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ValueClick Inc. reported third-quarter 2013 non-GAAP earnings of 35 cents per share, which missed the Zacks consensus estimate by a penny. Earnings included stock based compensation and related tax impact.

Quarter Details

Although revenues increased 2.4% from the year-ago quarter to $134.1 million, it lagged the Zacks Consensus Estimate of $167.0 million. Reported revenue was in-line with the management’s guided range of $164.0 million-$168.0 million. The year-over-year growth in revenues was primarily driven by strong performance in the Affiliate Marketing segment, partially offset by a decline in the Media business.

Revenues from the Affiliate Marketing segment increased 11.5% from the year-ago quarter to $38.9 million. ValueClick’s Media segment reported a decline of 0.8% year over year to $95.3 million.

Operating expenses declined 2.1% year over year to $50.9 million. General &administrative expenses were down 18.2% year over year but technology expenses were up 3.1% year over year. Expenses related to sales and marketing increased 9.2% year over year. As a percentage of revenue, operating expenses were down 180 basis points (bps) to 38.0%.

ValueClick’s non-GAAP income from operations spiked 18.2% from the year-ago quarter to $42.2 million. Operating margin increased from 27.3% in the year-ago quarter to 31.5%, primarily due to favorable mix toward value added services.

Net income on a non-GAAP basis was $25.4 million compared with $21.2 million in the year-ago quarter. However, including stock-based compensation, net income came in at $25.4 million in the quarter or 35 cents per share.

Cash and cash equivalents were $54.5 million compared with $127.1 million in the previous quarter. The company reported free cash flow of $100.6 million at the end of the reported quarter.

Outlook

For the fourth quarter of 2013, ValueClick expects revenues in the range of $166.0 million-$171 million and non-GAAP earnings in the range of 57 cents-58 cents per share.

ValueClick forecasts revenues from Affiliate Marketing to grow in low double-digits in the fourth quarter.. For the fourth quarter, Media revenues are expected to grow in low single-digits.and bethe range of $49.0 to $51.0 million

Recommendation

ValueClick reported mediocre third quarter results, with revenues and EPS below the Zacks Consensus Estimate. We believe that ValueClick’s strong product portfolio, aided by 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. Moreover, ValueClick is expected to benefit from Google’s exit from the Affiliate marketing business.

However, unfavorable foreign exchange and a sluggish European market remain near-term headwinds. ValueClick continues to face competition from Yahoo (YHOO - Analyst Report) and Digital River (DRIV - Snapshot Report), which is expected to affect its profitability, going forward.

Currently, ValueClick holds a Zacks Rank #3 (Hold).

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