NLSN - Nielsen

[dbuch]

Surprised I didn't see this on here yet. There is a write up on VIC and on valueinvestorinsight from a few years ago. NLSN has dropped dramatically and now trades at less than 10x normalized FCF. NLSN is a recession resistant business that has grown revenues 5-7% per annum in the past. 80% of revenues are contracted each year with 3-10 year contracts for their large customers. They operate two segments, Buy and Watch. 

 

Buy - which is 28% of operating profit, provides retail transaction measurement data, consumer behavior information and analytics for primarily CPG clients. This business has been struggling as large clients have cut back on spending. At the same time NLSN has been ramping up a new product, Connected System that provides better data for clients which has resulted in up front costs and lower margins. The emerging market piece of the business had been growing and offsetting the developed market piece but has recently posted negative growth as large CPG clients have pulled back spending there as well.  My thought is this eventually reaches flat growth as large CPG clients can't cut forever and new products should expand better data analytics. Walmart recently signed up for Connected System and should provide additional revenue once it's rolled out. 

 

Watch - which is 72% of operating profit and their product is the accepted currency for advertising on TV and radio. They are the primary metric used to determine the value of programming and advertising in the U.S. They have also built out their digital measurement and have agreements with NFLX, FB, Google Twitter etc. Google and FB can do their own measurement but advertisers still want a third-party measurement. Competition for TV is nearly non existent but they do face competition from comScore and IpSos in online measurement.

 

https://marketingland.com/google-announces-third-party-measurement-expansions-mrc-nielsen-comscore-236517

 

They cut this year's guidance as Buy is weaker than expected. The CEO is retiring at the end of the year and their cost cutting guidance which included $500mm of cost savings and 35% EBITDA margins by 2020 is probably going to get pushed out. The Buy segment may be for sale as they announced a strategic review but who knows.

 

I think the overall FCF the business generates should be close to $1B or $2.8/share. If they can grow 5% a year they should probably trade at a market multiple so call it $40.

 

 

 

[vince]

Surprised I didn't see this on here yet. There is a write up on VIC and on valueinvestorinsight from a few years ago. NLSN has dropped dramatically and now trades at less than 10x normalized FCF. NLSN is a recession resistant business that has grown revenues 5-7% per annum in the past. 80% of revenues are contracted each year with 3-10 year contracts for their large customers. They operate two segments, Buy and Watch. 

 

Buy - which is 28% of operating profit, provides retail transaction measurement data, consumer behavior information and analytics for primarily CPG clients. This business has been struggling as large clients have cut back on spending. At the same time NLSN has been ramping up a new product, Connected System that provides better data for clients which has resulted in up front costs and lower margins. The emerging market piece of the business had been growing and offsetting the developed market piece but has recently posted negative growth as large CPG clients have pulled back spending there as well.  My thought is this eventually reaches flat growth as large CPG clients can't cut forever and new products should expand better data analytics. Walmart recently signed up for Connected System and should provide additional revenue once it's rolled out. 

 

Watch - which is 72% of operating profit and their product is the accepted currency for advertising on TV and radio. They are the primary metric used to determine the value of programming and advertising in the U.S. They have also built out their digital measurement and have agreements with NFLX, FB, Google Twitter etc. Google and FB can do their own measurement but advertisers still want a third-party measurement. Competition for TV is nearly non existent but they do face competition from comScore and IpSos in online measurement.

 

https://marketingland.com/google-announces-third-party-measurement-expansions-mrc-nielsen-comscore-236517

 

They cut this year's guidance as Buy is weaker than expected. The CEO is retiring at the end of the year and their cost cutting guidance which included $500mm of cost savings and 35% EBITDA margins by 2020 is probably going to get pushed out. The Buy segment may be for sale as they announced a strategic review but who knows.

 

I think the overall FCF the business generates should be close to $1B or $2.8/share. If they can grow 5% a year they should probably trade at a market multiple so call it $40.

 

Funny how I was just thinking the same thing and yesterday did a search on cobf.  Dont know much about them, would be great if you could briefly explain their competitive advantage.  How confident (and why) will their earnings normalize, stay constant or even grow nicely over time?  What is stopping competitors from entering and what is the biggest threat to that barrier? And please point me in the direction of further reading if you can.  Thanks in advance

[dbuch]

I'm no expert on these guys but doing some work on them so feel free to add any insights.

 

Within the Buy segment, Nielsen has been collecting data for many years and CPG companies have heavily integrated Nielsen data into their work flow. The problem isn’t so much that they are losing their competitive advantage but that large CPG firms have been under pressure. It is a high fixed cost business so any slowdown in revenue growth hurts.

 

Within Watch, Nielsen has a near monopoly on selling information on TV ratings. They have the largest sample audience and have a brand that infers legitimacy. It is the measurement nearly all ad buyers use. Brands can create barriers to entry as they become the trusted source of information like Moody’s, S&P, Gartner etc. There has been a lot of technological disruption in the space but NLSN has done well and now can measure many more things.

 

They do face competition in digital online advertising as there are many players including Comscore/Rentrak. Nielsen is a big player and infers legitimacy and wants to be the digital currency for ad buying. Ad buyers want to ensure they get a good ROI on their marketing dollars and they don’t want Facebook grading their own work but as of now they likely don’t have the same pricing power in digital versus TV.

 

I think Watch can continue to grow the top line as it has over the last 10 years in the mid single digits given the growth in complexity. Buy is likely to take more time to stabilize but I think there is no reason they shouldn't be able to grow at GDP levels over the long term given the P&G's of the world are probably not going anywhere. The problem with Buy appears to be weak end-markets not competition.

 

The move away from ad-based content to the Netflix or Amazon’s of the world is a negative but then the question is where does GM, or P&G advertise to reach their audience? Will we live in a world where all content is subscription based with no ads? Probably not but I guess they would push more advertising to Facebook or Google and those ads would still need to be measured by a trusted third party to ensure people are seeing them.

 

Various links on NLSN

 

http://valueinvestorconference.com/2017/presentationPDFs/vic/001%20Dorsey%20VIC_Omaha_2017.pdf

http://www.valueinvestorinsight.com/pdfs/FebVII16Tr.PDF

https://www.arielinvestments.com/images/stories/Articles/2017/2017-ticker-investing-with-patient-long-term-view.pdf

https://www.valic.com/content/dam/valic/america-canada/us-corporate/documents/prospectuses-and-reports/annuities/ariel-funds/ariel_semiannual.pdf

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2350954

http://docplayer.net/55066365-Big-data-innovation-and-competitive-advantage-in-an-information-media-analytics-company.html

 

 

 

 

 

 

[vince]

I'm no expert on these guys but doing some work on them so feel free to add any insights.

 

Within the Buy segment, Nielsen has been collecting data for many years and CPG companies have heavily integrated Nielsen data into their work flow. The problem isn’t so much that they are losing their competitive advantage but that large CPG firms have been under pressure. It is a high fixed cost business so any slowdown in revenue growth hurts.

 

Within Watch, Nielsen has a near monopoly on selling information on TV ratings. They have the largest sample audience and have a brand that infers legitimacy. It is the measurement nearly all ad buyers use. Brands can create barriers to entry as they become the trusted source of information like Moody’s, S&P, Gartner etc. There has been a lot of technological disruption in the space but NLSN has done well and now can measure many more things.

 

They do face competition in digital online advertising as there are many players including Comscore/Rentrak. Nielsen is a big player and infers legitimacy and wants to be the digital currency for ad buying. Ad buyers want to ensure they get a good ROI on their marketing dollars and they don’t want Facebook grading their own work but as of now they likely don’t have the same pricing power in digital versus TV.

 

I think Watch can continue to grow the top line as it has over the last 10 years in the mid single digits given the growth in complexity. Buy is likely to take more time to stabilize but I think there is no reason they shouldn't be able to grow at GDP levels over the long term given the P&G's of the world are probably not going anywhere. The problem with Buy appears to be weak end-markets not competition.

 

The move away from ad-based content to the Netflix or Amazon’s of the world is a negative but then the question is where does GM, or P&G advertise to reach their audience? Will we live in a world where all content is subscription based with no ads? Probably not but I guess they would push more advertising to Facebook or Google and those ads would still need to be measured by a trusted third party to ensure people are seeing them.

 

Various links on NLSN

 

http://valueinvestorconference.com/2017/presentationPDFs/vic/001%20Dorsey%20VIC_Omaha_2017.pdf

http://www.valueinvestorinsight.com/pdfs/FebVII16Tr.PDF

https://www.arielinvestments.com/images/stories/Articles/2017/2017-ticker-investing-with-patient-long-term-view.pdf

https://www.valic.com/content/dam/valic/america-canada/us-corporate/documents/prospectuses-and-reports/annuities/ariel-funds/ariel_semiannual.pdf

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2350954

http://docplayer.net/55066365-Big-data-innovation-and-competitive-advantage-in-an-information-media-analytics-company.html

 

Very much appreciated!!

[Spekulatius]

^ I am not sure a third party middleman like NLSN will be needed in the online ad space with GOOG and FB ( and others) providing a similar service. With online advertising, the linkage between ads and the action is far closer than in the offline world.

[kab60]

^ I am not sure a third party middleman like NLSN will be needed in the online ad space with GOOG and FB ( and others) providing a similar service. With online advertising, the linkage between ads and the action is far closer than in the offline world.

That's my first thought as well. But how does one then explain the growth in the watch segment? According to management the outlook is pretty good for that segment because people want a third and independent party. Numbers look interesting (as well as Bravewarrior taking a big stake), but I don't quiet get what they do. :o

[mwtorock]

^ I am not sure a third party middleman like NLSN will be needed in the online ad space with GOOG and FB ( and others) providing a similar service. With online advertising, the linkage between ads and the action is far closer than in the offline world.

That's my first thought as well. But how does one then explain the growth in the watch segment? According to management the outlook is pretty good for that segment because people want a third and independent party. Numbers look interesting (as well as Bravewarrior taking a big stake), but I don't quiet get what they do. :o

 

Bravewarrior's stake was before the recent dump of 25%, right?

Can the buy segment be carve out? If so, how much that is going to worth?

Watch segment with long term consist cashflow should be worth a high multiple.

[mwtorock]

One thing I dont like is the management stopping buy back when the shares are cheap now. They bought back at much higher prices like nuts and paying a high dividend like utilities. Obviously they cant do both buy back and dividend due to low cashflow and high debt balance, but com'on what were they drinking before?

[Okonomen]

You mention a 10% fcf yield but do you remember to either exclude interest expense outflow (FCF/EV yield) or to include interest expense outflow (FCF/P). They are just extremely levered and looking at FCF ex interest outflow an doing a fcf/p would be apples/bananas. Can you elaborate on your fcf multiple calculation?

 

Historically their moat has been their knowledge database and analytics which have always had an extremely high value for customers advertising activities etc. However, I doubt they are as relevant today due to disruptive and much cheaper offerings from fx Google. They will probably sell off their Buy segment.

[dbuch]

You mention a 10% fcf yield but do you remember to either exclude interest expense outflow (FCF/EV yield) or to include interest expense outflow (FCF/P). They are just extremely levered and looking at FCF ex interest outflow an doing a fcf/p would be apples/bananas. Can you elaborate on your fcf multiple calculation?

 

Historically their moat has been their knowledge database and analytics which have always had an extremely high value for customers advertising activities etc. However, I doubt they are as relevant today due to disruptive and much cheaper offerings from fx Google. They will probably sell off their Buy segment.

 

Yes, i am deducting interest, I'm assuming they can generate $2.1B EBITDA, subtract $500mm CapEx, $360mm interest, $230mm cash taxes = $1B FCF. That is $2.8 FCF per share, or about a 12% FCF yield currently.

 

They have $8.4B of debt or about 4x EBITDA which is not extremely levered for a stable business. The bonds have traded off but still trade in the 90's or about 6.5% YTW which isn't distressed levels.

 

As far as their moat, i think their competitive advantage in TV is solid, again online not as strong but customers still want a third party measuring ROI not Google or FB telling you what the ROI is.

[dbuch]

Some articles on digital ads

 

http://digital-me-up.com/2018/04/23/digital-advertising-%E2%80%8Bfaced-ultimate-moment-truth/

https://variety.com/2017/digital/news/facebook-marketing-mix-results-compare-tv-digital-print-1201974509/

https://www.wsj.com/articles/a-primer-on-the-facebook-measurement-wars-1475617965

https://www.recode.net/2018/3/26/17163852/online-internet-advertisers-outspend-tv-ads-advertisers-social-video-mobile-40-billion-2018

 

 

 

 

 

[dbuch]

https://www.wsj.com/articles/activist-elliott-management-to-push-nielsen-holdings-to-sell-1534131900

 

[Grossbaum]

I've been interested in NLSN due to the strategic review process they announced and are expected to conclude by the time they have their Q3 conference call.

 

From the Q2 Call: David Kenny: "Let me start with the strategic review. We expect to conclude the review by the time we report our third quarter and we look forward to sharing the outcome with you then, if not earlier. The Board and management are working as quickly as we can to conclude."

 

My thought was if they could sell the "Buy" segment or the whole Company, you'd get a good return from here and if there was no action to conclude the strategic review you'd be protected somewhat by the current valuation (~13x P/E; ~13.0x EV/EBIT; ~9.2x EV/EBITDA).

 

That is generally still what I'm thinking.

 

I just wanted to post a comment from Discovery's B of A conference presentation today. I thought it sounded really negative towards NLSN's Watch business. It is just a small anecdote, so I wouldn't want to overreact, but perhaps I should be looking more critically at the Watch segment.

 

Also, perhaps it doesn't matter if you're just hoping to get your return in the stock from the strategic review catalyst (whatever comes of it in the next month of so).

 

Quote from the Conference today:

Jessica Jean Reif Ehrlich Let's shift gears and talk about advertising in the U.S. You, recently this week, announced a new relationship with 605, Kristin Dolan's company that provides comprehensive television data analytics. Can you give us any color on how 605 can help your advertising efforts?

 

Gunnar Wiedenfels Sure. We have a lot of respect for what Kristin has built there. And I mean, to answer that question, I actually -- I want to take a step back and talk about the state of measurement and data in the industry because it's a -- I mean I would say that the industry has really lost a decade from lack of innovation and it was extremely interesting to look at that sort of -- with my perspective, coming from Germany, you're moving to that #1 TV market of the world, just to find out that in 2018, Nielsen is still using paper diaries for measurement. I mean, it's...

 

Jessica Jean Reif Ehrlich It's incredible.

 

Gunnar Wiedenfels Yes, it's absolutely incredible. But as with so many things, a huge issue, I think, can be turned into a huge opportunity. And I will say that data-driven advertising is probably the single largest opportunity we have for TV advertising in general, especially for Discovery.

 

As you know, we're -- in terms of CPMs in the traditional ecosystem, we're somewhat in the lower end, especially compared with broadcast. And the opportunities that are lying ahead in terms of utilizing data, well beyond panel-based measurement, forget that. I think that's going to become very irrelevant over the next couple of years.

 

But to get to the 605 partnership that we just announced, together with Kristin's company, we're able to combine data from 40 million TV households through set-top box data, with a lot of additional data sources that they have lined up, to be able to look at attribution across the entire funnel, from the very beginning to the sales impact at the end of the funnel, which is something that historically hasn't been possible. And it's going to give us the opportunity to prove to our advertising clients the real value of TV advertising all the way through the funnel, which is an incredibly powerful tool that we haven't had previously.

 

We're also obviously part of [ Project Or ] working on targeting in the linear TV signal with our TV Everywhere products, which have grown by almost 10x over the past 2.5 years in terms of reach and video views. We're already getting much better monetization through dynamic ad insertion, et cetera, et cetera.

 

So there's huge potential. And for us, we've essentially moved on. Those are the kind of partnerships that we're looking at now. The Nielsen business case for many of our networks really isn't there anymore. We've already decided to stop rating some of our smaller networks because it just -- it doesn't make sense anymore.

 

[glorysk87]

Wouldn't pay too much attention to that anecdote. That's been the standard complaint about Nielsen for years - I've heard or read it dozens of times now.

 

First - paper diaries exist, but only in a limited way and only to measure local TV markets. Most NLSN measurement occurs using their PeopleMeters and other devices.

 

Second - despite paper diaries being pretty antiquated, they actually remain quite an accurate method of measurement.

 

That said, they have not been able to shift their business quickly enough to meet the demands of a rapidly changing ecosystem. I bought them a few years back and it remains my biggest losing position of my career. I do still think they're a very high quality company, but I'm not sure how much faith I have left in their ability to right the ship. I substantially decreased the size of my position last year.

[Grossbaum]

I see, thanks.

 

I'm also wondering about this part of his comment:

 

Gunnar Wiedenfels ...And the opportunities that are lying ahead in terms of utilizing data, well beyond panel-based measurement, forget that. I think that's going to become very irrelevant over the next couple of years.

 

My impression is that the Watch Segment is primarily a Panel based system. That is they use a statistically relevant sample of people to represent the larger universe. Maybe his comment is hyperbole. Or maybe Nielsen still has products that would be relevant beyond panel based measurement?

 

https://www.visualiq.com/about/blog/what-is-a-nielsen-panel

[glorysk87]

I see, thanks.

 

I'm also wondering about this part of his comment:

 

Gunnar Wiedenfels ...And the opportunities that are lying ahead in terms of utilizing data, well beyond panel-based measurement, forget that. I think that's going to become very irrelevant over the next couple of years.

 

My impression is that the Watch Segment is primarily a Panel based system. That is they use a statistically relevant sample of people to represent the larger universe. Maybe his comment is hyperbole. Or maybe Nielsen still has products that would be relevant beyond panel based measurement?

 

https://www.visualiq.com/about/blog/what-is-a-nielsen-panel

 

Panel based measurement is, so far, the best way to measure a population accurately in a statistically significant way.

 

There are plenty of other data-based methods of measuring audience viewing, but to my understanding they have issues that prevent them from getting truly accurate measurements.

 

ACR data is typically discussed most frequently as the "future of TV measurement" but from my conversations with people in the industry, it can't really be relied upon for accurate measurement. First, it is recorded from the cable box, and anyone with a cable box knows that it can stay on even when you shut your TV off. So there are large swaths of time where ACR would report a program being watched when the TV is actually off and no one is around. I haven't heard of a decent solution for this so far.  Second, ACR data doesn't do a good job reporting demographic data of the viewers. It might be able to tell when the cable box is on and a program is running, but it doesn't actually know who is watching.

 

There have been attempts to create panels using peoples' mobile devices to listen for audio watermarks, but so far these have not been entirely accurate either. People tend to leave their phones elsewhere when they watch, or other forms of data interference.

 

At least, this was the case as of about 12-18 months ago. I haven't spent much time keeping updated on the industry since significantly reducing our position.