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ValueClick Inc. reported first quarter 2012 earnings of 33 cents per share that moved past the Zacks Consensus Estimate of 24 cents per share. The reported earnings also increased 37.5 % from 24 cents in the prior-year quarter. Earnings include stock based compensation ($6.1 million) and related tax effect ($2.1 million) but excludes amortization of acquired intangible assets ($8.8 million) and related tax effect of ($3.1 million).

Quarter Details

Revenues increased 31.2% year over year to $152.9 million in the quarter. Despite the year-over-year increase, the reported revenues fell shy of the Zacks Consensus Estimate of $158.0 million and failed to beat management’s guided range of $155.0 million–$160.0 million. The year-over-year growth was primarily driven by strong sales in the Media segment and other business segments, which fully offset the decline in the Owned and Operated websites segment.

Coming to the segments, the Media (47.2% of the total revenue) was up by a staggering 99.2% year over year to $72.1 million. The Affiliated Marketing segment (24.3% of the total revenue) was up 7.5% year over year to $37.1 million, while revenue from Technology (5.7% of the total revenue) increased 7.4% year over year to $8.7 million in the quarter.  However, Owned and operated websites revenue (22.8% of the total revenue) was down 7.4% year over year to $37.1 million in the quarter.

Gross profit increased 45.6% year over year to $93.9 million in the first quarter. Gross margin increased from 55.4% in the previous-year quarter to 61.4% in the first quarter, primarily boosted by higher revenues.

Operating expenses were $63.5 million, up 67.1% year over year, primarily attributable to higher sales and marketing expenses, which increased 68.3% from the comparable previous year. Moreover, expenses related to general & administration and technology increased 59.2% and 57.8%, respectively, on a year-over-year basis.

Operating income increased 14.7% year over year to $30.4 million, while Operating margin for the quarter was 19.9% compared with 22.7% in the comparable previous year. Adjusted EBITDA surged 25.9% year over year to $41.8 million.

ValueClick had no long-term debt on its balance sheet at the end of the reported quarter. Cash and cash equivalents were $107.7 million compared with $116.7 million in the previous quarter.

Guidance

For fiscal second quarter 2012, management expects revenues in the range of $155.0 million–$160.0 million. Management expects earnings on a non-GAAP basis to be in the range of 33 cents - 34 cents per share. Adjusted EBITDA is expected in the range of $46.0 million – $48.0 million.

The company expects revenue from Affiliate Marketing to grow in higher-mid single digit range. Revenue from Owned & Operated websites are expected to decrease in the high-single digit range. Technology revenue is expected to remain flat for the second quarter. Media revenue is anticipated to grow over 85.0% on reported basis.

Recommendation

ValueClick posted an impressive first quarter. This was primarily driven by the robust growth recorded in the business segments along with strength in the internet advertising industry, increasing e-commerce spending, and improving display ad growth trends. The company’s concentration in the high-margin businesses is expected to drive future growth prospects. We also remain upbeat on ValuClick’s growing Media and Affiliate Marketing segment and expect a turnaround in its Owned and Operated business.

However, a sluggish macro-economic environment and intense competition from Google Inc. and Yahoo! Inc. (YHOO - Analyst Report) remain near-term headwinds.

We maintain our Neutral rating on the stock over the long term (6-12 months). Currently, we have Zacks #3 Rank for ValueClick, which translates to a short-term ‘Hold’ rating.

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