Market Research Firm Ranks Best, Lagging ‘Information Companies’
The Outsell 100, ranking the companies at the top and those lagging in the information industry, which includes traditional and nontraditional magazine and news publishers, says McGraw-Hill is a rising star, while Penton and Primedia are among those companies falling behind, based on an analysis of their publicly filed financial statements. Outsell is a market research and advisory firm that tracks 100 publicly traded U.S. and European b-to-b companies in what the Outsell calls the information industry, which includes companies such as United Media, as well nontraditional news sources such as Google, Yahoo! and Moody’s. "One of the many things we do is keep our finger on the pulse of the industry," says Leigh Watson Healy, Outsell’s lead analyst. "We look at several different parameters that form a scorecard for company as a whole, as well as its place within the industry."
Because the research compares companies specializing in different areas, including publishing, software, and financial markets, some publishers said this week the data is flawed and compares apples to oranges.
Outsell 100 reports are released quarterly. The report released this week looks at the companies’ overall performance in 2005. Specifically, Outsell takes revenue and operating income (OI) figures from company annual reports and filings from each quarter. It calculates operating income margin as OI divided by revenue. Market capitalization multiples are calculated as total market cap minus cash, divided by trailing four-quarters revenue.
Google ranked No. 1 in all areas, says Healy. "They just continue to outpace everyone," she says. In the traditional publishing realm, McGraw-Hill ranked No. 21 and is considered one of Outsell’s rising stars, Leigh says. "They’re kind of making a steady upward climb in the metrics and significant achievement in what we consider the large, diverse firm," she said. The report says McGraw-Hill’s rising star is driven by its merger with Taylor & Francis, which caused its year-over-year revenue growth. McGraw-Hill’s 2005 OI margin of 22.8 percent and market cap to revenue ratio of 3.0x are the highest of any big, diverse company, according to the report. It goes on to say that McGraw-Hill’s acquisitions of Capital IQ and J.D. Power have helped, but are not the dominating factor in the firm’s climb.
Still, about 20 companies continually dwell in the bottom of the Outsell 100, the report says. Among the cellar dwellers, as they’re called, are Penton and Primedia.
Opinion Research is ranked the worst company financially at No. 97 (some companies tied which is why the worst company ranks 97, rather than 100). Primedia tumbled in the most recent report to the second worst at No. 95 from No. 78, a quarter earlier. Although Outsell predicted in its last report that Primedia was on the upswing, Outsell says the forecast only lasted one quarter. Overall, Primedia has been in the Outsell 100 Bottom 10 for 11 out of 15 quarters, the report says. This is mainly because revenue dropped significantly versus 2004 due to the divestiture in 2005 of the Business Information division. In addition, year-end cash was down and market cap still languished in the 93 spot out of 97 since the stock ended 2005 at about half its value in January. "The analysis is very straightforward," Healey says. "When you look at a compnay like Primedia, they’re falling in the Bottom 10 of the Outsell 100, year after year since 2003 or maybe even earlier. It’s about what’s happening with their revenue growth or lack of it that drives them mathematically to the bottom."
On the bright side, Primedia will not return to the Outsell 100 in 2006, as Outsell now considers it a consumer, not a business-to-business company, as a result of its restructuring. A Primedia spokesman declined to comment on the report. Penton Media moved down from No. 86 to No. 89. Also considered on the upswing by Outsell a quarter earlier, Healy says Penton also failed to deliver as expected and been in the Outsell 100 Bottom 10 in eight out of 15 quarters, and mostly in the 80s the other quarters. Much of the company’s improved performance in the third quarter of 2005 resulted from the timing of one of its trade shows, the report says. The company’s large debt burden results in low cash levels (ranked No. 92).
Penton did not respond to a request for comment as of press time. "They need to improve significantly in order to pull up, the same for all our companies in the Bottom 10, Healy added. "They’ve announced new directions, new partnerships that we’re going to be paying close attention to, to see if they truly break out."
The Outsell 100
Corporate Executive Board
(97) Opinion Research
(96) Dawson Holdings
(95) Primedia Inc.
(92) Medialink Worldwide
(91) GP Strategies
(90) Track Data
(89) Penton Media