Markets

The Web Economy is Booming, So Why Can't ValueClick Grow?

By Jim Edwards

Updated on: August 10, 2010 / 4:43 PM EDT / MoneyWatch

ValueClick (VCLK) achieved something unusual in its Q2 2010 earnings: It failed to grow its revenues, either annually or sequentially, unlike many of the advertising companies it competes with. Having failed to increase sales organically despite being a provider of online advertising -- which is supposed to be where the money is headed -- CEO James Zarley has decided to acquire his way to growth by buying Investopedia from Forbes for $42 million.

That acquisition, along with recent top-management turmoil at ValueClick, suggests the company is aware that it has failed to adapt to macroeconomic shifts going on around it. These two charts show the revenues, quarter by quarter, of seven advertising companies. They're all growing revenues, suggesting they've turned the corner of recession and are surfing the recovery:

Except ValueClick, where revenues sank 4 percent to $97 million. Only AOL managed to achieve a similar level of failure. Why couldn't either of these companies take advantage of a market that was clearly on the upswing? Google (GOOG) after all, added $1.3 billion in ad revenues to its books over the same quarter.

ValueClick and AOL have two other things in common: They both have business units that are heavily dependent on old-fashioned advertising placed next to website content. ValueClick's biggest revenue segment is its "Owned & Operated sites" unit, which includes comparison shopping websites Pricerunner, Smarter.com and CouponMountain.com. Sales there declined 17.5 percent to $32 million. Unsurprisingly, Investopedia's estimated $10 million in annual revenues will be slotted into ValueClick's O&O section, making that segment look a lot better next year.

Its next biggest segment is its media business, in which it serves ads to a network of thousands of online publishers. Sales there are stagnant.

Here's a guess: Google et al. are seeing revenue increases because they are much less dependent on ads-on-web sites, and have more exposure to search, mobile, apps, and other non-content dependent ads. At the same time, major web publishers are increasingly dropping ValueClick -- which treats their content like a commodity -- to handle their own ad sales, in the hopes of extracting premium prices.

Although there are several factors at work here, what's clear is that even though ad money is pouring into digital media, it's not pouring in evenly. The dominant online ad media of the late 1990s and mid 2000s -- ads placed on web sites carrying content -- just isn't as attractive as it used to be.

Bonus points: If you noticed that Investopedia correctly predicted that ValueClick would need to acquire something to move its stock.

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Image by Flickr user Hans Gerwitz, CC.