ValueClick: Lower Target but Neutral

We are lowering our six-month price target on ValueClick Inc. (VCLK - Analyst Report) to $11.00 but maintaining our Neutral rating on the stock.

The company provided disappointing guidance for the coming quarter, which was much below Zacks Consensus Estimates. The unexpected weakness in the Comparison Shopping segment and slower international business, particularly in Europe, will have a negative impact on revenue growth going forward. Thus we are lowering our revenue estimates for the fourth quarter and full year 2009.

The Comparison shopping segment is expected to decline in the mid-to-high teen percentage range in the coming quarter, affected by Yahoo!'s (YHOO - Analyst Report) new ad quality ranking system. Moreover, large Web portals such as Google (GOOG - Analyst Report), Yahoo! and MSN will increase competition for ValueClick’s display ad business.

ValueClick’s third quarter earnings were above Zacks Consensus Estimates as well as above management’s expectations, as Comparison Shopping remained strong while Lead Generation performed better than our expectations. The results further demonstrate the company’s focus on driving bottom-line growth.

Moreover, with impressive cash flow, share repurchases and a strong balance sheet, the company is focused on driving shareholder wealth.

A growing Search segment, stabilization in the lead generation business, significant long-term growth opportunities in the Internet advertising industry and increasing display ad trends in the U.S. are other positives to the stock.

Over the long term, we are very positive on online advertising growth. However, current economic conditions and the company’s decreasing revenue growth are creating significant headwinds for ValueClick.

Much of the downside is already priced into ValueClick’s share price and we do not expect much upside to the company’s share price in the near term. Thus we believe it is not advisable to get involved with the stock in the six-month time frame and remain on the sidelines until we see momentum in the company’s Lead Generation business.

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