Nielsen Holdings (NYSE:NLSN) wants to make the TV ratings system better, and it's turning to Twitter for help via a new service called Twitter TV Ratings.
The two companies first partnered in December. Now, as Twitter is preparing an IPO, Nielsen is sharing details. In short: Twitter TV Ratings multiply the number of people tweeting about a program by their total following to arrive at an estimated online audience.
In a press release, Nielsen said that each "author" tends to reach 50 engaged viewers. Thus, if 10,000 are tweeting about the season 2 premiere of Arrow tonight, those posts could reach a half-million following online.
You can bet Time Warner would love for me to be right about that. You can also bet that networks would love anything that increases the odds of viewers watching live TV, especially when the Viggle app seems like a misplaced bet.
But is Twitter really the answer? If so, how should Nielsen investors think of Twitter TV Ratings? For now, I'd call it an incremental product sold to a limited audience (i.e., network executives and advertising agencies). And yet, after taking a closer look at Nielsen's financials, I wonder if a little incrementalism could take Nielsen a long way. This is a healthy business.
For example, Nielsen's "Watch" segment, which specializes in audience measurement, accounted for 35% of revenue and more than half of operating income last year. According to S&P Capital IQ, the "Watch" segment has grown operating income substantially since 2009. Nielsen also generates a lot of cash from operations -- $949 million over the last 12 months alone, triple what the entire business produced in 2008.
Color me impressed. Mix in a rush of new Twitter data to track and a reasonable valuation -- 21 times trailing earnings, 15 times next year's earnings target -- and I'm compelled to rank Nielsen to outperform in my Motley Fool CAPS portfolio.
Now it's your turn to weigh in. Do you think Twitter makes Nielsen a better investment? Tell us about it in the comments box below.
Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Netflix and Time Warner at the time of publication. He was also long Jan. 2014 $50 call options on Netflix. Check out Tim's web home and portfolio holdings or connect with him on Google+, Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.
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