NetRatings: High Demand For Service, But Stock Price Pressured (NTRT)

Mar.21.06 | About: NetRatings Inc. (NTRT)

At the end of 2004, NetRatings (NTRT) was trading above $20. Now, it trades around $13 and the volume is very low for a stock traded on the Nasdaq National Market.

The company's Nielsen/NetRatings service for measuring audiences and traffic to internet websites is the gold standard brand for this kind of research. All you have to do is look at the press pick-up the company gets. Whether the subject is, Google, or MSN, the NetRatings measurements are part of the story. It is the kind of public relations most companies can only dream of.

Given this market advantage, revenue growth has been fairly slow for NetRatings, which is one of the primary concerns underlying the weak stock price. Revenues for 2005 were only $68 million, up 15% from 2004. In Q4 05, the company showed an EBITDA profit of under $1 million. The company guided for revenue as high as $78 million in 200 with a modest EBITDA profit. The company expects a small GAAP lose.

NetRatings claims to have 1,600 clients worldwide.

ACNielsen's parent, VNU, owns 62% of NetRatings, but VNU is in play and has been in recent talks with private equity firms about a change in ownership at VNU. NetRatings relies on the VNU relationship, so the markets are understandably nervous about whether VNU's future course could affect NetRatings. The company also has competitors like comScore Networks.

NetRatings revenue and gross margins have improved nicely over the last few years, but the core to this business is that importance of the web and large websites is growing so quickly, both in the U.S. and abroad. The demand for the services that NetRatings offers should accelerate over the next several years, and with the gross margin improvement that appears to be linked to revenue growth, both the top line and profits should actually begin to improve at a quicker pace.

NetRatings appears to have a bright future, the uncertainty about VNU notwithstanding.

NTRT 1-yr chart: