This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Why Neustar Could Fall

Super-High Margins

The monthly costs billed to phone carriers are believed to be generally passed through to you and me, lumped in with other charges on our phone bills.

That's where those 65%-plus margins come in. While the price of the portability contract is fixed at a high price, expected to be $466 million in 2014, the push into security and marketing analytics also has high margin. They're high, Hook said at a recent investment conference, because cost of goods "is fairly low, because we're doing this all off of the data that we're already acquiring for free from our customers to provide back to them in providing those network routing and addressing decisions."

That's where this gets interesting.

As far back as 2006, Telcordia, now part of Ericsson (ERIC), began petitioning the Federal Communications Commission to put the contracts up for bid. With Neustar's contracts expiring in 2015, it did -- putting out a request for proposals.

"We expect that there will be significant competition as a result of this process," Neustar warns in its 10-K.

It's unknown just how much competition, but this much is clear: A decision, or at least a recommendation, on what should happen with the contracts was expected in August. It was then pushed out, without explanation, to January.

Neustar Remains 'Confident'

In response to the delay, Neustar said it remains "confident" it will retain the contract. And, besides, the company is quick to point out that its non-portability business is growing faster than portability. Jonathan Ho of William Blair is so unconcerned that a month ago -- when the stock was roughly where it is now -- he went so far as to upgrade Neustar, saying in a report he believes it "will likely be selected as the sole provider" of the contract.

The company had made "significant investments in infrastructure to extend the value of the ...database," Ho added.

Still, he believes the price of Neustar will be cut by 20%, "partly offset by continued growth in transactions, resulting in a 15% revenue decline in 2016."

And some critics believe the cuts will or should be greater -- largely because of the same high margins that have made it so attractive to Wall Street.

Herb Greenberg, editor of Herb Greenberg's Reality Check, is a contributor to CNBC. He does not own shares, short or trade shares in an individual corporate security.


Chart of I:DJI
DOW 16,014.38 -12.67 -0.08%
S&P 500 1,852.21 -1.23 -0.07%
NASDAQ 4,268.7630 -14.99 -0.35%

Herb's Tweets

Select the service that is right for you!

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
Real Money Pro

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Trifecta Stocks

Trifecta Stocks analyzes over 4,000 equities weekly to find the elite 1% of stocks that pass rigorous quantitative, fundamental and technical tests.

Product Features:
  • Model portfolio
  • Trade alerts
  • Recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Growth Seeker

Chris Versace, using sophisticated stock screening and fundamental research, identifies potentially explosive small and mid-cap stocks.

Product Features:
  • Model portfolio
  • Small-cap and mid-cap focus
  • Intraday trade alerts
  • Weekly roundups
Daily Swing Trade

Master swing trader Alan Farley uses his sophisticated software screens to review thousands of stocks each day for you, to find just the handful that meet his demanding criteria.

Product Features:
  • Daily commentary and coaching on swing trading
  • Technical charts and analysis
Top Rated Stocks Top Rated Funds Top Rated ETFs