ValueClick Misses, Divests Unit - Analyst Blog

Preliminary Fourth-Quarter Results

ValueClick Inc. (VCLK) announced its preliminary fourth quarter 2009 revenue of $130.2 million, which was below the Zacks Consensus estimate of $133.0 million, but in line with the company’s own guidance range of $128 - $138 million. Revenue fell by 13.3% from the year-ago level of $150.1 million. Revenue in the quarter includes $110.4 million from continuing operations and $19.8 million from discontinued operations. 

For the full year, ValueClick expects revenue of $525.7 million, a 16% drop from 2008. The Zacks Consensus estimates $528.0 million in full year revenue. 

Adjusted EBITDA was $37.7 million or 29.0% in the fourth quarter compared to $38.2 million or 25.4% in the year-ago quarter. This was above the company’s guidance of $30.0 - $35.0 million and represents an adjusted EBITDA margin of 25% at the midpoint of the guidance, could be due to margin expansion and reduction in operating expenses. 

For the fourth quarter of 2009, ValueClick said that its display, affiliate marketing and technology businesses performed above expectations, with sequential revenue growth of 30%, 20% and 13%, respectively. 

With no long-term debt, ValueClick exited the quarter with approximately $180 million in cash, cash equivalents and marketable securities versus $182.5 million in the previous quarter. The company also repurchased 3.6 million shares for $35.1 million in the quarter. ValueClick also announced an additional share repurchase authorization of $69.9 million. 

ValueClick will release its fourth quarter results on Feb 16. The current Zacks Consensus Estimate for the quarter is 15 cents per share. However, there has been no analyst estimate revision in the last three months. Over the coming quarters, we expect earnings surprises to be nonexistent. ValueClick’s focus on lowering operating expenses is one of the major reasons that it may be able to maintain profit levels, even in the face of the significant fall in revenue. 

Divestiture of Web Client Business 

ValueClick also announced the sale of its Web Clients promotional lead generation business. The company said that it received $45 million for the Web Clients unit in the form of a five-year note bearing interest, with monthly payments to be amortized over a 10-year period and a balloon payment at the end of the fifth year. However, details on the buyer were not disclosed. The results of Web Clients will be treated as discontinued operations from the current quarter. 

Management said that it divested its lead generation business to focus on growing its core online marketing services and technology businesses through organic initiatives and acquisitions. 

Since the first quarter of 2008, the lead generation business had been in continuous decline. The lead generation business (48% of 2008 revenue) was one of the largest revenue earners for the company. 

While the Federal Trade Commission (FTC) investigation into ValueClick’s lead generation business is behind the company, the weakness in this business has been instrumental in pulling down results of ValueClick’s largest segment, Media, which grew only 1.0% in 2007 versus 132.3% growth in 2006. During 2008, this segment reported declining revenue of 17.8% year over year. 

To maintain margins and combat the difficult macroeconomic environment in 2008, ValueClick had earlier completed the consolidation of two lead generation businesses. 

While the revenue fell short of expectations, ValueClick’s decision to divest its lead generation business, which has been witnessing a constant decline since 2008 due to a FTC investigation and weak macroeconomic conditions were viewed as positive by the investors. As a result, shares rose 3.14% after hours. 

We maintain a Neutral rating on the stock.
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