NIELSEN: 2017 Investor Day Takeaways - Pivotal Research

Nielsen hosted its annual investor day on Thursday introducing guidance for 2018 and 2020 demonstrating several initiatives while also announcing key pieces of news New explicit guidance for 2018 called for Buy segment revenues between 1 and 1 based upon a developed market decline of 2 to 4 and emerging market growth of 8 to 10 Watch segment revenues are forecast to rise by 5 to 6 These figures were inline with our prior expectations Margin guidance for a reduction of 60bps contrasted with our expectation for improvement next year as the company39s planned internal investments will more than offset operating efficiencies The combination of those efforts are intended to lead to a 4 CAGR through 2020 including 05 to 10 of annual growth from MampampA also inline with our prior expectations albeit with higher adjusted margins than we previously forecast at 35 This compares with our prior 33 forecast although that forecast did not include an expectation of restructuring activity in the years leading up to and including 2020 As the company now intends to incur 280mm in cumulative restructuring costs between 2018 and 2020 amp8211 if we included those costs in adjusted EBITDA margins a 35 figure in 2020 would plausibly end up back around 33 Initially more concerning to us and to investors as indicated by the stock39s declines early in the day was the company39s newly articulated goal of 200 per share EPS in 2020 substantially below prior forecasts ours was at 256 Our model presumed taxes would fall towards a 25 rate over a multiyear period while Nielsen effectively assumes no changes in its targeted 380385 book tax rate for this year and next Of course if the status quo held Nielsen could well continue paying cash tax rates that remains substantially lower than the book tax rates Overall taxes account for the bulk of the difference between our prior expectations and where 2020 guidance Implied expectations for higher interest expenses were a more meaningful negative factor not explicitly considered in our prior model In short while the new guidance was meaningfully lower than our prior expectations on the headline for practical purposes it was only slightly lowerNotable news related to settop data from Comcast which Nielsen will include in its local TV audience measurement product supplementing data from Charter DISH and ATampampT We believe this is the first instance of Comcast licensing its data in this manner Press reports from two years ago indicated at that time Nielsen was willing to pay 100mm annually for exclusive access although undoubtedly the amount Nielsen is paying is much less than this amount now given the successes Nielsen has had in securing other datasets Beyond the likely product improvements this means for the local business we think there are more important strategic considerations around Comcast providing access to its settop data given Comcast39s past flirtations with entering the measurement business The news may also be positive to the extent that it reflects a deeper ongoing relationship with Comcast one of Nielsen39s largest customers and helps ensure that despite public criticisms Nielsen often faces the companies maintain a deep and often interdependent relationship To further illustrate an expansion of this relationship Nielsen39s presentation slides indicated that NBCU is now subscribing to Nielsen39s outofhome TV measurement service now alongside Fox Turner ESPN CBS and the NFL NetworkManagement also announced an expanded relationship with WalMart describing it as transformative and involving a tighter reliance by WalMart on Nielsen data making it as a core element of WalMart39s supply chain The opportunity for Nielsen is that WalMart may encourage manufacturers to rely on the same data for purposes of optimizing the manufacturerretailer relationship WalMart is also providing Nielsen with access to Jetcom data for ecommerce measurement improving Nielsen39s product in that sphere as well Expenses will be frontloaded with revenues expected towards the back half of 2018Overall the enhanced investments next year are supportive of higherprobability longterm revenue and profit growth However accounting for the costs associated with these efforts in our model we arrive at a slightly lower price target now 38 vs 39 previously We continue to rate the stock HOLDVALUATION We value Nielsen with a DCF using a 64 nearterm discount rate a 115 longterm discount rate and longterm 40 growthRISKS include macroeconomic trends the rising availability of lessexpensive research solutions which could impact Nielsen39s discretionary services and the potential that Nielsen39s status as the provider of a TV advertising trading currency could be threatenedFULL REPORT INCLUDING RISKS AND DISCLOSURES CAN BE FOUND HERE NLSN 111017pdfThe opinions and points of view expressed in this content are exclusively the views of the author andor subjects and do not necessarily represent the views of MediaVillagecomMyersBizNet Inc management or associated writersamp160

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NIELSEN: 2017 Investor Day Takeaways - Pivotal Research

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