Consumer data analytics company Neilson Holdings plc (NASDAQ: NLSN) shares are still trading well below its pre-COVID peaks in February and underperforming the benchmark S&P 500 index (NYSEARCA: SPY). The Company is a worldwide leader in consumer behavioral measurement and data analytics with half of the world’s top 10 largest media and consumer products companies listed as clients. The market seems to be overlooking how the pandemic triggered stay-at-home mandates have bolstered the demand for consumer media consumption, e-commerce and retail spending data analytics. While brick-and-mortar shopping traffic was vaporized from COVID-19 closures, it is starting to climb out of the trenches heading into the holiday shopping season. Prudent investors may consider adding exposure on opportunistic pullback entries during the downtrend.
Q2 FY 2020 Earnings Release
On Aug. 05, 2020, Neilson released its fiscal second-quarter 2020 results for the quarter ending June 2020. The Company reported an earnings-per-share (EPS) profit of $0.41 excluding non-recurring items versus consensus analyst estimates for a profit of $0.30, beating estimates by $0.11. Revenues fell (-8.1%) or (-5.9%) in constant currency year-over-year (YoY) to $1.5 billion beating analyst estimates for $1.49 billion. Global Media revenues fell (-5.3%) YoY while adjusted EBITDA fell (-9.4%) YoY to $426 million on a reported basis and (-7.6%) on a constant currency basis. Free cash flow ($154 million) and margins improved YoY offset by losses associated with COVID-19. The CARES Act enabled deferral of cash taxes as well as collection delays. The pandemic had material impacts ranging from cancellation of sports events, ad hoc products, and pressure in local television. Connect revenues were impacted from face-to-face and in-store services. The Company was able to initiate temporary cost-cutting measures to driving $200 million in savings for 2020 with hiring freezes, furloughs, and compensation reductions for senior executives and the Board.
Conference Call Takeaways
Neilson is developing new analytics to accommodate clients’ needs for steaming and e-commerce analysis to drive business decisions. The Connect product continues to maintain a 70% recurring revenue rate with contracts. The Company is still on track for the separation of the two business lines Neilson Global Media and Neilson Global Connect in Q1 2021. Both will be their own stand alone companies with more details coming in the future Investor Day events. Neilson plans to expand margins through workforce reduction of approximately 3,500 employees and further leveraging of technology and automation to drive $250 million in permanent run rate cost savings and net benefit to EBITDA before deploying reinvestment in growth initiatives. The Company estimates $150 million to $170 million in 2020 restructuring expenses. In June, the Company refinanced $1 billion in debt fully retiring October 2020 bonds and pushing out maturities.
FY 2020 Guidance Update
The Company expects a second-half recovery for 20202 and provided somewhat mixed FY 2020 adjust EPS guidance between $1.50 to $1.62 versus $1.48 consensus analyst estimates. This reflects $30 million in higher depreciation and $5 million in lower interest expense. They raised free cash flow range to $480 million to $530 million, lifting the lower range by $20 million. These don’t include separation-related costs which are current $25 million year-to-date (YTD). Revenues are expected to between $6.10 to $6.22 million versus $6.18 billion consensus estimates. The Company expects a second half recovery.
Expanding Cross Media Products
With up to 80% of revenues coming from the media analytics business, the restarts will provide headwinds especially as an FDA approval for COVID-19 vaccines nears. The Company has built a “media data lake” bringing all data into a single repository. This has enabled Neilson to leverage data assets into new products and services like digital ad ratings for connected televisions. Digital measurement products are key growth drivers in a cookie-less future. As the leader in linear TV ratings analytics, the Company plans to leverage the capacity of streaming and connected TV for cross media measurement products as evidenced by the recent contract win in Denmark. Neilson subsidiary Gracenote expanded its agreement with Google (NASDAQ: GOOG) as the preferred partner of TV and movie metadata which enables the licensing of the Company’s video products for use across 22 countries.
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NLSN Opportunistic Pullback Levels
Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for NLSN stock. The monthly rifle chart has been in an ugly downtrend which accelerated on the February pandemic plunge. The bounce off the $11.62 Fibonacci (fib) level was eventually snuffed out as shares fell back under the monthly 5-period moving average (MA) support at $14.53. This sets up a make or break situation with the rising monthly stochastic at the 20-band versus the curving down monthly 5-period MA. The weekly rifle chart has made a downward oscillation stalled at the 20-band for either a bounce or a climactic mini inverse pup rug pull. The weekly market structure low (MSL) triggers one-tick above $15.51. If the weekly mini inverse pup forms, then look for opportunistic pullback levels at the $12.48 fib, $11.62 double-bottom fib, $10.81 fib, and the $9.67 fib. The wider time frame charts are bearish but this is when the best entries can develop for nimble and risk-tolerant investors.
