Zacks_Analysts' Blog : Neutral on ValueClick - Analyst Blog

We maintain our Neutral rating on ValueClick Inc. (VCLK) until it delivers a sustained growth. The stock is expected to perform in line with the market. Our price target of $16.00 represents a discount to the industry.

ValueClick’s third quarter 2010 results beat the Zacks Consensus Estimate. Revenue, earnings and adjusted EBITDA exceeded the high end of management’s expectation. The company expects a double-digit growth in fourth quarter 2010 and full-year 2011.  

Third quarter 2010 earnings (including stock-based compensation but excluding amortization of intangibles) were 16 cents per share, down 46.7% from 30 cents reported in the prior-year quarter. Earnings beat the Zacks Consensus Estimate of 14 cents per share in earnings.

Revenues inched up 1.5% year over year to $106.8 million, and achieved a 7.2% sequential growth. Revenues were above management’s guidance range of $100.0 million to $104.0 million and the Zacks Consensus Estimate of $103.0 million.

Over the long term, we are positive about the online advertising growth. We also believe that Investopedia acquisition will deliver higher synergies, going forward. A growing display ad trends in the U.S, share repurchases, impressive cash flow and debt free balance sheet are positives.

We also remain upbeat on ValueClick’s growing Affiliate Marketing segment and a rebound in its Owned and Operating segment. We expect ValueClick’s Affiliate Marketing to benefit from the increasing ecommerce spending and are encouraged by growth in its Owned and Operating (O&O) segment.

All of the 16 analysts providing estimates raised their expectations for the fourth quarter of 2010 and full year 2011, in the last 30 days. Estimates are up, to account for the strength in the Internet advertising industry and increasing ecommerce spending. We expect the company to deliver improved results in 2011 as top line seems to accelerate.

The Zacks Consensus Estimate for the fourth quarter of 2010 is pegged at 23 cents per share in earnings. For full year 2010 and 2011, EPS estimates are 66 cents and 79 cents, respectively.

Intense competition from Google Inc. (GOOG), Microsoft Corp. (MSFT) and Yahoo (YHOO) are areas of concern.

Recently, the deal between Microsoft and Yahoo to combine their search platform could pose a potential threat to ValueClick as it will increase the cost-per-click for advertisers and raise traffic acquisition costs for VCLK’s owned-and-operated websites.

As per the deal, Microsoft’s Advertising adCenter will power both Bing and Yahoo search results, allowing advertisers to reach almost a third of Internet traffic on the combined platform through a single platform, creating a competitive alternative in search.

However, with an impressive cash flow, share repurchases and a strong balance sheet, the company is focused on driving shareholders’ wealth.

ValueClick is a Zacks #3 Rank stock, implying a short-term Hold rating.