Comscore Files For IPO: Ajax Is A 'Risk Factor'

| About: comScore, Inc. (SCOR)

Comscore has filed to go public and the risk factors – AJAX, many rivals, and being classified as spyware – in its prospectus make for an interesting read.

Comscore, which will use the ticker "SCOR," had 2006 revenue of $66.3 million up from $50 million in 2005. Earnings were $5.66 million excluding preferred stock in 2006, reversing a net loss of $4.4 million in 2005.

Among the notable items in Comscore's filing with the Securities and Exchange Commission:

Size matters for panels. Comscore's Internet measurements depend on its Internet user panel. In the filing, Comscore noted:

If we fail to maintain a panel of sufficient size and scope, customers might decline to purchase our products or renew their subscriptions, our reputation could be damaged and our business could be materially and adversely affected. We expect that our panel costs may increase and may comprise a greater portion of our cost of revenues in the future. The costs associated with maintaining and improving the quality, size and scope of our panel are dependent on many factors, many of which are beyond our control, including the participation rate of potential panel members, the turnover among existing panel members and requirements for active participation of panel members, such as completing survey questionnaires.

Comscore software can be seen as spyware. "Concerns over the potential unauthorized disclosure of personal information or the classification of our software as “spyware” or “adware” may cause existing panel members to uninstall our software or may discourage potential panel members from installing our software."

Metric methodologies matter. Comscore noted that when it changes its methodologies some customers may split:

In 2002, we integrated our existing methodologies with those of Jupiter Media Metrix, which we had recently acquired. As part of this process, we discontinued reporting certain metrics. Some customers were dissatisfied and either terminated their subscriptions or failed to renew their subscriptions because of these changes. Future changes to our methodologies or the information we collect may cause similar customer dissatisfaction and result in loss of customers.

Comscore competes with a lot of companies. Some of the competitors named include:  Hitwise, Netratings, Compete, Doubleclick, Arbitron, Nielsen Media, Omniture, WebSideStory and a number of vertical specific companies.

One customer represents a big chunk of Comscore's sales. Microsoft represented 12 percent of Comscore's 2006 sales.

The death of the page view metric. Comscore said:

Online publishers and advertisers have recently started to use Asynchronous JavaScript and XML, or AJAX, a development technique that allows Web applications to quickly make incremental updates without having to refresh the entire Web page. AJAX may make page views a less useful metric for measuring the usage and effectiveness of online media. If our products are not effective at addressing evolving customer needs that result from increased AJAX usage, our business may be harmed. Similarly, technological advances in the handheld device industry may lead to changes in our customers’ requirements. For example, if certain handheld devices become the primary mode of receiving content and conducting transactions on the Internet, and we are unable to adapt our software to collect information from such devices, then we would not be able to report on online activity. To remain competitive, we will need to develop new products that address these evolving technologies and standards.

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