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Baron Insight on Nielsen Holdings

June 05, 2012 | About:
Holly LaFon

Holly LaFon

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Neal Rosenberg, vice president and research analyst at Baron Funds, discusses Nielsen Holdings (NLSN) in his first-quarter 2012 Baron Insight:

Another exciting information services investment is Nielsen Holdings (NLSN). Nielsen is a global information and measurement company that provides clients with a comprehensive understanding of consumers and consumer behavior. The company is geared toward delivering critical media and marketing information and analytics about "what consumers watch" and "what consumers buy" on a global and local basis. The "Watch" business has become the de facto standard for measuring television audiences in the U.S. Nielsen uses a combination of technology and panel surveys to gather granular data about television viewership trends and demographics, which it then compiles into ratings using its proprietary methodology. Nielsen's ratings are so critical to selling TV advertising that they have effectively become a currency to broadcasters and advertisers, with all TV ads bought, sold, and settled based on Nielsen data. The company is now leveraging its data collection expertise, infrastructure, and methodologies to generate ratings for online ads and for mobile campaigns.

Nielsen's "Buy" business combines the use of technology and panels to build a global database of retail transactional measurement data. The data is then used by consumer packaged goods (CPG) companies and retailers to measure sales and market share, improve brand management, uncover new sources of demand, launch and grow new products, analyze sales, improve marketing mix, and establish more effective consumer relationships. We are excited about Nielsen's ability to expand its global coverage into developing markets, thereby providing its clients with enhanced insight into a vast and growing population of emerging middle class consumers. We believe Nielsen is uniquely positioned to provide measurements in developing markets given its scale, brand, and unique ability to provide global clients with a standard measurement methodology around the world.

We think Nielsen's proprietary data, unique analytical capabilities, and pristine brand serve as extremely high barriers to entry. Nielsen data is deeply integrated into the business processes of its clients, making its data and services extremely sticky, and providing the company with high retention rates and pricing power. The company has benefited from strong operating leverage given the high fixed costs involved in collecting and processing billions of transactions monthly. The company has generated robust free cash flow given the modest capital investments required to run its business.


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