By Adam R Jacobson
RBR + TVBR
Nielsen unveiled its third-quarter 2016 financial results before Tuesday’s opening bell on Wall Street, and the audience measurement and consumer data company suffered for disappointing analysts and their investors by missing consensus estimates.
Investors instantly reacted to the miss, with Nielsen stock off nearly 12% in pre-market activity. The swoon continued throughout Tuesday’s trading session, with NLSN finally ending the day down 16.9%, to $45.65.
As a result, Nielsen shares finished at their lowest level since mid-February.
Nielsen shares had not closed below $50 since March 1.
Why did the company see such a colossal tumble on Wall Street?
Nielsen missed many of the Street’s forecasts, reporting a 7% dip in GAAP net income, to $132 million, and diluted net income per share of 36 cents, off 5.3%. For non-GAAP results, growth was seen — adjusted net income (ANI) increased 3.1%, to $266 million. This reflects a diluted ANI per share gain of 5.7%, to 74 cents. But, that fell short of the average estimate of six analysts surveyed by Zacks Investment Research, of 76 cents per share.
Total Q3 revenue of $1.57 billion, although up from $1.53 billion in Q3 2015, also missed Street estimates. The analysts surveyed by Zacks anticipated revenue of $1.59 billion.
Additionally, the disappointing Q3 led Nielsen to make a downward adjustment of its FY16 guidance, with the company now expecting adjusted net income per share between $2.73 and $2.79 per share. That compares to a $2.87 per share consensus estimate.
In an early morning conference call with investors, Nielsen CEO Mitch Barns placed most of the company’s Q3 performance on a more challenging U.S. environment, and the “secular shift” from custom analytics to everyday analytics that has emerged as a uniquely American challenge. Similar shifts have also impacted global market research firms GfK and Mintel in recent months, and this subject was the heart of the first query from analysts on the call, as Morgan Stanley’s Toni Kaplan specifically asked about the shift. Barns again noted that in Canada and in European markets, the research shift is not being seen to the extent as it is in the U.S.
Without elaborating, Barns says Nielsen will be moving away from some of the nonproductive areas but these are likely to be on Nielsen’s consumer analytics “Buy” side of its business. “We are realigning our portfolio by exiting non-core services, reallocating resources and accelerating our investments in our strategic initiatives to help our clients grow and to better position our business for the future,” Barns noted. “In short, our ‘Buy’ business is working through a process of change that is similar to what we’ve been executing on successfully in our ‘Watch’ business.”
RADIO SEGMENT ‘IN LINE WITH EXPECTATIONS’
In what Nielsen considers its “Watch” segment is its Nielsen Audio division, and in Q3 revenue fell 2.8%, to $137 million. Nielsen CFO Jamere Jackson points to tough comps, “due to the timing of deliveries.” Jackson notes that Nielsen Audio’s business “is in line with expectations.”
The segment’s driver is “Audience Measurement” — defined as “video/text.” In this group, Q3 revenue surged 8.3%, to $496 million.
Speaking of Nielsen’s overall results, Barns said, “In the Watch segment, market adoption of Total Audience continues to grow at a healthy clip. Digital Content Ratings are now fully syndicated, and the industry is moving forward to a new ratings standard anchored by our Total Audience Measurement system, which is well-positioned to play an important role in the 2017 Upfronts.”
Meanwhile, Nielsen’s consolidated net debt increased by $530 million, to $7.51 billion.
With Free Cash Flow at just $353 million, long-term troubles could be on the horizon for Nielsen shares.