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Will digital marketing kill the old ways?

Data analytics could kill the free t-shirt
March 23, 2021
  • Demand continues to grow for smart data analytics 
  • Smaller, but steady, business for physical merchandise

There are thousands of companies that make money from collecting and selling your data. Modern marketing technology means that corporations can then analyse it and influence consumers through targeted online advertising. 

Now YouGov (YOU) is preparing to launch a product that allows users to make money from their personal data for themselves. The ‘YouGov Safe’ tool hands out cash rewards in exchange for access to specific online behavioural data, such as Netflix viewing history or Amazon purchase history. 

“It’s not one of those creepy things where somebody siphons off your data without you knowing,” says chief executive Stephan Shakespeare on the YouGov Safe product. But this new level of access will give the company deeper insight into (anonymised) individual habits, which it can then connect to age and gender. “We have data sets that are available now that would never have been available before...in some cases we even send it back to the people from whom they ported the data, because we know more about them.”  

So, perhaps creepy for those who are worried about the wider trend towards the mass harvesting of personal data. But encouraging for YouGov shareholders, as it should make the company’s products smarter - although a 37 per cent increase in adjusted pre-tax profits to £13.6m in the first half suggests that demand for its data analytics tools is already robust. 

Overall though, the first half for YouGov was not a straightforward one. The combined impact of the planned closure of its business in Kurdistan and forex headwinds meant that revenue ticked up by just 3 per cent. Meanwhile, its reported operating profit fell by more than a fifth to £7.4m because of higher share-based payments on some of its recent acquisitions. That was on top of a company-wide change in its account management structure, which it says has set the stage for a busier second half. 

That is not to undermine the progress it made in the six months ended in January. It bagged a number of large contracts in mainland Europe, which should help it achieve its second five-year plan (‘FYP2’) target of doubling both group revenue.

With such rapidly developing, advanced technology (or ‘martech’ if you’re trendy), it is easy to assume that demand for physical marketing products - think hoodies and notebooks - is nearly obsolete. But judging by the performance of The Pebble Group (PEBB), there is perhaps still life in free promo goods. 

The marketing group, whose biggest business is in ‘brand addition’ merchandise, saw its cash profits slump 50 per cent last year, as the pandemic hurt its trade. But management has cited a strong recovery towards the end of the period, continuing into the first three months of the 2021 financial year. Its order book to date is already up by around a third compared to the same point in 2019. 

Shares were up 3 per cent in response to the release of these results - although investors were likely more excited by the numbers coming out of its smaller software business, Facilisgroup. The division won 26 new clients in 2020, to a total of 175, and on-boarded five new clients in the first three months of this year alone. Meanwhile, its gross merchandise value (GMV) grew by a quarter last year to breach the $1bn milestone. 

Its first e-commerce store solution will launch next month, which no doubt the company will peddle to its fast-growing existing client base. The Pebble Group will need to exploit every opportunity available in order to reach its new $50m of annual recurring revenue (ARR) target by the 2024 financial year. 

 

This is ambitious, but within reach. The pandemic has squeezed marketing budgets across the board for almost a year now, as management teams prioritised the smooth operation of core businesses over discretionary expenditure. Now as vaccines rollout, a recovery looks tangible. We do not think that marketing expenditure will look the same - digital advertising tools prove time and again that they are more efficient than the old ways at direct sale generation. But there is still merit in curating a physical presence, especially for Pebble Group’s corporate clients who use their products to foster employee engagement. Free stuff is not dead - although will probably be demoted to a smaller role, as martech takes centre stage. 

Broker Peel Hunt seems to share the same view. Analysts are forecasting that adjusted pre-tax profits and EPS at The Pebble Group will grow to £8.7m and 3.9p in 2021, compared to £7.6m and 2.8p in 2020. That is slightly above its forecast growth rate at YouGov, where it expects adjusted pre-tax profits for the full year to reach £29m, compared with £25.7m in the year prior. We stick to buy on both counts.

YOUGOV (YOU)    
ORD PRICE:970pMARKET VALUE:£1.07bn
TOUCH:950-990p12-MONTH HIGH:1,160pLOW: 400p
DIVIDEND YIELD:0.4%PE RATIO:128
NET ASSET VALUE:96p*NET CASH:£13.7m
Half-year to 31 JanTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
202076.99.26.200.00
202179.07.84.800.00
% change+3-15-23-
Ex-div:na   
Payment:na   
*Includes intangible assets of £87.4m or 79p a share

Last IC view: Buy, 1060p, 29 Jan 2021 

PEBBLE GROUP (PEBB)   
ORD PRICE:140pMARKET VALUE:£ 234m
TOUCH:135-145p12-MONTH HIGH:145pLOW: 70p
DIVIDEND YIELD:NILPE RATIO:57
NET ASSET VALUE:40p*NET DEBT:3%
Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2019107-10.3-12.6nil
202082.34.972.44nil
% change-23---
Ex-div:na   
Payment:na   
*Includes intangible assets of £37.8m or 23p a share

Last IC View: Buy, 105p, 2 Jul 2020