Business Context and Reporting Period
Company: COMSCORE, INC.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2010
Business Overview: comScore provides a global digital marketing intelligence and measurement platform. Its core offering relies on a panel of approximately two million Internet users worldwide to measure online behavior, demographics, and advertising effectiveness. The company delivers insights through the Media Metrix suite, Marketing Solutions, mobile solutions, and web analytics. In 2010, the company expanded its capabilities through the acquisitions of ARSgroup, Nexius, and Nedstat.
Key Financial Metrics
| Metric | 2010 | 2009 | 2008 |
|---|---|---|---|
| Revenues | $175.0 million | $127.7 million | $117.4 million |
| Net (Loss) Income | $(1.6) million | $4.0 million | $25.2 million |
| Operating (Loss) Income | $(1.5) million | $9.5 million | $11.0 million |
| Operating Margin | -0.8% | 7.5% | 9.4% |
| Cost of Revenues | $52.0 million (29.7% of rev) | $38.7 million (30.3% of rev) | $34.6 million (29.4% of rev) |
| Research & Development | $26.4 million | $17.8 million | $14.8 million |
| Net Cash from Operating Activities | $25.4 million | $25.0 million | $33.0 million |
| Cash and Cash Equivalents (Year End) | $33.7 million | $58.3 million | $34.3 million |
| Capital Expenditures | $5.1 million | $6.5 million | $14.3 million |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 37.0% to $175.0 million, driven by organic growth and the inclusion of acquired businesses (ARSgroup, Nexius, Nedstat) which contributed approximately $28.0 million in revenue.
- Profitability Decline: The company reported a net loss of $1.6 million in 2010, a reversal from the $4.0 million net income in 2009. This was primarily due to a significant increase in operating expenses.
- Expense Increases:
- General & Administrative (G&A): Increased 86.2% to $34.0 million, largely due to $5.3 million in stock-based compensation (including market-based options for executives) and $5.2 million in professional fees related to acquisitions.
- Selling & Marketing: Increased 42.2% to $59.6 million due to headcount growth from acquisitions and increased travel and bonus expenses.
- Amortization: Increased 211.2% to $4.5 million due to intangible assets acquired in 2010.
- Customer Base: Total customers grew to 1,752 (up 479 from 2009), including 82 Fortune 500 companies. Microsoft remained the largest single customer, accounting for 11% of revenues.
- International Expansion: International revenues grew 66% to $32.7 million, representing 19% of total revenue.
Guidance, Outlook, Risks, and Unusual Items
- Acquisition Integration: The company is integrating three major acquisitions (ARSgroup, Nexius, Nedstat) completed in 2010. Revenue recognition for Nexius and Nedstat involves complex multi-element arrangements where revenue is recognized over the service period of the last delivered element due to a lack of Vendor Specific Objective Evidence (VSOE).
- Investment Liquidity: The company holds $2.8 million in long-term auction rate securities. Due to credit market uncertainties, these securities have not auctioned since 2007, limiting liquidity. They are classified as long-term investments.
- Stock-Based Compensation: A significant portion of the 2010 expense increase was driven by market-based stock options granted to executives, vesting only if the stock price exceeds $30 for 30 consecutive days prior to May 2012.
- Risk Factors:
- Customer Concentration: Reliance on Microsoft (11% of revenue) and the top 10 customers (29% of revenue).
- Subscription Renewals: 85% of revenue is subscription-based; economic downturns may lead to non-renewals.
- Privacy and Regulation: Potential legislative changes regarding online data collection and privacy (e.g., EU cookie directives) could restrict data collection methods.
- Competition: Highly competitive market with players like Nielsen, Google, and Adobe.
- Outlook: Management expects continued growth in international markets and mobile measurement but notes that operating expenses will remain elevated due to growth initiatives and acquisition integration.
Key Facts for Investor Verification
- Revenue Quality: Verify the sustainability of the 37% revenue growth once the one-time impact of the 2010 acquisitions is fully integrated and normalized.
- Expense Trajectory: Monitor if G&A and Selling expenses stabilize as a percentage of revenue, given the sharp increase in 2010 driven by stock-based comp and acquisition costs.
- Liquidity of Investments: Assess the risk associated with the $2.8 million in illiquid auction rate securities and the potential for further write-downs if credit ratings deteriorate.
- Customer Concentration: Track the renewal status of Microsoft and other top 10 clients, as their departure would materially impact revenue.
- Valuation Allowance: Review the $1.0 million valuation allowance against deferred tax assets, noting the release of the UK allowance but the addition of allowances for other foreign start-up entities.