Business Context and Reporting Period
Company: comScore, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2007
Business Overview: comScore provides a digital marketing intelligence platform, measuring online consumer behavior through a panel of over two million Internet users. The company offers subscription-based data access and customized project reports to advertisers and media companies.
Key Event: The company completed its Initial Public Offering (IPO) on July 2, 2007, issuing 5,000,000 shares at $16.50 per share. All outstanding convertible preferred stock automatically converted to common stock upon the IPO closing.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sept 30, 2007 |
Three Months Ended Sept 30, 2006 |
Nine Months Ended Sept 30, 2007 |
Nine Months Ended Sept 30, 2006 |
|---|---|---|---|---|
| Revenues | $22,389 | $16,165 | $61,879 | $48,056 |
| Cost of Revenues | $5,942 | $4,977 | $17,330 | $15,330 |
| Gross Margin | 73.5% | 69.2% | 72.0% | 68.1% |
| Operating Income | $2,769 | $1,514 | $6,847 | $3,191 |
| Net Income | $3,791 | $1,595 | $6,571 | $3,070 |
| Net Income Attributable to Common Stockholders | $3,770 | $783 | $4,742 | $739 |
| Diluted EPS (Common) | $0.12 | $0.00 | $0.25 | $0.00 |
| Cash and Cash Equivalents (End of Period) | $72,618 (Sept 30, 2007) | |||
| Short-term Investments (End of Period) | $27,584 (Sept 30, 2007) | |||
| Total Current Assets | $121,716 (Sept 30, 2007) | |||
| Total Current Liabilities | $38,165 (Sept 30, 2007) |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 38.5% year-over-year for the quarter and 28.8% for the nine-month period. Growth was driven by increased sales to existing U.S. customers, new customer acquisition, and a 61% increase in international revenues.
- Profitability: Operating income more than doubled for the quarter ($2.77M vs $1.51M) and more than doubled for the nine-month period ($6.85M vs $3.19M). Net income attributable to common stockholders increased significantly due to the elimination of preferred stock accretion charges following the IPO.
- Liquidity: Cash and cash equivalents surged from $5.0 million at year-end 2006 to $72.6 million at September 30, 2007, primarily due to $73.1 million in net proceeds from the IPO.
- Expense Increases: Selling and marketing expenses rose 42.9% (quarter) and 29.6% (nine months) due to headcount expansion and international growth. General and administrative expenses increased 61.3% (quarter) largely due to costs associated with becoming a public company (legal, audit, insurance).
- Capital Structure: All Series A through E preferred stock converted to common stock upon the IPO. The company no longer has preferred stock outstanding.
Guidance, Outlook, and Risks
- Outlook: Management expects revenues to continue growing, with international revenues increasing as a percentage of total revenue. The company anticipates using IPO proceeds for general corporate purposes, including infrastructure investment, product development, and potential acquisitions.
- Stock-Based Compensation: Total unrecognized compensation expense related to unvested awards is estimated at $9.1 million, expected to be recognized over a weighted-average period of 2.14 years.
- Key Risks:
- Panel Maintenance: Business success depends on maintaining a panel of sufficient size and scope; costs to recruit and retain panelists may increase.
- Competition: The market is highly competitive with players like Nielsen, Arbitron, and online advertising networks.
- Customer Concentration: The top 10 customers accounted for 38% of revenues for the nine months ended Sept 30, 2007. Microsoft alone accounted for 13% of revenues in the same period.
- Technology & Privacy: Risks include system failures, data inaccuracies, and regulatory or public concerns regarding privacy and "spyware" classifications.
- Valuation Allowance: The company maintains a full valuation allowance against deferred tax assets ($31.1 million) due to a lack of significant profit history, though this may be reduced in the future if profitability is sustained.
Investor Verification Checklist
- Customer Concentration: Verify the stability of the top 10 customers, specifically Microsoft (13% of revenue), and the risk of non-renewal.
- Panel Churn Rates: Assess the cost and effectiveness of maintaining the two-million-user panel against potential churn or privacy-related opt-outs.
- Public Company Costs: Monitor the trajectory of General and Administrative expenses to ensure they do not outpace revenue growth as the company matures as a public entity.
- Deferred Tax Assets: Watch for future announcements regarding the reversal of the $31.1 million valuation allowance, which would impact future tax provisions and net income.
- International Expansion: Evaluate the profitability and growth rate of international operations (currently 11% of revenue) given the associated regulatory and currency risks.