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ValueClick Inc. reported first quarter 2013 non-GAAP earnings of 42 cents per share, up 16.7% from the year-ago quarter. Reported earnings also surpassed management’s guided range of 39 cents-41 cents per share.

Including stock-based compensation, earnings came in at 39 cents a share, ahead of the Zacks Consensus Estimate of 35 cents per share.

Quarter Details

Revenues increased 13.0% year over year to $165.4 million but lagged the Zacks Consensus Estimate of $166 million. Reported revenues were at the lower end of management’s guided range of $165 million-$168 million. The year-over-year growth in revenue was primarily driven by strong performance from the Media, Affiliate Marketing segment and Owned & Operated segment.

Revenues from the Media segment increased 19.2% from the year-ago quarter to $96.3 million while a modest increase of 1.6% was reported in the Affiliate Marketing segment ($38.3 million). Revenues from Owned and Operated websites increased 8.0% year over year to $30.9 million.

Operating expenses were down 2.5% year over year to $61.3 million. General & administration expenses were down 6.9% year over year while technology expenses were up 3.9% year over year. Expenses related to sales and marketing increased 7.3% year over year.

ValueClick’s income from operations spiked 18.1% from the year-ago quarter to $59.9 million. Operating margin increased from 34.6% in the year-ago quarter to 36.2%, primarily due to higher revenue base. Including stock-based compensation, operating income came in at $55.1 million.

Net income on a non-GAAP basis was $32.7 million compared with $29.9 million in the year-ago quarter. However, including stock-based compensation, net income came in at $29.9 million in the quarter.

Cash and cash equivalents were $129.1 million compared with $136.6 million in the previous quarter. The company reported free cash flow of $48.1 million at the end of the reported quarter.

Outlook

For the second quarter of 2013, ValueClick expects revenue in the range of $164 million-$168 million and non-GAAP earnings in the range of 38 cents-40 cents per share.

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

Recommendation

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 going forward. 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 headwind in the near term. 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 has a Zacks Rank #2 (Buy).

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