter.

Affiliate Marketing revenue increased 3.1% year over year to $33.6 million, but missed management's mid-single-digit growth expectation, primarily due to unfavorable foreign exchange and sluggish European market in the quarter.

Owned & Operated websites revenue declined 10.3% year over year to $36.4 million, due to change in product mix as ValueClick continues to reduce its exposure to lower margin paid traffic and search business.

Gross profit on non-GAAP basis jumped 40.1% year over year to $96.1 million in the second quarter. Gross margin expanded 480 basis points (bps) to 54.9%, primarily driven by favorable revenue mix.

Operating expenses soared 52% year over year to $64 million, primarily attributable to the 46.1% yearly increase in sales and marketing expenses. Moreover, general and administration expenses increased 46.3% and technology expenses jumped 55.0% year over year.

Operating income on non-GAAP basis (excluding stock-based compensation and amortization of intangible assets) increased 21.1% year over year to $32.1 million, while operating margin declined to 19.9% from 21.1% in the prior-year quarter due to higher operating expenses.

Net income on non-GAAP basis (excluding stock-based compensation and amortization of intangible assets) was $29.9 million or 37 cents per share compared with $22.4 million or 28 cents in the year-ago quarter.

However, including stock-based compensation and excluding amortization of intangible assets, net income was $20 million or 25 cents per share compared with $16.8 million or 21 cents per share in the prior-year quarter.

Cash and cash equivalents were $88.2 million compared with $107.7 million in the previous quarter. During the quarter, ValueClick repurchased 5.9 million shares for approximately $99.5 million and authorized an additional $100 million buyback program.


ValueClick initiated second half 2012 guidance. The company expects revenue in the range of $164 million to $169 million and earnings in the range of 36 cents to 37 cents per share for the third quarter.

For fiscal fourth quarter 2012, management expects revenue in the range of $200 million to $210 million. Non-GAAP earnings are expected to be in the range of 52 cents to 53 cents per share.

ValueClick forecasts revenue from Affiliate Marketing to grow in higher-mid-single-digit range for the third and fourth quarters. Revenue from Owned & Operated websites are expected to decrease by a mid-teens range for the remaining two quarters of fiscal 2012.

Media revenue is anticipated to grow over 50% on reported basis in the third quarter. For the fourth quarter, Media revenue is expected to grow in the mid-twenties.


We believe that ValueClick's second-half outlook is positive. However, unfavorable foreign exchange and a sluggish European market remains headwind in the near term. ValueClick continues to face stiff competition from Google Inc. (GOOG) and Yahoo! Inc. (YHOO), which is expected to affect its profitability going forward.

Nevertheless, we believe that ValueClick's strong product portfolio based on accretive acquisitions will continue to drive market share going forward. The company is realigning its operations towards high-margin business, which is expected to drive profitability going forward. Moreover, frequent share buybacks will also drive earnings in the near term.

We maintain our Neutral rating on the stock over the long term (6 to 12 months). Currently, we have Zacks No. 2 Rank for ValueClick, which translates to a short-term "buy" rating.

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