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ValueClick Takes a Licking but Keeps On Growing

Despite federal allegations of false advertising, a pullback by one of its major clients and a stock-price swoon, ValueClick Inc. appears to remain on a growth trajectory.

The Westlake Village-based company, the nation’s largest independent online advertising network, recently agreed to pay $2.9 million in settlement charges to the Federal Trade Commission, which alleged that it made deceptive claims in e-mails and online ads. The company paid the settlement without admitting wrongdoing.

ValueClick places advertisements from thousands of clients on the sites of 60,000 Web publishers using its proprietary technology.

EBay Inc., the company’s highest-profile affiliate marketing client, announced last month that it would scale back its relationship with ValueClick and establish its own network of Web sites that can refer customers to eBay’s sites.

Last week, shares were trading at around $17.60. That’s well down from the months after ValueClick’s $100 million acquisition of MeziMedia Inc. last July, when shares had climbed to $35.

But analysts said the company’s balance sheets remain strong, and they expect revenues to grow 14 percent to about $740 million this year. The growth will come as the Internet market continues its steady expansion.

The company’s revenues had grown by 18 percent to $646 million in 2007, and had ballooned by 80 percent the previous year due, in part, to acquisitions. ValueClick has made 14 acquisitions since its inception in 2000.

Yun Kim, an analyst at Pacific Growth Equities, said ValueClick’s stock is underperforming, which he said could be tied more closely to the federal investigation than to the eBay pullback.

“The whole process raised credibility issues with the management as far as the investors were concerned,” said Kim.

Since the FTC began investigating the company last year, its lead-generation business shrunk considerably, said analyst Eric Martinuzzi of Craig-Hallum Capital Group.

Lead generation consists of harvesting contact information and using it to reach potential buyers. The FTC alleged that the company used deceptive practices, such as “spam” e-mails.

What used to be a third of the company’s media business now accounts for 15 percent. It was estimated to bring in $33 million during the first quarter of 2007, but by the last quarter of that fiscal year, the company had reduced that to $11 million, Martinuzzi said.

“Customers judged them much more harshly than the government agency did,” he said.

John Ardis, vice president of corporate strategy at ValueClick, said the reduced business is due to a consolidation of the company’s lead-generation offerings unrelated to the federal investigation. The federal agency was concerned only with a division called High-Speed Media, which no longer exists.

“We did not admit to any wrongdoing by paying the settlement charge,” Ardis said. “We still strongly believe we were in compliance, but wanted to avoid a protracted legal practice that could last months or years.”

ValueClick reaches nearly 140 million unique users in the United States every month which amounts to about 75 percent of Internet users through networks totaling more than 60,000 Web publishers, and serving over 6,000 advertisers, including eBay, Verizon, Wells Fargo, Hewlett Packard and Expedia.

EBay will continue to use ValueClick’s Mediaplex, the company’s proprietary technology platform for digital media, but will manage its affiliate marketing program through the newly created eBay Partner Network.

ValueClick is the last major independent advertising network left standing. Last year, Google bought DoubleClick for $3.1 billion, and Microsoft acquired aQuantive for $6 billion. Advertising.com, the largest online ad network, is owned by AOL.

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