2015-11-09

Neustar $NSR Shares Tanked Friday After Marketshare Announcement

See also a newer posts on Domain Mondo: Investors Flee Neustar $NSR, Stock Down 19% in Five Trading Days (12 Nov 2015) and Caveat Emptor: Neustar MarketShare Acquisition, 2016 $NSR Guidance (10 Dec 2015).

UPDATE 11 Nov 2015: Neustar $NSR closed Wednesday DOWN -0.90 -3.50% at $24.79.
Seeking Alpha's John Zhang has written a new article: NeuStar: Costly [Marketshare] Acquisition Strengthens Bear Case - NeuStar, Inc. (NYSE:NSR) | Seeking Alpha, in which he states "the NPAC segment does not generate nearly enough EBITDA to warrant NeuStar's valuation. By taking on more debt at a time like this, management has essentially entered a "do-or-die" mode. We believe the latter is far more likely, given that the non-NPAC segment is barely generating any EBITDA at the moment. Even under the most optimistic scenarios, NeuStar's share price should trade in the single digits." (Note: Zhang is short $NSR). Zhang also states:"... we are skeptical that any of their recent acquisitions [including Bombora and ARI Registry Services] are actually EBITDA positive. When we look at earlier acquisitions in 2014, namely C.O. Internet SAS [.CO ccTLD] and Aggregate Knowledge, both costly acquisitions ended up contributing to far more costs than revenue. NeuStar disclosed in their 2015 Q1 earnings call that both acquisitions contributed $15M in revenues but $32M in costs..." (emphasis added)(read more here).

UPDATE: Neustar $NSR closed DOWN at $25.27 on Monday, November 9, 2015, with heavy Share Volume of 1,069,939 (90 Day Avg. Daily Volume is 610,528). Sellers continue to dump this stock after recent news? See below.

5-day stock chart of Neustar (NYSE:NSR)
Above: Neustar (NYSE:NSR) tanked Friday after Marketshare announcement (source: google.com)
Domain name Registry operator and services provider Neustar, Inc. (neustar.biz) announced last Thursday, November 5, 2015, after the market closed, that it would acquire MarketShare (marketshare.com), a marketing data analytics firm for $450 million "funded with cash on hand and committed financing." On Friday, when the market opened, Neustar shares tanked--see chart above. In its Marketshare announcement and webcast, Neustar stated Marketshare had an EBITDA loss in its most recent reporting annual period, but Neustar projects $10 million free cash flow (FCF) from the acquisition in 2016. $10M FCF on $450M invested?--such a dealApparently Wall Street wasn't impressed either.

The Marketshare announcement came on the heels of dismal financial news Neustar disclosed on October 29, 2015, that Neustar would lose $500 million in annual revenues (on loss of its NPAC contracts)--"We expect to lose approximately $500 million of annual revenue and this loss will adversely impact our income from operations and operating margin"--see: Neustar $NSR Will Lose $500 Million Annual Revenue, 80% Downside? During the Neustar Marketshare webcast, Neustar CEO Lisa Hook did say Neustar would be very focused in the coming year on integrating its recent acquisitions and she hoped Paul (Paul S. Lalljie, Neustar CFO) "did not have anything else on his shopping list."  

The Neustar Marketshare announcement webcast replay is available through 11:59 p.m. (Eastern Time) on November 12, 2015. By phone dial 1-877-870-5176 (international callers dial 1-858-384-5517) and enter replay PIN 117184; also available in MP3 Version: Click here. Or go to the Investor Relations tab of the Company’s website (www.neustar.biz). Source: Neustar | Investor Relations (IR). Supporting Materials: Neustar to Acquire MarketShare (pdf).

Neustar is a U.S. technology company that is also a domain name registry operator for top-level domains (TLDs) such as .biz, .us (ccTLD for the U.S.), .co (ccTLD for Colombia), and other TLDs, (.nyc, .travel) as well as a service provider for other TLD registry operators.

Neustar has been on an acquisition binge, trying to replace the coming loss of its NPAC contracts--see, e.g., Neustar Buys Bombora and ARI Registry Services for US$87 Million (31 July 2015)--unfortunately for Neustar shareholders, these acquisitions have neither the "moat" nor the fat profit margins of the NPAC contracts. In the case of Marketshare, it was discussed on the webcast that Marketshare's competitiors include Oracle (NYSE: ORCL) and Adobe (NASDAQ: ADBE)--good luck! In the domain name industry, Verisign (NASDAQ: VRSN), registry operator for .COM and .NET, is the clear market leader in domain registry operations and services. Legendary investor Warren Buffet's Berkshire Hathaway (NYSE:BRK.B) is the second-largest institutional investor in Verisign, owning 12,985,000 shares with a total current value of more than $1 Billion:

Verisign 5-year stock chart as of Nov 6, 2015
Verisign  (NASDAQ:VRSN) 5-year stock chart as of Nov 6, 2015 (source: google.com)
Caveat Emptor!




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