Jefferies said meetings with the management of comScore Inc. (NASDAQ: SCOR) focused on the company's compelling growth opportunities, given a recently expanded product portfolio.
While there is no 2012 guidance yet, the tone and posture about the business going into 2012 were positive. 2010/2011 were acquisitions/investments years, which set the stage for comScore to perform at least in line if not better than expectations in 2012/2013. We see compelling risk/reward for patient investors, said Youssef Squali, an analyst at Jefferies.
Following a disappointing second half of 2011 guidance after second quarter earnings (5-month delay in AT&T cross media revenue and caution on project revenue were cited at the time) and weak share price performance, consensus expectations are currently calling for about 20 percent revenue growth and about 22 percent EBITDA margin in 2012, said Squali.
However, short of providing 2012 guidance, management seemed comfortable with current consensus estimates.
Squali said acquisitions contributed new products and capabilities to comScore's portfolio, but integration efforts and one time costs resulted in a 2-point hit to EBITDA margin in 2011. However, turning to 2012, management is looking for 2-point of margin expansion, despite focus on expanding the sales force.
Management believes EBITDA margin bottomed in the third quarter of 2011 (18.2 percent), and over time sees roughly 1-2 points of expansion per year.
Squali said gross margin is expected to contribute a couple of points (gross margin about 67 percent in fiscal 2011 from acquisitions versus about 70 percent typically) and additional operating leverage is seen in the general and administrative line. There is less leverage opportunity in the sales and marketing line due to increased focus on selling efforts near-term.
Management provided a brief update on 2010 acquisitions. In summary, management sees a lot of opportunity and is pleased with Nedstat (margin recently broke even, about 10 percent in fourth quarter), Nexius (bookings up about 30 percent), AdXpose (core to VGRP currency effort), and Certifica (LatAm now 3-plus percent of revenue, from 1 percent).
The one exception is ARS, which has seen mixed results. Management noted weakness from a couple of clients in the TV copy testing business. Today, audience analytics represents about 77 percent of revenue, advertising analytics about 10 percent, web analytics about 8 percent, and mobile analytics about 5 percent.
However, recent acquisitions expanded comScore's addressable market to $2.67 billion from $765 million previously, so in 3-5 years, the management believes each of comScore's new businesses (ad analytics, web analytics, and mobile analytics) could be larger than the core audience business today. As an example of progress towards that goal, the company recently won one of its largest web analytics deal with the BBC, at about $700,000 per quarter.
The comScore versus Nielsen trial is expected shortly after Thanksgiving (with potential for settlement in the week before Thanksgiving), while the Nielsen versus comScore trial is expected sometime in early 2012.
comScore management is highly confident it will find infringement against Nielsen, and a settlement could be used as leverage for settling the Nielsen versus comScore trial, potential for settlement likely between the end of 2011 and beginning of 2012, said Squali.
comScore stock closed Friday's regular trading up 2.95 percent at $19.54 on the NASDAQ Stock Market.