Nielsen Shares Slip On ‘Weak Q3, Mostly As Expected’


Nielsen on Thursday released its Q3 2018 financial report, and as Brian Wieser of Pivotal Research Group notes in an investor note, the company reported weak results.

This was hardly a surprise to Wieser, who set a new price target on a year-end 2018 basis for Nielsen shares. That target is below where the company’s stock was through mid-July.

“The third quarter revenue and earnings are consistent with our updated 2018 guidance despite a number of near-term challenges in our markets,” said Jim Attwood, Nielsen’s Executive Chairman of the Board.

Overall Q3 revenue slipped to $1.6 billion, from $1.64 billion in Q3 2017. Operating income dipped to $261 million, from $334 million. This contributed to a decrease in net income to $98 million (27 cents per share), off from $150 million (41 cents).

As has been discussed over several quarters, Nielsen’s financial success rests in its Watch division, which saw revenue climb to $845 million from $838 million for a 0.8% gain. The Buy segment, up for review, slumped 6% to $755 million in revenue.

“We have a number of key initiatives and actions that we are pursuing to improve our future outlook,” Attwood said. “Together with the Board of Directors, we are aligned on a set of operational priorities to drive the business forward. In addition, the Board of Directors, with the assistance of our advisors and management team, is focused on the expanded strategic review that we announced in September, which includes a broad review of strategic alternatives for Nielsen and its businesses.”

As Wieser notes, the results “were soft, much as expected, with full-year guidance mostly unchanged.”

This means that a worse-than 5% revenue decline is forecast by Nielsen for Q4 2018, “representing a significant deceleration versus the most recent quarter for both Buy-related and Watch-related businesses.”

On the Watch side, Nielsen noted that digital client spend on products related to targeting  will slow Q4, as will recently acquired Gracenote; some pressure was also noted in the local TV measurement business.

Similarly, the Buy segment is also expected to slow significantly because, Wieser says, of what has turned out to be a tough comparable for related business units (due to historical data sales) as well as the other ongoing factors causing general weakness for those businesses.

A “notable negative” on data provided during the quarter relates to the company’s expectations for free cash flow: Nielsen now believes it will produce $450 million to $500 million in Free Cash Flow, versus $550 million to $575 million previously.

“Once again, looking beyond this year, it’s difficult to be overly confident that mid-single digit growth will eventually resume,” Wieser says, adding that 2019 will be particularly challenged “as it would be a surprise if the Buy segment returned to growth in the face of the uncertainties associated with a strategic review.”

Weiser still thinks that growth can return in the long run, but he recognizes that “this is something of a leap-of-faith given weakness among many of the company’s packaged goods clients today and secular challenges that will further impact its media industry clients in the future.”

Competition from the likes of IRI probably probably won’t let up and a reinvigorated comScore adds further risks to this outlook, he adds. At the same time, Weiser also continues to hear favorable perspectives on Nielsen versus its competitors from customers Pivotal interacts with. As such, Weiser and Pivotal continue to believe that they are held up as the “gold standard” versus its peers.

“Of course, if the market wants more silver than gold (to extend the metaphor) we recognize that Nielsen’s business is less assured,” Wieser warns. “While it’s difficult to look at these results or the company with any much optimism right now, we can’t entirely discount its durable position. The bulk of the company’s customer base continues to rely on Nielsen and we think they will continue to do so for the foreseeable future, regardless of who is leading Nielsen and who owns the company. However, pressures on the business are still very real, and assumptions involving reduced revenue growth trends and/or margins in next year and beyond seem reasonable to us.”

As such, Nielsen’s price target for year-end 2018 was slashed to $23, as Pivotal retained its “Hold” rating on the company’s stock.

“We value Nielsen with a DCF, using an 9% near-term discount rate, a 12% long-term discount rate and long-term 3.5% growth,” Wieser concluded.

The $23 price target is bad news for investors. Nielsen’s 52-week range is between $20.53 and $39.64, and NLSN was largely above $30 until late July, when its stock swooned upon the news that it suffered a poor Q2 and that its CEO, Mitch Barns, would be retiring at year’s end.

As of 3pm Eastern Thursday, Nielsen shares were off 1.5%, to $25.17.

Thus, the $23 price target presents a new reality for Nielsen, which presently has a consensus target of $28.28 but traded in the $50 range for much of the first half of 2016.