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Nielsen is the biggest consumer behaviour measurement company in the world.  They are best known for their panel of “Nielsen families” whose viewing habits are monitored to produce the TV ratings that decide if your favourite shows will stay on air.  Their ratings data is the “currency” used by media companies and advertisers to price billions of dollars of TV advertising inventory.

Internet advertising is forecast to grow at an average of 16% annually to 2016 by research firm ZenithOptimedia.  Display advertising, which includes traditional banners, online video and social media, is projected to grow at 21% during this period, with the last two the main drivers at 24% and 30% respectively.  As advertisers continue to allocate a growing portion of their budget towards these mediums, they are now demanding the same level of accountability that comes with standardised industry measurement in traditional TV and radio advertising.  Digital players like YouTube who are eyeing a bigger share from old media need their audiences to be measured.  With the leading brand in audience measurement and deep relationships with advertisers, Nielsen is the logical choice and a clear beneficiary.

Over the past few years the company has invested heavily in measurement infrastructure to capture these new Internet audiences.  Through data sharing partnerships with Facebook, Adobe, Experian, Twitter and Catalina, it has developed new ways of measuring audiences across these new platforms.  With the growing popularity of online streaming on alternative platforms such as PCs, laptops, tablets and smartphones, the market is concerned that audiences are fragmenting away from the traditional living room covered by Nielsen and that this is weakening its monopoly position.  In fact, rather than facing obsolescence, Nielsen has successfully leveraged its dominance in linear TV into a strong position in cross-platform measurement.  Content owners and advertisers need more data than ever to understand changing viewership patterns and, importantly, Nielsen measures audience behaviour and is not circumscribed by delivery channel.

Nielsen is also a leader in retail transaction and buyer behaviour information that is related to consumer packaged goods.  Its geographic reach here is simply unmatched – global presence in 104 countries, with 25 million retail partners, capturing transactions on 6 billion consumers and 30 million products categorised by over 25 million characteristics.

This data is critical to multinationals looking to expand into emerging countries whose growing middle class represents the next big growth opportunity.  As local clients grow in size, they too become more sophisticated in the use of market data in order to compete.  In October 2014, Nielsen announced that Chinese giant Alibaba will provide online purchasing data, allowing manufacturers and marketers to see both online and offline buying behaviour.  Nielsen believes that in time players like Amazon will also follow.

Nielsen’s data services are integral to its customers’ business workflow.  This is evident in its very high retention rate, giving Nielsen a stable and predictable revenue stream over the long term.  This is a high quality business and at 15.5x P/E we find the current valuation compelling.

DISCLAIMER: The above information is commentary only (i.e. our general thoughts).  It is not intended to be, nor should it be construed as, investment advice.  To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information.  Before making any investment decision you need to consider (with your financial adviser) your particular investment needs, objectives and circumstances.