When Variety wanted an expert to explain why the much-ballyhooed flick “Steve Jobs” bombed, the reporter went to an analyst at the firm Rentrak Corp. (Nasdaq: RENT).

I wasn’t surprised.

Rentrak, you see, is a firm I know well.

It’s also an intriguing profit opportunity.

We recommended the Portland, Ore.-based Rentrak back in June as a Big Data play with a hefty long-term upside. For investors, Big Data represents a Big Opportunity.

According to a brand-new study by 451 Research, the Big Data market is expected to double in size between now and 2019, when it will be worth $115 billion. And market researcher IDC says the Big Data market is growing at a rate that’s six times faster than the general information-technology business.

To find the best profit plays, however, you have to be willing to turn over a few rocks.

That’s how we found Rentrak, which is putting Big Data to a unique use…

Rentrak Corp. (Nasdaq: RENT): A Background Story

With Big Data, Hollywood consultants are trying to use social-media “buzz” – your Twitter Inc. (NYSE: TWTR) “tweets” and Facebook Inc. (Nasdaq: FB) posts – to predict whether a soon-to-debut flick will be a hit… or a bust.

As a recent MarketWatch report tells us, “for the most part, they get it right… and the studios are listening.”

What Rentrak has done is create a proprietary software package known as PreAct, which uses social media to measure audience interest in a flick as much as a year before the film debuts. PreAct combines the moviemaker’s box-office data with social-media analysis from two other firms, Reactor Research and Crimson Hexagon.

Paul Dergarabedian, a box-office analyst for Rentrak (and the analyst whom Variety sought out for an explanation of the “Jobs” disaster), says the Big Data software gives studios “actionable intelligence” – enabling them to shape their ad campaign in a way that either bolsters existing interest or addresses the lack of it.

“Studios can course-correct as they go along rather than brace for impact,” Dergarabedian told MarketWatch. “Traditionally, marketing decisions are made in a vacuum. Now, they can actually know if those decisions are resonating with the audience.”

We’re talking about a legitimate – and accurate – tool.

Take “Inside Out,” a Walt Disney Co. (NYSE: DIS)-Pixar Animation Studios movie that came out over the summer.

The movie was made on a $175 million budget. Ahead of the weekend debut, analysts at MKM Partners predicted opening weekend sales of $66 million.

Those analysts based their projection, in part, on the fact that Pixar films tend to average $66 million on opening weekends and $253 million during their domestic runs.

That wasn’t a rosy forecast: Indeed, there was even some peripheral scuttlebutt that the movie’s opening might be delayed.

But Rentrak’s Dergarabedian wasn’t buying. Indeed, using Big Data insights, he predicted a bigger than expected opening. He said the social-media buzz on the movie was so strong that first-weekend receipts could easily top $70 million.

In fact, Dergarabedian said that “the pre-release indicators on it have been resoundingly positive… it could end up being one of their biggest performers ever.”

Talk about making a great call.

“Inside Out” actually took in $91 million during its opening weekend – crushing estimates and setting the mark as the second-best opening ever for a Pixar flick.

Having that kind of “market intelligence” is incredibly valuable for a studio.

And that’s just one of the ways Rentrak’s technology can put Big Data to Big Use.

Here’s another.

What Are You Watching?

All of us have heard of the Nielsen ratings, the “audience-measurement systems” owned and run by Nielsen Holdings Plc. The ratings are a way for broadcasters and advertisers to see what radio and TV audiences are paying attention to. They help determine which programs will succeed or fail and factor into advertising rates, among other things.

With the advent of the web, smartphones, tablets, and streaming media, the market has shifted in a way that’s making it tougher to size up precisely what consumers are watching.

Rentrak’s core competency is its use of set-top box data to assess TV viewing practices.

In this era of changed viewing practices, that too has great value. So broadcasters and content providers are seeking out Rentrak.

One example: Just last month, Rentrak and AMC Networks Inc. (Nasdaq: AMCX) announced plans to collaborate in developing a system that will measure the viewership of AMC programs. It’s a coup for Rentrak because AMC is an up-and-coming programmer – with such hits as “The Walking Dead.”

Rentrak isn’t standing pat, either.

The company just announced its acquisition of SponsorHub, an analytics firm that looks at audience responses in the sports-entertainment realm. SponsorHub CEO Bob Johnston said his company “work[s] with advertisers to measure their largest engagements around sports entertainment.

“Within sports, we help large advertisers track and measure endorsements of athletes, sponsorships of leagues, teams – and on the entertainment side, product placements within TV and film.

“Therein lies the synergy with Rentrak, because it is the preeminent measurement platform for the film industry. However, it doesn’t have an automated social-media-measurement platform. Rentrak brought us in to be its social-listening layer across all the other measurements it is already doing.”

Clearly there’s a big opportunity here – for Rentrak and for investors who see the growth potential this new area offers.

For investors, however, there’s also a challenge.

Let me tell you about it.

Dishing on a Merger Deal

In June, when we first recommended Rentrak, we weren’t the only ones who saw its huge potential.

The respected stock-market forecaster Zacks Equity Research issued a research report just as we recommended the stock. Zacks noted that “investors haven’t quite embraced the rising estimate story yet, but [that tells us] that the potential for a big move higher is definitely there.”

Zacks had given Rentrak its top rating – a No. 1 (“Strong Buy”) ranking.

That made Rentrak a potential “Zacks Effect” stock.

Since 1986, stocks with a Zacks “Strong Buy” ranking have generated an average annual gain of 26%. That’s nearly triple the return of the Standard & Poor’s 500 Index.

According to Zacks, one of the best ways to find these underappreciated stocks is by looking at companies that are experiencing rising analyst estimates but haven’t seen a commensurate increase in their share prices.

Zacks saw that exact situation with Rentrak.

This signals “that investors haven’t quite embraced the rising estimate story yet, but [tells us] that the potential for a big move higher is definitely there,” Zacks analysts wrote in their recommendation report. “One such company that looks well positioned for a solid gain, but has been overlooked by investors lately, is Rentrak. This business-services stock has actually seen estimates rise over the past month for the current fiscal year by about 181.3%. But that is not yet reflected in its price, as the stock gained only 1.9% over the same time frame.”

Despite all this, after we made our recommendation, Rentrak shares sold off.

The sell-off was way overdone.

Indeed, we knew – and continued to tell you – that this was a great company with a hefty long-term upside for investors.

Subsequent events proved us right.

In late September, comScore Inc. (Nasdaq: SCOR) and Rentrak struck a $2.4 billion stock-for-stock merger deal that valued Rentrak at between $47.69 and $51.75 a share.

As structured, the completed deal would give Rentrak shareholders 33.5% of the combined venture. ComScore shareholders would control the remaining 66.5%.

Shareholders are feeling a bit burned by the deal: In fact, several law firms specializing in securities litigation have already jumped in – questioning whether this deal was fair to Rentrak shareholders.

Tripp Levy Pllc. – one of the firms looking to line up potential shareholders/litigants – articulated the key points pretty well.

“Our investigation seeks to determine whether Rentrak management engaged in a full and fair auction and process to insure that its shareholders obtained the maximum price possible for their shares,” the law firm said in a statement. “Indeed, an analyst has projected that the true going forward inherent value of Rentrak stock is… at least $100 per share (with a median target of analysts of over $73 per share).”

For comScore and Rentrak, though, this merger is a shot across Nielsen’s bow – a strategic move that’s designed to shuffle the industry pecking order.

“We are at an inflection point right now,” comScore CEO Serge Matta told The New York Times last month. “Look at how viewers are interacting with television,” he added. “It is no longer just on the television set in the living room. It is on mobile. It is on VOD. They consume content wherever they want it, whenever they want it.”

ComScore is known for its Internet traffic-measurement capabilities – something that would mesh extremely well with Rentrak’s ability to gather and analyze data from cable TV boxes, says Matthew Harrigan, an analyst at Wunderlich.

In fact, by linking up this way, the two firms become instantly more competitive in trying to figure out how to measure ad-campaign effectiveness and media content across TV and digital devices – something known as “cross-platform currency” in media parlance.

Said Harrigan: “The deal addresses an imperative need for a flexible and trusted metric for cross-platform media buying and selling, with siloed TV and digital analytics no longer adequate.”

Nielsen measures media “consumption” (viewing and reactions to programs and advertising) through a panel of more than 25,000 U.S. households. ComScore uses a consumer panel of about 2 million folks through whom it tracks and analyzes online behavior, while Rentrak has emerged as a TV-ratings player by assessing viewership from data captured from millions of TV-feeding cable boxes.

Nielsen remains king – the “gold-standard currency for counting the number of individuals exposed to a piece of content,” Todd Juenger, a senior analyst at Bernstein, wrote in in a June investment report.

But the still independent Rentrak – and comScore – have made inroads.

If this looks like it’s shaping up as a catfight, it’s because the opportunity is so big.

Advertising executives dump about $70 billion a year into TV ad buys – and desperately want to know if they’re allocating those dollars in the right places. Independent measuring firms like Nielsen and Rentrak are one of the few ways to gain that understanding.

And the combined Rentrak-comScore will provide meaningful competition to Nielsen for the first time ever.

Bob Peck, an analyst at SunTrust Robinson Humphrey, says the deal has “strategic merit.”

ComScore will bring its “leading” online data assets and combine it with Rentrak’s “leading” TV/video on demand/movie data assets to create a “near-real-time, de-duplicated, cross-media solution to better measure advertising and content consumption,” Peck wrote in a research report.

He’s not the only observer with a bullish view of the deal. There’s also a respected industry insider who loves the proposed combination so much that it’s already put its money where its mouth is.

Targeting Gains

We always counsel you to “buy with the smart money” – watching and following the moves made by both corporate insiders and “knowledgeable outsiders.”

And there’s a very significant “knowledgeable outsider” who’s made a move here.

Over the past year, WPP Plc. (Nasdaq ADR: WPPGY) – the world’s No. 1 advertising firm by revenue – grabbed stakes in both comScore and Rentrak. That includes a 6.1-million-share comScore purchase in late September.

And there was clearly some expectation that a merger might happen: In August, for instance, WPP CEO Martin Sorrell said he would “welcome them coming together.”

Once the deal is finalized, WPP will have a 16% stake in the combined company – with an option to go as high as 20%.

As a leading advertiser, WPP is the “ultimate insider” in this industry – one of the best examples of “smart money” you’ll find. So if an industry “insider” like WPP sees this as a great investment – meaning it intends to keep holding it after the merger is finalized – you should feel the same way.

That underscores there are two ways to profit from this.

The first obviously is Rentrak.

In situations where there’s a buyout, we rarely tell folks to hold the stock through the deal.

But this is an exception.

The combined venture is going to grab big slices of this business over the next few years, making it a true Big Data growth play.

So if you already own Rentrak and are willing to take a three- to five-year ride, we believe you’ll be well rewarded for taking the trip.

The deal won’t be completed until next year. Analysts have a $60 target price on the shares – with a high-water estimate of $72, which would represent a 36% gain from here.

Rentrak’s next earnings report is scheduled for Nov. 4. A near-term disappointment could give you a shot to buy in at a cheaper price.

If you don’t own Rentrak and want a different way to play this, you can also buy comScore.

ComScore expects the transaction to be “mildly dilutive” to its internally reported (nonstandard accounting) per-share earnings after it closes next year. But the combination will be “accretive” – meaning it boosts profits – the year after.

The merger will also bring cost savings – big ones: $20 million in 2016 and $35 million the year after.

Peck has a “Buy” rating on comScore and a $65 price target – about 44% more than the current trading price of about $43.

But analyst “target” prices tend to be 12-month numbers.

We believe the gains beyond that will be much, much greater.

This is one story we’ll want to keep following.

Unless otherwise directed, we recommend investors employ a 25% “trailing stop” on all holdings.

Have You Seen What’s in Trump’s Portfolio?

Donald Trump is not alone in his desire to “make America great.” There’s a little-known Silicon Valley company that’s on the same page as him. We know for a fact Trump has already scooped up shares worth as much as $1.55 million. We have the whole story here.

Related Reports:

• Variety: ‘Steve Jobs’ Bombs: What Went Wrong With the Apple Drama
• Private Briefing: The One Stock You Want to Keep Holding… After Its Merger Deal Gets Done
• Private Briefing: Why Twitter Will Predict the Next Hollywood Hit – and Your Next Winning Stock
• MarketWatch: National Securities Law Firm Seeks Higher Price for Rentrak Corp. Shareholders, and Encourages Shareholders to Contact Law Firm for More Information
• Benzinga: Wunderlich Likens Rentrak/comScore Deal to “Next iPhone in Media Measurement”
• Broadcasting & Cable: AMC Networks Signs Up for Rentrak Cross-Platform Data
• U.S. Securities and Exchange Commission: WPP Holdings of comScore
• The New York Times: ComScore and Rentrak Announce Merger Deal

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