ValueClick Inc reported quarterly earnings below analysts' view and cut its 2007 outlook as advertisers shied away from the online marketing company, which is at the centre of a regulatory probe over an online advertising initiative.
Shares of the company fell more than 22 percent to $20.22 in afternoon trade on the Nasdaq. In May, ValueClick said the US Federal Trade Commission (FTC) was looking into a few of its Web sites that promise consumers a free gift of substantial value, and the manner in which it drives traffic to such Web sites.
The promotion-based lead generation business suffered a downturn that began in late May and became more pronounced in June, hurting the second quarter, Chief Executive Tom Vadnais said in a statement.
The lead generation business, which creates prospective consumer interest or inquiry into a business's products or services, saw some pullback from advertisers in light of this inquiry, Kaufman Brothers Equity Research analyst Sameet Sinha said by phone.
"It was announced that Blockbuster Inc has pulled back on online marketing, including incentivized lead generation (business)," RBC Capital Markets' analyst Jordan Rohan said by phone from New York. Rohan, who has an "underperform" rating on the stock, added other advertisers will follow in BlockBuster's footsteps.
"There is a major slowdown going on in the business in this space in general and ValueClick is one of the largest players in this space. It is going to take a few quarters and certainly into 2008 before all this washes out," said another RBC analyst Ross Sandler.
Sandler added that although it was unclear how long the FTC inquiry will last, advertisers are already pulling out of the lead generation business before any potential regulatory changes.
ValueClick shares have lost about 42 percent of their value since touching a year-high on May 22, after Microsoft Corp said it would acquire Internet marketing company aQuantive Inc, which is ValueClick's closest rival.
The Westlake Village, California-based company now expects 2007 earnings of 74 cents to 76 cents per share, down from its prior view of 79 cents to 81 cents a share.
Revenue for 2007 is now seen at $645 million to $660 million, down from its prior range of $655 million to $665 million. Analysts on average were expecting ValueClick to earn 81 cents per share in 2007, on revenue of $666.4 million, according to Reuters Estimates.
ValueClick also forecast third-quarter earnings of 16 cents to 17 cents a share, on revenue of $155 million to $165 million. Analysts see earnings of 19 cents a share on revenue of $164.4 million.
For the second quarter, net income rose to $17.6 million, or 17 cents a share, from $14.4 million, or 14 cents a share, last year. Revenue was up more than 14 percent at $148.7 million. Analysts were expecting earnings of 18 cents a share, on revenue of $158.9 million.
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