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ValueClick Inc. reported fourth quarter 2012 non-GAAP earnings of 56 cents per share, up 21.7% from the year-ago quarter. Reported earnings also surpassed management’s guided range of 51 cents-52 cents per share.

Including stock-based compensation; earnings came in at 50 cents a share, ahead of the Zacks Consensus Estimate of 47 cents per share.

Revenues

Revenues increased 13.8% year over year to $199.6 million and beat the Zacks Consensus Estimate of $198 million. Reported revenues were at the higher end of management’s guided range of $196 million-$200 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 the Media segment increased 20.3% from the year-ago quarter to $122.7 million while the Affiliate Marketing segment climbed 10.3% on a year-over-year basis to $43.9 million. The upside was primarily driven by strong domestic performance.  However, Owned and Operated websites revenue declined 2.1% year over year to $33.0 million.

Operating Results

Operating expenses were up 5.5% year over year to $65.5 million, primarily attributable to higher general & administration expenses (up 19.8% year over year) and technology expenses (up 8.3% year over year). Expenses related to sales and marketing increased 3.6% year over year.

ValueClick’s income from operations surged 43.2% from the year-ago quarter to $63 million. Operating margin increased from 25.1% in the year-ago quarter to 31.6%, primarily due to higher revenue base. Including stock-based compensation, operating income came in at $67.4 million.

Net income from continuing operations on a non-GAAP basis (excluding stock-based compensation and amortization of intangible assets) was $42.8 million compared with $37.9 million in the year-ago quarter. However, including stock-based compensation and excluding amortization of intangible assets, net income was $38.4 million.

Balance Sheet

Cash and cash equivalents were $136.6 million compared with $120.2 million in the previous quarter. The company reported free cash flow of $139 million for fiscal 2012.

Guidance

For the first quarter of 2013, ValueClick expects revenue in the range of $165 million-$168 million and non-GAAP earnings in the range of 39 cents-41 cents per share.

ValueClick forecasts revenue from Affiliate Marketing to grow in the mid to high-single digit range in the first quarter. Revenue from Owned & Operated websites are expected to increase by high-single digits. For the first quarter, Media revenue is expected to grow in the high-teens 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.

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

Currently, ValueClick has a Zacks Rank #2 (Buy).

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