In recent years we have defined growth opportunities in the information services space as limited or slow paced. The industry has relied largely on customer retention, which it uses to generate gains through contract growth and subscription upselling, to expand its business. This is somewhat of a byproduct of its susceptibility to macroeconomic shifts and the cyclical market. Nevertheless, it was surprising to many when information service companies began reporting sudden spikes in demand from new clientele in recent months. Indeed, core-subscription products and new in-house information platforms alike have witnessed greater attention from the public. But after such an uncharacteristically busy season, investors are left wondering if these trends have staying power.
To answer this question we look to one of the industry’s biggest players, Alliance Data Systems (ADS), which began raising guidance for 2014 as a result of growth at its Private Label business. The segment expanded 16% in the third quarter, and the company is now working with PayPal to develop faster and more efficient sign-up and payment methods for new users. Furthermore, the company is in the process of developing a loyalty program called DOTZ, based out of Brazil, which recently added 1.5 million subscribers to its customer base, and this is a good indicator of its ability to maintain business inputs. These new developments have generated excitement as the company heads into a period that may feature some regulatory headwinds. However, it is not the only industry constituent to make notable strides with new clientele.
Equifax Inc. (EFX) has developed a few new relationships in the market, as well, and management continues to stress their importance, based on the high margins under which the company operates. Its most recent win is a contract with Credit Marketing Services (CMS) that is potentially worth $65 million in revenues for 2014 alone. This company has helped its partners improve customer marketing efforts for years through the identification of new clientele and the ability to increase total revenue generated from existing customers. Now, Equifax will look to push its information solutions products forward with its aid. Additionally, the company’s Key Client Program (KCP) has inked noteworthy deals of late, and will also look to keep momentum going.
The aforementioned example speaks largely of potential in the 2014 term. Meanwhile, some market movers have been able to statistically quantify demand growth in the industry through the installation of research platforms around the world. Thomson Reuters (TRI.TO), for instance, has recorded great success for its Eikon platforms this fall. The total number of installed units reached 96,000 at the end of September, a 26% boost over the June figure. Meanwhile, it was scheduled to release its new Eikon 4.0 platform in the fourth quarter, and 55% of current users are already signed up to receive the upgrade by 2016.
Based on the strategies these companies have rolled out, a more swift-paced expansion may be in the cards for 2014. However, newly identified mortgage headwinds that are expected across the industry could discount some of this potential. Thus, the conundrum remains, and an investor must choose whether or not to have confidence in this statistical data. Luckily, an investor does not need to place all of their eggs in one basket, nor are they required to adjust their individual time horizons. Hence, we submit that investors look to one of the most historically dependable themes when looking into the information services space; consistency.
Gartner Inc. (IT), for example, witnessed its top-line momentum dwindle a bit in its most recent earnings period. But, even despite this deceleration, the company’s share price grew. This is a more understandable occurrence when noting that the third quarter represented the 11th consecutive term that featured contract revenue growth in excess of 10%. What’s more, customer retention for the company has been solid. These are the statistics that long-term investors should take into account, because although prices across the industry may seem inflated of late, as a result of upticks in demand bursts, the defensive nature of this industry and the potential to be realized from some of its larger constituents, is still worthy of attention.
At the time of this article’s writing, the author did not have any positions in any of the companies mentioned.