In a burgeoning online world, advertisers are still trying to figure out what works and what doesn’t. So is ValueClick Inc.
The Westlake Village-based online advertising and marketing firm has purchased seven companies since 2001. Two of those try to get online shoppers to click through to a new retail Web site when they leave the first. Another allows customers to compare prices between Web sites, and one runs online sweepstakes.
“We try to drive traffic to Web sites, generate customer leads and try to sell products online to online consumers,” said Gary Fuges, ValueClick’s spokesman. “It doesn’t matter if it’s advertising done on Web sites, opt-in emails, search or building an online sales force.”
Picking up pieces from the tech bust, ValueClick has built a profitable business offering advertisers an alternative to the large search engines like Google Inc. and Yahoo Inc., which serve up targeted ads along with search results.
“They’re not paying ridiculous multiples for Internet names or fads,” said Martin Pyykkonen, an analyst with Janco Partners Inc. “Their whole approach has been refined, and their client base has grown.”
With its latest two acquisitions, ValueClick has raised revenue and earnings forecasts, and the stock has jumped by more than 20 percent since early May. Ten of the 12 analysts covering the company have a “buy” rating.
In its largest business, media advertising, ValueClick acts as an online version of an advertising agency as it finds good locations for a client’s ad from an inventory of thousands of small- and medium-size Web sites.
In traditional advertising, a campaign might be made up of newspaper ads, billboards and television spots. Online, the inventory takes the shape of banner ads on Web sites, space on opt-in e-mails or newsletters or a search-box on a Web site.
Partnership deals
ValueClick has partnership agreements with a number of online publishers, including Yahoo and Google, as well as hundreds of other Web sites, taking a fee to place the ads.
The biggest challenge is convincing advertisers that it’s cost-effective to outsource advertising to ValueClick rather than handle online advertising in-house.
“If you were an advertiser in the newspaper world wanting to know how your ads were doing, would you take the word of the New York Times and the Chicago Tribune just because they said so?” Tyykkonen asked. “You really need somebody from outside the Google-Yahoo platform to give you that unbiased view.”
For its affiliate marketing business, ValueClick may place a link to one retailer on another retailer’s Web site. If a consumer clicks on the link and buys something, both ValueClick and the first Web site share a commission. For instance, a site for a furniture retailer may feature a link to “Buy a Book Now” for an interior decorating book. If the user clicks through and buys the book, the bookseller pays a commission that is shared by ValueClick and the furniture site.
ValueClick entered this market in 2002, when it purchased Be Free, a company with more than 240 marketing partners, including Barnes & Noble.com;, Gap Inc. and Best Buy. The following year, it bought Commission Junction, another affiliate marketing site with advertisers including Yahoo, RealNetworks Inc., Home Depot Inc., CitiGroup Inc.
The $141 million acquisition of Web Market Holdings, which operates as Web Clients, bolstered ValueClick’s portfolio in lead generation. Web Clients runs more than 100 promotional Web sites, with names like americanbeautysweepstakes.com, designerbag4free.com and ezrefinance.net.
Users sign up for contests or giveaways at these sites, and ValueClick earns money each time that users click through to advertisers on those sites. Advertisers also use the information captured by Web Clients for targeted e-mails. Web Clients generated $59 million in revenue last year.
The other recent acquisition, ValueClick’s $14.7 million purchase of E-Babylon, a Simi Valley-based retailer of ink-jet cartridges, was a head-scratcher for analysts.
The deal gives life to an idea that has bounced around within the company for some time. “We have all these marketing channels in place to help our advertisers online,” Fuges said. “And if there’s a handful of products we can sell ourselves efficiently, and keep the incremental margin, it makes sense to try and leverage that.”
But he said the deal did not signal a change in company direction into retail. “We still anticipate that e-commerce will be less than 10 percent of our total business,” he said.
