7 Ways Comscore Plans To Grow Its Business

Successful businesses catering to the individual consumer are realizing that they must devote marketing dollars to online campaigns in order to remain competitive. However, it is often difficult to convince management to spend these resources without being able to measure return on investment and justify this type of allocation. Comscore (SCOR) is the market leader in consulting with companies to determine the best way to set up such a marketing campaign and determine its effectiveness.

While the company has only been public for a couple of months, the history of the business goes back a few years during which time the company has built up a nearly 60% market share in the U.S. market for web traffic data and analytics. Its primary competitior is NetRatings, with less than 40% of the U.S. market, but ad server firms such as ValueClick (VCLK) (see July note) and aQuantive (AQNT) also provide competition. Still the company has an impressive domestic stable of clients including 85 of the Fortune 1,000 companies, and naming such all-stars as Microsoft (MSFT), Yahoo (YHOO), and Google (GOOG).

SCOR has also begun to expand internationally and while it has decided to focus on the U.S., it recently increased its portion of revenue from overseas to double digits and expects international markets to continue to play an increasing role in the company’s growth. The company has noted several key initiatives to grow its business over the next few years.

Comscore plans to:

Deepen current relationships

Grow its customer base

Expand its intelligence platform

Address emerging media types

Expand its technology leadership

Build product awareness (through media exposure)

Grow internationally

One statistic that points to their success as far as awareness goes is that there were nearly 20,000 citations of the company’s products or services in publications from May 2006 through April 2007. That is a LOT of free publicity.

There are some challenges investors will have to face over the next year. At this point, 66% of the stock is owned by insiders and there is a lockup period restricting those shares. December 26, the lockup begins to expire and this could provide an overhang to the stock price. Also, changing technology may cause difficulty as traditional measures of traffic and clicks may become obsolete as java platforms that automatically refresh pages are harder to quantitatively analyze. Still, the company has a proven track record of innovation and it would be uncharacteristic of them to not adapt with the changing environment.

The stock is not cheap at 26 times consensus 2008 earnings, but Jefferies estimates revenues should grow 26% over the next 5 years. I think it is worth beginning a small position at this level and then adding to it as the picture becomes clearer and a better trading pattern asserts itself. Volume may dry up to give this name less liquidity. If this happens, investors should be careful not to get too deep in the name where it would be difficult to liquidate a position if they are stopped out. Still, the opportunity appears to be attractive given the risk apparent at this time.

Comments

[zack miller]

Interesting. Question: I know Google is a customer. Do you know what kind of customer? This just seems to me to be playing into a Google trap. Given all the data Google has on traffic patterns and the marriage between Google's user data and Google Analytics publisher data, isn't this something that just naturally, Google will give away for free to boost its AdSense revenues?

[DominicJones]

Zack, Great question.

[Lisa]

Google could eliminate Comscore in one shot, by offering an option on Google Analytics to make your data public. Then all those customers who pay for data from Comscore would get it for free from Google Analytics.

Meanwhile, more competition:

Quantcast Gets $20 Mil. in Funding
January 22, 2008
By Brian Morrissey

NEW YORK Digital audience measurement firm Quantcast is building its war chest to take on category leaders with a $20 million round of venture financing.

Polaris Venture Partners and Founder Fund led the Series B round, which the San Francisco-based company said it would use to build out its service to improve the accuracy of Internet audience measurement from the panel-based systems currently used.

www.adweek.com/aw/iq_i...

Full disclosure: no position, long or short.