Business Context and Reporting Period
Company: COMSCORE, INC.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2007
Business Overview: comScore provides a digital marketing intelligence platform that measures, analyzes, and reports on digital activity using a proprietary panel of over two million Internet users worldwide. The company offers products through the Media Metrix family (audience measurement) and Marketing Solutions (industry-specific analytics).
Key Event: The company completed its Initial Public Offering (IPO) on July 2, 2007, raising approximately $73.1 million in net proceeds.
Key Financial Metrics
| Metric | 2007 | 2006 | 2005 |
|---|---|---|---|
| Revenues | $87.2 million | $66.3 million | $50.3 million |
| Net Income | $19.3 million | $5.7 million | $(4.4 million) |
| Net Income Attributable to Common Stockholders | $17.5 million | $2.5 million | $(7.1 million) |
| Diluted EPS | $0.88 | $0.00 | $(2.30) |
| Operating Cash Flow | $21.2 million | $10.9 million | $4.3 million |
| Cash, Cash Equivalents, and Short-Term Investments | $96.8 million | $16.0 million | $9.2 million |
| Total Assets | $147.7 million | $42.1 million | $29.5 million |
| Long-Term Debt (Capital Leases) | $1.0 million | $2.3 million | $1.3 million |
Margins (2007): Gross Margin was 72.6% (Cost of Revenues 27.4%); Operating Margin was 12.2%.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 31.5% year-over-year to $87.2 million, driven by increased sales to existing U.S. customers ($14.2 million increase), new U.S. customers ($2.3 million increase), and international expansion ($4.4 million increase).
- Profitability: The company achieved net income of $19.3 million in 2007, a significant improvement from $5.7 million in 2006. This was aided by a $7.5 million income tax benefit resulting from a partial release of the valuation allowance on deferred tax assets.
- Customer Base: Total customers grew to 895 (up from 706 in 2006), with a net addition of 218 subscription-based customers.
- Liquidity: Cash and short-term investments surged to $96.8 million, primarily due to the $73.1 million net proceeds from the July 2007 IPO.
- Expense Growth: Selling and marketing expenses rose 33.5% to $28.7 million due to headcount expansion and international office openings. General and administrative expenses increased 39.9% to $11.6 million, largely due to costs associated with becoming a public company.
Guidance, Outlook, Risks, and Unusual Items
- Outlook: Management expects to continue investing in sales, marketing, and R&D to expand the customer base and product offerings. International expansion is a key strategic focus.
- Unusual Items:
- Tax Benefit: A significant $7.5 million tax benefit in 2007 was driven by an $8.1 million reduction in the valuation allowance against deferred tax assets, based on the company's history of profitability.
- Investment Illiquidity: The company holds $4.9 million in auction rate securities classified as long-term investments due to market illiquidity. Subsequent to year-end, one bond insurer backing these investments was downgraded from AAA to A3/AA.
- Key Risks:
- Customer Concentration: Microsoft Corporation accounted for 13% of total revenues in 2007. The top 10 customers accounted for 37% of revenues.
- Panel Maintenance: The business relies on maintaining a large, representative panel of Internet users. Costs to recruit and retain panelists may increase, and privacy concerns could impact panel size.
- Competition: The market is highly competitive with providers like Nielsen/NetRatings, Compete, and Quantcast.
- Technology Obsolescence: Rapid changes in digital media (e.g., AJAX, mobile devices) require continuous R&D investment to maintain measurement accuracy.
Important Facts for Investor Verification
- Revenue Concentration: Verify the stability of the relationship with Microsoft (13% of revenue) and the top 10 customers (37% of revenue).
- Investment Portfolio Quality: Monitor the status of the $4.9 million in auction rate securities and the credit ratings of the bond insurers backing them, given the subsequent downgrade noted in the filing.
- Tax Position Sustainability: Assess whether the reversal of the deferred tax valuation allowance is sustainable based on future profitability projections, as future reversals could materially impact results.
- Subscription Renewals: Evaluate customer renewal rates, as 79% of revenue is subscription-based and customers have no obligation to renew after the initial term.
- Public Company Costs: Track the impact of increased general and administrative expenses related to public company compliance (Sarbanes-Oxley, insurance, legal fees) on future operating margins.