Ad Network Takes Hit: ValueClick Sees Display Ad Decline In Q2

valueclickAn ad-network stalwart is struggling.

The earnings release on the SEC’s site has few details on the display advertising performance for ValueClick, but the earnings call was another matter.

In spite of its acquisition of display ad retargeter Dotomi in 2011, ValueClick continues to search for solutions to shore up the company’s growth potential.

Its Q2 2013 display advertising results, which primarily seem to be associated with ValueClick’s legacy ad-network business (or, as CEO John Giuliani said, “insertion order-driven display business”) showed a decline in the US. Companies like Yahoo and The New York Times can relate — insertion order business for bulk buys of guaranteed and non-guaranteed media are on a slippery slope. The impression-based buy reigns, fueled by real-time bidding (RTB).

“We didn’t see the monthly ramp that we did in the last Q2 [2012],” said ValueClick CFO John Pitstick. And results this past July apparently are not looking much better, according to Pitstick, who spoke to Wall Street analysts after the afternoon earnings release.

The ValueClick executives claimed that they expect business to “ramp” in Q4, but given that fact that most display advertising businesses see a big revenue jump compared to the first three calendar quarters of the year — due to  the holiday shopping season — this isn’t necessarily a good sign. Is the ramp compared to Q3 2013? Or is it year-over-year?  ValueClick would hope for the latter, but it isn’t predicting yet. Analysts seemed wary on the earnings call.

In answer to an analyst question, Giuliani answered a client-related, Facebook advertising question, saying that Facebook advertising was part of his company’s mix as clients were asking to buy on the social giant’s site. (AdExchanger has yet to see the obligatory Facebook Exchange release from ValueClick.)

Analysts were a tad obsessed with Google Affiliate Network revenue. Giuliani, the CEO, let out a clue to the potential of these affiliate advertisers by saying they didn’t get the service level at Google that they do at ValueClick’s own Commission Junction. Hence, the pricing potential of the $30 million Google Affiliate Network business that ValueClick inherited is weak. It may be time to start thinking GAN revenue is inconsequential for the overall growth of ValueClick.

ValueClick said the 32 quarters of sequential growth remained unbroken for retargeter Dotomi, which operates within the company. Furthermore, Giuliani said he expects more Dotomi growth in the second half of the year. Overall, the expectation seems to be a combo of current Dotomi growth and selling its retargeting services to ValueClick’s Commission Junction clients.

Interestingly, demand-side platforms were mentioned as partially to blame for ValueClick’s dwindling ad-network business.

Parts of Wall Street still seem to be learning about DSPs in that ad-network-like arbitrage can be easily created by a DSP — and often is. In answer to a question about whether Dotomi could lose business to DSPs, Giuliani claimed that clients “wouldn’t move to a DSP; there’s not enough richness and personalization.” Companies like Amazon, Criteo, TellApart, eBay Enterprises (was Fetchback) and many others are most certainly creating a competitive environment for ValueClick’s Dotomi. But the ValueClick CEO continues to position Dotomi as something beyond a retargeting product and is calling it “CRM” as, presumably, a marketer’s first-party data is used to create addressable display advertising across exchangelike inventory sources.

ValueClick isn’t exactly swimming in cash, with $127 million in the bank, but perhaps it could make a few acqui-hires to help propel business in the future. Any acqui-hire target will have to be comfortable with the transition issues ValueClick has suffered in the recent past.

In after-hours trading, ValueClick stock was taking a pounding, down nearly 15% and giving the company a market cap of approximately $1.9 billion, according to Google’s ticker.

Read the earnings call transcript from Seeking Alpha.

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