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Article by DailyStocks_admin    (10-06-08 02:58 AM)

The Daily Magic Formula Stock for 10/05/2008 is ValueClick Inc. According to the Magic Formula Investing Web Site, the ebit yield is 13% and the EBIT ROIC is >100%.

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BUSINESS OVERVIEW

OVERVIEW

ValueClick is one of the world's largest and most comprehensive online marketing services companies. We sell targeted and measurable online advertising campaigns and programs for advertisers and advertising agency customers, generating qualified customer leads, online sales and increased brand recognition on their behalf with large numbers of online consumers.

Our customers are primarily direct marketers, brand advertisers and the advertising agencies that service these groups. The proposition we offer our customers includes: one of the industry's broadest online marketing services portfolios—including performance-based campaigns and programs where marketers only pay for advertising when it generates a customer lead or product sale; our ability to target campaigns to reach the online consumers our customers are most interested in; and, the scale at which we can deliver results for online advertising campaigns. Additionally, our networks of online publishers provide advertisers with a cost-effective and complementary source of online consumers relative to online portals and other large website publishers. Through this approach we have become an industry leader in generating qualified customer leads and online sales for advertisers.

We generate the audiences for our advertisers' campaigns primarily through networks of third-party websites and other online publisher partners. We aggregate our publisher partners' online advertising inventory into networks, optimize these networks for specific marketing goals, and deliver the campaigns across the appropriate networks' advertising inventory. We are one of the industry's largest online network providers, with: industry expertise and proprietary technology platforms for online advertising inventory aggregation; campaign targeting and optimization, delivery, measurement, and reporting; and, payment settlement and delivery services.

Our publisher partners enjoy efficient and effective monetization of their online advertising inventory through representation by our direct sales teams in major U.S. and European media markets, participation in large-scale advertiser and advertising agency campaigns they may not have access to on their own, enhanced monetization through our proprietary campaign optimization technology, and settlement services to facilitate payments to publishers for the online inventory utilized by the advertisers. As we do not primarily own and operate websites that compete directly with our publisher partners for online consumers, we act as a trusted partner in helping online publishers monetize their online audience and advertising inventory.

We believe that the effectiveness of our online marketing services is dependent on the quality of our networks and our publisher partner relationships. As such, we have established stringent quality standards that include publisher rejection from our networks due to inappropriate content, illegal activity and fraudulent clicking activity, among other criteria. We enforce these quality standards using a combination of manual and automated auditing processes that continually monitor and review both website content and adherence to advertiser campaign specifications.

We derive our revenue from four business segments. These business segments are presented on a worldwide basis and include Media, Affiliate Marketing, Comparison Shopping, and Technology, which are described in more detail below. For information regarding the operating performance and total assets of these segments, see Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations," and note 14 "Segments and Geographic Information" to the December 31, 2007 consolidated financial statements included herein.

MEDIA SEGMENT

ValueClick's Media segment provides a comprehensive suite of online marketing services and tailored programs that help marketers create and increase awareness for their products and brands, attract visitors and generate leads and sales through the Internet. Our Media segment has grown both organically and through the acquisition of complementary businesses such as HiSpeed Media, completed in December 2003, Webclients and E-Babylon, both completed in June 2005, and Fastclick, completed in September 2005. Our strategic expansion and subsequent integration within the Media segment has increased our presence in interactive marketing with powerful offerings to advertiser and advertising agency customers in the following product categories:

Display Advertising

We provide advertisers and advertising agencies with access to one of the largest and most reputable online advertising networks in the industry. With a single buy, these marketers can reach targeted online users on a large scale, using a variety of online display ad units across our entire network of publishers, any of 21 standard channels of online content within the network, customized content channels, or a select number of websites where we are authorized to sell inventory on a single-site basis. Through our acquisition of Fastclick in September 2005, we are now one of the largest online display advertising network operators in the industry, where we partner with third-party website publishers and apply our proprietary technology platform and industry expertise to deliver our advertiser customers' display ad campaigns to the appropriate pages of our publisher partners' websites.

With 16,000 active online publisher relationships in the U.S. and 21,000 worldwide, our display advertising network reached 134 million unique Internet users in the U.S. in December 2007 according to published industry data.

We deliver a variety of display ad units to the Web pages of our online display advertising network publisher partners and track them to evaluate success against the goals of the advertising programs. With traditional banner ads, interstitials, text links, and other online ad units, we attempt to maximize the impact of marketing campaigns by using the most effective placement for each type of campaign. We also execute a wide variety of rich media applications, including video ads, providing even greater visual and auditory impact for a marketer's online display advertising campaigns.

We began as a performance-based marketing network and we continue to offer multiple pricing models designed around maximizing our customers' return on investment. Our display advertising placements are offered on several pricing models including: cost-per-thousand-impress ion ("CPM"), whereby our customers pay based on the number of times the target audience is exposed to the advertisement; cost-per-click ("CPC"), whereby payment is triggered only when an interested individual clicks on our customer's advertisement; and cost-per-action ("CPA"); whereby payment is triggered only when a specific, pre-defined action is performed by an online consumer. As discussed in "Lead Generation Marketing" below, we also sell display ads on a cost-per-lead ("CPL") basis.

The benefits that our advertiser and advertising agency customers enjoy in display and other Web advertising include, but are not limited to: flexible pricing models; the ability to target and reach significant numbers of online consumers in a way that complements media buys on portals and other large websites; the ability to have a single source for negotiation of other online media buys; and the ability to improve online advertising campaigns in a variety of ways while the campaigns are still running, by optimizing at site, placement and creative levels, based on both response and conversion experience.

Publishers in our display advertising network enjoy efficient and effective monetization of their online advertising inventory, including: representation by our direct sales teams in major U.S. and European media markets; participation in large-scale advertiser and advertising agency campaigns they may not be able to access on their own; enhanced monetization through our campaign optimization technology; and, settlement services to facilitate payments to publishers for the inventory utilized by the advertisers. Through our proprietary publisher interface, publishers can control their participation in campaigns as well as their minimum acceptable level of revenue on an effective-CPM basis.

Lead Generation Marketing

Our lead generation capabilities have been developed organically and through acquisitions, including the acquisitions of HiSpeed Media in December 2003 and Webclients in June 2005. We believe we are one of the largest providers of lead generation marketing services.

In our lead generation marketing services, through our proprietary technology platforms, we manage online campaigns that generate qualified customer inquiries for an advertiser's product or service. An online consumer generates a qualified customer inquiry when he or she responds to the advertiser's offer by providing some personal information (such as their email address, phone number and/or mailing address) and requesting to be contacted by the advertiser. Lead generation advertiser customers only pay us when an online consumer signs up for an advertiser offer or opts in to being contacted by the advertiser.

We utilize a number of methods to distribute advertiser lead generation offers, including:

•
Opt-in email lists—where online visitors have agreed to receive advertiser offers through email messages;

•
Co-registration—where online parties visiting or registering to use a publisher's website are also invited to register for advertisers' offers;

•
Display ads—where publisher partners agree to display online ads focused on generating customer leads for specific offers; and

•
ValueClick owned and operated websites—where we manage websites that host advertiser offers from which visitors can choose. ValueClick lead generation websites include survey websites, gift card and prize-related websites, and vertical industry category websites such as online continuing education and financial services websites.

Email Marketing

Our email marketing services allow advertisers to target qualified prospective customers on a large scale with opt-in email lists from our proprietary database of names and from a select group of email list partners who meet our stringent criteria for data integrity, as well as those who comply with all aspects of U.S. federal email legislation. Through our relationships with quality business and consumer opt-in email list owners and managers, email marketing customers can target audiences within specific selection criteria.

E-commerce

We sell a limited number of consumer products directly to end-user customers through a small number of Company-owned e-commerce websites. We entered this business through the acquisition of HiSpeed Media in 2003, and added to our e-commerce capabilities with the acquisition of E-Babylon in June 2005.

AFFILIATE MARKETING SEGMENT

Through the combination of: a large-scale pay-for-performance model built on our proprietary technology platforms; marketing expertise; and a large, quality advertising network, our Affiliate Marketing business enables advertisers to develop their own fully-commissioned online sales force comprised of third-party affiliate publishers. We believe we are the largest provider of affiliate marketing services.

In affiliate marketing, a publisher joins an advertiser's affiliate marketing program and agrees to distribute the advertiser's offers in exchange for commissions on leads or sales generated. The publisher places the advertiser's display ads or text links on their website, in email campaigns, or in search listings, and receives a commission from the advertiser only when a visitor takes an agreed-upon action, such as filling out a form or making a purchase on the advertiser's website.

Our Affiliate Marketing segment services, outlined below, are offered through our wholly-owned subsidiaries Commission Junction, acquired in December 2003 and Search123.com, acquired in May 2003. Our affiliate marketing advertising network is offered under the Commission Junction brand name. Our affiliate marketing search services, including search engine marketing ("SEM") and search syndication, are offered under the Commission Junction and Search123 brand names, respectively.

Our Affiliate Marketing services are offered on a hosted basis to enable marketers to execute their own affiliate marketing programs without the expense of building and maintaining their own in-house technical infrastructure and resources.

CJ Marketplace

To facilitate our advertiser customers' recruitment of affiliate publishers, we manage CJ Marketplace, an advertising network dedicated to our affiliate marketing business. Advertisers upload their offers onto CJ Marketplace, making them available for placement by affiliates. Affiliates apply to join the advertiser's program, and upon acceptance, select and place the advertiser's offers on their websites, in email campaigns, or in search listings. These links are served and tracked by Commission Junction. When a visitor clicks on one of the affiliate's links and then makes an online purchase or completes an agreed-upon action on the advertiser's website, that transaction is tracked and recorded by Commission Junction.

CJ Marketplace provides an open environment whereby affiliates can quickly view payment and conversion statistics to assess the effectiveness of every advertiser relationship and advertisement, and advertisers can quickly gauge the quality and potential of every affiliate relationship in the marketplace, allowing them to maximize the performance and scale of their online advertising campaigns.

Affiliate Marketing revenues are principally driven by variable compensation that is based on either a percentage of commissions paid to affiliates or on a percentage of transaction revenue generated from the programs managed with our affiliate marketing platforms.

In addition to the transaction-related revenue streams, we also receive monthly service fees from our advertiser customers who elect to utilize our Program Management service offerings. With these services, we assume full responsibility for all aspects of managing the advertiser's program including planning, affiliate recruitment, program review and management, and program administration.

Search Marketing

Search marketing allows advertisers to find prospective customers who are actively engaged in researching and buying products and services online. Our CJ Search product provides a fully-managed, comprehensive SEM solution by combining proprietary technology and expert services to optimize keyword campaigns across major search and shopping engines, and is specifically designed to complement our advertisers' affiliate marketing efforts. We use our technology and processes to create, manage and optimize pay-per-click, paid inclusion and organic search campaigns for our advertiser customers. SEM revenues are driven primarily by a percentage of the revenue we generate for our advertiser customers.

In addition to our CJ Search product, Search123 is ValueClick's self-service paid search offering that generates its traffic primarily through syndication relationships with other search engines, Web portals and content websites. Search syndication revenues are driven primarily on a CPC basis.

COMPARISON SHOPPING SEGMENT

Our online Comparison Shopping services enable consumers to research and compare products from among thousands of online and/or offline merchants using our proprietary technologies. We gather product and merchant data and organize it into comprehensive catalogs on our destination websites, along with relevant consumer and professional reviews and other relevant information. Our services are free for consumers, and our customers primarily pay us on a CPC basis for traffic delivered to the customers' websites from listings on our websites.

Our Comparison Shopping segment services are offered through our wholly-owned subsidiaries Pricerunner, acquired in August 2004, Shopping.net, acquired in December 2006, and MeziMedia, acquired in July 2007. Pricerunner operates comparison shopping destination websites in the United Kingdom, Sweden, the United States, Germany, France, Denmark, and Austria. Shopping.net operates in the United Kingdom and MeziMedia operates its comparison shopping destination websites primarily in the United States under the Smarter.com, Shopica.com and Couponmountain.com brand names.

TECHNOLOGY SEGMENT

Our Technology segment provides advertisers, advertising agencies, website publishers, and other companies with the tools they need to effectively manage both their business operations and marketing programs. Our technology products and services are offered through our wholly-owned subsidiaries Mediaplex, Inc. and Mediaplex Systems, Inc., both acquired in October 2001.

Mediaplex:

Our Mediaplex subsidiary is an application services provider ("ASP") offering technology infrastructure tools and services that enable advertisers and advertising agencies to implement and manage their own online display advertising and email campaigns, and that assist online publishers with management of their website inventory. Our Mediaplex products are based on our proprietary MOJO® technology platform, which has the ability, among other attributes, to automatically configure advertisements in response to real-time information from an advertiser's enterprise data system and to provide ongoing campaign optimization. Mediaplex's products are priced primarily on a CPM or email-delivered basis.

Mediaplex Systems:

Our Mediaplex Systems subsidiary is an ASP that uses proprietary technology to deliver Web-based enterprise management systems to advertising agencies, marketing communications companies, public relations agencies, and other large corporate advertisers. The solutions that Mediaplex Systems provides span two primary categories—agency management and media management. The benefits offered by our enterprise management systems solutions include increased customer productivity, improved tracking, monitoring and work-flow of business processes, and significant scalability. Mediaplex Systems' revenue is generated primarily from monthly service fees paid by customers over the contractual service periods.

INTERNATIONAL OPERATIONS

We currently conduct international operations through wholly-owned subsidiaries in the United Kingdom, Germany, France, Sweden, China and Japan.

In August 1999, we commenced operations in the European market with ValueClick Europe Ltd., a wholly-owned subsidiary of ValueClick, Inc., based in the United Kingdom. In 2000, we expanded in Europe by opening wholly-owned subsidiaries in Paris, France and Munich, Germany. In August 2004, we acquired Pricerunner AB, a leading provider of online comparison shopping services in Europe, based in Sweden. In July 2007, we acquired MeziMedia, which has operations in the United States, China and Japan. Employees in our international subsidiaries totaled 422 as of December 31, 2007. For additional information regarding our international operations, see note 14 "Segments and Geographic Information" to our consolidated financial statements contained in this annual report on Form 10-K.

TECHNOLOGY PLATFORMS

Our proprietary applications are constructed from established, readily available technologies. Some of the basic components our products are built on come from leading software and hardware providers such as Oracle, Sybase, Sun, Dell, EMC, NetApp, and Cisco while some components are constructed from leading Open Source software projects such as Apache Web Server, MySQL, Java, Perl, and Linux. By striking the proper balance between using commercially available software and Open Source software, our technology expenditures are directed toward maintaining our technology platforms while minimizing third-party technology supplier costs.

We build high-performance, availability and reliability into our product offerings. We safeguard against the potential for service interruptions at our third-party technology vendors by engineering fail-safe controls into our critical components. ValueClick delivers its hosted solutions from co-location facilities located in twelve cities, geographically disbursed throughout the United States, Europe, and China. ValueClick applications are monitored 24 hours a day, 365 days a year by specialized monitoring systems that aggregate alarms to a human-staffed network operations center. If a problem occurs, appropriate engineers are notified and corrective action is taken.

SALES, MARKETING AND CUSTOMER SERVICE

We market our products and services primarily through direct marketing, print advertising and online advertising throughout the year. We also market them through the ValueClick properties' websites, trade show participation and other media events. In addition, we actively pursue public relations programs to promote our brands, products and services to potential network publishers and advertiser customers, as well as to industry analysts.

Customers

We sell our products and services to a variety of advertisers, advertising agencies and traffic distribution partners.

Competition

We face intense competition in the Internet advertising market. We expect that this competition will continue to intensify in the future as a result of industry consolidation, the continuing maturation of the industry and low barriers to entry. We compete with a diverse and large pool of advertising, media and Internet companies.

Our ability to compete depends upon several factors, including the following:

•
our continued ability to aggregate large networks of quality publishers efficiently;

•
the timing and market acceptance of new solutions and enhancements to existing solutions developed by us;

•
our customer service and support efforts;

•
our sales and marketing efforts;

•
the ease of use, performance, price, and reliability of solutions provided by us; and

•
our ability to remain price competitive while maintaining our operating margins.

Additional competitive factors include, but are not limited to, our: reputation, knowledge of the advertising market, financial controls, geographical coverage, relationships with customers, technological capability, and quality and breadth of products and services.

Seasonality and Cyclicality

We believe that our business is subject to seasonal fluctuations with the calendar fourth quarter generally being our strongest. Expenditures by advertisers and advertising agencies vary in cycles and tend to reflect the overall economic conditions, as well as budgeting and buying patterns.

INTELLECTUAL PROPERTY RIGHTS

We currently rely on a combination of copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. Our success depends on the protection of the proprietary aspects of our technology as well as our ability to operate without infringing on the proprietary rights of others. We also enter into proprietary information and confidentiality agreements with our employees, consultants and commercial partners and control access to, and distribution of, our software documentation and other proprietary information. We have registered the trademark "ValueClick" in the United States and the European Union. We currently have thirteen pending U.S. patent applications. In addition, we have been granted eight U.S. patents. We do not know if our current patent applications or any future patent application will result in a patent being issued within the scope of the claims we seek, if at all, or whether any patents we may have or may receive will be challenged or invalidated. Although patents are only one component of the protection of intellectual property rights, if our patent applications are denied, it may result in increased competition and the development of products substantially similar to our own. In addition, it is difficult to monitor unauthorized use of technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States, and our competitors may independently develop technology similar to our own. We will continue to assess appropriate occasions for seeking patent and other intellectual property protections for those aspects of our technology that we believe constitute innovations providing significant competitive advantages.

CORPORATE HISTORY AND RECENT ACQUISITIONS

We commenced operations as ValueClick, LLC, a California limited liability company, on May 1, 1998. Prior to the formation of ValueClick, LLC, the ValueClick Internet advertising business began in July 1997 as a line of business within Web-Ignite Corporation, a company wholly owned by the founding member of ValueClick, LLC. The reorganization and formation of ValueClick, LLC was effected by the transfer of the Internet advertising business of Web-Ignite to ValueClick, LLC. On December 31, 1998, ValueClick, LLC reorganized as ValueClick, Inc., a Delaware corporation. On March 30, 2000, we completed our initial public offering of common stock. Our common stock is publicly traded and is reported on the NASDAQ Global Select Market under the symbol "VCLK."

MeziMedia. On July 30, 2007, we completed the acquisition of MeziMedia, a leading operator of U.S. comparison shopping websites. Under the terms of the agreement, we acquired all outstanding equity interests in MeziMedia for initial cash consideration of $96.3 million, net of cash acquired of $18.9 million, plus approximately $700,000 in transaction costs, resulting in a total initial cash consideration of $97.0 million. In addition to the initial cash consideration, the shareholders of MeziMedia earned $106.1 million in cash consideration for achieving certain revenue and earnings performance targets for the year ended December 31, 2007. The shareholders of MeziMedia may also be entitled to additional contingent cash consideration based on the achievement by MeziMedia of certain revenue and earnings performance targets for the years ending December 31, 2008 and 2009. Total cash consideration, which includes the $97.0 million initial cash consideration, including transaction costs, and the $106.1 million cash consideration related to fiscal 2007 performance, will range between approximately $203.1 million and $348.8 million, depending on whether the performance targets are met for the years ending December 31, 2008 and 2009. MeziMedia provides the Company with additional opportunities to monetize online traffic and expand its overall comparison shopping presence in the United States, China and Japan. The results of MeziMedia's operations are included in the Company's consolidated financial statements beginning on the date of acquisition.

Shopping.net. On December 1, 2006, we completed the acquisition of all of the outstanding capital stock of Shopping.net for an aggregate purchase price of $13.9 million, consisting of cash consideration of $13.6 million and transaction costs of the acquisition of $253,000. Of the total cash consideration, $10.9 million was paid on the closing date and the remaining $2.7 million was accrued and will be paid by December 1, 2008, subject to any working capital adjustments identified by us subsequent to the closing date. Shopping.net, located in the United Kingdom, provides us with additional opportunities to monetize online traffic and expand our overall comparison shopping presence in Europe. The results of Shopping.net's operations are included in our consolidated financial statements beginning on the date of acquisition.

Fastclick, Inc. On September 27, 2005, we acquired 97% of the outstanding shares of Fastclick, Inc. ("Fastclick") common stock upon the closing of our tender offer for all shares of Fastclick common stock. On September 29, 2005, we acquired the remaining 3% of outstanding shares of Fastclick common stock, at which time Fastclick became a wholly-owned subsidiary of ValueClick. Under the terms of the acquisition agreement, ValueClick acquired all of the outstanding capital stock of Fastclick for an aggregate purchase price of $215.7 million, consisting of 15.6 million shares of ValueClick common stock valued at $202.5 million, stock options assumed valued at $12.6 million, and transaction costs of the acquisition of $600,000. Fastclick provides online advertising services and technologies, and, at the time of its acquisition, had developed an advertising network of more than 9,000 third-party publisher websites. Combined with ValueClick's then-existing market position in online marketing services, the addition of Fastclick to our suite of products and services positioned ValueClick as one of the largest online advertising network providers.

Web Marketing Holdings, Inc. On June 24, 2005, we completed the acquisition of Web Marketing Holdings, Inc. ("Webclients"), a leading provider of online lead generation marketing services. Webclients' business activities complement our other media businesses as well as our affiliate marketing businesses, and have been leveraged across our advertiser customer base. Under the terms of the acquisition agreement, ValueClick acquired all of the outstanding capital stock of Webclients for an aggregate purchase price of $142.5 million, consisting of cash of $122.2 million, 1.8 million shares of ValueClick common stock valued at $18.4 million, stock options assumed valued at $1.5 million, and transaction costs of the acquisition of $420,000.

E-Babylon, Inc. On June 13, 2005, we completed the acquisition of E-Babylon, Inc. ("E-Babylon"), a leading online marketer of ink jet cartridges and toner. E-Babylon expanded our e-commerce channel and provided an infrastructure with the capability to support all of our e-commerce initiatives. Under the terms of the acquisition agreement, ValueClick acquired all of the outstanding capital stock of E-Babylon for an aggregate purchase price of $14.8 million, consisting of cash of $14.7 million and transaction costs of the acquisition of $112,000.

Pricerunner AB. On August 6, 2004, we completed the acquisition of Pricerunner AB ("Pricerunner"), a leading provider of online comparison shopping services in Europe. With the addition of Pricerunner, we expanded our suite of performance-based online marketing solutions into the area of comparison shopping. Together with our other services, Pricerunner increased our competitive position in Europe. In the second quarter of 2005, we launched Pricerunner in the United States, offering consumers a broad range of products from offline and online retailers throughout the country. Under the terms of the acquisition agreement, ValueClick acquired all of the outstanding capital stock of Pricerunner for an aggregate purchase price of $30.1 million, including cash of $26.9 million, 263,000 shares of ValueClick common stock valued at $2.0 million, and transaction costs of the acquisition of $1.2 million.
CEO BACKGROUND


JAMES R. ZARLEY is the Chairman of the Board and Chief Executive Officer of ValueClick. He has served as Chairman of the Board since May 1998. In February 1999, Mr. Zarley joined ValueClick in a full-time capacity and in May 1999 he became Chief Executive Officer. Prior to joining ValueClick, from April 1987 to December 1996, Mr. Zarley was Chief Executive Officer of Quantech Investments, an information services company. From December 1996 to May 1998, Mr. Zarley was the Chairman and Chief Executive Officer of Best Internet until its merger with Hiway Technologies, a Web hosting company, in May 1998. From May 1998 to January 1999, Mr. Zarley was the Chief Operating Officer of Hiway Technologies until its merger with Internet service provider, Verio, Inc. Mr. Zarley currently serves as a director of Texas Roadhouse, Inc., a restaurant chain.

SAMUEL J. PAISLEY is the Chief Administrative Officer of ValueClick. Mr. Paisley joined ValueClick in his initial role of Executive Vice President in April 2000, added the position of Chief Operating Officer—Media in January 2001 and assumed the role of Chief Financial Officer in June 2002. In May 2005, Mr. Paisley assumed the role of Chief Administrative Officer. Mr. Paisley previously served as Chief Financial Officer and Executive Vice President of Automata International, an integrated circuit manufacturer, from June 1998 to March 2000. Between August 1980 and June 1998, he held several positions at KPMG Peat Marwick LLP, an audit firm, finishing his employment as a partner in Information, Communications and Entertainment. Mr. Paisley graduated with a B.A. from Washington & Jefferson College and an M.B.A. from the University of Pittsburgh.

SCOTT H. RAY is the Chief Financial Officer of ValueClick. Mr. Ray joined ValueClick as the General Manager of the Company’s Mediaplex division in November 2002, assumed the role of Executive Vice President of Finance in August 2004, and assumed the role of Chief Financial Officer in May 2005. Prior to joining ValueClick in November 2002, Mr. Ray served as the Chief Financial Officer for the following companies: OpenTV Corp., a provider of interactive television software and services; Internet Barter, Inc., an international business-to-business e-commerce barter exchange; Bay View Capital Corporation, a diversified financial services company; and, Silicon Valley Bancshares, a financial institution servicing emerging growth technology companies. Between August 1987 and July 1994, Mr. Ray worked for Coopers & Lybrand LLP and Price Waterhouse LLP. Mr. Ray is a Certified Public Accountant and a Certified Forensic Accountant, and holds a B.S. with honors in accounting from Arizona State University.

CARL WHITE joined ValueClick in October 2001 as the General Manager of ValueClick’s European operations. He assumed the role of Chief Operating Officer (Europe) in June 2005 and assumed the role of Chief Executive Officer (Europe) in August 2006. Prior to joining ValueClick, Mr. White served as the Chief Operating Officer of 24/7 Europe and was responsible for media and technology businesses in thirteen countries. Prior to that, Mr. White worked as a publisher for BBC Worldwide (the commercial arm of the British Broadcasting Corporation) running commercial and editorial teams across a number of magazine titles and multimedia projects. Mr. White also has senior sales management experience from Gruner and Jahr, Media Week and Centaur communications. Mr. White holds a B.S.c. from Bristol University.

PETER WOLFERT joined ValueClick as the Chief Technology Officer in June 2000. Previously, Mr. Wolfert was the Senior Vice President and Director of Information Technology for Mellon Capital Management, an investment management firm in San Francisco, from October 1998 until June 2000. Prior to that, he served as Senior Vice President of Information Technology at AIM Funds in San Francisco from October 1995 to October 1998. From January 1992 until October 1995, Mr. Wolfert was Senior Vice President of Information Technology at Trust Company of the West. Mr. Wolfert graduated with a B.S. from the University of California at Davis, and an M.B.A., with emphasis in Management Information Systems, from the University of California at Irvine.

SCOTT P. BARLOW joined ValueClick as the Vice President and General Counsel in October 2001 and has also served as the Secretary since February 2002. Prior to joining ValueClick, Mr. Barlow served as the General Counsel and Secretary for Mediaplex, Inc., a provider of technology-based marketing products and services, from December 2000 to October 2001. From October 1999 to December 2000, Mr. Barlow served as Mediaplex, Inc.’s Assistant General Counsel. Prior to his employment with Mediaplex, Inc., Mr. Barlow was a senior associate with Raifman & Edwards LLP, a San Francisco-based corporate law firm, from 1995 to 1999. Mr. Barlow graduated with a B.S. from the University of Florida and a J.D. from the University of Akron School of Law.

TOM A. VADNAIS has been a director of ValueClick since October 2001. He assumed the role of General Manager of the Company’s Mediaplex division in November 2004 and Commission Junction in June 2005. In June 2006, Mr. Vadnais assumed the additional role of President (U.S.). From April 2001 to October 2001, Mr. Vadnais was President, Chief Executive Officer and a director of Mediaplex, Inc., a provider of technology-based marketing products and services. Prior to joining Mediaplex, Inc., Mr. Vadnais was the Executive Vice President of Professional Services for Compuware Corporation, a software and professional services provider for IT professionals, where he was retained to perform the integration of Data Processing Resources Corporation (“DPRC”) and managed mergers and acquisitions. Mr. Vadnais was the President and Chief Operating Officer of DPRC, prior to its acquisition by Compuware. From 1992 to 1999, Mr. Vadnais was the President and Chief Operating Officer of Tascor, Inc., a wholly-owned subsidiary of Norrell Inc., where he was a member of Norrell’s board of directors. Until 1992, Mr. Vadnais worked at IBM for twenty-three years in various management roles, where he had experience in sales, marketing, and as Vice President of Operations. He graduated with a B.A. from the University of California, Los Angeles, and an M.B.A. from Golden Gate University.

DAVID S . BUZBY has been a director of ValueClick since May 1999. Mr. Buzby is a San Francisco-based investor and operator of entrepreneurial companies. From June 1999 to September 2000, Mr. Buzby was the Chief Operating Officer and a founding investor of Internet Barter, Inc., an international business-to-business e-commerce barter exchange. From August 1994 to January 1999, Mr. Buzby worked with Best Internet, a Web hosting company. Mr. Buzby held various positions at Best Internet including Chief Financial Officer and Vice Chairman of the Board and was a founding investor. Mr. Buzby graduated with a B.A. from Middlebury College and an M.B.A. from Harvard Business School.

MARTIN T. HART has been a director of ValueClick since March 1999. Mr. Hart has been a private investor in the Denver area since 1969. Mr. Hart has owned and developed a number of companies into successful businesses, and has served on the board of directors for many public and private corporations. Presently, Mr. Hart is serving on the board of the following public companies: MassMutual Corporate Investors, an investment company; MassMutual Participation Investors, an investment company; Texas Roadhouse, Inc., a restaurant chain; and, Spectranetics Corporation, a medical device company. He also serves on the board of directors of several private companies. Mr. Hart graduated with a B.A. from Regis University and is a Certified Public Accountant.

JEFFREY F. RAYPORT has been a director of ValueClick since May 2002. Dr. Rayport was a former director of Be Free, Inc. Dr. Rayport is a senior partner at Monitor Group, a global strategy and merchant banking firm, and Chairman of Marketspace, a strategic advisory, executive development and software business affiliated with the Monitor Group. From 1991 to 2000, he was a faculty member at Harvard Business School in the Service Management Unit. He currently serves as a director of GSI Commerce, Inc., Andrews McMeel Universal and International Data Group. Dr. Rayport earned an A.B., A.M. and Ph.D. from Harvard University, and an M. Phil. from the University of Cambridge (U.K.).

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

We offer a suite of products and services that enable marketers to advertise and sell their products through all major online marketing channels—display advertising, lead generation marketing, email marketing, search marketing, comparison shopping, and affiliate marketing. We also offer technology infrastructure tools and services that enable advertisers and advertising agencies to implement and manage their own online display advertising and email campaigns, and that assist online publishers with management of their website inventory. Additionally, we provide software that assists advertising agencies and other companies with information management regarding their financial, workflow and offline media planning and buying processes. The broad range of products and services that we provide enables our advertiser customers to address all aspects of the marketing process, from strategic planning through execution, including results measurement and campaign refinements. By combining our media, affiliate marketing, comparison shopping, and technology offerings with our experience in both online and offline marketing, we help our advertiser customers around the world optimize their marketing campaigns both on the Internet and through offline media.

On July 30, 2007, we completed the acquisition of MeziMedia and included the results of operations of MeziMedia in our consolidated results of operations beginning on the date of acquisition. On December 1, 2006, we completed the acquisition of Shopping.net and included the results of operations of Shopping.net in our consolidated results of operations beginning as of that date. In 2005, we acquired Fastclick, Inc. ("Fastclick"), completed on September 29, 2005, Web Marketing Holdings, Inc. ("Webclients"), completed on June 24, 2005, and E-Babylon, Inc. ("E-Babylon"), completed on June 13, 2005. The results of operations of Fastclick, Webclients and E-Babylon have been included in our consolidated results of operations beginning October 1, 2005, July 1, 2005 and June 1, 2005, respectively. Note 3 "Recent Business Combinations and Investments" to our consolidated financial statements included in this annual report on Form 10-K provides unaudited pro forma revenue, net income and basic and diluted net income per common share for the years ended December 31, 2007 and 2006 as if the acquisitions of MeziMedia and Shopping.net occurred as of January 1, 2006.

We derive our revenue from four business segments. These business segments are presented on a worldwide basis and include: Media, Affiliate Marketing, Comparison Shopping, and Technology. Each of these four business segments is described in Item 1 "Business" of this annual report on Form 10-K.

The following table provides revenue, gross profit, operating expenses, and income from operations information for each of our four business segments. Segment income from operations, as shown below, excludes the effects of: stock-based compensation; amortization of intangible assets; restructuring benefit, net; and corporate expenses as these items are excluded from the segment performance measures utilized by the Company's chief operating decision maker in evaluating the performance of the segments. Corporate expenses consist of those costs not directly attributable to a business segment, and include: salaries and benefits for the Company's executive, finance, legal, corporate governance, human resources, and facilities organizations; fees for professional service providers including audit, legal, tax, and Sarbanes-Oxley compliance; insurance; and other corporate expenses. A reconciliation of segment income from operations to consolidated income from operations and a reconciliation of segment revenue to consolidated revenue are also provided in the following table.

RESULTS OF OPERATIONS—Fiscal Years Ended December 31, 2007 and 2006

Revenue. Consolidated revenue for the year ended December 31, 2007 was $645.6 million, representing an 18.3% increase over the prior year total of $545.6 million.

Media segment revenue increased to $386.7 million for the year ended December 31, 2007 compared to $383.0 million for 2006. In 2007, strong growth in our display advertising revenue was largely offset by a decrease in our lead generation marketing revenue. We believe the decrease in our lead generation marketing revenue was primarily due to the FTC inquiry into this business that is described further in note 13 to our consolidated financial statements.

Affiliate Marketing segment revenue increased to $136.7 million for the year ended December 31, 2007 compared to $112.2 million in 2006. This increase of $24.5 million, or 21.9%, was due to a continued increase, both in the U.S. and Europe, in the number of customers and an increase in transaction volumes associated with both our new and existing customers.

Comparison Shopping segment revenue increased to $92.0 million for the year ended December 31, 2007 compared to $26.2 million in 2006. The increase of $65.8 million, or 251.0%, was primarily attributable to the acquisition of MeziMedia in July 2007 as well as growth in our historical European comparison shopping operations. With the acquisition of MeziMedia, Comparison Shopping segment revenue is concentrated with a limited number of customers. A loss of, or reduction of revenue from, one or more of these customers could have a significant negative impact on the revenue of this segment.

Technology segment revenue was $32.5 million for the year ended December 31, 2007 compared to $25.7 million in 2006, an increase of $6.8 million, or 26.5%. The increase in revenue was primarily related to higher volumes of ad serving, both domestically and in Europe, during the year ended December 31, 2007 compared to the same period of the prior year. Technology segment revenue is highly concentrated with a few significant customers. A loss of, or reduction of revenue from, one or more of these customers could have a significant negative impact on the revenue of this segment.

There is no guarantee that revenue will continue to grow at historical rates, that we will complete acquisitions in future periods or that any potential future acquisitions will provide the same revenue impact as past acquisitions.

Cost of Revenue and Gross Profit. Cost of revenue for the Media segment consists primarily of amounts that we pay to website publishers that are directly related to a revenue-generating event. We pay these publishers on a CPC, CPA, CPL, or CPM basis. Cost of revenue also includes labor costs, depreciation on revenue-producing technologies and Internet access costs. Cost of revenue for the Media segment also includes e-commerce product costs and shipping and handling costs. Consolidated cost of revenue was $204.6 million for the year ended December 31, 2007 compared to $167.9 million in 2006, an increase of $36.7 million, or 21.9%. The consolidated gross margin decreased from 69.2% for the year ended December 31, 2006 to 68.3% for the year ended December 31, 2007. This decrease in consolidated gross margin is primarily a result of the lower gross margins experienced by our Media, Affiliate Marketing and Comparison Shopping segments in 2007 as described more fully below.

Cost of revenue for the Media segment increased $13.3 million, or 9.4%, to $154.8 million for the year ended December 31, 2007 compared to $141.5 million in 2006. Our Media segment gross margin decreased to 60.0% for the year ended December 31, 2007 compared to 63.1% for the same period in 2006. The decrease in Media segment gross margin resulted primarily from a lower mix of promotion-based lead generation revenue, which generates a higher gross margin than other components of Media segment revenue due largely to the classification of certain online advertising costs as sales and marketing expense and not as cost of revenue. These online advertising costs are classified as sales and marketing expense as they are not directly related to a revenue-generating event.

Cost of revenue for the Affiliate Marketing segment was $26.4 million for the year ended December 31, 2007 compared to $19.8 million in 2006. Our Affiliate Marketing segment gross margin decreased to 80.7% for the year ended December 31, 2007 from 82.4% for the same period in 2006. The decrease was primarily associated with an increase in the mix of search revenue, which generates lower gross margins than other revenue components in the Affiliate Marketing segment.

Cost of revenue for the Comparison Shopping segment was $20.3 million for the year ended December 31, 2007 compared to $2.2 million in 2006. The increase in cost of revenue was primarily due to the acquisition of MeziMedia in July 2007. Our Comparison Shopping segment gross margin decreased to 77.9% for 2007 from 91.7% in 2006 due primarily to increased publisher costs associated with third-party revenue-share arrangements and the impact of the acquisition of MeziMedia.

Technology segment cost of revenue was $5.8 million for the year ended December 31, 2007 compared to $5.4 million in 2006. Our Technology segment gross margin increased to 82.3% in 2007 from 79.0% in 2006 due to the operating leverage associated with higher revenue. As the gross margin for the Technology segment is highly dependent upon revenue due to the existing operating leverage, any increases or decreases in segment revenue may have a significant impact on segment gross margin.

Operating Expenses:

Sales and Marketing. Sales and marketing expenses consist primarily of sales and marketing compensation and employee benefits, network development and related support teams, certain online and offline advertising costs, travel, trade shows, and marketing materials. Online advertising costs included in sales and marketing expenses are comprised primarily of amounts that we pay to website publishers that are not directly associated with a revenue-generating event. Sales and marketing expenses for the year ended December 31, 2007 were $190.7 million compared to $162.9 million in 2006, an increase of $27.8 million, or 17.0%. Sales and marketing expenses increased primarily due to the inclusion of online advertising costs of MeziMedia, acquired in July 2007, and increases in our worldwide sales and marketing staff, offset partially by a decrease in online advertising costs in our lead generation marketing business. Our sales and marketing expenses as a percentage of revenue remained relatively consistent at 29.5% for the year ended December 31, 2007 compared to 29.9% in 2006.

General and Administrative. General and administrative expenses consist primarily of facilities costs, executive and administrative compensation and employee benefits, depreciation, professional services fees, insurance costs, and other general overhead costs. General and administrative expenses increased to $78.2 million for the year ended December 31, 2007 compared to $58.1 million in 2006, an increase of $20.1 million, or 34.6%. General and administrative expenses increased primarily due to an increase of $5.7 million in stock-based compensation, a $2.9 million settlement with the FTC (as described more fully in note 13 to our consolidated financial statements), the inclusion of MeziMedia's general and administrative expenses, higher bad debt expense, increased legal costs, and increased compensation costs to support the growth in our business. As a result of these items, our general and administrative expenses as a percentage of revenue increased to 12.1% for the year ended December 31, 2007 compared to 10.7% in 2006.

Technology. Technology expenses include costs associated with the maintenance of our technology platforms, including compensation and employee benefits for our engineering and network operations departments, as well as costs for contracted services and supplies. Technology expenses for the year ended December 31, 2007 were $36.0 million compared to $32.8 million in 2006, an increase of $3.2 million, or 9.6%. The increase in technology expenses was due primarily to the inclusion of MeziMedia's technology expenses, increases in our worldwide technology staff and the overall growth in our business. Our technology expenses as a percentage of revenue remained relatively consistent at 5.6% for the year ended December 31, 2007 compared to 6.0% in 2006.

Segment Income from Operations. Media segment income from operations for the year ended December 31, 2007 decreased 8.1%, or $7.6 million, to $86.6 million, from $94.2 million in the prior year, and represented 22.4% and 24.6% of Media segment revenue in these respective periods. The decrease in both Media segment income from operations and operating margin was due principally to a decline in our lead generation marketing revenue, offset partially by an increase in our display advertising revenue as noted above.

Affiliate Marketing segment income from operations for the year ended December 31, 2007 increased 17.9%, or $10.4 million, to $68.3 million, from $57.9 million in the prior year, and represented 49.9% and 51.6% of Affiliate Marketing segment revenue in these respective periods. The increase of $10.4 million in Affiliate Marketing segment income from operations was largely attributable to the higher revenue as described above. The lower operating margin was due primarily to an increase in the mix of search revenue, which generates lower operating margins than other revenue components in the Affiliate Marketing segment.

Comparison Shopping segment income from operations for the year ended December 31, 2007 increased to $17.4 million, from $3.1 million in the prior year, and represented 19.0% and 11.7% of Comparison Shopping segment revenue in these respective periods. The increase in Comparison Shopping segment income from operations and operating margin was largely attributable to the acquisition of MeziMedia.

Technology segment income from operations for the year ended December 31, 2007 increased to $12.6 million, from $7.6 million in the prior year, and represented 38.8% and 29.6% of Technology segment revenue in these respective periods. The increase in Technology segment income from operations and the higher operating margin was attributable to the operating leverage associated with the higher revenue as described above.

Stock-Based Compensation. Stock-based compensation for the year ended December 31, 2007 amounted to $18.5 million compared to $11.9 million in 2006. The increase of $6.5 million was primarily due to the impact of new stock options granted during 2007. We currently anticipate total stock-based compensation in the range of $22 million to $23 million for the year ending December 31, 2008. Such amounts may change as a result of higher or lower than anticipated stock option grants to new and existing employees, differences between actual and estimated forfeitures of stock options, fluctuations in the market value of our common stock, modifications to our existing stock option programs, additions of new stock-based compensation programs, or other factors.

Amortization of Intangible Assets. Amortization of intangible assets for the year ended December 31, 2007 was $25.9 million compared to $21.8 million in 2006. This expense represents the amortization of intangible assets acquired through business combinations. The increase compared to the prior year was due to the intangible assets purchased in the MeziMedia and Shopping.net acquisitions. We currently anticipate total amortization of intangible assets of approximately $29.5 million for the year ending December 31, 2008.

Interest Income, net. Interest income, net, consists principally of interest earned on our cash and cash equivalents and marketable securities. Interest income, net, was $12.1 million for the year ended December 31, 2007 compared to $8.0 million for the year ended December 31, 2006. The increase was primarily attributable to effects of higher average cash and cash equivalents and marketable securities balances in the current year. We currently anticipate that our interest income in the year ending December 31, 2008 will be significantly lower than the fiscal 2007 amount due to cash used in the first quarter of 2008 for the MeziMedia earnout payment (as more fully described in note 3 to our consolidated financial statements) and due to the decreasing interest rate environment.

Income Tax Expense. For the year ended December 31, 2007, we recorded an income tax expense of $51.6 million compared to $47.6 million in 2006. The decrease in the effective income tax rate for the year ended December 31, 2007 to 42.2% from 43.2% for the year ended December 31, 2006 was primarily due to an increase in tax-exempt interest income earned on our marketable securities during 2007 compared to 2006. We currently expect our effective tax rate to be approximately 42% in the year ending December 31, 2008.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

RESULTS OF OPERATIONS—THREE-MONTH PERIOD ENDED JUNE 30, 2008 COMPARED TO JUNE 30, 2007



Revenue. Consolidated revenue for the three-month period ended June 30, 2008 was $163.8 million, representing a 10.2% increase over the same period in 2007 of $148.7 million.



Media segment revenue decreased to $79.3 million for the three-month period ended June 30, 2008 compared to $100.9 million for the same period in 2007. The decrease of $21.6 million, or 21.4%, in Media segment revenue was attributable to a decrease in lead generation revenue, partially offset by an increase in our display advertising businesses. We believe the decrease in our lead generation marketing revenue was primarily due to the ongoing effects of the FTC inquiry into this business, which is described in note 9 to our condensed consolidated financial statements. While the FTC inquiry has been resolved, we have not returned to the level of revenues earned prior to the FTC inquiry.



Affiliate Marketing segment revenue increased to $29.8 million for the three-month period ended June 30, 2008 compared to $27.0 million in the same period in 2007. This increase of $2.8 million, or 10.3%, was primarily due to an increase in our number of customers and an increase in transaction volumes associated with both new and existing customers.



Comparison Shopping & Search segment revenue increased to $45.4 million for the three-month period ended June 30, 2008 compared to $13.4 million in the same period in 2007. The increase of $32.1 million, or 239.5%, was primarily attributable to the acquisition of MeziMedia in July 2007. Please refer to note 4 of our condensed consolidated financial statements for pro forma financial information assuming the acquisition of MeziMedia closed as of January 1, 2007. With the acquisition of MeziMedia, Comparison Shopping & Search segment revenue is concentrated with a limited number of customers. A loss of, or reduction of revenue from, one or more of these customers could have a significant negative impact on the revenue of this segment.



Technology segment revenue was $10.1 million for the three-month period ended June 30, 2008 compared to $7.8 million for the same period in 2007, an increase of $2.3 million, or 29.6%. The increase in revenue was primarily related to higher volumes of ad serving during the quarter ended June 30, 2008 as compared to the same period of the prior year. Technology segment revenue is concentrated with a limited number of customers. A loss of, or reduction of revenue from, one or more of these customers could have a significant negative impact on the revenue of this segment.



There is no guarantee that our revenue will continue to grow at historical rates, that we will complete acquisitions in future periods or that any potential future acquisitions will provide the same revenue impact as historic acquisitions.



Cost of Revenue and Gross Profit. Cost of revenue for the Media and Comparison Shopping & Search segments consists primarily of amounts that we pay to website publishers and distribution partners that are directly related to a revenue-generating event. We pay these entities on a CPC, CPA, CPL or CPM basis. Cost of revenue for all segments also includes labor costs, depreciation on revenue-producing technologies and Internet access costs. In addition, cost of revenue for the Media segment also includes e-commerce product costs and shipping and handling costs. Our consolidated cost of revenue was $51.7 million for the three-month period ended June 30, 2008 compared to $49.1 million for the same period in 2007, an increase of $2.6 million, or 5.4%. Our consolidated gross margin was 68.4% and 67.0% for the three-month periods ended June 30, 2008 and 2007, respectively.



Cost of revenue for the Media segment decreased $5.4 million, or 13.4%, to $34.5 million for the three-month period ended June 30, 2008 compared to $39.9 million for the same period in 2007. Our Media segment gross margin decreased to 56.5% for the three-month period ended June 30, 2008 compared to 60.5% for the same period in 2007. The decrease in Media segment gross margin resulted primarily from a lower mix of promotion-based lead generation revenue, which generates a higher gross margin than a number of other components of Media segment revenue due largely to the classification of certain online advertising costs as sales and marketing expense and not as cost of revenue. These online advertising costs are classified as sales and marketing expense as they are not directly related to a revenue-generating event.



Cost of revenue for the Affiliate Marketing segment increased $1.3 million, or 39.3%, to $4.5 million for the three-month period ended June 30, 2008 compared to $3.2 million for the same period in 2007. Our Affiliate Marketing segment gross margin decreased to 84.8% for the second quarter of 2008 compared to 88.0% for the same period in 2007 due to the mix of lower margin revenue in the current quarter as compared to the prior year period.



Cost of revenue for the Comparison Shopping & Search segment increased $6.5 million to $11.8 million for the three-month period ended June 30, 2008 compared to $5.3 million for the same period in 2007 primarily due to the acquisition of MeziMedia. Our Comparison Shopping & Search segment gross margin increased to 74.0% for the second quarter of 2008 from 60.6% for the same period in 2007 due to the inclusion of MeziMedia, which generates higher margins than the other components of this segment.



Technology segment cost of revenue was $1.5 million and $1.4 million for the three-month periods ended June 30, 2008 and 2007, respectively. Our Technology segment gross margin increased to 85.0% for the three-month period ended June 30, 2008 from 81.5% for the same period in 2007 due to the operating leverage associated with the higher revenue. As the gross margin for the Technology segment is highly dependent upon revenue due to the existing operating leverage, any increases or decreases in segment revenue may have a significant impact on segment gross margin.

Operating Expenses:



Sales and Marketing. Sales and marketing expenses consist primarily of compensation and employee benefits of sales and marketing, network development and related support teams, certain online and offline advertising costs, travel, trade shows, and marketing materials. Online advertising costs included in sales and marketing expenses are comprised primarily of amounts that we pay to website publishers and distribution partners that are not directly associated with a revenue-generating event. Total sales and marketing expenses for the three-month period ended June 30, 2008 were $46.1 million compared to $42.2 million for the same period in 2007, an increase of $3.9 million, or 9.3%. Sales and marketing expenses increased primarily due to the inclusion of online advertising costs of MeziMedia, acquired in July 2007, offset partially by a decrease in online advertising costs in our lead generation marketing business. Our sales and marketing expenses as a percentage of revenue remained relatively flat at 28.1% for the three-month period ended June 30, 2008 compared to 28.4% for the same period in 2007.



General and Administrative. General and administrative expenses consist primarily of facilities costs, executive and administrative compensation and employee benefits, depreciation, professional services fees, insurance costs, and other general overhead costs. General and administrative expenses increased to $20.2 million, or 12.3% of revenue, for the three-month period ended June 30, 2008 compared to $17.2 million, or 11.6% of revenue, for the same period in 2007, an increase of $3.0 million, or 17.6%. General and administrative expenses increased due primarily to increased compensation costs, higher legal costs, the inclusion of general and administrative expenses of MeziMedia, acquired in July 2007, and higher bad debt expense.



Technology. Technology expenses include costs associated with the maintenance of our technology platforms, including compensation and employee benefits for our engineering and network operations departments, as well as costs for contracted services and supplies. Technology expenses for the three-month period ended June 30, 2008 were $10.2 million, or 6.2% of revenue, compared to $8.7 million, or 5.9% of revenue, for the same period in 2007, an increase of $1.4 million, or 16.4%. The increase in technology expenses was due primarily to the inclusion of MeziMedia’s technology expenses and increases in our worldwide technology staff.



Segment Income from Operations. Media segment income from operations for the three-month period ended June 30, 2008 decreased 23.4%, or $5.6 million, to $18.4 million, from $24.0 million in the same period of the prior year, and represented 23.2% and 23.8% of Media segment revenue in these respective periods. The decrease in Media segment income from operations was due principally to a decline in our lead generation marketing revenue, offset partially by an increase in our display advertising revenue as noted above.



Affiliate Marketing segment income from operations for the three-month period ended June 30, 2008 increased 2.0% to $14.5 million, from $14.2 million in the same period of the prior year, and represented 48.5% and 52.4% of Affiliate Marketing segment revenue in these respective periods. The decline in operating margin is primarily attributable to the lower gross margin as described above.



Comparison Shopping & Search segment income from operations for the three-month period ended June 30, 2008 increased to $10.5 million, from $1.8 million in the same period of the prior year, and represented 23.1% and 13.2% of Comparison Shopping & Search segment revenue in these respective periods. The increase in income from operations and operating margin was primarily attributable to the acquisition of MeziMedia as described above.



Technology segment income from operations for the three-month period ended June 30, 2008 increased 53.5% to $4.5 million, from $2.9 million in the same period of the prior year, and represented 44.6% and 37.6% of Technology segment revenue in these respective periods. The increase in Technology segment income from operations and the higher operating margin were attributable to the operating leverage associated with the higher revenue as described above.



Stock-Based Compensation. Stock-based compensation for the three-month period ended June 30, 2008 was $5.3 million compared to $4.9 million for the same period in 2007. The increase of $0.4 million was primarily due to the commencement of our Employee Stock Purchase Plan (“ESPP”) in September 2007.



Amortization of Intangible Assets Acquired in Business Combinations. Amortization of intangible assets acquired in business combinations for the three-month period ended June 30, 2008 was $7.8 million compared to $5.5 million for the same period in 2007. The increase was due to the amortization of intangible assets purchased in the July 2007 acquisition of MeziMedia. We currently anticipate amortization expense of approximately $30 million for the year ending December 31, 2008.

Income Tax Expense. For the three-month period ended June 30, 2008, we recorded income tax expense of $12.8 million compared to $11.8 million for the same period in 2007. The increase in the effective income tax rate for the three-month period ended June 30, 2008 to 43.7% from 40.0% in the same period of the prior year was primarily due to a decrease in tax-exempt interest income earned on our marketable securities and a decrease in tax benefits associated with fewer disqualifying dispositions of Incentive Stock Options (“ISOs”) that occurred during the three-month period ended June 30, 2008 as compared to the three-month period ended June 30, 2007. We currently anticipate an effective income tax rate for the year ending December 31, 2008 of approximately 42.5%.

CONF CALL

Gary Fuges

Welcome to ValueClick’s second quarter 2008 financial results conference call. The presenters on the call with me today are Tom Vadnais, Chief Executive Officer; John Pitstick, Chief Financial Officer and David Yovanno, our Chief Operating Officer of US Media.

Today's call contains forward-looking statements that involve risks and uncertainties including, but not limited to, trends in online advertising spending, and estimates of future online performance based advertising. Actual results may differ materially from the results predicted and reported results should not be considered an indication of future performance.

Important factors which could cause actual results to differ materially from those expressed or implied in the forward-looking statements are detailed under the Risk Factors section and elsewhere in filings with the Securities and Exchange Commission made from time to time by ValueClick including its Annual Report on Form 10-K filed on February 29, 2008, recent quarterly reports on Form 10-Q and current reports on Form 8-K.

Other factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements include but are not limited to the risk that market demand for online advertising in general and performance based online advertising in particular will not grow as rapidly as predicted, and legislation and governmental regulations that could negatively impact the company's performance. ValueClick undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.

With that, I'd like to turn the call over to Mr. Tom Vadnais, CEO of ValueClick.

Tom Vadnais

Thanks to all of you for joining us for our second quarter conference call. I am going to go through a brief review of our performance followed by John giving you some of the financial detail and then we’ll open it to questions.

Our second quarter results exceeded our original May 6th guidance for adjusted EBITDA and EPS but revenue was 1% below the low end of our original guidance. Future revenue trends in virtually all of our segments softened over the second half of the quarter. We believe this softness will continue through the second half of the year which is why we adjusted in our July 17th announcement our 2008 guidance.

The breadth of the revenue softness suggests to us that the economy is a key driver in revenue underperformance as opposed to landscape shifts. The good news is that we acted quickly to preserve margins in the face of a softer revenue outlook. Specifically we maintained discipline in managing our gross margin, discretionary spending and headcount plans. Later in the call I’ll spend a few minutes outlining some of the initiatives we have in place today to address revenue growth.

First I’ll give you some color on how Q2 progressed in each business segment. In media worldwide display advertising increased 10% year-over-year which is in line with growth rates posted by a number of our industry peers. During the second half of the quarter we began to see budgets soften. Feedback from advertisers leads us to believe that this will continue through the second half of the year. We are working with more advertisers but spending per advertiser is down.

While there are a number of new players that have entered the ad network space few players have the combined reach, page views, and proprietary technology in addition to the publisher and advertiser relationships that we do. This combination of assets is what drives performance and is a competitive differentiator.

In Lead Generation we are encouraged that the revenue was flat sequentially in Q2. It appears that most of the regulatory reviews by the FCC and various State Attorney General Offices that have negatively impacted revenue for the entire industry have been completed. There is no question that the economy is also impacting the Lead Gen channel which is why our revised outlook anticipates flat sequential revenue for the rest of the year.

Despite the revenue softness, disciplined gross margin and operating expense management resulted in 300 basis point sequential increase in media segment operating margin despite the flat sequential revenue we experienced.

Affiliate marketing revenue grew 10% in the quarter which was in line with our expectations as Commission Junction continues to take market share. In June CJ demonstrated that it continues to be the affiliate marketing solution of choice for the largest online U.S. retailers. 53% of the 2008 internet retailer top 500 using affiliate marketing providers work with CJ which is more than all other competing vendors combined. CJ has seven of the top ten including Newegg, Staples, Apple, Dell, HP, QVC and Best Buy.

In Europe the competitive landscape has stabilized and our CJ business in Europe grew sequentially and year-over-year in the second quarter. In media affiliate marketing experienced a softening top line as the quarter progressed. More than 70% of CJ’s business is in the retail vertical which is driven by consumer spending. A recent industry report shows that e-commerce year-over-year growth rates have decelerated from 18% in December 2007 to 11% in June 2008.

The technology segment again had another record quarter for revenue, profit and deals signed. Revenues grew 30% and segment operating income has grown 53% year-over-year. The trends we saw in Q1 continued in Q2 and we believe we are taking market share in this segment.

Comparison shopping’s quarter started on plan but also declined in the second half of the quarter. As with media and affiliate marketing, comparison shopping is being impacted by slowing consumer spending. Consumers are still visiting our sites but are researching more before taking advertiser action. The large drivers of the recent volatility in our comparison shopping segment had to do with acquiring and managing quality traffic through our operated sites with the expectations of our advertisers.

In mid Q2 we partnered with our advertisers to manage to a higher level on overall traffic quality which impacted volume and it is expected to continue for the rest of the year. Our current outlook however still reflects a 19% pro forma growth rate for this segment.

We maintain high quality sites that provide high value to both consumers and advertisers and we are very much engaged with our advertisers to demonstrate the value of our sites while enhancing traffic quality.

To recap we saw a theme of revenue softness in virtually all of our segments in the second half of the quarter. We were active in the quarter to manage the bottom line which with consolidated financial performance above the high end of our profitability guideline metrics.

With that I’m now going to turn the call over to John Pitstick, our CFO, to give you more detail on the financials and an update on our stock buyback program.

John Pitstick

Before I discuss our financial results I want to mention that second quarter 2008 results include three months of activity from MeziMedia which was acquired in July 2007. In the second quarter of 2008 ValueClick generated revenue of $163.8 million, a 10% increase over Q2 2007 revenue of $148.7 and below our previously issued guidance range of $166-170 million.

Gross profit was $112.1 million for the second quarter of 2008 compared to $99.6 million for Q2 of 2007. Gross margin increased to 68.4% in the second quarter of 2008 compared to 67% in Q2 2007 due to the gross margin management and the increased mix of higher margin affiliate marketing and technology segment revenue.

Our cash operating expenses which exclude stock based compensation and amortization expenses totaled $71.2 million in the second quarter of 2008 compared to $63.2 million in Q2 2007. As a percentage of revenue cash opEx was relatively flat at approximately 43%. Adjusted EBITDA was $43.5 million for the second quarter of 2008 above the high end of previously issued guidance and an increase of 12% over the prior year amount of $38.8 million. Second quarter 2008 adjusted EBITDA margins expanded 50 basis points year-over-year to 26.6%.

Stock based compensation was $5.3 million in the second quarter 2008 compared to $4.9 million in 2007 and represented approximately 3% of revenue in both periods. Amortization of intangible assets was $7.8 million in the second quarter 2008 compared to $5.5 million in Q2 2007. This increase is due to the acquisition of MeziMedia in July 2007.

The company generated operating income of $27.9 million in Q2 2008 compared to $26 million in 2007. Operating margin was 17% compared to 17.5% in the year ago period. This decrease in operating margin is due to the higher intangible asset amortization expense compared to the prior year.

Net interest and other income was $1.4 million for the second quarter of 2008. We expect this to be lower per quarter for the remainder of the year due to the stock repurchase in the second and third quarters.

Income tax expense for Q2 2008 was $12.8 million and the company’s net effective income tax rate was 43.7% in the quarter. This was above the previously issued guidance of 42% primarily due to the lower benefit from interest income earned on our tax free securities.

These figures result in second quarter 2008 net income of $16.5 million or $0.17 per share based on a weighted average number of 96.1 million shares outstanding. This performance is above the high end of our guidance of $0.15 to $0.16 per share and flat compared to the prior year.

We have generated over $66 million cash from operations in the first half of 2008 and we expect the second half of the year to also be in this range. Consolidated balance sheet as of June 30 remains strong with $191 million in cash, cash equivalents and market securities, $706 million in total stockholder’s equity and no debt.

As stated in this afternoon’s press release year-to-date through July 30th the company has repurchased approximately 10.6 million shares for $134.2 million including 7.4 million shares repurchased for $79.5 million since the company’s July 17th earnings pre-announcement. As of July 30th up to $21.8 million of ValueClick’s capital may be used to repurchase shares of the company’s common stock under this stock repurchase program.

Capital expenditures were approximately $3.1 million in Q2 2008 and we continue to expect capEx to be in the range of $10 million for the full year.

Today we are providing third quarter 2008 guidance and reiterating fiscal year 2008 guidance we provided in our July 17 pre-announcement press release. For the third quarter we expect revenue of approximately $150-156 million which is below Q2 revenue due to our view of continued macroeconomic weakness as Tom discussed earlier. We expect adjusted EBITDA in the range of $37-40 million and we expect diluted net income per common share of $0.14 to $0.15 which includes stock based compensation expense of approximately $0.04 per common share based on the expected weighted average share count of approximately 90 million diluted shares outstanding.

For the full year 2008 we expect revenue of approximately $655-675 million. We expect adjusted EBITDA in the range of $172-176 million. We anticipated diluted net income per common share of $0.69 to $0.71 which includes stock based compensation expense of approximately $0.15 per common share and an expected share count of approximately 93 million diluted shares outstanding.

Our full year guidance assumes approximately $29 million in amortization of intangibles, $10 million of depreciation, $23-24 million in stock based compensation, $5-6 million in interest income and a net effective income tax rate of 42.5%.

Before I turn the call back over to Tom I’d like to remind you we realigned our reporting structure to provide segment level results that most accurately reflect business drivers per segment and our internal management structure. As we advised you on the last call we reclassified our Search 123 Distribution business out of the affiliate marketing segment and into the existing comparison shopping segment and we renamed the segment Comparison Shopping and Search.

The press release provides historical correlating information for the past two years. With that I will now turn the call back over to Tom.

Tom Vadnais

Before we open the call up for questions I want to discuss some of the initiatives we are working on that I believe will help drive top and bottom lines over the long-term and realize better synergies among our businesses.

In media last week we announced the launch of our next generation Behavioral Targeting platform. This platform leverages values to combine critical mass of non-personally identifiable and non-client identifiable consumer behavior with proprietary predictive algorithms to build dynamic consumer segments and to drive enhanced performance for advertisers.

Along with being a step forward for media it is also a synergy play as we are positioned to leverage data from our non-media businesses which further enhances behavioral targeting performance and significantly differentiates our offerings from other companies in the market.

In Q2 media also launched the beta of its first vertical display network called AdRX Media to address the specific needs of pharma and other healthcare related advertisers. Unlike other vertical networks and beyond our premium conceptual publish partners our health network leverages the data and technology platform of our broader network which gives advertisers greater consumer engagement, targeting and optimization capabilities. AdRX Media has the largest potential reach of any health property on the web.

Media is also working with Commission Junction to build offer lead fees for large publisher that combine our media and CJ advertiser offers. They have a relationship in place currently with a tier one online publisher and we are working to extend this initiative to other large publishers looking to monetize inventory not sold for their direct sales force.

In media Lead Gen products we are both expanding and focusing the Lead Gen direct sales team so that it can better educate the advertiser on the value of Lead Gen in the post FTC world. It is early but we are encouraged by what we have seen so far including the return of some large advertisers to the Lead Gen channel.

In comparison shopping and search we are focused on actively managing the traffic quality and building Lead Generation technology to better filter traffic. We are also enhancing the technology platform to manage more keywords for traffic acquisition.

In terms of synergies Mezi is working with Media Team to leverage the Mezi SEM technology platforms to drive qualified search traffic to Lead Gen offers. Search is not a channel we have utilized in the Lead Gen segment to date but we believe there is an opportunity to do so with Mezi’s in-house platform and search expertise.

For CJ we are continuing to invest on a worldwide basis. We recently announced our launch in Spain in Q2 as we continue to expand in Europe. In the U.S. we are continuing to grow new service initiatives that were launched in the past two years to help us attract new customers and provide faster program growth. While these initiatives are in the investment stage and have a slight negative impact on margin in the near term we believe that these are the right moves to extend our global leadership position.

In technology our Mediaplex and Mediaplex systems divisions performed very well in the first half. Mediaplex systems which provides agency management software was on plan in the first half and continues to enhance their AdVault technology platform.

Mediaplex which provides third-party ad serving and tracking technology achieved record revenue and profit for both Q1 and Q2. We are continuing to invest in the Mediaplex platform to enhance our position as the largest independent, third-party provider. We expanded Mediaplex capabilities to track cross channel activities which allows customers to track and monetize display search, affiliate and other online channels.

There is a great opportunity in leveraging the scale in each of our core online marketing service businesses which also realized synergies among these offerings. I’ve given you a few examples of business specific and synergy initiatives we are working on and I believe our execution on these will enhance each individual offering and demonstrate the strategic value of having these multiple offerings in one company.

We have the right assets, people and strategies to drive long-term shareholder value while managing through the short-term economic challenges.

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