IHS Inc. (NYSE:IHS) recently announced that it is buying privately held R.L. Polk for $1.4 billion. Polk’s Carfax service is a mainstay in the auto industry and materially bolsters IHS’ auto offerings. The price tag shows just how valuable information can be. Investors should also look at Nielsen Hldg NV (NYSE:NLSN) and DigitalGlobe Inc (NYSE:DGI).
Buying a Research Team
The most expensive part of creating a research-based business is creating the systems to collect, analyze, and distribute the research. Once that’s done, however, a single information product can be sold to multiple customers. And, if done well, the information can be sliced and diced into new products.
So it isn’t surprising to see a company like IHS Inc. (NYSE:IHS), which offers research-based services to industries as diverse as coal and electronics, step in and pay big bucks to buy the company behind Carfax. That brand is established and has a solid infrastructure in place. Although the deal was the result of an auction, which could mean IHS Inc. (NYSE:IHS) paid more than it otherwise might have liked, the service fits right in with IHS’ broader business.
And IHS Inc. (NYSE:IHS) has been performing well for a decade, with the top line going from about $350 million in 2003 to about $1.5 billion last year. In fact, sales advanced right through the recession. Earnings have been a bit more volatile, but have been over $1.50 a share since 2008 and were nearly $2.40 in 2012. The shares have been on a fairly steady ascent since late 2009, so IHS Inc. (NYSE:IHS) is probably most appropriate for growth investors.
Other Options
That said, the billion dollar purchase just goes to show the value that information services have hidden beneath the seemingly simple offering of information. For example, Nielsen Hldg NV (NYSE:NLSN) is another research specialist best known for its industry standard television ratings. That business makes up about a third of the top line. The company’s bigger business is monitoring what people buy, which accounts for around two thirds of revenues.
The company operates in both developed and developing markets, with exposure to over 100 countries. The most valuable part of what Nielsen Hldg NV (NYSE:NLSN) offers is a trusted brand and the infrastructure needed to accurately monitor consumer behavior. This allows customers to outsource the important market research step with confidence.
Nielsen Hldg NV (NYSE:NLSN), however, ran into financial troubles in the mid-2000s and was taken private in 2006. It came public again in mid-2011, so it has a short trading history. That said, it had more than $5.6 billion in revenue in 2012 and looks to be on a much more solid footing today. It might be a good time to get aboard while the market is still trying to assess Nielsen Hldg NV (NYSE:NLSN)’s business prospects.
Making the Switch
DigitalGlobe Inc (NYSE:DGI) is another interesting name in the research services space, or at least that’s the long-term goal. The company owns satellites and sells high resolution images to both governments and industrial clients. Better yet, it recently bought one of its main competitors, GeoEye, solidifying its industry position.
There should be cost saving from the merger, like a reduced need to put new satellites in space, but that isn’t the big story. Prior to joining DigitalGlobe Inc (NYSE:DGI), the company’s relatively new CEO worked at a database company. He is looking to transition DigitalGlobe Inc (NYSE:DGI) to a subscription model. Not only will such recurring revenues stabilize the top line, but it should also help spur growth over the long term as the company branches out into new areas.
The top line has grown steadily over the last few years as the company has expanded. Growth spending, including costs associated with the recent merger, has led the bottom line to be far more volatile. Right now “the story” is driving the stock price, with the shares more than doubling since early 2012. That said, if it can successfully make the services shift, there could be more upside. Momentum investors should take a look.
Infrastructure
The basis of each of the above companies is a research infrastructure. That’s costly to build, though it’s a key asset and winds up being a big barrier to entry for competitors. IHS Inc. (NYSE:IHS)’ purchase of Polk shows just how valuable that infrastructure is. The addition of Carfax should continue to push IHS’ top and bottom lines higher.
Nielsen Hldg NV (NYSE:NLSN) is a research giant that presents long-term opportunities for more aggressive types willing to get aboard with a newly public company. DigitalGlobe Inc (NYSE:DGI), meanwhile, is looking to transition to information services, a move that could materially improve its already positive outlook.
The article Big Value In Information Services originally appeared on Fool.com and is written by Reuben Brewer.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends DigitalGlobe. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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