Seeking Alpha
Special situations, contrarian, hedge fund manager
Profile| Send Message| ()  
ValueClick (NASDAQ: VCLK) is a leading online interactive marketing agency and solution provider. Their business offering is diverse and provide an array of ways for advertisers, marketers, and other agencies to take a marketing message online. Whether you are looking to buy banner impressions on major web sites or hire an online direct sales force (among other things), VCLK is a place to look.

VCLK took a 20% hit on Monday after announcing its earnings. The company missed expectations and reported slightly lower earnings and revenue guidance (though they are still expecting double digit growth in both EPS and revenue for the next year). VCLK is also off over 40% from its 52 week high it reached a few weeks ago, primarily on buy-out speculation when the other interactive agencies (DCLK, AQNT, etc.) were being scooped up.

VCLK pulled a surprise move by announcing earnings a week ahead of their originally planned date and really shocked many by announcing the change of earnings date on a Friday afternoon after the market close. Furthermore, they did not give anyone time to breathe by announcing them the following morning before market opened.

First, a brief comment on the timing of the earnings announcement and the date change. In all likelihood, it makes me wonder if VCLK has another announcement of some form that will take the place of the original earnings date announcement. That is simply food for thought.

A buy-out of VCLK is certainly still a strong possibility, though I do not think we will see the same premium given to its peers. Realistically, I am unsure exactly who is left to buy VCLK, though the person that buys you is never who you think it is going to be. VCLK being acquired is certainly a possibility, though I would not bet on exactly when or for how much. In short, what I mean is that if you like the company, then this is a great time to buy. If you are looking for a buy-out, well, it’s a gamble to say the least because as much as it makes sense, typically, the last person to leave dinner gets stuck with the check.

There is a great deal to like about VCLK, especially when it comes to controlling avenues of Internet marketing distribution. I have had the experience of directly working with all of the leading Internet agencies, and in terms of being an advertiser looking to acquire more customers via the web, I am most impressed with VCLK’s Commission Junction [CJ] offering. Simply put, as an advertiser, you sign up for the service, pay a set-up fee, set a commission you are willing to offer other web sites to sell your product/service, and CJ pushes it out to its very well built out affiliate marketing network of webmasters and web site business owners.

For a small business, particularly an e-commerce retailer or B2C service provider, there is not a more cost-effective, easy to launch program that yields actual results CJ gets paid a transaction fee each time the advertiser sells something via the network – and since the advertiser only pays for real results (e.g., an actual sale, not a click), it is a win-win and easy to measure return on investment. CJ adds a handful of merchants every day (paying $2,500+ to sign up) and continually adds to its transactional revenue volume. The more sales that are handled through CJ’s affiliate marketing network, the more money for VCLK.

What is noteworthy is that one of CJ’s biggest competitors, LinkShare, was acquired for $425M in October 2005 by a Japanese company.

In conclusion, VCLK is a good buy at these levels for the long-term, especially with what I believe is their market-leading CJ program for advertisers. There is Value in VCLK and seeing it recover to the $25-$28 mark over the next 6-12 months is within reach. An acquisition is less likely than the VCLK business model churning out cash.

Disclosure: author is long VCLK.

VCLK 1-yr chart:

vclk

Source: ValueClick is a Good Long-Term Buy At Current Levels