comScore 1, Google 0

Includes: GOOG, SCOR
by: Daniel Andres Jacome

At $22 per share, comScore (NASDAQ:SCOR) trades at a discount to an estimate of discounted free cash flow of $27 per share.

A recent product announcement by competitor Google (NASDAQ: GOOG) has excessively re-priced comScore for risk and given investors a short window to own a high quality growth stock at a discount.


  • Attractive mix of exogenous factors (growth of the online advertising channel) and internal value drivers (margin expansion due to operational leverage) makes comScore our top pick in the digital media universe. Online advertising has significantly lagged consumption trends on the internet, driving our thesis that we are still in the early stages of comScore’s growth trajectory.
  • comScore is well positioned to grow alongside the rapid growth of mobile media and the concomitant increase in mobile advertising. Currently, there are 40 million US users consuming mobile media and the growth in this medium, coupled with the escalating interest in how advertisers can best target users, plays right into comScore’s value proposition. SCOR’s recent acquisition of M:Metrix fortifies the company’s presence in this fast growing segment and supports our belief that management is using excess cash on low risk/high payoff investments.
  • comScore possesses a best in class management team that should enable the company to generate returns above its cost of capital, weather the current macroeconomic downturn, and utilize its strong balance sheet to fuel the right mix of acquisitive/organic growth in the near future.
  • A recent announcement by Google for a rival product (Ad Planner) sent SCOR shares tumbling 22% on June 24th. We believe the market over-reacted, and shares are attractively priced at current levels. There already are a number of products like Google’s on the market, none of which has impeded comScore’s market share build out and > 90% consumer retention rate over the last few years.

Investment Thesis

Paradigm Shift: Ad Dollars and the Web

comScore measures the digital world through a panel of 2 million Internet users who have given comScore permission to capture online/offline behavior. comScore analysts apply this deep knowledge of customers and competitors to help clients design powerful marketing strategies and tactics that deliver superior ROI. comScore’s technology is a pure play on the boom in online advertising, as increased digital spending is uprooting traditional media budgets, such as TV and newspaper. Research firm eMarketer expects US online ad spending to grow 17.4% to $24.9B in 2008.

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We view this shift as secular rather than cyclical in nature and the proliferation in new ways to consume digital media (mobile media, social networking, etc) will enable marketers to target customers more creatively than was ever possible with passive media outlets like radio. comScore arbitrates over this growing, digital landscape and leads a high barrier to entry category that is less commoditized than the pure marketing services space that is gathering most of Wall Street’s attention.

Palm Power

comScore is well positioned to grow along with the advent of mobile media. In the US alone, there are more than 40 million active users and millions more in Europe and Asia who use their mobile phones to check email, search addresses, explore social networks, and even bank online. In the US, roughly 15.6% of people with a phone are actively using web capabilities. Marketers/media companies are attracted to this demographically diverse audience and mobile ad spend is expected to surpass $6.5B by 2012.


We view mobile as a key growth category for comScore, which acquired M:Metrix, the mobile media authority, for less than 5% of its market cap this past May. International opportunities are plenty, with the China/India middle class boom playing out and worldwide mobile ad spending projected to be a $16B in 5 years.

Constructive on Valuation

A recent announcement by Google for a rival product (Ad Planner) sent SCOR shares tumbling over 22% on June 24th. We believe the market over-reacted, since our talks with industry insiders indicate that Google’s new mousetrap suffers from an inherent conflict of interest. According to management, Google’s Ad Planner emphasizes sites that are running on its AdSense network. This would make sense for Google, since larger sites carry more impressions for Google and Google would naturally want to excavate and offer data on those sites. However, clients prefer bias-free data from companies that are not running their own ad network. There already exist a number of products like Google’s on the market, none of which has harmed comScore’s market share and > 90% consumer retention rate over the last few years. Although shares look rich on a P/E basis, the combination of comScore’s scarcity value, margin expansion opportunity, and sustainable revenue growth of 20% supports our outperform rating. Applying a 35x multiple to our 2009 EBITDA/share est. of .76c, we arrive at a 12 month price target of $27, reflecting 17% upside over the next 12 months.

Disclosure: none

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