Growing Brands: Healthy Lifestyle, Digital Ecosystems, Social Platforms

Digital IQ Index® - Food 2016:

2016 has been a bad year for sugary foods—packaged food sales in the US have registered slow growth as healthier alternatives usurp share.

The fastest growing Index brands are snacks positioned around a healthy lifestyle.

As these health-oriented upstarts gain share, legacy brands look to mergers and acquisitions to grow earnings in a static market.

Meanwhile, digital efforts can differentiate brands looking for growth, online or in-store.

While only two percent of the $675 billion in U.S. grocery sales occurred online in 2015, e-commerce is enjoying rapid growth across grocery categories—thanks in part to visibility on retailer sites.

99 percent of brands are present on at least one of the sixteen major grocers profiled in this year’s study, and 12 percent of brands have signed up for the Amazon Dash button since introduction last spring.

Brands have increasingly invested in digital ecosystems with rich recipe content shared across social platforms, increasing brand awareness and easing the path to purchase.

Lastly, adoption of mobile tools and emerging platforms are reaching scale—94% of brands have mobile optimized sites, up from 82% in 2015, and 82% of brands are now present on Instagram, up from 61% in 2015.

Kraft (domains: kraft.com / kraftheinzcompany.com / kraftrecipes.com) rises to the number one spot in this year's Digital IQ Index: Food, boasting a recipe site with shopping list functionality and local offers on subsidiary brands' products, strong visibility across brand and category searches, and aggressive advertising on mobile, desktop and video platforms.

These are the top 10 #food brands in #digital: https://t.co/JdkMsvgLm5 pic.twitter.com/vpW9DytsO4

— L2 Inc (@L2_Digital) September 19, 2016

The study attempts to quantify the digital competence of 126 Food brands operating in US market. Members can download the full report at L2inc.com. Video above published September 19, 2016.


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Caveat Emptor: Neustar MarketShare Acquisition, 2016 $NSR Guidance

Third UPDATE Jan 7, 2016: Will Technology and Domain Name Registry Services Company NeuStar (NYSE: NSR) Go Down Like SunRocket Did Under CEO Lisa Hook's Leadership?

"Her tenure at SunRocket betrays a lack of ethical duty to the company's employees and most of all, the 200,000 subscribers who paid the cost for her failure. It is remarkable that just two years after this highly-publicised failure, she would be assigned the top job managing a large public company with a $1.5B market cap. As to why SunRocket failed, there are a couple of great post-mortems written here, here and here. All seem to suggest the same cause: poor management." (Seeking Alpha, infra)

John Zhang, writer at Seeking Alpha, has penned a new post on NeuStar: NeuStar: CEO's Track Record Reinforces The Bear Case (Seeking Alpha), and asks: "... Was it a coincidence that NeuStar lost their most important contract and the long-held Common Short Codes contract under Lisa Hook's leadership? It's possible, but the evidence of management missteps suggest otherwise. These events signal incompetence at the top, and that the bulk of the responsibility lies with Lisa Hook ... NeuStar submitted a bid so ludicrously high for the NPAC contract that it would have lost out to any other bidder ... We think these are not isolated incidents, but indicative of a larger trend. One could cite more examples of dubious actions, such as canceling the share repurchase programme halfway through to acquire a loss-making entity at rich multiples. (Recall that the $200M buyback was announced on the same day of the contract loss, which artificially propped up the share price). Furthermore, we are perturbed by the lack of disclosure with regard to the change in financial covenants and cancellation of the share repurchase program, which was conveniently excluded from the press release..." Read more at Seeking Alpha. [Disclosure: Zhang is short Neustar]

"Loss of the NPAC contracts on or after September 30, 2016 will have a material impact on our future operating results when compared to our current financial profile.  We expect to lose approximately $500 million of annual revenue and this loss will adversely impact our income from operations and operating margin.  Additionally, this loss may have a disproportionate material negative impact on our operating margin because of the largely fixed and shared cost structure that is designed to support all of our services.  We are unable to quantify the impact on our income from operations and operating margin at this time because the end date of the NPAC contract is uncertain and due to our largely fixed and shared cost structure .... When our seven contracts with North American Portability Management LLC are terminated, the timing of which is uncertain, our revenue and profitability may be materially adversely affected. We cannot be certain whether our contracts to provide local number portability services will be extended beyond September 30, 2016. Once the contracts terminate, our annual revenue will decrease by approximately $500 million. As a result of the uncertain contract end date and due to our cost structure, which is organized by function, the impact of the termination of the contracts on our income from operations is not currently quantifiable. At the time of termination, our revenue and profitability will be dependent upon the success of our remaining business. If we are not able to replace this lost revenue and adjust our operating plans to support our remaining business, our total revenue and profitability may be materially adversely affected." Neustar 10-Q, Oct 29, 2015 (emphasis added)

Second UPDATE: NeuStar:2016 Guidance Makes Little Sense - NeuStar, Inc. (NYSE:NSR) | (Paulo Santos) Seeking Alpha: "... NSR has been delaying the recognition of the loss of this [NAPM] contract for quite long now. This has been the case because there's good reason to believe the said contract represents NSR's entire EBITDA profitability ... NSR isn't yet fully ready to recognize just how much profitability it stands to lose (hint: all of it)... In case anyone has doubts regarding what's happening to this contract, you can always visit NAPM's own website, which includes a tab labeled "LNPA Transition" ... NSR was charging nearly $500 million per year for something which is now being awarded ... for 7 years ($142.9 million per year) … a reflection of the massive margins NSR is realizing on this contract ... Assumptions are supposed to be very likely to happen, not this [2016 guidance] ..." (emphasis added, read more at the link above)

First UPDATE Dec 10, 2015: see Neustar: Management Sets Themselves Up To Fail With 2016 Guidance - NeuStar, Inc. (NYSE:NSR) | Seeking Alpha (John Zhang): "... the odds of Neustar meeting the [2016] guidance is close to zero. Like most companies that try to mislead shareholders, Neustar has hidden a number of extremely questionable assumptions in their guidance figures to artificially inflate the numbers. Furthermore, the shocking non-mention of a change in financial covenants in their press release is worth examining closely, as it shows Neustar's risk of default in 2016 has increased dramatically... Neustar's share price is set up for a temporary boost followed by a drastic decline once the true state of their financials are revealed..." (emphasis added, read more at link above)

--[Note: Original Domain Mondo post, 10 Dec 2015, below]--

Pursuant to a Form 8-K filed with the SEC on December 9, 2015, technology company and domain name registry operator Neustar, Inc. (NYSE:NSR) disclosed it has completed its acquisition of MarketShare Partners LLC for approximately $450 million (using cash, shares, and debt--see further below) and issued 2016 guidance:

"The company [Neustar] expects its 2016 revenue to range from $1.16 billion to $1.20 billion, representing growth of 11% to 15%."

But--Caveat Emptor--

"This [2016] guidance assumes that the company will remain the local number portability administrator for 2016." (emphasis added)

That's a BIG assumption, see previous posts on Domain Mondo:

• Investors Flee Neustar, $NSR Stock Down 19% in Five Trading Days
• Neustar $NSR Shares Tanked Friday After Marketshare Announcement
• Neustar $NSR Will Lose $500 Million Annual Revenue, 80% Downside?

And see on Seeking Alpha:

• NeuStar: Costly Acquisition Strengthens Bear Case
• NeuStar: The Loss Of The NAPM Contract Sees New Disclosure
• Neustar: 80%+ Downside Within 13 Months
• $NSR among S&P 1500 Most Heavily Shorted Stocks | Seeking Alpha

Further Caveat: Investors should read closely the Form 8-K and attached exhibits:

Form 8-K, including documents referenced therein, and items:

• Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant. and
• Item 3.02. Unregistered Sales of Equity Securities (emphasis added)

AMENDMENT NO. 1 TO THE CREDIT AGREEMENT AND SECURITY AGREEMENT
AMENDMENT NO. 2 TO CREDIT AGREEMENT

Press Release, dated December 9, 2015

Also note in the Form 8-K:
Item 9.01. Financial Statements and Exhibits.

(b) Financial Statements of Business Acquired.
The financial statements required by this item are not being filed herewith. To the extent information is required by this item, it will be filed with the SEC by amendment as soon as practicable, but no later than 71 days after the date on which this Current Report on Form 8-K is required to be filed.
(b) Pro Forma Financial Information.
The pro forma financial information required by this item is not being filed herewith. To the extent such information is required by this item, it will be filed with the SEC by amendment as soon as practicable, but no later than 71 days after the date on which this Current Report on Form 8-K is required to be filed. (emphasis added)

Finally note the one after-hours trade of only 200 shares (see charts below) which jumped the share price of Neustar:

Neustar stock chart, Dec 9, 2015 (source: google.com)

After hours trading in Neustar shares Dec 9, 2015 (source: Nasdaq) 

Caveat Emptor!

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Worldwide Smartphone Marketshare by Geography, OS, 2015-2019

iCharts

Graphic above: 2015-2019 Marketshares IDC Forecast. China, US, Europe decrease, India and "Rest of the World" increase (in terms of percentage of global total marketshare).

IDC Worldwide Smartphone Forecast by OS – Shipments, Market Share, Year-Over-Year Growth, and 5-Year CAGR (Compound Annual Growth Rate) (shipments in millions):

Region	2015* Shipment Volumes	2015* Market Share	2015* YoY Growth	2019* Shipment Volumes	2019* Market Share	2019* YoY Growth	5 year CAGR
Android	1,161.1	81.2%	9.5%	1,538.1	82.6%	4.8%	7.7%
iOS	226.0	15.8%	17.3%	263.4	14.1%	3.1%	6.5%
Windows Phone	31.3	2.2%	-10.2%	43.6	2.3%	11.4%	4.5%
Others	11.3	0.8%	-16.8%	17.1	0.9%	6.5%	4.7%
TOTAL	1,429.8	100.0%	9.8%	1,862.3	100.0%	4.7%	7.4%

*Forecast data; source: IDC Worldwide Quarterly Mobile Phone Tracker, December 2, 2015.
Note: Apple's (iOS) OS global marketshare declines (2015-2019) from 15.8% to 14.1%.

Worldwide Smartphone Market Will See the First Single-Digit Growth Year on Record, According to IDC (press release): "Android's market share is expected to grow slightly from 81% in 2015 to 82% over the forecast period [2015-2019]. Despite numerous attempts by "alternative platforms" to enter the market, none have proved successful. IDC believes the proliferation of the core Android platform will continue with huge efforts being put forth by companies like Cyanogen and Xiaomi to differentiate themselves from their competitors. Given its global footprint and application/services ecosystem, IDC fully expects some form of Android to hold a dominant share of the smartphone OS space for the foreseeable future."

See also:

• DoubleClick Advertiser Blog: "eMarketer estimates that mobile will account for 72% of U.S. digital ad spend by 2019 and Google's tech-forward target audience spends more than 74% of its time on mobile."
• 8 facts that explain Google's complex situation with Chrome OS | CIO: "This explainer puts Android and the Chrome OS into perspective and shows why these Linux derivatives will both come together and remain separate."
• Why iOS and Android will soon become obsolete | CIO: "The market is eventually going to move to one product that scales from a smartphone to a PC. Columnist Rob Enderle says it doesn’t appear that either Apple or Google will dominate this coming shift."

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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.

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

Caveat Emptor!


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