ValueClick Inc. (VCLK) reported third quarter 2012 non-GAAP earnings of 39 cents, which managed to beat management’s range of 36 cents-37 cents, but was down 25% from the year-ago quarter. Including stock based compensation; earnings came at 27 cents, surpassing the Zacks Consensus Estimate of 25 cents per share.
Quarter Details
Revenue increased 25.8% year over year to $160.9 million in the quarter, but missed management’s guided range of $164 million-$169 million and the Zacks Consensus Estimate of $166 million. The year-over-year growth in revenue was primarily driven by strong performance from the Media and Affiliate Marketing segment, which fully offset the weakness in Owned & Operated segment.
Revenue from Media segment surged 52.3% year over year to $96.1 million, while Affiliate Marketing revenue increased 7.4% year over year to $34.9 million. The upside was primarily driven by strong domestic performance. However, Owned and Operated websites revenue declined 7.7% year over year to $29.9 million. The company also divested Search123 business, which was a part of Owned and Operated segment.
Gross profit increased 33% year over year to $97.7 million in the third quarter due to higher revenue base. Gross margin expanded 330 basis points (“bps”) to 60.8%, primarily driven by favorable revenue mix.
Operating expenses was up 31.8% year over year to $63.5 million, primarily attributable to the 27.5% yearly increase in sales and marketing expenses. Moreover, general & administration expenses jumped 36% and technology expenses increased 27.1% year over year.
Operating income (including stock-based compensation but excluding other one time items) increased 37% year over year to $39.8 million, while operating margin increased to 24.7% from 22.7% in the prior-year quarter.
Net income from continuing operations on non-GAAP basis (excluding stock-based compensation and amortization of intangible assets) was $29.6 million or 39 cents per share compared with $42.6 million or 52 cents in the year-ago quarter. However, including stock-based compensation and excluding amortization of intangible assets, net income was $20.9 million or 27 cents per share.
Cash and cash equivalents were $120.2 million compared with $88.2 million in the previous quarter. During the quarter, ValueClick repurchased 590,000 shares for approximately $9.2 million.
Guidance
For fourth quarter, ValueClick expects revenue in the range of $196 million-$200 million and earnings in the range of 51 cents-52 cents per share.
ValueClick forecasts revenue from Affiliate Marketing to grow in high-single digits in the fourth quarter. Revenue from Owned & Operated websites are expected to decrease by mid-single digits. For the fourth quarter, Media revenue is expected to grow in the low-twenties range.
Recommendation
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 toward high-margin business, which is expected to drive profitability going forward. Moreover, frequent share buybacks will also drive earnings in the near term.
However, unfavorable foreign exchange and a sluggish European market remain 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.
We maintain our Neutral recommendation on the stock over the long term (6-12 months). Currently, we have Zacks #3 Rank for ValueClick, which translates into a short-term Hold rating.
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