ValueClick: An Omen for Online Ad Spending? (VCLK)

This morning ValueClick (NASDAQ: VCLK) came out and dropped the bomb on forward guidance.  The immediate guidance isn’t such a bad issue but the forward guidance is.  It lowered revenue guidance by 2% to $163 to $164 million, but cost cuts helped earnings guidance to $0.17 to $0.18 (up $0.02 on both).

The online ad company cut its 2008 guidance from $730 to $745 million down to $655 to $675 million and cut prior EPS range of $0.81 to $0.83 down to a new lower range of $0.69 to $0.71.

There is a much more important issue than this company itself though, and one which could have ramifications if the company is right.  Tom Vadnais, CEO, said, “Due to increasing macroeconomic uncertainty, we no longer anticipate the seasonal strength in ad spending we typically see in the second half of the year.”  This concern might be analogous to the tail wagging the dog. 

ValueClick is essentially the last man standing on an independent basis in the online ad impression sector.  Its market cap is also only about $1.1 Billion after a drop of 16% to $11.50 this morning (a new 52-week low).  But this may have ramifications elsewhere.  Google (NASDAQ: GOOG) bought DoubleClick. WPP acquired 24/7 Real Media (formerly TFSM).  Microsoft paid a vast sum for aQuantive (formerly AQNT).  And every other major media and content company has been making their online ad spending acquisition plays.

There are two scenarios here and both are as logical as a coin toss.  Either the slowdown in online ad spending is systematic and is going to slow everywhere.  That would be really bad for the giants who spent billions to buy players in this field.  The second possibility is that customers are opting to just bypass ValueClick since they don’t necessarily need an independent online ad placement firm.  With the dominance of Google and others, it is possible that online advertisers are just going direct to the top 4 or 5 online destinations directly as they all have their own departments for this.

We are now in the midst of a full fledged earnings season with literally dozens and dozens of companies competing for headline attention.  This is one of those situations that may get overlooked, but it will be critical for all online ad players and online media companies who live on online ad payments.  We’ll probably get a better handle on this after the close of today when Google and Microsoft report earnings.

Jon C. Ogg
July 17, 2008