Alliance Data Systems Anticipates Conversant Will Increase Revenue To $6.6B

ads alliance dataAlliance Data Systems (ADS) reported Q3 2014 revenue of $1.3 billion, a 20% YoY change, mostly driven by the company’s private-label credit card services division, which saw 17% YoY revenue growth to $622 million.

ADS has steadily increased its outlook with each earnings call, and it did so again in its Q3, raising its core earnings per share (EPS) guidance by $.05 from Q2 2014.

ADS made a splash in the ad tech world when it agreed to acquire Conversant for $2.3 billion on behalf of its marketing data subsidiary Epsilon. Once the deal finalizes – ADS anticipates it’ll close by Jan. 1 – company President and CEO Ed Heffernan said he anticipates ADS revenue will increase 25% to $6.6 billion, raising core EPS to roughly $14.80 to $15, a 20% increase.

Heffernan emphasized this figure was just “a stake in the ground” and that ADS will refine the number.

Heffernan also noted growth in ADS’ other business units, including 52% YoY revenue growth to $324 million for airline loyalty program provider LoyaltyOne and 6% YoY revenue growth to $378 million for Epsilon.

Heffernan attributed Epsilon’s increase to growth in its technology offerings. For instance its digital messaging platform, Agility Harmony, which it launched in 2013, saw a 20% increase in volume compared to Q3 2013, driven by new clients and expansion of services by existing ones.

Epsilon breaks down its revenue into three categories: technology, data and agency business. It saw 10% YoY growth to $128 million in technology, 6% YoY growth to $57 million in data services and 3% YoY growth to $193 million in agency revenue.

Heffernan said he expected Conversant’s technologies to immediately enhance Agility Harmony.

“Conversant’s presence in targeted digital display and its emerging presence in mobile and social and video are all going to accelerate what Epsilon was building in-house,” he explained. “The Agility Harmony platform, which is primarily permission-based email, has already jumped off very nicely. You put these assets together and you’ll have a toolbox second to none.” Read more on what Conversant brings to Epsilon.

Epsilon’s revenue was somewhat tempered due to slower-than-expected roll-out of two agency clients, though ADS expects revenue to pick up in Q4 once those clients are fully onboard. Additionally while the auto vertical remained strong, Epsilon saw softness in other verticals, Heffernan said.

“A lot of interest [in Epsilon] comes from [global companies’] desire to have loyalty platforms,” he said. “If it’s not a private-label credit card, a loyalty program lets us access first-party transactional data and do what we do.”

But although ADS purchased Conversant for Epsilon, much of the inbound interest comes from ADS’ private-label credit card division.

The addition of Conversant will in theory give private-label clients a more expansive set of transactional data, since Conversant, thanks to its relationships, gets purchase data directly from retailers.

With private-label credit cards, Heffernan said, clients see only about 30% of what goes on at the retailer level.

“With Conversant, the retailer provides 100% download of transactional information,” he said. “[Clients] get a much broader view of who shops where and what they’re purchasing. What it brings to the table is a much larger sandbox to play in vs. private-label. Will you be able to offer the same type of rewards and programs? Probably not, because if you’re a private-label card holder, that takes precedence. But you get another layer [of data] that shows 90% of customer activity.”

Additionally, ADS positions itself as a neutral holder of data. Melisa Miller, ADS’ president of retail credit services, said this attracts clients uncomfortable with the way other ad tech companies handle their data.

“They’ve noticed Amazon has used first-party transactional data for display ads,” she said. ADS is attempting to come across as the counteract to that strategy.

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