Business Context and Reporting Period
Company: COMSCORE, INC.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: comScore provides a digital marketing intelligence platform that measures, analyzes, and reports on digital activity. Its core offering relies on a panel of approximately two million Internet users worldwide and server-based "beacon" technology (Media Metrix 360) to provide data on consumer behavior, demographics, and online advertising effectiveness to publishers, advertisers, and agencies.
Key Financial Metrics
| Metric (in thousands) | 2009 | 2008 | 2007 |
|---|---|---|---|
| Revenues | $127,740 | $117,371 | $87,153 |
| Net Income | $3,969 | $25,186 | $19,316 |
| Operating Income | $9,540 | $10,988 | $10,658 |
| Operating Margin | 7.5% | 9.4% | 12.2% |
| Net Cash from Operating Activities | $25,031 | $32,989 | $21,277 |
| Cash, Cash Equivalents & Short-term Investments | $88,117 | $71,461 | $96,817 |
| Total Assets | $217,408 | $199,563 | $147,672 |
| Total Liabilities | $69,469 | $64,683 | $42,077 |
| Stockholders' Equity | $147,939 | $134,880 | $102,622 |
Revenue Composition: Subscription-based revenues accounted for 86% of total revenues in 2009. International revenues comprised approximately 15% of total revenues.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 8.8% to $127.7 million, driven by a $12.4 million increase in sales to existing U.S. customers and a $3.2 million increase in international revenues. However, project-based revenues declined by $2.1 million due to economic conditions affecting customer budgets.
- Profitability Decline: Net income dropped significantly to $4.0 million from $25.2 million in 2008. This was primarily due to a $5.9 million income tax provision in 2009 compared to a $14.9 million tax benefit in 2008 (which included a $20.4 million reduction in deferred tax valuation allowance).
- Expense Increases: Operating expenses rose to $118.2 million. Cost of revenues increased 12.1% due to higher panel recruitment, data, and bandwidth costs. Selling and marketing expenses rose 6.5%, largely due to increased stock-based compensation.
- Acquisitions: The company acquired Certifica, Inc. in November 2009 to expand its presence in Latin America. In 2008, it acquired M:Metrics to enhance mobile measurement capabilities.
- Restructuring: In Q4 2009, the company reduced its headcount by approximately 46 positions, incurring a $563,000 charge for severance and related costs.
Guidance, Outlook, Risks, and Unusual Items
- Economic Environment: Management notes that adverse economic conditions and tight credit markets have caused some customers to delay or reduce spending, particularly on project-based services. Renewal rates for subscription products remained reasonably consistent, but smaller customers showed declines.
- Investment Portfolio Risk: The company holds $2.8 million in long-term auction rate securities. Due to credit market uncertainties, these securities have been illiquid since 2007. While the company recorded an unrealized gain of $429,000 on these holdings in 2009, liquidity remains uncertain.
- Customer Concentration: Microsoft Corporation accounted for 12% of total revenues in 2009. The top 10 customers collectively accounted for over 29% of revenues.
- Technology & Methodology: The company is transitioning to a "Unified Digital Measurement" approach (Media Metrix 360) blending panel and server data. Changes in methodology or the scope of data collection could lead to customer dissatisfaction.
- Regulatory Risks: Privacy concerns and potential legislation regarding the collection of online usage data (e.g., spyware classifications, EU privacy directives) pose risks to the company's data collection methods and panel recruitment.
Key Facts for Investor Verification
- Revenue Mix Sensitivity: Verify the sustainability of subscription revenue growth (86% of total) versus the decline in project-based revenue, as the latter is more sensitive to economic downturns.
- Tax Provision Volatility: Confirm the impact of the deferred tax valuation allowance changes on future earnings, as the 2008 benefit was a one-time adjustment not repeated in 2009.
- Liquidity of Investments: Assess the risk associated with the $2.8 million in illiquid auction rate securities and the potential for future write-downs if credit ratings deteriorate.
- Customer Concentration: Monitor the relationship with Microsoft (12% of revenue) and the top 10 customers (29% of revenue) for any signs of churn or contract renegotiation.
- International Expansion: Evaluate the integration and revenue contribution of the Certifica acquisition in Latin America and the company's ability to scale internationally.