Speed –Using the Internet, researchers can collect and process large volumes of data from diverse groups across multiple markets. Survey response times are measured in hours instead of weeks since Internet technology allows thousands of surveys to be administered simultaneously. Cost effectiveness – Internet surveys dramatically lower the cost of market research by minimizing data collection costs. Improved results – The Internet allows a level of privacy and anonymity not possible in telephone or mall-based surveys. In addition, since there is no interaction with an interviewer; interview bias is eliminated. Internet surveys can also include images, sounds and video not possible with telephone or mail surveys.
While still in an early growth stage, online research is expected to transform the worldwide market research industry. Overall market research spending is forecast at around $12 billion in 2007 and projected to grow 5-7% annually over the next several years. Online market research represents a multi-billion dollar opportunity that is largely untapped. Spending on online research is forecast to reach $1.9 billion in 2007 but is dwarfed by spending on mail, telephone and mall-based surveys estimated at $10 billion This disparity suggest an $8 billion opportunity as online surveys begin to replace traditional survey methods.
Harris Interactive Inc. (Nasdaq: HPOL) is one of the best-known names in online research. Most Americans are familiar with The Harris Poll, one of the longest running independent opinion polls in the United States. Harris Interactive ranks as the 12th largest market research firm worldwide and also as one of the world’s fastest-growing market research businesses. Approximately 60% of this company’s surveys have already transitioned to online research. Revenues for the first nine months of FY 2007 were $157 million, up slightly from $156 million in the same period last year; however, net income declined to $5.7 million, or $0.10 per share, in the nine-month 2007 period, from $6.1 million, or $0.10 per share, a year earlier. HPOL’s business is underperforming this year because of some research staff losses last year. Since then, the company has rebuilt its external North American sales force and begun generating new bookings. Its global footprint expanded with the acquisition of Media Transfer AG, a German online research firm. Analysts expect HPOL to produce 36% growth next year and growth averaging 23% annually over the next five years. Harris Interactive shares were recently trading at a 35 P/E and a 28 forward P/E. My $7 price target is 33% above the current price.
HPOL 1-yr chart
Greenfield Online, Inc. (Nasdaq: SRVY) provides Internet-based survey and comparison shopping solutions primarily in North America and Europe. Millions of panelists worldwide participate in its surveys. Its Internet survey solutions are marketed to more than 2,500 large market research and consulting firms worldwide. Through its Ciao subsidiary, Greenfield Online is a leading provider of in-language comparison shopping portals in Western Europe. Users post product reviews on these portals, and Ciao has gathered several million product reviews that are available to Ciao visitors making purchases. Ciao revenues are generated from e-commerce merchants who pay lead referral fees when consumers click through to their websites. SRVY revenues grew 12.5% in 2006 to $100.3 million, and net income rose to $8.5 million, or $0.33 per share, from a loss of $66 million, or $2.72 per share, in the prior year. March 2007 quarter revenues grew 27% year-over-year, to $27.5 million, and net income rose to $2.0 million, from $0.8 million in the same quarter one year ago. Analysts expect this company to produce 39% growth this year and 24% annual growth over the next five years. My $19 price target for these shares is 20% above the current price.
SRVY 1-yr chart