YouGov - a market research firm with a focus on data quality.

YouGov’s share price has dropped from a 52-week high of £12.85 to a low of £3.67. It currently trades between £3.65 - £3.90, representing an opportunity to buy what I believe is a high-quality business currently marred by uncertainty in several areas of the business.

What do they do?

YouGov is an international market research firm which describes itself as the pioneer of online market research. You will likely have seen them quoted in a newspaper or article as the research survey provider. Its business is split into three operating segments: Customer Research, CPS & Data Products.

Customer Research is the group’s largest contributor of revenue, making up over 52% of the group’s total sales in the most recent year. Included in this amount are the company’s fast turnaround research services (surveys), its custom research projects and its multi-year tracking studies.

The CPS segment represents the company’s recent acquisition of Gfk’s consumer panel services in Jan 2024. It provides household purchase data for 18 European countries and currently makes up 22% of the company’s revenue.

Data Products, which makes up 26% of revenue, provides customers with subscription-based access to YouGov’s syndicated data. This data has been collected from their panel and is available to customers through products such as YouGov BrandIndex and Profiles.

Why has the share price fallen recently?

The recent share price drop was two-fold. The initial drop on March 26th was caused by a somewhat cautious update from YouGov which maintained full year guidance but cited that current macro sentiment would continue to have an impact on short-term performance. The more sudden drop from £8.20 to the current level was caused by the company issuing a profit warning and revised full year guidance.

The profit warning included revised revenue guidance from £341mn to between £324mn - £327mn. It also included revised adjusted operating profit (operating profit excluding non-recurring costs) from £62mn to between £41mn - £44mn. The company actually beat both of these forecasts, generating £49.6mn of adjusted operating profit on revenue of £335.3mn.

The lack of forewarning over this update, and the lack of communication after, are big contributors to the continued share price malaise. This has understandably spooked investors, but I don’t think they represent material changes to the underlying business.

There are also concerns from investors over the new CEO Steve Hatch. In particular relating to budgeting issues, as can be seen from the changes in operating profit, and volatile financial guidance (as touched on above). I will go into more detail about the issues surrounding the change in CEO below.

Whilst these factors are undoubtedly concerning, I think they have been somewhat overblown. For reasons I will go into below, I think that YouGov is:

a)      less cyclical than the market believes.

b)     has certain competitive advantages that have allowed it to take market share over the past 2 decades and should continue to do so in the future.

c)      operates in a growing industry that is very attractive.

There are no doubt concerns, but given the current price implied expectations for the stock, I think this represents a really attractive opportunity to buy and hold the company for the long-term. For reasons I will go into below, I think demand for YouGov’s products and services remains strong.

Not as discretionary as you might think

Market research is often seen as discretionary, with the belief that during economic downturns, market research budgets will be one of the first areas to be cut. This is partly true given that during these periods, overall marketing budgets are generally reduced. Research from Gartner shows that marketing spend has dropped significantly in recent years; spend pre-pandemic was between 10.5% to 11% of revenue compared to 7.7% in 2024.

Within marketing, market research is sometimes seen as a luxury and an obvious area to trim when budgets are tightened. This is because when budgets are cut, marketers want to allocate as much as possible to short-term, performance-based marketing, where ROI can be clearly demonstrated. Market research, however, is essential to ensuring efficiency of ad spend. Conventional wisdom is that 5% of marketing budgets should be spent on research. This becomes even more relevant in periods of lower budgets, with a 2022 Deloitte survey reporting that, on average, CMO’s expected spending on market research to grow by 10.5% in 2023, compared to 3.4% in 2017. This indicates that companies will look to maintain market research spend, even during periods of reduced budgets.

It is difficult to get data on exactly what percentage of marketing budgets are spent on market research. One reason for this is that the cost of market research is not a function of the size of marketing budgets, with large companies spending a smaller percentage of their budgets and small companies a greater percentage. The other reason is that it is not a constant expense, with market research expenditure likely to be higher during a new product launch or entry into a new territory.

One method we can use is to look at the growth in the market research industry over the past 5 years. According to Esomar, global market research revenue has increased at a CAGR of 9.7% between 2019 and 2024, from $88bn to $140bn. This growth, when viewed in the context of the global contraction of marketing budgets discussed above, highlights the increasing importance companies are placing on accurate consumer insights, especially during economic downturns.

YouGov’s performance during the past 5 years reflects this, growing revenue at a CAGR of 19% (including the CPS acquisition). YouGov has also grown average revenue per client during this period, from £45,000 in 2019 to £56,000 in 2024. Given that the majority of the group’s revenue comes from its Custom Research segment, which completes projects on an ad-hoc basis, this is a strong indicator that these services have become embedded in client marketing workflows.

YouGov’s Data Products division is a strategic focus for the group for a number of reasons. Firstly, it is subscription based and therefore offers a recurring source of revenue. It also utilises the group’s syndicated data (which we will look at in more detail below) and therefore has significant levels of operating leverage. The company also believes that it aligns more closely with trends in the research market, with clients increasingly prioritising speed and self-serviced offerings.

Underlying performance for Data Products was stable, with the majority of existing customers looking to maintain spend. FY24 showed renewal rates of 80% and recurring revenue of 90% which is in line with historical results.

The larger issue for Data Products has been in the winning of new contracts, with YouGov citing longer sales cycles for this division. This is to be expected given the larger total commitment required for a subscription product. YouGov also invested for growth that failed to materialise, meaning that segmental profit margins contracted significantly for FY24. Despite this, the majority of the contracts are up for renewal in Q2 & Q3 FY25, with the company expecting to see a pick-up in the momentum of sales bookings.

Demand for YouGov’s Data Products division has been supported by certain trends within the marketing industry. Firstly, the share of marketing executed through digital channels has increased from approximately 25% in 2014 to 65% in 2024. Unlike conventional forms of advertising, digital ads are more personalised, with companies running multiple campaigns targeted at different customer segments at any one time. Accurate segmentation and profiling, as offered by YouGov Profiles, is essential in ensuring efficiency and effectiveness of ad spend.

There is also a growing focus on marketing ROI, with marketing departments increasingly expected to demonstrate a tangible return on their budgets. This has partly been fuelled by the increased use of digital advertising tools, which provide access to data and advanced analytics, and makes measuring the effectiveness of short-term marketing much easier.

Measuring the performance of long-term, brand-building marketing has always been more of a challenge. YouGov’s BrandIndex tool tracks over 26,000 brands and allows clients to monitor metrics such as awareness and buzz (measured as volume and sentiment). This allows marketing teams to track the performance of longer-term advertising in real time and provide proof of ROI. This is particularly important within larger companies, where competition for budgets is impacted by the ability to demonstrate a tangible return on spending.

The ideal split between short-term performance marketing and long-term brand building is around 50-50. During periods of constrained budgets this skews more towards short-term marketing, with the 2024 CMO survey reporting that in 2024 68.8% of marketing budgets was spent on short-term, compared to 59.9% in 2023. Given that KPI’s for short-term marketing are easily accessible on digital advertising platforms, the demand for YouGov’s brand tracking is bound to soften during these periods. I believe that when marketing budgets rebound, and the balance between short and long-term marketing moves closer towards a more conventional 50-50 split, we will see an uptick in new subscriptions for BrandIndex.

Large acquisition with transformative potential

YouGov’s recent acquisition of Gfk’s consumer services panel is its largest acquisition to date (€315m) and certainly poses some risks. I think however, that the acquisition offers the opportunity of significant upside potential for the following reasons.

Firstly, it provides YouGov with an entry point into the FMCG sector, an area in which it has historically had very poor penetration. This is important because as a highly competitive sector it has one of the highest levels of marketing spend, often exceeding 10% of revenues. The consumer goods sector is also one of the biggest users of market research, making up 14% of revenues generated worldwide, and only behind media and broadcasting.

The CPS acquisition also improves YouGov’s penetration into Europe. Prior to the acquisition (FY23) the percentage of the group’s revenue from EMEA was 26%, this has now increased to 42%. This reduces YouGov’s reliance on America, which before was the largest contributor of revenue by a factor of 2.

YouGov already has representative panels for most European countries, but the combination of CPS’s purchasing data with YouGov’s attitudinal data also has the potential to be highly synergistic. This enables YouGov to provide greater breadth of data across the entirety of the consumer purchasing journey and offer greater levels of insights to clients.

YouGov has also transferred the CPS offering onto its own platform. This will enable them to take advantage of significant cross selling opportunities, both from CPS clients gaining exposure to YouGov’s services and current YouGov customers gaining access to CPS’ data. Given the significant investment YouGov has made into its platform this could also improve the standard of service currently being received by CPS customers.

The acquisition was funded using a mixture of cash and through a long-term debt facility. The company has a track record of successful integration of acquisitions, but nothing before of this size.

Highly engaged panel

Although technically a market research company, YouGov is actually closer to a platform business. It connects panel members and their data both directly and indirectly with clients. YouGov does sometimes also need to purchase data for projects when it doesn’t have a representative sample, but this is standard practice in the industry.

YouGov believe that their panel is more engaged than the panels of other market research companies, and the data that they provide is subsequently of more value. This is difficult to quantify but their Trustpilot score of 4.6 is the highest of any of the consumer panel companies I looked at. Some of the more established research companies score very low in this area (e.g. Nielson IQ: 1.7).

I have used the YouGov platform (in app format) and it is significantly better than competitors such as Ipsos’s iSay. The UX is far more intuitive, and it does a better job of keeping you engaged, with a constant supply of surveys and questions. Ipsos’s iSay, on the other hand, took around a day before sending me my first survey. There were also issues with the login where I was unable to access my account, although this could just be bad luck.

YouGov invests significantly in improving the offering for panel members, and in doing so lowering willingness to sell. One of the ways it does this is by gamifying the experience, offering interactive surveys, points-based rewards and rankings. Panel members are also given a platform where they can voice their opinions, with the results presented on the company’s public facing portal.

This public facing portal is also a powerful driver for panel member acquisitions. YouGov has significantly upgraded the portal in recent years, introducing features such as chat. This engages website visitors by allowing them to voice their opinions on certain subjects, serving as an introduction to becoming a panel member. These upgrades have been really successful, reducing the customer acquisition costs from £4-£5 using traditional methods, to just above £1 using YouGov’s chat feature.

YouGov also recognises the issues with other panel services and has worked hard to remove some of the most common sticking points. For example, panellists using other services will sometimes experience ‘false starts’, where they complete half of a survey before being told they will no longer be paid for it. YouGov ensure that its panel members are paid for every survey that they complete. They also ensure that members receive their points immediately and that the rewards are available to download as soon as the threshold has been reached.

The value of a panel member to YouGov increases the longer that manel member uses the offering. This is for a number of reasons but the most important is that it allows YouGov to offer longitudinal data, allowing clients to track trends over time. Churn is also a big problem for consumer panels, so the ability to retain panel members significantly increases their lifetime value.

YouGov have also now released a ‘Plus’ feature for its most engaged panellists. To join, members must provide a valid form of ID, with this added layer of verification increasing the value of the data they provide. Plus members will gain access to what YouGov calls asynchronous tasks, such as gas meter readings or counting the number of ads they see in a day. This has the potential to give clients access to really valuable data, not only attitudinal but also behavioural or financial. In exchange, Plus members will receive more points for completing tasks.

Another advantage to managing your own panel is the ability to produce fast-turnaround research work for clients. This is a growing trend within the market research industry, with clients increasingly expecting near real-time insights. Clients that commission surveys on YouGov’s platform often receive their results in as little as an hour, providing there is a representative sample.

Focus on data quality

Data quality has always been a concern for the market research industry. The move to online market research presented greater challenges, with the use of straight lining, speeding and click farms all calling the quality of data further into question. A 2022 report by Kantar estimated that on average, market research companies have to discard 38% of the data they collect.

These concerns have grown in recent years with the widespread use of generative AI. This gives bad actors the ability to bypass regular methods of detecting fraudulent or low-quality responses such as attention checks or red herring questions and can even be used to provide human speech in open ended responses.

YouGov have been at the forefront of the industry in developing techniques to detect fraudulent responses and are known for the quality of their data. The New York Times published an article which stated that ‘[YouGov’s] data has been analysed by third parties, used by academics, and found to outperform other nonprobability data.’ YouGov employs a number of methods to reduce misrepresentative of fraudulent responses. These include tracking the speed of survey completion and what it calls its ‘response quality survey’, which gauges the reliability of responses by measuring them against known or highly probable information.

Staying ahead of fraudulent survey practices is a constantly evolving process. As an example, in recent years YouGov noticed increased levels of variability in its results. To combat this, it developed something called Awareness Cross Entropy (ACE). This measures the level of disorder in the probability distribution for a panel members’ answers and compares them to a representative sample. By doing so they can monitor the quality of the tracking metrics directly, which are often prone to poor response quality.

Value of YouGov’s Data

As well as its panel, YouGov’s historical data forms a significant part of its competitive advantage. The ability to leverage this data set means that clients can spot trends and patterns over an extended period of time, thereby increasing the value of the insights they generate.

YouGov’s data is organised into what it calls a multidimensional data library in order to facilitate easy atomisation and productization. This essentially means that the data is stored across multiple dimensions, compared to tabular which stores data in 2 columns (x & y). This has many benefits including faster processing speeds and the ability to spot trends across different parameters that would not have been visible in more conventional databases.

I think that the impact AI is going to have on most businesses has been somewhat overstated in the short term, but there is no doubt that in the future it will have a large impact on the market research industry. The ability to sort through large amounts of data and draw conclusions lends itself well to the use of AI. YouGov has been utilising machine learning for some time, for example when screening responses to its public chat feature. Exactly when we will see it performing higher level functions such as drawing conclusions from data sets and interacting directly with clients remains to be seen.

That said, YouGov’s data does give it some form of protection against newer competitors. Newer companies without the access to large data libraries lack the breadth and quality of training data to produce ML algorithms with accurate results. YouGov has also already demonstrated its ability to build features, such as BrandIndex and Profiles, on top of its syndicated data. Whilst implementing AI would represent a significantly more challenging task, it has the potential to be transformational for the business.

Future of the Market Research Industry

For several reasons, I think that the future of the market research industry is promising. Firstly, as industries mature and the level of competition increases, the value of accurate consumer insights increases. Market research enables you to see how your products or services are positioned compared to your competitors, increasing the effectiveness of strategic decisions based on the data.

Globalisation also increases the demand for consumer research. As companies expand into new territories, the importance of understanding cultural nuances, consumer preferences, and demand for products and services, becomes even more important. No company is able to offer representative samples for every country, with standard practice being to supplement your own panels with data purchased from other providers. This brings with it a host of issues regarding data quality and compatibility, not to mention the higher cost. Market research companies operating at scale, with representative panels for a wide variety of countries will be best positioned to capitalise on this trend. YouGov recognises this, with a number of its recent acquisitions expanding the size and footprint of its consumer panel.

Consumer preferences are also changing at a faster pace than ever before. This has been driven by the rapid deployment of new technologies which have changed the way humans do things and the COVID pandemic, which disrupted routines and forced people to make large wholesale changed almost instantly. This, combined with the fact that consumers increasingly want brands that align with their values, fuels the need for market research.

Most interactions between consumers and businesses involve some sort of transfer of data, with the implicit assumption that there is a commensurate benefit for both parties. There is a growing shift, however, towards people taking greater ownership of their data, with 87% of Americans now seeing it as a human right. The implementation of new regulations such as GDPR, which see data as a personal asset, further drive the trend towards individuals ‘owning’ their own data and having control over what is being collected and for what purpose. Within this environment, the value of a group of people who voluntarily share their personal data increases significantly.

Apple’s App Tracking Transparency, introduced in iOS 14.5, has also limited the effectiveness of targeted ads within platforms such as Facebook and Instagram. By removing access to the IDFA, a unique code that allows advertisers to identify users, companies are unable to track users across apps or websites. The percentage of iPhone users who opted in for app tracking was just 34% in 2023, although this number has increased steadily since ATT was introduced. Almost overnight, marketers lost access to a vast quantity of data, with the effectiveness of digital marketing campaigns falling off a cliff. Marketers will need to look for data in other areas to make up for this shortfall.

The trends towards greater ownership of data as well as consumers’ increasing understanding the value of their data, creates an exciting opportunity for companies such as YouGov. Firstly, as discussed, the value of the opinion data they provider increases as the access to other forms of data subsides. Secondly, YouGov has the potential to leverage their consumer panel in order to access other forms of more valuable data. We have already seen examples of this with the introduction of YouGov Plus. This could also present opportunities for consumers to sell their in app tracking data to companies such as YouGov, with the rewards infrastructure already in place to facilitate this.

Structural factors affecting the UK market

Certain structural factors which have impacted the entire UK market, but particularly small caps, have also led to the significant value discrepancy. Firstly, UK equity funds have seen net outflows for 9 consecutive years, including £9.5bn in 2024. I will assume everyone here is familiar with this, so I won’t belabour the point.

More recently, the Autumn budget created further uncertainty for investors, with concerns over a potential increase in capital gains taxes. This drove outflows even higher as investors looked to crystalise gains at lower rates. In the end the CGT was raised, but the damage to asset prices had already been done.

The budget also reduced the level of inheritance tax (IHT) relief that could be claimed on AIM listed shares. Previously, investors could benefit from 100% Business Property Relief for certain AIM listed shares, which rendered them exempt from IHT if held for at least 2 years. The initial fear that this would be scrapped in its entirety caused a significant sell off, with a large amount of the liquidity in the AIM market provided by retail investors to whom this would have a significant effect. In the end the level of IHT relief on AIM shares was reduced to 50%, but the effect on the small cap market has lingered.

There are also other concerns about the UK economy, but as YouGov is an international business which generates the majority of its revenue in the US, I don’t think this is relevant to our discussion.

CONCERNS & RISKS

Margin contractions in its Data Products division

Investors are concerned by the margin contractions in the company’s data products division. In the most recent year, adjusted operating profit (which excludes the effects of non-recurring expenses), was 26% lower at a margin of 33% (FY23: 43%). The group says this is due to investments they made during FY24 that were supposed to be accompanied by growth (which didn’t materialise).

Cost of sales in the Data Products division also increased by 31.8% in FY24, reducing the gross margin from 89.8% to 86.2%. The group doesn’t mention the exact cause of this change but does say that they have experienced higher price competition within this segment. They do also say, however, that demand has remained essentially flat, so the reduced gross margin is likely caused by a mixture of the following: price pressures from competitors stopping them from increasing their prices in line with inflation, Inflationary pressures causing cost of sales to increase as a percentage of revenue (10.2% to 13.8%).

Turnover in the CEO position

Steve Hatch, ex Vice President for Meta in Northern Europe, was appointed as CEO in August 2023. According to outgoing CEO (and founder) Stephan Shakespeare this decision represented the company’s desire to shift towards a more commercial focus rather than his own background which was more technology focused. Given his role at Meta, Hatch brought with him good experience of YouGov’s end market as well as “experience scaling digital media companies and tech platforms”.

Hatch’s tenure at the company was nothing short of disastrous, overseeing a 66% decline in share price from the same time last year. The shares also underperformed the rest of the AIM market by 56% during this period. This led to calls from Gatemore, an activist hedge fund, for Hatch to resign, stating that:

“In short, the current CEO’s first 18-months at the helm have been a disaster, and we believe the market has lost faith in his leadership. We must not allow YouGov’s extended period of operational underperformance and share price stagnation to persist, as it would further erode what is left of stakeholder trust and impede a successful strategic review.”

Gatemore eventually got what they wanted, with Hatch resigning in early February, the same day that they released their first trading update of 2025. He is to be replaced by Stephen Shakespeare on an interim basis as they search for a long-term successor.

The issues surrounding the CEO is one of the more concerning elements to the investment as it highlights a ‘key person’ risk to the business. Shakespeare’s return, whilst undoubtedly a favourable choice for investors, has not led to a positive share price reaction. This is likely caused by the short-term nature of his return and the uncertainty over who the company will choose as his successor.

 Reduction in panel quality, size or retention

This is obviously a major risk for the company given the importance of it maintaining a healthy panel. The company understands this however, and as mentioned above, has invested significant capital in improving the panel experience and boosting click through rates from the public portal.

YouGov’s 12-month panel retention has actually declined over the past 6 years, with competition for panellists from other market research companies intensifying. Panellists will shop around for the survey providers who offer them the best value for their time, with financial rewards being the most important incentives by far. YouGov is certainly not the leader in this regard, with several other market research companies offering greater financial rewards for less time spent answering surveys.

We may see a situation where YouGov has to increase its level of financial incentives in order to stay competitive with other market research companies. Given that this currently makes up a relatively small portion of the companies operating expenses and that there are still scale economies for the company to take advantage of, I don’t see this as a major concern.

CPS Acquisition

The CPS acquisition, which was discussed above, has the potential to be highly beneficial to the group. But it also comes with significant levels of risk as well. Firstly, the size of the acquisition is greater than any acquisition made by the group in the past and increases the challenge of integrating the business with YouGov.

There is also the issue of the price paid, which at over €300mn, is by far YouGov’s largest. Early indications over contribution to group revenue are also underwhelming. FY24 contribution was £71mn, with YouGov stating that some revenue recognition had been pushed to FY25. A gross margin of 87% and an operating margin of 26% puts the CPS division in between the group’s Data Products and Research segments in terms of profitability.

This indicates that a significant amount of the headline price paid is based on the value of CPS’s panel and data assets. YouGov has utilised this strategy before, both to move into new markets and to acquire representative panels in countries where they don’t currently have exposure. The difference here is the size. For YouGov to achieve any sort of return on this investment it needs to:

a)      cross sell its current customers on CPS’s data.

b)     cross sell CPS’s FMCG client base on its consumer insights data.

c)      recognise efficiencies from the use of YouGov’s technology.

d)     enable the company to pitch to new clients that require insights into purchasing data in Europe.

This is a big area of uncertainty currently, and likely one of the reasons for the continued share price malaise.

Valuation

I have valued YouGov using a DCF under three different scenarios:

Base Case – £4.50 - £5.00 per share

Assumes all three business units continue to grow at a modest rate of between 5-6%, with slightly higher growth for the Custom Research segment which has been the strongest performer in recent years. Gross margins for all three divisions stay roughly in line with previous years and operating margins expand from FY24 but remain below historic levels. It is worth mentioning that I see that as a fairly conservative base case scenario given the companies historic levels of revenue growth.

Bull Case – £10.25 - £10.75 per share

Assumes the business manages to grow revenue at a CAGR of 14% over the next 4 years, reaching £615m in revenue in 2029. Whilst this sounds very ambitious, YouGov has grown revenue at a CAGR of just shy of 20% over the past 5 years, so I don’t think this is outside the realms of possibility. Margins in this scenario expand for all three operating segments; Custom Research and Data Products because they are able to take advantage of more of the group’s syndicated data as the company expands and CPS because it is able to take advantage of synergies relating to use of the group’s technology platform.

Bear Case - £1.25 - £1.75

My bear case assumes that the Custom Research segment continues to see low level growth over the next five years of circa 3%. Data Products and CPS both show close to 0% growth (so negative on a nominal basis). Margins for all three divisions contract, especially Data Products, which has already seen some margin contraction (as discussed above). I think the chances of all three divisions turning in such a poor performance are highly unlikely.

Given that this is a relatively small, high growth business, the changes in assumption regarding revenue growth have the most significant impact on the final value. Therefore, YouGov’s ability to realise its value potential is heavily dependent on its ability to continue to grow revenues at a high rate. Based on this I think that the current price of around £3.75 offers an attractive entry point.

Catalyst

Uncertainty is one of the biggest issues for investors currently. I think we are unlikely to see any significant share price appreciation until there is clarity over the new CEO and some positive contributions from the CPS acquisition.