Yesterday I looked into a couple John Malone stocks that were being teased by John DelVecchio’s Hidden Profits, and a question popped up about “the other one” — so I thought I’d check on that for you, too.
That ad teased three stocks — two of them were “the billionaire who beats Warren Buffett” ideas, stocks that are connected to John Malone and his Liberty empire, but the third one is something completely different… here’s how the ad teases it:
“FAST STOCK #3: 400% Gains From ‘The Next Facebook’
“If you’ve spent anytime online lately, you’ve seen the flood of digital advertising taking over the internet…
“Pop-up ads, ‘paid content’ at the bottom of legitimate news sites, even company blogs and websites have become virtual billboards.
“This is the revolution going on in advertising and marketing…
“And it costs a lot of money.
“In 2016 digital ad spending hit over $72.09 billion, passing traditional TV advertising ($71.29 billion) for the first time.”
Digital advertising is something we look at a lot here, of course, since it has fueled so much growth for companies that get teased from time to time, or that I own (like Facebook, Alphabet and The Trade Desk), so I’m certainly curious… what’s this “next Facebook” idea?
Here’s how they describe it:
“You see, there are three types of media – owned media like a company’s website or blog…
“Paid media like Facebook or Google ads and other forms of paid advertising…
“And then there’s earned media.
“Earned media is the online equivalent of a referral… or in this case, a lot of referrals from people that others trust.
“For business owners, earned media is about leveraging the things that are already being said about them and their brand to improve marketing and make smart business decisions.
“The problem with earned media is it requires a ton of data and it requires making sense of it all and applying it.
“If a marketing company can crack the code on building trust with earned media and then turning that trust into sales…
“That company could become ‘the next Facebook’ when it comes to digital advertising.”
I don’t think I’ve heard that “earned media” term before, but it sounds like that’s what we used to call “free media” … I guess that term “free” didn’t give enough credit to public relations professionals who “earned” the coverage by pushing stories to journalists or trying to stimulate “viral” stories on social media.
So presumably we’ve got an ‘earned media’ stock here, no? Indeed, here are the other clues…
“The good news is I’ve found a “hidden” business with the solution for earned media… and it’s a FAST stock that pays you first.
“This company has figured out how to mine the data from millions of social media posts and online activity so that companies can use that information intelligently.
“They’ve already deployed an earned media strategy to their current customers with a highly profitable subscription model.
“And they’ve proven this model in a $3 billion market with a steady stream of contracts and excellent renewal rates.
“Now it’s in prime position to move into new markets that total an estimated $32 billion and $195 billion.”
Anything else? We do get a little hint about the stock price, which might help:
“This is a stock you can get into for less than $17.50 a share and I believe it will grow four fold or more in the coming years.”
So… hoodat? Thinkolator says this must be Cision (CISN), which is a company that I’ve never looked at before. They are focused on providing “marketing software” and, yes, this is yet another cloud/SaaS business where they’ve been trying to move their customers from buying software to renting access to software… with some success, since over half of their customers are subscribers now.
The match is imperfect, to be clear — mostly because there aren’t really a lot of solid clues to tie this one down. Cision does say that they’re the “leader in the $3 billion communications intelligence software and services market” with their Cision Communications Cloud, so that’s a match for the “$3 billion market” … and, well, I think they might be the only public company that is meaningfully focused on the “earned media” business (there are a few publicly traded firms that you might call “PR firms,” but not many… and the major ad agencies often have “communications” divisions as well, but it’s a niche that is often just rolled into “marketing” and seems not to have generated many “pure play” stocks).
And, of course, Cision is not currently trading particularly close to the hinted-at “less than $17.50” share price — though it is firmly below $17.50 and was trading as high as $17 back in September, before the wheels fell off (the peak for this year was around $14, in March). So given that we know this ad has been rolling around our inboxes since at least February, that makes the price hints a bit closer match.
The challenge, it appears to me, is that they’re not growing the customer base — they are gradually transitioning customers over from transactional to subscription, it appears, though things get a little messy when making year over year comparisons because of the many smaller acquisitions they’ve made over time, and that will help with revenue as long as they can keep doing it, but there doesn’t seem to be much sign that the business is growing at all dramatically (whether it can or not, I don’t know — a lot depends on how big the market and the demand really might be, and “earned media” is not nearly as well-understood or widely-studied as digital advertising so there aren’t many hard numbers to throw around).
They’re not really growing yet… which is the bad news, I guess, and part of the reason you don’t hear them mentioned alongside the hot “cloud” and SaaS stocks. The good news is that they’re not valued like a crazy-growth cloud stock. CISN trades at less than 2X sales and around 12X the expected earnings for this year, with expectations for revenue growth of about 5% and earnings growth of about 10%.
So what’s the story? Well, Cision’s forebears have been around for a long time — it has its roots in the Swedish Press Agency and Bacon’s going back 150 years or so, and in several different “clipping services” companies and press release distribution firms that they’ve formed or acquired over the years, with PR Newswire probably the most well-known, and that led up to a flurry of debt-funded M&A four or five years ago and then, finally, their combination with the Capital Acquisition Corp III SPAC to get a public listing.
The stock had a really nice run in the first part of last year, partly because they did a warrant exchange to clear out the SPAC warrants (warrant holders got roughly a quarter of a share per warrant in the exchange), but has been going down pretty sharply in recent months and now trades at the lowest price it has seen as a public company.
They’ve also been pretty active in trying to build and “modernize” the company since the listing — they bought TrendKite and Falcon.io early this year, a media monitoring company and a social media management company, and at the same time sold their email marketing businesses.
And they’ve also seen a lot of insider selling in the past six months or so, which is probably the biggest thing pressuring the share price — the stock initially faltered last year when they registered to sell 12 million shares, and this year they’ve filed to help insiders (mostly the private equity firms who had backed them for years) sell even more, so that spooks investors a little bit. These aren’t “we’re raising money to grow” fundraisings, the company doesn’t get the money, these are sales by insiders who were either major owners of Cision as a private company or the sponsors of the SPAC that they merged with.
I don’t blame them, I’d sell at $15-20 too. But at $10? Well, that might be worth some more research. And the falling share price even apparently started to spark some interest from other private equity firms back in March, as rumors circulated that they were considering putting the company up for sale — a complete absurdity, given that they had only gone public through that SPAC merger two years ago, but one never knows what kind of absurd deals will get done just because of the massive pool of capital that private equity firms are trying to put to work (and, of course, it wouldn’t be the first time that a company got traded around from one private equity firm to another, sometimes it seems they’re just trying to generate fees and keep people busy). Nothing came of those rumors (yet), and the stock is down another 20%+.
The key concern for me is the trend for subscriptions and overall sales, and at this particular moment there’s no reason to panic but it doesn’t look that compelling… it looks like they’re having to work really hard to convert customers and aren’t adding many new ones — so maybe that’s part of the reason why the stock has faltered. They have had some spurts of growth in subscribers, but over the past five quarters the customer number has stayed about the same (they had 42,884 subscription customers in Q1 of 2018, and a total of 83,100 customers… in Q1 of 2019 they had 45,243 subscription customers and a total of 82,905 customers), and the total revenue per subscriber and average revenue per transaction for non subscribers have both stayed essentially flat.
So the story as we look in from outside, at least at this one quarter, is one of a-little-better-than-stagnation, at least in the context of the crazy growth we’re used to from “cloud software” stocks… they are improving revenues slightly by moving more customers from transaction accounts to subscriptions, and analysts think they’ll be growing revenue by about 5% (more than they have in the past) and earnings at about 10%, but it doesn’t look like they’re adding new customers, even with the fairly substantial acquisitions in the past couple quarters (though it’s probably too early to judge those).
I like the idea of this company, they are trying to provide the tools to enable data-driven public relations management, much like programmatic advertising service companies like The Trade Desk (TTD) are trying to provide the tools that allow for data-driven advertising management. I do not know enough about this business to have any sense of whether or not they’ll be successful, whether they can really convert the customers who were just paying PR Newswire to distribute their press releases into paying subscribers to their Cision Communications Cloud, but I can see PR firms and large companies focusing a lot on managing and reacting to their presence in both media and social media, and trying to direct that “earned media” coverage as much as they can and automate the tracking of that coverage…. so if Cision’s products are genuinely useful and they can effectively cross-sell their newly acquired services, as they said they’re making some progress on in the first quarter conference call, maybe they’ll keep growing or begin to “surprise” with better growth.
I certainly get pitched by PR folks several times a day about stories they’d like me to cover, and those PR folks would probably be able to manage their time more effectively if their software platform knew that I don’t interview “influencers” or accept “contributed articles” from PR firms or look for quotes from people who are flacking a personal finance book. I can’t imagine the vast amount of time wasted in the day of a typical public relations professional, so maybe there’s a way to make that more efficient through an automated system that’s better at attribution and monitoring and provides some meaningful insights through data analysis.
But at this point, I’m not particularly inclined to rush in — with sales growth and earnings growth both looking pretty tepid, and not expected to rise rapidly (by analysts, at least), it’s certainly not an exciting growth idea… what it is, if they get this right and their acquisitions help the growth to pick up a little bit as they expect this year, is a reasonably valued service provider that carries a lot of debt.
That’s potentially interesting if it gets really cheap or begins to trade at an exciting discount that cuts the risk as we bet on whether or not they can reignite their revenue growth, and it may be that we’re getting close to that point… but without any kind of growth trend or increase in the customer base there’s also the risk that their large debt burden from the private equity-funded acquisition binge they were on could become burdensome after a couple bad quarters, so I’d want to really dig in and understand the business and get a lot more comfortable with the value proposition for their customers, the stickiness of those subscribers, the potential size of the market and any possibility that they have of dramatically increasing that customer count over time, and the vision for increasing the spending that subscribers do on their platform over time, before I’d be comfortable becoming a shareholder.
And assuming this is the stock he’s pitching, I have no idea what “FAST stock that pays you first” criteria this could tick off for Del Vecchio — the ad says that there’s a “shareholder trifecta” that leads to value creation at his FAST stocks…
* “FAST stocks pay a safe, consistent, and increasing dividend
* FAST stocks reinvest in themselves by strategically buying back shares, helping to boost share prices for investors
* FAST stocks reduce risk and survive economic downturns by paying down high-interest debt”
And Cision does not pay a dividend or buy back stock, so I guess the only way this hits that criteria is that at the time the ad started running, they were gradually paying down some of their debt — that was very minor (they reduced the debt by about $65 million in 2018, but added another $70 million in debt in the first quarter this year for those acquisitions — total long-term debt is now close to $1.3 billion). If it weren’t for the debt, which costs them about $80 million a year and really cuts into their margins, I’d find this one much more immediately compelling… but as it is, I’ll chew on the idea some more.
That’s just what I think, though — it’s your money, so what you think is what really matters… tempted by Cision as an emerging “cloud” player in PR that still trades at a rational valuation? Concerned by the relatively low growth or the debt? Have any other insights? Might you have ever used any of their products? Let us know with a comment below. Thanks for reading!
Disclosure: As of the time of publication I own shares of The Trade Desk, Google parent Alphabet, and Facebook. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.