ValueClick Earnings Show Little Growth

Updated from 10/31/2007 with earnings report

ValueClick (VCLK - commentary - Cramer's Take) reported numbers that were essentially inline with management's negative preannouncement from two weeks ago. For the quarter just ended, the company reported EPS of 17 cents on total revenues of $156.9 million, which was actually at the high end of management's recent negative guidance.

Looking at guidance, the company expects fourth-quarter EPS in the range of 17 cents to 18 cents on revenues between $172 million and $177 million. The Street was expecting 19 cents and $176.5 million, so it looks like there is a little margin pressure.

The lead generation segment, which was cited as the reason behind the weak topline, is not expected to rebound materially during the current quarter. An FTC investigation (which is an overhang that hampers any possibility of a takeout) will most likely result in a fine (no comment on dollar amounts).

It took most of the call, but finally somebody asked the single most important question. I'll paraphrase here, but essentially it was, "If you back out the acquisitions, how much organic growth do you have?" The answer was very little. If you took this quarter's numbers and the numbers from a year ago, you might not be able to tell the difference.

Now, the company could get taken out and when it settles the FTC investigation, those odds go up, but how much should an investor pay for a company with this little growth? I know it's not the same exact business, but if other Internet advertising companies are doing well now, I find it hard to believe that things will materially improve for VCLK. If it wasn't for the risk of being taken out, I would think this would be a nice candidate for a position on the short side of a pair trade.

ValueClick Preview: Not Executing Well

ValueClick (VCLK - commentary - Cramer's Take) is slated to report earnings Thursday after the close, with a conference call scheduled for 4:30 p.m. EDT. It should be pretty uneventful, since management already preannounced the company's revenue expectations two weeks ago. At the time, management cited challenges in the lead generation business as the primary driver of the shortfall and provided earnings per share guidance of 16 cents to 17 cents on revenue of $156 million to $157 million. As it stands right now, Street estimates call for the company to produce EPS of 16 cents on total revenue of $156 million.

On the call, I'll be listening for reasons for the weakness and clues to whether it is contained to one small segment or if it will eventually affect the other parts of the business. I'm also curious about the trend in margins and whether they will come under pressure. Finally, and probably most important, I'm interested in management's comments on the state of the industry. ValueClick has been the odd man out so far with Google (GOOG - commentary - Cramer's Take) scooping up Doubleclick and Microsoft (MSFT - commentary - Cramer's Take) acquiring aQuantive. Will ValueClick become a takeout target eventually? I suspect that it will, but the company seems to be having a tough time executing in the meantime. So despite a fair valuation, I would not be in a rush to own the shares yet.

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At the time of publication, Thomas had no positions in any of the stocks mentioned, although holdings can change at any time without notice.

Ben Thomas, CFA, is the founder and managing principal of Waycross Partners. Waycross Partners is a long/short hedge fund that focuses on the technology and health care sectors. Before Waycross, Ben was a portfolio manager and senior equity analyst at INVESCO, where he was part of a team that managed over $20 billion in assets. While at INVESCO, he was the lead manager for the INVESCO Midcap Growth fund as well as the firm?s senior equity analyst covering technology stocks.

Prior to INVESCO, Ben worked for Banc One Securities and Prudential Securities. He graduated from the University of Kentucky with a bachelor?s degree in finance and went on to earn his MBA from Indiana University. Ben is a member of the CFA Institute and serves on the board of directors for the CFA Society of Louisville.