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October 26, 2009
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ValueClick Inc. (VCLK) is set to announce its third quarter results on Oct 27. We expect the company to report in-line third quarter results, if not higher than the guidance, due to the continued deterioration in the lead generation business.
Headquartered in Westlake Village, California, ValueClick is a diversified provider of Internet advertising solutions and online marketing services for online advertisers and website publishers.
ValueClick directly competes only with Marchex (MCHX) for placing web advertisements on affiliate networks. However, large Web portals such as Google (GOOG), Yahoo! (YHOO) and MSN continue to increase competition for ValueClick’s display ad business. Over the long-term, we are very positive on online advertising growth; however, current economic conditions are creating significant headwinds for ValueClick and others in the industry. We have a neutral rating on ValueClick.
Revenue Outlook
For the third quarter, the company expects revenues in the range of $125 – $130 million, which is below the previous quarter. This is largely on account of a decline in the lead generation business, which is expected to be flat both year over year and sequentially.
The weakness in the lead generation business has been instrumental in pulling down results of ValueClick’s largest segment, Media, which grew only 1% in 2007 versus 132.3% growth in 2006. During 2008, this segment reported a revenue decline of 17.8% from 2007 levels.
The slowing economy has hurt ValueClick’s top-line growth, which grew just 1.5% in 2008 from 2007 levels as against growth of 21.1% in 2007 from 2006 levels. Moreover, for the first six months of 2009, revenues fell 19% year over year.
Earnings Outlook
Earnings on a GAAP basis are expected to be in the 13 cents to 14 cents per share range, while non-GAAP earnings are expected to be in the 19 cents to 20 cents per share range. Visibility for the third quarter remains low.
Adjusted EBITDA is expected to be in the range of $30.0 – $32.0 million, which represents an adjusted EBITDA margin of 24.3% at the midpoint. This includes a negative impact of 150 basis points due to legal charges expected to be incurred in the third quarter.
According to the Zacks Consensus estimate, non GAAP earnings are expected to be 20 cents (high-end of the company’s guidance), demonstrating the company’s focus on driving bottom-line growth.
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