In a delayed reaction to Tuesday’s entry into radio ratings by Nielsen, stock traders beat down Arbitron’s stock price by more than 24% on Wednesday, following downgrades by two analysts. It had fallen only 10% the day of the announcement.
JP Morgan analyst Alexia Quadrani cut the stock from “overweight” to “neutral,” citing the loss of revenue from the 50 markets where Nielsen has signed to sell ratings data to Cumulus and Clear Channel, while Arbitron says it will continue to measure those markets. The revenue loss is estimated at $7 million for 2009 and $10 million on an annualized basis going forward – and Quadrani notes that could rise to $11.5 million is all clients in those markets switch to the new service.
“The lost revenue should have a disproportionate effect on profitability, essentially going straight to the bottom line,” she noted.
CL King analyst Jim Boyle still rates Arbitron “accumulate,” but that’s down from “strong buy.” His analysis assumes that Nielsen will not stop at 50 markets. He figures Arbitron gets about 16% of its revenues from small market ratings, plus another 3% from selling qualitative products in those markets. “Therefore, as small market contracts roll-off in the next several years as much as ~19% of Arbitron’s revenue could be at risk, and it’s Arbitron’s lowest margin of revenue. That’s if everyone bolts, which our industry contacts believe is unlikely given there is no pricing discount and there are questions about Nielsen’s approach,” Boyle told clients.
“The initial reaction by many, including us, may be too harsh. Yet it may be several months before negative headlines abate and clearer economics for Arbitron post-Nielsen settle down, so we are downgrading to an Accumulate, cutting our estimates and cutting our 6-12 month target price,” Boyle said.
What about the big markets? Boyle notes that radio broadcasters have long resisted paying for two ratings services. “If Nielsen wants in, it would be better served to buy all of Arbitron than to try to pitch clients two-by-two or market-by-market,” he wrote.