Profits jump at YouGov

Concerns about demand are weighing on YouGov’s (YOU) share price, which has fallen by a fifth since March last year. Will companies still pay for survey results and market data as economies slow down? Or will they cut costs anywhere they can?

YouGov’s interim results suggest its products are more valuable to clients than many investors feared. Revenue increased by 30 per cent year on year to £131mn, while adjusted operating profit jumped by 58 per cent to £22.1mn. Of this rise, 32 per cent was achieved without any help from acquisitions or currency movements.

Performance wasn’t consistent across the board. The custom research division grew revenue by 28 per cent on an underlying basis, and its adjusted operating profit shot up by 78 per cent to 14.2mn. By contrast, demand for data services – which refers to quicker, survey work – fell, and profits tumbled by a quarter to £3.2mn. 

This is not necessarily a big problem. It does, in part, reflect lower demand: outgoing chief executive Stephan Shakespeare flagged that PR firms were requesting fewer quick-fire polls. However, he added that many clients were also trading up from data services to higher-margin, customised products. This is reflected in the group’s overall operating margin, which rose by 3 percentage points to 17 per cent.

Other factors are bolstering YouGov’s margins as well. The group has been investing heavily in technology, people and panellists, and this is starting to pay off in the form of operational gearing. Shakespeare added that even customised work is becoming “very repeatable” with more clients opting for templated solutions.

Whether margins can keep getting wider depends, of course, on future demand, but the group’s near-term prospects look good. YouGov said it is confident of hitting full-year revenue forecasts of £265mn, which implies annual sales growth of 20 per cent. Helpfully, a third of YouGov’s revenues come from subscriptions, while half of sales tend to recur, so there shouldn’t be too much guesswork involved. Indeed, Shakespeare said the group had “never had a point where so much of the rest of the year is budgeted”. 

YouGov shares don’t come cheap. However, the group is considerably less expensive than it has been in the past, trading on a forward price/earnings ratio of 23, compared with a five-year average of 37.2. While the backdrop remains uncertain, therefore, and a new chief executive has still to be announced, now looks like a decent time to buy in. Buy. 

Last IC view: Buy, 805p, 11 Oct 2022