Headquartered in Westlake Village, California, ValueClick Inc. (VCLK) is a diversified provider of Internet advertising solutions and online marketing services for online advertisers and website publishers.
ValueClick is one of the largest online display advertising network operators in the industry. We believe the rebound in the company’s Comparison Shopping and Search segment and positive display ad trends in the U.S. will drive growth in the near-term.
The company’s second quarter earnings were above expectations, demonstrating its focus on driving bottom-line growth. However revenue was down year over year in the most recent quarter, impacted negatively by weakness in the lead generation business, which pulled down the Media segment’s revenue significantly. The lead generation business continues to deteriorate and has been taken into account in the subdued outlook for the third quarter.
ValueClick directly competes only with Marchex (MCHX) for placing web advertisements on affiliate networks. Moreover large Web portals such as Google (GOOG), Yahoo! (YHOO) and MSN will increase competition for ValueClick’s display ad business.
Over the long-term, we are very positive on online advertising growth; however, current economic conditions are creating significant headwinds for ValueClick and others in the industry.
Although there is a likely upside to the company’s shares over the longer term as Internet growth still looks healthy, we believe it is not advisable to get involved with the stock in the six-month time frame.
Thus, we have a Neutral rating on the stock.
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