Nielsen: Staying Strong as Landscape Evolves

Our view Stable core business longterm relationshipscontracts solid competitive position and topline opportunities from developing markets and new digital products along with favorable comparison of earnings multiple in context of PEG continue to make Nielsen an attractive stockKey points Putting Pen to Paper on 2016 Watch Topline Growth Potential Heading into 3Q15 earnings focus will shift into 2016 and potential for Watch topline acceleration As new products gain traction DAR DCR etc and noncore low margin products quotrunoffquot NetRatings or are likely divested NRG core nonAudio measurement will likely grow in the 67 range While press reports indicate bankers were hired to potentially sell NRG timing and certainty is unknown With Audio growth likely to remain in a lowsingledigit range the quotnetquot is Watch on a quotreportedquot basis will probably grow in the midtohigh 5 range But quotrecurringquot business revenues will probably increase 67 validating the acceleration thesisInvestors Have Been Asking More Questions Regarding Competitive Landscape for Domestic TV Audience Measurement Given pending consolidation of TV and online audience measurement players we39ve been asked often recently by clients if we see NLSN39s competitive position as more vulnerable to erosion While other forms of audience measurement and analytics may very well have a role in the unfolding ecosystem we don39t see much vulnerability to NLSN39s position as the currency of TV and longerterm Video advertising transactionsNLSN Offers The Only Cross Platform Currency Measurement quotCoveringquot All Forms of Video To our knowledge and from checks NLSN remains the only scaled platform measuring over the air TV viewership as well as cable STB and online Video in an integrated fashion OTA viewership may seem like an afterthought but it represents close to 10 of total TV viewership skewing higher amongst certain demos such as Hispanic Further NLSN39s panel attempts to represent media consumption habits of the entire US over Cable Broadband only and OTA and offers a single unified currency across those measurements Offering an quotapples to applesquot comparison of online versus offline cable and OTA viewers with the same panel measuring both should offer competitive advantage versus nonoverlapping incomplete census based competitionTo Get TV Dollars Online Video Will Have to Play by Something Closer to TV39s Rules Favoring NLSN NLSN historically hasn39t dominated online measurement But Advertisers will ultimately treat premium video as an quotagnostic conceptquot without regard to screen type In this world a unified currency will be required NLSN has a clear advantage as the dominant player in traditional TV In other words as premium online video seeks share the ecosystem will likely evolve around the bigger pie TV dollar volume transaction versus the vastly smaller pie online video dollarsValuationOur valuation methodology derives a 54 price target for NLSN shares We average our sumoftheparts analysis DCF analysis and forward multiple on a 2016E Adjusted PE In our DCF we utilize a WACC of 68 and assume a longterm debt to total capital ratio of roughly 28 The valuation assumes a 2016E Adj PE of 19x and a 2016E EVEBITDA multiple in our sumoftheparts analysis of 12x for both the Watch and Buy segmentsPrice target impediments Financial Results Particularly Top Line Could Be Impacted by FX Fluctuations In 2014 roughly 46 of Nielsen39s revenue was in a currency other than the US dollar This relatively high exposure to foreign currency means that financial performance in any given quarter may be impacted by exchange rates That said because operating expenses are also exposed to a similar currency breakdown we believe that the risk to operating income should be lowerChanges in Consumer Behavior or Political Policy Could Make Online Measurement More Difficult Nielsen Online Campaign Ratings rely on consumers staying quotlogged inquot to the data partners39 website Facebook and a reduction in tendency to do so or software designed to reduce tracking could decrease the sample size and make online measurement more difficult Additionally political policy limiting online tracking although we don39t see any legislation pending could have a similar effectTechnological Changes Could Reduce Advantage Provided by Nielsen39s TV Panel If technological changes make it easier to accurately measure viewership particularly viewership by demographic information then the value provided by Nielsen39s ratings could be diminished For example a shift toward OvertheTop OTT viewership could make it easier to measure individual viewership reducing the value add provided by the TV panel Another example could be the adoption of settop box data as a viable alternative to Nielsen39s data for certain purposesLink to Full Research Report including Required Disclosures and DisclaimerAll values in USD unless otherwise notedThe opinions and points of view expressed in this commentary are exclusively the views of the author and do not necessarily represent the views of MediaVillagecom MyersBizNet Inc management or associated bloggers amp160

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