August has been a busy month for ValueClick (VCLK), it seems.
First, there was the announcement it would acquire Dotomi, one of the industry leaders in the field of data-driven, real-time display advertising media services. ValueClick acquired Dotomi for $295 million, paid in cash and in ValueClick common stock. With the growing clientele of 100 popular retail brands and total FY2011 revenue of over $80 million expected by Dotomi, this was a move not only to add to the top line of the company, but also to increase the total share of ValueClick in the market. Nice move!
In fact, the motive to gain more share in the market was prominent when ValueClick Media, subsidiary of ValueClick Inc., opened a base in Atlanta, Georgia. As per eMarketer, the city’s internet advertising market is supposed to reach $1.2 billion in this year, and was already ranked among the top 20 US cities in terms of online advertising expenditure. Online marketing is definitely on its way up all over the world, and ValueClick’s decision to tap the potential as much as it can seems right to me.
But is ValueClick properly using the investment? Throwing away money here and there is not the way to do business. You need to be able to generate sufficient and efficient returns from your investments. Let’s see how ValueClick is fares with that.
And looking at the return on capital employed (ROCE) margin, it seems that ValueClick is doing pretty well when it comes to utilizing the total pool of investments. The ROCE margin for the company was around 18.2%, which is much better than Digital River’s (DRIV) 2.1%, Quinstreet’s (QNST) 6.6% and interCLICK’s (ICLK) 12.4%. And then there's ReachLocal (RLOC), which shows a ROCE of -12.3%. For the non-financial people out here, ROCE portends to the return generated from the total capital available to the company, including debts.
Nothing seems to be catching my attention in the profit and loss statement, other than that the last quarter has not been good in the affiliate marketing segment. Still, the other income segments did improve quarter-over -quarter, and I hope it will continue for some time to come. Of course, the present sluggish economic condition could pull down the advertising industry that much.
It's pretty strange that the stock price fell by almost 20% after the Q2 earnings report was released. To be honest, I didn’t find anything alarming in the report, so shall we say that it is just an effect of general market sentiment, a result of the low consumer confidence index? Perhaps the company performance has not matched up to the industry's performance, and that might be the reason for the downfall of the stock price.
At the moment, the stock looks like a buy for me, because times are changing, and digital marketing is one sector where easy access to global markets can make a lot of difference. But I always believe in the general market sentiment, so I will do further research on the whole online advertising industry.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.