Nielsen reported 4Q15 results that were consistent with expectations of mid-single digit growth for the quarter and the year. Constant currency growth was +5.6% for the quarter, with Watch up +5.2% and Buy up +5.9%, both on constant currency bases. For the full year, Watch was up +4.9% while Buy was +5.0%. Inside of Watch, Audience Measurement of video and text was up +7.6% in constant currency terms. Growth in the Watch segment was aided by the consolidation of Nielsen Catalina Systems and acquisition of eXelate. Other Watch businesses (especially the former Arbitron) were down in the quarter. In Buy emerging markets were strong at +8.4%, while developed markets were up by +4.8%, both in constant currency terms.
Adjusted EBITDA margins were up by 45bp in the quarter on a constant currency basis, amounting to 33% in the quarter and 30% for the year. Adjusted EPS was $0.82 for the quarter, and $2.63 for the year. GAAP EPS equaled $1.53 during the year.
2016 guidance was mostly unchanged from December’s investor day, with constant currency revenue growth of +4.0% to +6.0%, adjusted EBITDA margin improvements of 50-70bps and adjusted EPS of $2.83 - $2.93. However, current foreign exchange rates are slightly less favorable for Nielsen, as stable rates would now cause a -2.1 % revenue impact and -1.4% EBITDA impact vs. -1.7% and -1.1% effects, respectively, in December. Our prior 2016 estimates called for adjusted EBITDA margins of 31% with adjusted EPS of $2.87.
Management commentary on Marketing Effectiveness (especially including the newly consolidated Nielsen Catalina Solutions, or NCS business and the recently acquired eXelate) was important to note. For the quarter, this fast-growing group of businesses accounted for 5.4% of total revenue, up from 4.2% in the year ago period, and underlying growth in the ‘teens seems reasonable for the foreseeable future. We think related investments reflect important strategic choices that Nielsen has made, as large marketers increasingly look to incorporate parallel audience-based or customer-based data sources that are not yet (but which could one day be) substitutes for core Nielsen currencies. Similarly, we can see other new revenue streams associated with other products which may help the company if the core ratings business is compressed over time, as with digital ad ratings (whose revenues doubled in 2015) and measurement of SVOD services for traditional media owners as well.
Overall, the quarter and outlook were solid, if consistent with prior expectations. Our price target remains at $45 on a YE2016 basis and we continue to rate the stock Hold.
VALUATION: We value Nielsen with a DCF, using a 6.8% near-term discount rate, an 11.5% long-term discount rate and long-term 4.0% growth. Our price target equates to a 16x P/E on an adjusted basis.
RISKS include macro-economic trends, the rising availability of less-expensive research solutions (which could impact Nielsen’s discretionary services) and the potential that Nielsen’s status as the provider of a TV advertising trading currency could be threatened.
FULL REPORT INCLUDING RISKS AND DISCLOSURES CAN BE FOUND HERE: NLSN 2-11-16.pdf
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