- Reiterated 2017 PT of $8.00
- Drop in stock price provides reduced entry point: After rising to an interim high of around $6 in early May from around $3.50 in February and March, COGT dropped precipitously earlier this week to its current level of $4.30, after having been targeted by short‐seller assertions (countered in a public response by management) that called into question cogint’s core business model, among other things. A few weeks ago, we raised our price target to $8 after COGT achieved our previous target of $6. At that time, we noted that cogint’s Q1/17 quarterly revenues of $50.8 million (+29% YOY) were above our estimate of $49.8 million, and that management reaffirmed its full‐year guidance calling for revenues in the range of $233‐239 million (+25‐28% YOY) for 2017. Our view remains unchanged that cogint is executing an attractive overall strategy, under which Fluent provides critical mass in an adjacent business area as management establishes a presence in the data analytics market (idiCORE) in which it has exhibited proven expertise.
- idiCORE’s potential contribution: idiCORE is the activity that provides justification for anticipating outsized gains. The process of establishing idiCORE involves puts and takes with regard to the cost side of the equation. Specifically, as idi reaches critical mass, the ability to leverage fixed data costs creates accelerating profit growth. However, in the early stages of this growth cycle, a number of verticals are established to later benefit from cost leveraging. These verticals must be prioritized as to the sequencing and pace of introduction to determine when to incur the added data costs. The periodic incurrence of data acquisition costs for the sake of establishing the next vertical in the prioritization plan indicates revenue and profit growth patterns will necessarily be somewhat lumpy. While faster current growth could be achieved by focusing on a smaller number of verticals, this approach would come at the expense of a more complete execution of the available business opportunities. We feel this phased approach is the correct one.
- Data‐ driven marketing capabilities driving top‐ line growth: People‐based targeting of consumers is facilitated by the very large and still growing number of consumer profiles being generated and/or acquired as cogint executes on its business model. The steady revenue growth of the diversifying Fluent business, as idiCore is still in its early stages, is evidence of the effectiveness of its business model. Cogint’s database of consumer profiles is used to match businesses with consumers. Improved targeting of consumers enabled by its data from surveys makes for a more effective spending of advertising and marketing resources relative to other options available to businesses.
- Reiterate OUTPERFORM investment rating and our 2017‐ based price target of $8. Our 2.5x EV/Sales multiple assumption comps with a similar level for Criteo (CRTO), a performance marketing comp. Cogint acquired Fluent to provide critical mass as it established a new data analytics service targeted to be the primary growth and investment attraction. Fluent now provides 97% of sales and 99% of cogint’s gross profit. Virtually all current value in COGT is derived from Fluent and, as such, the potential value of (upside from) idi is effectively “free.”
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