Needham & Company Upgrades Rentrak (RENT) to Strong Buy

Needham & Company upgraded Rentrak (NASDAQ: RENT) from Buy to Strong Buy with a price target of $85.00.

Analyst commented, "We believe that RENT’s TV segment growth drives its share price. We raise TV segment estimates based on political, and upgrade shares of RENT to Strong Buy (from Buy) based on TV segment: 1) catalysts; 2) new products upside potential; 3) favorable macro trends; and 4) visible revenue growth (which adds downside protection). We also see potential for acquisition. RENT’s Oct 1 investor day in NYC should provide a near-term catalyst, as RENT will put diverse clients on stage to underscore the value of its products. Also, over the next 12 months, we now expect political to add $5-10mm to RENT’s TV revenue, so we raise our TV segment revenue by $8mm through Nov 2016. We retain our $85 target price, nearly double Friday’s closing price. The key analytical building blocks underlying our upgrade include:

Political Upside as Catalyst.·According to CBS news, political ad spending for the 2016 races (including Presidential) is expected to exceed $12B. Today, nearly all Republican candidates in the primary are buying RENT’s political product. We expect the Democratic party to buy RENT after the Republican primary. Obama’s campaign was a heavy user of RENT data in 2012 to allocate its $400mm local TV station advertising budget. The $12B windfall from political is generating incoming calls to RENT because if a national channel does not have RENT data, they risk being taken advantage of by the candidates. For example, in 2012, Obama bought ads on The Andy Griffith Show on TV Land at a very low price, based on RENT data. To prevent this in 2016, stations and networks need to know how the candidates are looking at their ad inventory, so they can price it higher.

New Product Optionality. RENT’s dataset gives it pricing power, competitive advantage, and new product optionality. RENT has an excellent track record of creating new products from its super-granular data. For example, RENT has a new product targeting the sports leagues that has taken off. New clients often approach RENT with new product ideas and RENT creates products that scale fastest in the lucrative TV ecosystem.

Macro Tailwinds. A key learning by brands from the digital world is that data improves advertising efficiency. RENT measures second-by-second viewing of 60mm US TVs and records every click of the TV remote in 1 out of every 4 (26mm) US TV households. The extreme granularity of RENT’s data enables targeted products that have never before existed, such as auto, political, CPG, syndication, RSNs, etc.

Acquisition Potential. Management owns 14% of RENT, including the CEO and CFO at 10%. The CEO, Bill Livek, has spent virtually all of his after-tax earnings as RENT’s CEO buying RENT shares in the open market. This implies (to us) that he hopes RENT will be acquired. We see 4 categories of logical potential buyers: 1) Internet (FB, Amazon, YHOO, etc); 2) Big Data (Adobe, Oracle, IBM, Acxiom, etc); 3) Advertising (WPP, IPG, etc); and 4) competitors (SCOR, NLSN, etc).

For an analyst ratings summary and ratings history on Rentrak click here. For more ratings news on Rentrak click here.

Shares of Rentrak closed at $43.43 yesterday.

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