QUOTE AND NEWS
DailyFinance  Jul 16  Comment 
The Rosen Law Firm announced today that a class action lawsuit has been filed on behalf of all purchasers of the common stock of NeuStar , Inc. (NYSE:NSR) during the period from April 19, 2013 through June 6, 2014, seeking...
Forbes  Jul 11  Comment 
By my definition, attractive stocks have high and rising return on invested capital (ROIC) and low price to economic book value ratios. Dangerous stocks have misleading earnings and long growth appreciation periods implied in their market...
Cloud Computing  Jul 9  Comment 
Neustar, Inc. (NYSE: NSR) today announced that it will report its second quarter 2014 operating and financial results on Wednesday, July 23, 2014 after the close of regular trading. This release will be followed by a ...
Benzinga  Jun 27  Comment 
Below are the top diversified communication services stocks on the NYSE and the NASDAQ in terms of gross margin. The trailing-twelve-month gross margin at Intelsat SA (NYSE: I) is 86.00%. Intelsat's revenue for the same period is $2.58...
Cloud Computing  Jun 25  Comment 
Neustar, Inc. (NYSE: NSR), a trusted neutral provider of real-time information and analytics, today announced that the Washington Post has named it one of the 2014 Top...
Cloud Computing  Jun 24  Comment 
Aerospike today announced that Neustar selected its in-memory NoSQL database to provide next-generation solutions for identity and data management within Neustar’s PlatformOne solution. Leveraging this offering, marketers...
StreetInsider.com  Jun 10  Comment 
52-Week High: Interpublic Group (NYSE: IPG) $19.77. Interpublic Group getting a boost today as Piper Jaffray raised its price target on the stock from $11 up to $21, but maintained a Neutral rating. Shares rose just 0.7 percent to the new...
Cloud Computing  Jun 10  Comment 
Neustar, Inc. (NYSE:NSR), a trusted neutral provider of real-time information and analytics, today released its Q1 2014 Media Intelligence Report (MIR), revealing insights into the effectiveness of different online...
StreetInsider.com  Jun 9  Comment 
52-Week High: Apple Inc. (Nasdaq: AAPL) $93.77. Apple rising to a new 52-week high after conducting its recent stock split. Shares rose as much as 1.7 percent on Monday's trading session to the new level. JD.com, Inc. (NYSE: JD) $29.09. ...
TheStreet.com  Jun 9  Comment 
NEW YORK (TheStreet) -- Neustar  stock is sliding Monday after an email from the North American Numbering Council (NANC) to the FCC suggested an Ericsson  unit was close to winning a phone number management contract currently held by...




 

Neustar (NYSE: NSR) is an incumbent clearinghouse and directory services provider that is contracted by the Federal Communications Commissions and the North American Numbering Council as the sole telephone number administrator to manage all telephone area codes and numbers and enable routing of telephone calls among all of the communications service providers (CSP) in the United States and Canada.[1] The company mainly generates revenues from per-transaction fees as it manages over 700,000 transactions a day to enable the routing of more than 2 billion telephone calls, powers the resolution for more than 16 million global Internet domains, and supports more than 10 billion SS7 (Signaling System number 7) network signaling messages per day.[2] In 2009 the company announced that it would change its pricing model for its telephone number portability contracts from transaction-based fees to annual fixed fee structure. Despite the company's view that this transition would ultimately increase predictability of revenue growth and reduce costs, this new pricing model casted doubts among analysts and investors, causing its share to plunge 16.9%, the lowest since it began trading in June 2005.[3][4]

While it generates recurring revenue from its telephone numbers management, the company has seen the proliferation of the use of wireless networks and businesses' increasing reliance on the Internet and thus has been extending its services into high potential markets such as domain name services (DNS) and mobile instant messaging services (MIM) by integrating acquired businesses with its own clearinghouse services.

Although the 2008 financial crisis and the economic downturn seemed to have little effects on Neustar due to the CSPs' steady reliance on its core telecommunication services, the company has announced that the adverse economic conditions, if prolonged, might negatively affect the number of transactions in its databases and the growth of its new services.[5]

Company Overview

Neustar is a provider of clearinghouse and directory services for the global communications and Internet industry. Its core business is allocating telephone numbers and providing network management services under seven contracts with the North American Portability Management LLC, an industry group that represents all telecommunication service providers in North America. Its customers, whether they are large telecommunications service providers such as Verizon Communications (VZ), AT&T (T), and Sprint Nextel (S) or emerging communications service providers such as Internet service providers, mobile network operators, cable television operators, and voice over Internet service providers, all have to access its clearinghouse in order to properly provide their own services to their customers. Neustar is able to maintain and renew its database contracts with its customers because of its service designs that emphasize reliability, scalability, security and neutrality.

First Quarter 2010 Results[6]

Neustar reported an increase in revenue of 14% from the first quarter of 2009 to $129.0 million. Net income totaled $25.2 million, compared to $24.4 million from the first quarter of 2009. Earnings per diluted share of $0.33, compared to $0.32 per diluted share from the first quarter of 2009. EBITDA totaled $52.1 million, compared to $48.0 million from the first quarter of 2009.

Business Segments

Addressing (26% of total revenue)

  • North American Numbering Plan Administration (NANP) for telecommunication service providers. As an authorized administer, Neustar neutrally allocates and assigns telephone numbers across North America for telecommunication service providers. It provides this service under fixed-fee annual and cost-plus contracts with the Federal Communications Commission.
  • Number Pooling is an allocation of pooled blocks of unassigned telephone numbers as well as reallocation of pooled blocks of telephone numbers. Neustar is paid with a per-transaction fee.
  • Registrar of Internet Domain Name Services (DNS) such as .biz , .us domains, registry gateway services for China's .cn and Taiwan's .tw. In addition, Neustar also provides UltraDNS, a suit of services that enhances customer's website's overall traffic management, stability, security and reliability.[7] This service is becoming more demanded as more businesses begin to use web-based payment transactions.
  • The U.S. Common Short Code, a many-to-one text messages basis that is often used by consumer brand companies for marketing efforts such as ringtone services and counting votes for television programs.

Interoperability (14% of total revenue)

Interoperability services consist of wireline and wireless number portability and order management services. Neustar's wireline and wireless number portability let service providers allow their users to change their telephone carrier without changing their telephone numbers. In addition, service providers use this service to change the network identification associated with their end users’ telephone numbers after a merger or consolidation. Order Management Services provides centralized clearinghouse services that permit customers, through a single interface, to exchange essential operating data with multiple CSPs in order to provision services.

Infrastructure and other (60% of total revenue)

Neustar's infrastructure services consist primarily of network management and connection services. Under long term contracts with the North American Portability Management, LLC, the company generates revenue from management services, connection fees and system enhancements and intra-carrier mobile instant messaging services.

  • Network Management allows customers to centrally process changes to essential network elements that are used to route telephone calls. These network management services are used by customers for a variety of different purposes, such as to replace and upgrade technologies, to balance network traffic and to reroute traffic on alternative networks in the event of a service disruption.
  • Connection Services provides standard connections for those CSPs that connect directly to the company's clearinghouse.

Trends and Forces

The proliferation of IP-based networks will expand Neustar's customer base

Cisco reported that the consumer VoIP traffic will grow at a compound annual rate of 24% through 2012.[8] CSPs are looking to upgrading their infrastructures to provide IP-based services because the voice-over-IP (VoIP) migration is less costly for telecommunication and also able to integrate multiple services together.[9] For example, "Triple Play" service package is the use of VoIP that includes hi-speed Internet, television, and telephone over a single broadband connection. Nevertheless, IP-based networks have a major flaw that their quality can be prone to congestion and their ability to cope with the increasing traffic would rely on the capacity of bandwidth. This migration towards IP-based networks will benefit Neustar in a number of ways: its NGM services, infrastructure segment, and interoperability segment.

  • Next Generation Messaging (NGM): Since the beginning of the wide-spread of IP-based networks, Neustar has been putting efforts into driving its NGM services in the international market after it acquired Followap Inc. in 2006. Neustar's NGM services provide mobile carriers a mobile instant messaging (MIM) platform bandwidth in which Neustar would collect fees based on the number of subscribers and additional payment based on activities and usage of the bandwidth. While Neustar's penetration in the MIM market abroad is still little, the company says MIM services has high potential to grow because of its advantages over the SMS services. Similar to desktop instant messaging or chat services offered by MSN and AOL, MIM services offer greater multi-media content, give users a more "chat-like" experience, and lift off the 160-character limit from text-messaging services. In 2009, Neustar covered about 350 million NGM subscribers.[10]
  • Migration towards IP-based networks will drive CSPs to upgrade their infrastructure, increasing Neustar's infrastructure revenue: Upgrading to new technological platform has been a complex and slow process, but CSPs are showing signs of commitment to this process.
  • Revenue growth from interoperability segment and number portability administration center: The implementation of the newly introduced IP-based networks has enabled CSP, especially mobile carriers, to aggressively compete with each other by offering IP-based rich-content services and applications for their subscribers. As competitions among mobile carriers increase, mobile subscribers are more likely to switch their carrier more often, giving Neustar an opportunity to generate more revenue from the interoperability services segment. [11]

Increasing companies' reliance on the Internet will drive greater demand for domain name services and security

As the Internet becomes increasingly essential to companies, whether for their informative homepage, their Internet-based payment system or their online order management, companies are seeking for system enhancements to improve reliability, scalability, cost-effectiveness and securities for their servers.

China's large population, fast-growing economy and its growth in Internet penetration will drive greater demand for Neustar's .cn gateway registrations

As of 2007, China has the world's largest population of over 1.33 billion, and it is one of the world's fastest growing economies. It is also the fourth largest economy in the world with its GDP approximately $3,280,053 millions of dollar.[12][13] In addition, by the end of 2006, China has become the second largest number of Internet users in the world with approximately 137 million users (23.4% increase from previous year). According to VeriSign, as of the first quarter of 2008, across all of Generic Top Level Domain Names and Country Code Top Level Domain Names (ccTLDs), .cn is the third highest base that grew 199% from 2007 with over 25 million registrations behind .com and .de (Germany).[14] These statistics reflect an unprecedented opportunity for e-commerce in China and Neustar's .cn base will grow as more e-commerce go to China.

Neustar's immunity to 2008 Financial Crisis and Global Economic Downturn

With its contracts with the North American Portability Management LLC renewed in 2006 to continue through June 2015, Neustar is considerably more immune to the crisis than most other businesses because the majority of its revenue is generated recurrently under long-term contracts and subscriptions.[15] [16] Moreover, it is fairly well diversified because none of its customers accounted for more than 10% of its total revenue in 2007.[17] While its core-businesses are quite insensitive to the recession, Neustar's total revenue can still be adversely affected if it cannot generate revenue from new services in high potential DNS and NGM markets that it has been investing in or renew contracts that has been giving it a monopoly power as a sole provider of NPAC services.[18]

Neustar benefits from consolidation trends of large mobile carriers in the short run

Large-scale acquisitions by U.S. mobile carriers such as Verizon Wireless, AT&T Corporation, and Sprint-Nextel have benefited Neustar's interoperability segment because Neustar generates revenue in its interoperability whenever there are movements of subscribers' telephone numbers and information to another carrier.[19] However, Neustar also faces a trade-off in the long run because there will be a less number of mobile carriers as a result of consolidations, meaning that there will be less switches between mobile carriers.

Competition

While Neustar is not directly competing with any company because of its natural monopoly position, its wide range of services and its increasing presence in the international market attract competitors from various kinds of markets.

Total Revenue($millions) Operating Income($millions) Gross Profit($millions) Gross Profit Margin Revenue Growth
Telcordia251.8[20]N/AN/AN/AN/A
VeriSign1,496-222.5899.5-8.89%-4.23%[21]
Syniverse377.52107.3524018.59%12.02%[22]
Akamai636.41144.93468.9740.17%48.46%[23]
F5 Networks552.6799.5407.3433.16%33.40%[24]
Neustar429.17149.65334.2235.39%28.90%
  • Telcordia Technologies, Inc., the leading provider of software and services for IP, wireline, wireless, and cable networks, primarily competes with Neustar as a provider of directory management services. It offers telecommunications companies services that help them manage and optimize their existing networks. In addition, Telcordia competes against Neustar for the North American Numbering Plan (NANP) contracts that have been giving Neustar its natural monopoly position. On June 13, 2007, Telcordia filed a petition with the FCC requesting an order to require North American Portability Management LLC to conduct a new bidding process to restore competition in the selection process due to the non-competitive extension of Neustar's role as the sole administrator of NPAC with the FCC.[25] While Telcordia's petition is still pending as of Febuary 2008, Neustar has said that if this petition is successful, Neustar may lose one or more of its contracts.[26]
  • Verisign, Inc is the leading provider of telecommunication infrastructure services that enhance transaction security and network performance. VeriSign competes with Neustar in order management services and DNS services. VeriSign is the largest provider of top-level domain name services. It manages the largest top-level domain: the .com domain. As of the first quarter of 2008, VeriSign's domain name registrations from .com and .net, totaled 84.4 million, a 22% growth from 2007.[27]
  • Syniverse competes with Neustar in both Neustar's existing segments and new segments. Syniverse offers services that are similar to Neustar's such as SS7 services, Next-Generation Wi-Fi services, mobile data services and number porting services.
  • Akamai Technologies, a provider of speed enhancement services for companies to move their servers close to their customer to optimize download time, competes with Neustar mainly in web-enhancement services or DNS services segment.
  • F5 Networks, competes with Neustar in the DNS segment. It provides traffic management hardwares that work similarly to Neustar's UltraDNS services.


References

  1. Neustar At a Glance Page
  2. Neustar Homepage
  3. Neustar News Releases:NeuStar Announces Amendment of Its Telephone Number Portability Contracts
  4. Yahoo Finance Neustar
  5. Neustar (NSR) 10-Q Third Quarter Report, 2007, Part II, Item 1.A, Risk Factors pg.36
  6. Neustar Announces Results for First Quarter 2010
  7. UltraDNS Technology Page
  8. Cisco Visual Networking Index Forecasts and Methods 2007-2012
  9. Federal Communications Commision VoIP FAQs
  10. Neustar NGM Overview Page
  11. Neustar (NSR) 10-K 2007, Item 7, Current Trends Affecting Our Results of Operations, pg. 36
  12. World Bank GDP statistics
  13. CIA factbook
  14. VeriSign Statistics
  15. Neustar Q3 2008 Earnings Call
  16. Networkworld.com
  17. Neustar (NSR) 10-K 2007, Item 1, Customers, pg. 6
  18. Neustar (NSR) 10-Q Third Quarter Report, 2007, Part II, Item 1.A, Risk Factors pg.36
  19. Carriers Roundup:AT&T, Verizon, Sprint, T-Mobile
  20. Yahoo Finance Telcordia
  21. VeriSign (VRSN) 10-K, 2007, Consolidated Statements of Operations, pg.107
  22. Syniverse (SVR) 10-K, 2007, Consolidated Statements of Income, pg.69
  23. Akamai (AKAM) 10-K, 2007, Consolidated Statements of Operations, pg.45
  24. F5 Networks Inc. (FFIV) 10-K, 2007, Consolidated Income Statement, pg.43
  25. Telcordia Number Portability Page
  26. Neustar (NSR) 10-K 2007, Item 1, Contracts, pg.8
  27. VeriSign Statistics
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