ValueClick Inc.
(
VCLK
) reported mixed second quarter 2012 results. Although earnings
comfortably beat the Zacks Consensus Estimate by 15 cents, revenue
was well short of the estimate of $173.0 million.
Quarter Details
Revenue increased 28.7% year over year to $160.9 million in the
quarter and was ahead of management's guided range of $155.0
million-$160.0 million. ValueClick realigned its business segments
during the second quarter. The company now reports in three
segments: Media, Affiliate Marketing and Owned & Operated.
Media now includes the erstwhile Mediaplex technology business.
The year-over-year growth in revenue was primarily driven by
strong performance from the Media and Affiliate Marketing segment,
which fully offset a weak result from Owned & Operated
segment.
Media surged 75.2% year over year to $91.1 million, driven by
strong performance from traditional business as well as new
acquisitions. Mediaplex technology contributed $9.1 million in the
quarter.
Affiliate Marketing revenue increased 3.1% year over year to
$33.6 million, but missed management's mid-single-digit growth
expectation, primarily due to unfavorable foreign exchange and
sluggish European market in the quarter.
Owned and Operated websites revenue declined 10.3% year over
year to $36.4 million, due to change in product mix as ValueClick
continues to reduce its exposure to lower margin paid traffic and
search business.
Gross profit on non-GAAP basis jumped 40.1% year over year to
$96.1 million in the second quarter. Gross margin expanded 480
basis points ("bps") to 54.9%, primarily driven by favorable
revenue mix.
Operating expenses soared 52.0% year over year to $64.0 million,
primarily attributable to the 46.1% yearly increase in sales and
marketing expenses. Moreover, general & administration expenses
increased 46.3% and technology expenses jumped 55.0% year over
year.
Operating income on non-GAAP basis (excluding stock-based
compensation and amortization of intangible assets) increased 21.1%
year over year to $32.1 million, while operating margin declined to
19.9% from 21.1% in the prior-year quarter due to higher operating
expenses.
Net income on non-GAAP basis (excluding stock-based compensation
and amortization of intangible assets) was $29.9 million or 37
cents per share compared with $22.4 million or 28 cents in the
year-ago quarter.
However, including stock-based compensation and excluding
amortization of intangible assets; net income was $20.0 million or
25 cents per share compared with $16.8 million or 21 cents per
share in the prior-year quarter.
Cash and cash equivalents were $88.2 million compared with
$107.7 million in the previous quarter. During the quarter,
ValueClick repurchased 5.9 million shares for approximately $99.5
million and authorized an additional $100 million buyback
program.
Guidance
ValueClick initiated second half 2012 guidance. The company
expects revenue in the range of $164.0 million - $169.0 million and
earnings in the range of 36 cents - 37 cents per share for the
third quarter.
For fiscal fourth quarter 2012, management expects revenue in
the range of $200.0 million - $210 million. Non-GAAP earnings are
expected to be in the range of 52 cents to 53 cents per share.
ValueClick forecasts revenue from Affiliate Marketing to grow in
higher-mid-single-digit range for the third and fourth quarters.
Revenue from Owned & Operated websites are expected to decrease
by a mid-teens range for the remaining two quarters of fiscal
2012.
Media revenue is anticipated to grow over 50.0% on reported
basis in the third quarter. For the fourth quarter, Media revenue
is expected to grow in the mid-twenties.
Recommendation
We believe that ValueClick's second half outlook is positive.
However, unfavorable foreign exchange and a sluggish European
market remains headwind in the near term. ValueClick continues to
face stiff competition from
Google Inc.
(
GOOG
) and
Yahoo! Inc.
(
YHOO
), which is expected to affect its profitability going forward.
Nevertheless, we believe that ValueClick's strong product
portfolio based on accretive acquisitions will continue to drive
market share going forward. The company is realigning its
operations towards high-margin business, which is expected to drive
profitability going forward. Moreover, frequent share buybacks will
also drive earnings in the near term.
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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