Today I am writing to you about a play which I think makes sense. Online Advertising and marketing has become a behemoth of an industry and will continue to be desired by monster tech corps like Google (NASDAQ:GOOG), Yahoo (NASDAQ:YHOO), Microsoft (NASDAQ:MSFT) and Time Warner (NYSE:TWX). So, I present to you a breakdown of ValueClick (VCLK).
ValueClick, Inc. provides online advertising campaigns and programs for advertisers and advertising agency customers in the United States and Europe. It operates in four segments: Media, Affiliate Marketing, Comparison Shopping, and Technology. The Media segment provides a range of online media solutions in the categories of display/Web advertising, lead generation marketing, email marketing, search marketing, comparison shopping, and promotional and industry-focused online content to advertisers and advertising agencies.
It also sells consumer products directly to end-user consumers through its own e-commerce Web sites. The Affiliate Marketing segment offers technology and services that enable advertisers to manage, track, and analyze a range of online marketing programs. The Comparison Shopping segment enables consumers to research and compare products from online or offline merchants using the company’s technology.
This segment gathers product and merchant data, and organizes it into a catalog on the Web sites along with reviews. The Technology segment provides technology infrastructure tools and services that enable advertisers and advertising agencies to implement and mange their online display advertising and email campaigns; and that assist online publishers with management of their Web site inventory.
It also offers ASP delivering Web-based enterprise management systems to advertising agencies, marketing communications companies, public relations agencies, and other corporate advertisers. The company primarily serves direct marketers, brand advertisers, and the advertising agencies. It markets products and services primarily through direct marketing, print advertising, and online advertising, ValueClick properties Web sites, trade shows, and other media events.
Here is a break down of why I like ValueClick:
ValueClick has done a great job beating the estimates and has ZERO debt. If you look at the 2006 fiscal year for ValueClick, you will notice that they met earnings for Q1 and beat earnings for the last three quarters.
Q1 2006 Estimated high .13 low .10 Actual .11
Q2 2006 Estimated high .11 low .11 Actual .14
Q3 2006 Estimated high .14 low .13 Actual .17
Q4 2006 Estimated high .20 low .17 Actual .22
Q1 2007 Estimated high .19 low .16 Actual ??
*Earnings date 5/3
The 1 year EPS Growth Rate was +35.68%
And on the same day, 4/16/2007, that it was downgraded by Merriman Curhan Ford, ValueClick hit a 52 wk high of 31.34. Since then it has pulled back a bit and is trading in the 29.70-30.00 range. Another noteworthy mention is that ValueClick is an IBD 100 pick.
Something I don’t really like is the high P/E of 48, but this might actually be reasonable when considering that DoubleClick, which was bought out by Google, was purchased for over $3 Billion (YouTube was bough for less than HALF that price). I don’t think that a company that has zero debt is built on a stack of cards, so having a PE of 48 in an industry that is highly profitable and desirable isn’t necessarily a bad thing.
The Stochastic Oscillator is registering a bearish signal as the %K is below the %D. However, VCLK is neither overbought nor oversold.
Directional Movement Index
The +DI line is above the -DI line and the ADX is greater than 20. This is a bullish signal that indicates the stock is in a confirmed uptrend
The RSI recently dropped to 66.21% from above the critical level of 70. This signals that VCLK is no longer overbought and the internal strength of the stock appears to be waning
VCLK is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.
Considering the fact that recently Yahoo! announced some pretty depressing earnings news (see conference call transcript) and Google announced some excellent earnings and acquisition news (see conference call transcript), the acquisition of ValueClick by Yahoo! doesn’t sound like a far fetched play. There is definitely an online advertising business war going on and the main players are Google, Yahoo!, and Microsoft. It looks like Google has made the first move.
So, if not Yahoo!, then maybe even Microsoft. Microsoft is known to be the efficiency masters, but lack real innovation, so this play might work for them as well. Oh, and another reason why this looks like a good play is because ValueClick also has a Data Mining portion to its business which is very desirable. There has been plenty of speculation around the fact that Google bought out DoubleClick to keep it out of Microsofts hands so ValueClick being a rather comparable business definitely puts it on the target for a few of the tech players. It has also made known that Time Warner is also looking for online advertising businesses.
How I would play it:
If the price was around the $27 range it would be much a more enticing entry point vs the high $29s it is currently trading around, but with earnings coming out in the next few weeks this might be a good play to get in now. If the volume is higher than normal, then I’d look to get in now, hold for a week or less, and sell before earnings are released on the anticipation that they are going to beat earnings.
When you couple the recent buyouts in the industry, the strong growth in the last few quarters, and also the fact that many of the stocks out there trend with the Dow (which is nearing 13,000 and should see some type of bull run to push it up and over that mark), it looks like things are definitely on the bullish side. I would make sure to play this with a trailing stop of 3% and get in anywhere below $29.60. I’m looking at this as a trade, not as an investment.
VCLK 1-yr chart