ValueClick: Earnings Preview

| About: Conversant, Inc. (CNVR)

ValueClick Inc. (VCLK) is scheduled to release its fiscal fourth quarter 2011 earnings after the closing bell on February 7, 2012. In the run up to the earnings release, we do not notice any changes in analyst estimates.

Recap of third quarter

ValueClick’s third quarter bottom line stormed past Zacks Consensus Estimate, while the top line came in line with the Zacks Consensus Estimate. Nonetheless, the top-line was ahead of management’s guided range of $128.0-$130.0 million. The better-than-expected result was primarily driven by strong growth across all business segments.

Coming to the operational metrics, Operating expenses were $62.8 million, up 12.1% year over year. However, operating expenses as percentage of revenue decreased to 46.2% from 52.4% in the prior-year quarter.

Moreover, Operating income increased 30.0% year over year to $31.2 million, primarily based on lower operating expenses as a percentage of revenue.

For further details please read: ValueClick Crushes 3Q Estimates

Expectations from fourth quarter

For the fourth quarter, management expects revenues in the range of $173.0 million–$179.0 million. The Zacks Consensus Estimate for the quarter is pegged at $175.0 million.

Management expects earnings on a non-GAAP basis to be in the range of 39 cents-41 cents per share. The Zacks Consensus estimates the company to earn EPS of 29 cents, lower than management expectations.

Adjusted EBITDA is expected in the range of $55.0 million–$59.0 million, which represents adjusted EBITDA margin of 32.4%.

The company expects revenues from Affiliate Marketing to grow in high-digit range. Owned & Operated websites are expected to increase in the low-double digits range. Technology is expected to grow in the high single-digit range. Media segment is anticipated to grow over 100.0% on reported basis, up in high teens to low twenties (excluding the impact of acquisitions).

Management expects to scale down some of its low-margin businesses within the Owned and Operated segment and concentrate on the high-margin businesses in the Affiliate, Media and technology segments, as it presents the company with tremendous growth opportunities to drive the top-line in the forthcoming quarters.

Estimate Revision Trend

In the last thirty days, none of the 12 analysts covering the stock made any changes to their estimates, and as a result the Zacks Consensus Estimate for the fourth quarter remained at 29 cents per share.

For fiscal 2011, the Zacks Consensus Estimate is pegged at $1.17 per share.

The analysts covering the stock expect the company to report positive earnings and improved revenues on the back of shift in the business mix from low-margin Owned and Operated segment to high-margin Media and Affiliate marketing segment. Moreover, a strong trend in the Mobile Advertising segment during the quarter is expected to boost the results of the company going forward.


For the past four quarters, ValueClick has exceeded the Zacks Consensus Estimates by an average of 45.58%. For the current quarter, we expect ValueClick to beat estimates by the same magnitude.

Strength in the Internet advertising industry, increasing e-commerce spending, and improving display ad growth trends combined with direct advertiser relationships with the Dotomi acquisition, share repurchases, impressive cash flow and a debt-free balance sheet are the positives for the company. The company’s concentration in the high-margin businesses is expected to drive future growth prospects.

Moreover, advertising through mobile is expected to fuel e-commerce and online advertising growth, evident from the growth of Android and iPhone unit sales. In 2011, IDC estimates that Android and iPhone unit sales soared 170% to 320 million in total unit sales.

We also remain upbeat on ValuClick’s growing Affiliate Marketing segment and expect a turnaround in its Owned and Operated business.

However, a sluggish macro-economic environment and intense competition from Google Inc. (NASDAQ:GOOG), Microsoft Corp. (NASDAQ:MSFT) and Yahoo! Inc. (NASDAQ:YHOO) are the near-term headwinds.

We maintain our Neutral rating on the stock over the long term (6-12 months). Currently, we have Zacks #2 Rank for ValueClick, which translates to a short-term Buy rating.

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