Shares of Nielsen Holdings (NYSE:NLSN) crashed hard on Thursday, following the audience measurements expert's disappointing second-quarter report. The stock plunged as much as 27.3% lower in the morning session, recovering to a slightly milder 25% drop as of 12:45 p.m. EDT.
In the second quarter, Nielsen's top-line sales crept 0.6% higher year over year to land at $1.65 billion. Your average Wall Street analyst had expected something more like a 4% boost near $1.71 billion. On the bottom line, adjusted earnings fell 47% and stopped at $0.20 per diluted share. Here, analysts were pining for a flattish $0.37 per share.
Based on these results, Nielsen slashed its full-year earnings guidance by 36% to roughly $0.98 per share, far below the current Street consensus of $1.51 per share. Management explained that the European GDPR data security act and other regulatory moves have made it hard to sell data collection services, putting a damper on the entire operation.
In a separate press release, Nielsen announced the year-end retirement of CEO Mitch Barnes and the start of a search for his permanent replacement. Furthermore, the company is conducting a strategic review for its buy segment, where Nielsen tracks and analyzes consumer behaviors related to retail purchases and preferences. That division posted 4% lower revenue in the second quarter, while the media-tracking "watch" segment showed 4.5% revenue growth instead.
Nielsen's investors have now absorbed a 39% price drop so far in 2018. I recently argued that Nielsen's strong dividend and deep-discount valuation worked out to a good balance between risk and potential rewards, but this mellow earnings report may have proven me wrong. The stock is now trading at 20 times trailing earnings but a staggering 65 times free cash flows.
If this drop is a buying opportunity, it's only for the most risk-tolerant investors out there. The rest of us may want to take a pass on Nielsen's ticker.
Anders Bylund has no position in any of the stocks mentioned. He used to work for Nielsen in the mid-2000s, for what it's worth. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.