ValueClick: FTC Scrutiny Hurt Lead Gen in Q2

ValueClick had a tough Q2 owing to publisher and advertiser defections from its promotions-based lead generation programs in the wake of an FTC investigation of the firm.

Revenues from the company’s owned and operated promotions-based sites in the second quarter of 2007 were down $10 million compared with the previous quarter, Chief Financial Officer Scott Ray said during the company’s earnings call today. As a result, ValueClick missed its own revenue guidance for the period and barely made the low end of its profit guidance.

“We understand there are a number of companies under FTC investigation,” said CEO Tom Vadnais. “This may explain why there has been a slowdown in this sector. In the latter half of the second quarter we saw publisher traffic move away from promotion-based business. We also began to see some advertiser pullback. Both trends negatively impacted our revenue for the quarter.”

To address the softer demand for lead generation services, the publicly traded company is scaling back its operations in the area. It expects to cut costs there by approximately $7 million this year, mostly through a reduction in headcount. Twenty employees have been let go to date, and Vadnais said more layoffs are planned.

ValueClick’s net income was $17.6 million for Q2, compared to $14.4 million in Q2 2006. Revenue was $148.7 million, an increase of 14 percent from the year-ago period. Despite the flaccidity of its lead generation division, the firm reported strength in affiliate marketing, technology and non-promotional media.

The company has lowered its revenue and net income guidance for the remainder of the year. It now expects 2007 revenues to come in at $645 to $660 million, down from $655 to $665 million, with net income of $0.74 to $0.76 earnings per share, versus previous guidance of $0.79 to $0.81.

Additionally, ValueClick said it will close today on its acquisition of comparison shopping player MeziMedia; the company operates sites like Smarter.com and CouponMountain.com and has a footprint in China, a market ValueClick has sought to enter. “Mezi’s expertise in search marketing and SEO can be leveraged across all our divisions,” he said. “[That will] allow our lead gen business to focus more on the search channel.”

ValueClick is one of a small handful of still-independent ad management technology firms, and perhaps the only such company with scale in the U.S. that has not entered acquisition agreements in recent month.

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