Online Ad Company Slims Down by Selling Off Two Subsidiaries

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Will ValueClick Inc.’s efforts to slim down keep it buoyant in a sinking economy?

That’s the question the Westlake Village-based online advertising company will face in the coming months after it spun off two of its subsidiaries and reported a nearly 90 percent drop last week in third quarter net income.

The company, which earned just $2 million in the quarter ended Sept. 30, chalked up much of the decline to a $33.8 million charge taken for stock repurchases. But the news came on top of what is expected to be a difficult year for online advertisers and what has already been a rocky year for ValueClick.

Earlier this year the company reached a $2.9 million settlement with the Federal Trade Commission over deceptive online ads and e-mails. Then last month, the company’s chief operating officer, David Yovanno, jumped ship to become chief executive of a Palo Alto tech company.

Gary Fuges, ValueClick’s vice president of investor relations, said the company remained confident in its long-term prospects. But, he added, “We were reminding people even back in February that there’s certainly more uncertainty in the economy and in online advertising.”

Analysts project that online advertising, which has experienced double-digit growth in previous quarters, would fall to single-digit growth or even dip into the red as the economy sours. That would impact the fortunes of ValueClick, a broad Internet advertising firm with a core business of coordinating online ad campaigns. The company also has a hand in everything from display advertising to e-mail marketing to comparison shopping.

Last month, in a signal that it was trying to pare down for tough times, the company sold Mediaplex Systems, a software company it acquired for $48.9 million in 2001, and E-Babylon, an inkjet e-commerce business that ValueClick bought in 2005.

Mediaplex was purchased by Media Bank LLC, a Chicago-based software company. E-Babylon was bought by an undisclosed buyer. Terms of the deals were not disclosed, but in its filings ValueClick said the total sales price for both was $18 million.

The company called the divested businesses “an immaterial portion of the company’s total operating income,” noting they’ve contributed less than 4 percent to revenue this fiscal year.

Sandeep Aggarwal, an analyst with Collins Stewart LLC in San Francisco, said ValueClick was smart to jettison two companies that had very little to do with its core business.

“The company had a very disparate portfolio of different properties, and they wanted to make that portfolio more homogenous,” said Aggarwal, who added that the move would help stabilize ValueClick amid uncertain economic times.

Meanwhile, the company’s stock has been battered. It peaked in February at little more than $23 and has since been on a steady decline. In early October, share price fell below $10 on concerns about the worsening economy and the health of the online advertising market. It closed Nov. 13 at $6.50.

But it could be worse: The last time the Internet bubble burst in 2001, ValueClick stock bottomed out at $1.97.

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