ValueClick Inc. (VCLK) reported first quarter 2011 earnings (including stock-based compensation but excluding amortization of intangibles) of 24 cents per share. The EPS comprehensively beat the Zacks Consensus Estimate of 18 cents and was up 41.2% year over year from 17 cents per share reported in the prior-year quarter.

Earnings on a non-GAAP basis (excluding both amortization of intangibles and stock-based compensation expense) came in at 26 cents per share, well above management’s guidance range of 21 cents to 22 cents. This also surpassed last year’s earnings of 19 cents per share.

Sales and technology investments made in the previous year positively impacted the results in this quarter.

Revenues, adjusted EBITDA and earnings per share exceeded management’s guided range that was provided last quarter.


Revenue increased 22.0% year over year to $116.5 million in the quarter. Total revenue was also ahead of management’s guidance range of $111.0-$113.0 million and the Zacks Consensus Estimate of $112.0 million.

Revenues were primarily driven by strong growth across all business segments. The Affiliated Marketing segment (29.6% of the total revenue) grew 17.3% year over year to $34.5 million. The growth was driven by higher transactional volumes in the commission junction marketplace, in which ValueClick holds the leading position.

Owned and operated revenues (32.5% of the total revenue) increased 35.8% year over year to $37.9 million in the quarter.

Media (31.1% of the total revenue) grew 17.5% year over year to $36.2 million, while Technology (6.8% of the revenue) increased 2.5% year over year to $8.1 million in the quarter.

Operating Performance

Gross margin decreased 150 basis points to 71.8% in the first quarter, primarily attributable to higher cost of sales than the revenue generated. Operating income increased 39.5% year over year to $26.5 million, primarily based on lower operating expenses. Operating margin expanded 280 basis points to 22.7% in the quarter.

Adjusted EBITDA increased 30.2% year over year to $33.2 million and accounted for 28.5% of the quarter’s revenues. This was above the guidance range of $31.0-$32.0 million.

Balance Sheet

ValueClick exited the quarter with no long-term debt. Cash and cash equivalents were $199.8 million, compared with $197.3 million in the previous quarter.

During the quarter, ValueClick repurchased approximately 2.2 million shares and an additional 0.4 million shares in April 2011, for an aggregate cost of $37.7 million. ValueClick has $62.3 million remaining under its current stock repurchase program.


For the forthcoming quarter management expects revenues in the range of $120–$122 million.

On a yearly basis, the company expects revenues from Media and Affiliate Marketing to grow in the mid double-digit percentage range. Owned & Operated websites are expected to increase in the low-twenties range. Technology is expected to grow in the high single-digits to low double-digits range.

Adjusted EBITDA is expected in the range of $34.0–$35.0 million, which represents a adjusted EBITDA margin of 28.5% at the mid-point.

Earnings on a GAAP basis are projected to be in the range of 19 cents-20 cents per share, while earnings on a non-GAAP basis are expected to be between 25 cents and 26 cents.

Our Take

Strength in the Internet advertising industry, increasing e-commerce spending,improving display ad growth trends in the U.S., synergies from the Investopedia acquisition, share repurchases, impressive cash flow and a debt-free balance sheet are the positives for the company.

We also remain upbeat on ValuClick’s growing Affiliate Marketing segment and expect a rebound in its Owned and Operated business. We are also optimistic about the media section of the company, where it has made an acquisition and expects a positive revenue contribution of around $4.0 million in the coming quarter.  

However, intense competition from Google Inc. (GOOG), Microsoft Corp. (MSFT) and Yahoo! Inc (YHOO) is reason for concern. Although we expect the company to deliver improved results in 2011 on an accelerating top line, we maintain our Neutral rating on the stock, awaiting sustained growth.

Currently,  we have a Zacks #2 Rank for ValueClick, which translates to a short-term Buy rating.

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