RENT 10-8-12

Oct 08, 2012

Media

NasdaqNM

RENT

Buy Rating Unchanged

Current Price

$16.93Target Price

$24.00

Market Capitalization 188.62M

Shares Outstanding 11.14M

Float 9.07M

Institutional Holdings 48.20%

12-month Low/High $12.16/$23.27

Average 90-day Volume 24,040

Fiscal Year End Mar 30

Revenues ($ MIL)

Period 2011A 2012A 2013EQ1 24.8A 22.4A 23.2AQ2 24.5A 21.9A 22.6EQ3 23.7A 22.2A 24.0EQ4 24.1A 24.6A 27.5E 97.1A 91.0A 97.3E

EPS ($ MIL)

Period 2011A 2012A 2013EQ1 0.01A 0.03A 0.01AQ2 0.04A 0.03A (0.03)EQ3 (0.04)A 0.02A (0.04)EQ4 (0.07)A (0.17)A 0.04E (0.07)A (0.09)A (0.08)E

RentrakRecent Meetings Strengthen Conviction in RENT Story

Recent meetings with management strengthened our conviction in the Rentrak story; TV Essentials appears to be an inflection point; Rentrak remains one of our favorite stories in the digital media space

The meetings and recent investor day highlighted the revenue opportunities of their Essentials business, which we conservatively expect to increase from $56 million this year to $140 million in fiscal 2015

We believe the recent pullback in RENT shares presents an opportunity for investors; RENT is trading at an implied multiple of less than 9X next year's Essentials EBITDA, despite projected EBITDA growth of nearly 50%

We reiterate our Buy rating and $24 price target, based on 2013 estimates; we believe RENT shares could be worth far more in 2014, if it achieves its Essentials targets

Equity ResearchChristopher Ferris, Senior Research Analyst, Digital Media and Technology (646) 429-1727 [email protected]

Michael Kupinski, Director of Research (561) 994-5734 [email protected]

Noble Financial Capital MarketsTrading: (561) 998-5489 Sales: (561) 998-5491 www.noblefcm.com

Refer to the last two pages of this report for Disclosures

Page: 1 of 10

Recent investor meetings with management strengthened our conviction in the Rentrak story. The company appears to have momentum with TV Essentials, continues to expand its Box Office and OnDemand measurement businesses, and is managing the decline of its legacy Home Video business. The following are a few key takeaways from the meetings:

TV Essentials is on track to double in 2013. Management emphasized its TV measurement capabilities, which are gaining acceptance in the marketplace, particularly among local TV station groups. Rentrak has grown its stations customers from virtually zero two years ago to nearly 200 today, with well over 400 additional stations available with existing customers (see figure below). The pace of customer acquisition has been strong this year, and the company recently announced the addition of the Univision networks as customers. Rentrak expects to double their revenue in the TV business in each of the next several years, driven by new customers and substantial double-digit prices increases. Our expectations are slightly more modest, but still imply a TV revenue ramp from $9 million last year to nearly $60 million by fiscal 2015. Management reiterated TV should be profitable by fiscal 2014.

Page: 2 of 10

Rentrak RENT | CURRENT PRICE $16.93 | Buy | 10/08/2012Christopher Ferris [email protected] (646) 429-1727 | Michael Kupinski [email protected] (561) 994-5734

Rentrak's product is challenging Nielsen. While Rentrak's TV measurement capability has been well documented in other reports, we think it's important to note that Nielsen is discussing incorporating set-top box data into its existing sample. We believe this is largely in response to Rentrak and the success it is having in the local markets and with cable networks. While the timing and form of Nielsen's roll out of limited set-top box data is unclear, it does not appear that the addition of the set-top-boxes will have much of an effect in terms of the sample size and quality of the Nielsen rating, particularly compared to Rentrak. As the

Page: 3 of 10


TV viewing world becomes increasingly multi-screen and as traditional business models come under pressure, content providers and advertisers are demanding better measurement, which favors Rentrak versus incumbent platforms. In June, Sinclair, a top 10 TV station group, cancelled their Nielsen service in several markets and replaced it with Rentrak. Sinclair has threatened to choose Rentrak for additional stations. We believe a decision on the status of the Sinclair stations may come over the next quarter or so, and could act as a catalyst for Rentrak, should Sinclair adopt Rentrak on a wider basis. Nielsen will likely always be the currency on which advertising is sold. However, Rentrak can replace Nielsen in some markets (as we've already seen) and can be a strong supplemental service for networks, stations, and advertisers alike.

Box Office has more upside than we expected. Management has been emphasizing its box office opportunity. Rentrak is the dominant player, with the business growing at a double digit pace. Rentrak has announced several new products, such as "PostTrak," which could help drive growth. Rentrak has also partnered with several companies in China to measure box office and TV - Rentrak is the only company with government permission to do so. With China's box office receipts set to pass the U. S. in the next several years, there could be a large revenue opportunity for Rentrak. The company believes Box Office Essentials could be a $50 - 75 million business in several years, compared to less than $25 million in revenue this year.

We reiterate our Buy rating and $24 price target

RENT shares are no longer inexpensive on this year's estimates, but the recent pullback in the share price has presented investors with an opportunity to buy the shares at a very reasonable level, based on fiscal 2014 numbers. Our 2014 estimates imply 40% revenue and nearly 50% EBITDA growth from the Essentials division. Our $24 price target is based on a 20x multiple of fiscal 2013 EBITDA. Based on 2014 estimates, we believe RENT shares are worth considerably more than $24 per share (see SOP model).

At current levels, we believe investors are paying roughly $160 million or $13 per share for the implied value of the Essentials businesses (See Implied Value Model). As we have noted previously, RENT shares have traded at a multiple of 30x implied Essentials EBITDA in the the past, with considerably less TV customers and revenue. At current levels, investors are paying just over 9x fiscal 2014's implied value. If the company can hit its target of doubling revenue over the next several years, which we believe is achievable, given the growth in customers and price increases, RENT shares should appreciate substantially.

Page: 4 of 10


Page: 5 of 10


Page: 6 of 10


Valuation Summary

Our $24 target is supported by sum-of-the-parts based on fiscal 2013 estimates. Our model assumes no value for the Home Entertainment business and a 20x multiple of Advanced Media & Information (AMI) EBITDA of $12 million. We view the 20x multiple on AMI division is justified given the expected acceleration in revenue and income growth from the Essentials businesses over the coming quarters.

Page: 7 of 10


Page: 8 of 10


DISCLAIMERAll statements or opinions contained herein that include the words "we", "us", or "our" are solely the responsibility of Noble Financial and do not necessarily reflect statements or opinions expressed by any person or party affiliated with the company mentioned in this report. Any opinions expressed herein are subject to change without notice. All information provided herein is based on public and non-public information believed to be accurate and reliable, but is not necessarily complete and cannot be guaranteed. No judgment is hereby expressed or should be implied as to the suitability of any security described herein for any specific investor or any specific investment portfolio. The decision to undertake any investment regarding the security mentioned herein should be made by each reader of this publication based on its own appraisal of the implications and risks of such decision.

This publication is intended for information purposes only and shall not constitute an offer to buy/sell or the solicitation of an offer to buy/sell any security mentioned in this report, nor shall there be any sale of the security herein in any state or domicile in which said offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or domicile. This publication and all information, comments, statements or opinions contained or expressed herein are applicable only as of the date of this publication and subject to change without prior notice. Past performance is not indicative of future results.

IMPORTANT DISCLOSURESWithin the past 30 days, a Noble Financial Company Research employee and/or their immediate supervisors have not effected a transaction for their own account(s) in the investment(s) referred to in this report, nor will such a transaction take place within 5 days of its publication.

A Noble Financial Company intends to seek investment banking business with this company in the next three months. A Noble Financial Company is not a market maker in the subject company.

Page: 9 of 10


WARNINGThis report is intended to provide general securities advice, and does not purport to make any recommendation that any securities transaction is appropriate for any recipient particular investment objectives, financial situation or particular needs. Prior to making any investment decision, recipients should assess, or seek advice from their advisors, on whether any relevant part of this report is appropriate to their individual circumstances. If a recipient was referred to a Noble Financial Company by an investment advisor, that advisor may receive a benefit in respect of transactions effected on the recipients behalf, details of which will be available on request in regard to a transaction that involves a personalized securities recommendation. Additional risks associated with the security mentioned in this report that might impede achievement of the target can be found in its initial report issued by a Noble Financial Company. This report may not be reproduced, distributed or published for any purpose unless authorized by a Noble Financial Company.

U.S. CLIENTSFor purposes of distribution in the United States, this report is prepared for persons who can be defined as "Institutional Investors" under U.S. regulations. Any U.S. person receiving this report and wishing to effect a transaction in any security discussed herein, must do so through a U.S. registered broker or dealer. Noble International Investments, Inc. is a U.S. registered broker dealer.

RESEARCH ANALYST CERTIFICATIONIndependence Of ViewAll views expressed in this report accurately reflect my personal views about the subject securities or issuers.

Receipt of CompensationAll or part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views in the research report.

Ownership and Material Conflicts of InterestNeither I nor anybody in my household has a financial interest in the securities of the subject company or any other company mentioned in this report.

Additional information is available upon request. Any recipient of this report that wishes further information regarding the subject company or the disclosure information mentioned herein, should contact Noble Financial by mail or phone.

Noble International Investments, Inc., dba Noble Financial Capital Markets is a FINRA registered broker/dealer.Member - SPIC (Securities Investor Protection Corporation)

NFCM RATING DEFINITIONS % OF STOCKS COVERED % OF IB CLIENTS

BUY: potential return is >15% above the current price 53% 20%

HOLD: potential return is -15% to 15% of the current price 39% 7%

SELL: potential return is >15% below the current price 6% 0%

Report ID: 5877

Page: 10 of 10


RENT 10-8-12

Documents

Transcript of RENT 10-8-12