Internet advertising is a fact of life. Even though a surprising number of Internet users seem to think they're entitled to unlimited free content, that just isn't going to happen. So, if people aren't willing to pay for subscription-based sites (and history shows that by and large, they're not), they'd better get used to seeing banners, pop-ups, directed email, and other forms of Internet ads.
ValueClick (NASDAQ:VCLK) is a facilitator for those who wish to hock their wares and services over the Web. Through a variety of display advertising, email marketing, search marketing, and affiliate marketing, ValueClick has carved out a good business for itself. Of course, it hasn't always been easy, and the company has had to fight hard to get to this point.
Sales for the fourth quarter climbed 80% on an as-reported basis and 49% on an organic growth basis (that is, stripping out businesses acquired between reporting periods). Net income was also strong, as operating margins climbed about 12% to the level of 27%.
Looking ahead, the company's guidance is a bit more conservative than the performance in December would suggest. ValueClick management expects the strong seasonal growth it saw in the fourth quarter to abate in March, and overall revenue growth for 2005 looks to be in the upper 20% range.
While the EPS guidance for 2005 looks poor at first blush ($0.37 to $0.39 per share), Fools should remember that 2005 income will carry a much higher tax rate, so it's not strictly comparable to the company's reported earnings for 2004.
There is also a longer term concern about potential legislation affecting companies engaging in Internet advertising. While cookies can be a entirely legitimate means for websites to track usage patterns and better tailor user experiences, many companies have abused this concept and set loose all manner of pernicious mal-ware, spyware, and other assorted crap-ware.
Should federal authorities decide to clamp down on these practices, it would no doubt send a chill throughout the industry. While it's unlikely that the government would take steps that would meaningfully harm the long-term future of Internet advertising, there is definitely a "perception risk" here if the government gets more active.
During the conference call, management was asked about the company's position on additional acquisitions. Although not ruling it out entirely, management acknowledged that valuations in the industry are "getting a bit out there." With increasing competition and the stock trading at six times trailing revenue, I'm inclined to agree for now.
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Fool contributor Stephen Simpson, CFA, has no ownership interest in any stocks mentioned.
