Multiple Revenue Drivers Working
Event
Nielsen reported 2Q14 adjusted EPS of $0.62, ahead of our and the Street's $0.61 estimate. Watch revenue of $694mm was in line with our $693mm but ahead of the Street's $683mm estimate, while EBITDA of $301mm was ahead of both our $294mm and the Street's $296mm estimate. Buy revenue was $900mm, ahead of our $884mm and the Street's $892mm estimate, while EBITDA of $167mm was light compared with our and the Street's estimate of $181mm and $171mm, respectively. 2014 guidance was largely maintained.
Impact & Analysis
Slightly positive. We're a little surprised in the stock pull-back today; but we'd been a little surprised by the run-up lately, too, so we'll call it a wash. Investors may be disappointed in OCR revenue comments ("tens of millions") and Watch margins, but they were in line with our expectations. We continue to see NLSN as properly valued: it remains a dominant info services franchise with mid-single-digit organic revenue growth and cost efficiency programs that should grind margins higher. But it also has competitive flanking in online video ads (SCOR's vCE) and local TV ratings (RENT). Given this, combined with likely at least two more private equity secondary offerings, we remain comfortable on the sidelines. We felt the earnings report showed continued progress across key growth drivers in Watch: OCR (100 clients are now using mobile), Audio synergies and growth initiatives, and Ad Solutions continuing to ramp. And in Buy, we got more details on the partnership with Alibaba (positive, but not a surprise) and an update on platforms like Answers on Demand and Global Track Complete, which we believe can eventually help margin mix shift.
Valuation & Recommendation
Our target goes to $48 from $45, primarily due to rolling over to 2015 figures for valuation (slightly higher estimates also helped). Our target implies 12.2x 2015 adjusted EBITDA and 17.5x adjusted P/E.
Daniel Salmon, Equity Research Analyst at BMO Capital Markets. Research trends at the intersection of entertainment, advertising, data and technology. Dan can be reached at dan.salmon@bmo.com. 
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