New York-Majestic Research is profiled in the latest Crain’s New York Business. According to the article, Majestic has just turned profitable and is completing a capital raise.
Majestic Research is a good example of the types of innovative approaches you find in the third party research space. We classify Majestic as a primary research firm because they specialize in mining large datasets of consumer and market research information for investment insights.
Majestic licenses databases such as DMV registrations, internet traffic or prescription drug sales. Majestic aggregates the information to the product level, and maps the activity information contained in the market research datasets to sales. Like channel checkers, Majestic comes up with insights on revenues that can very profitable for investors, particularly when they diverge from the consensus.
Majestic has 150 clients paying between $100,000 and $1,000,000. Most of the clients are hedge funds, but the firm has been expanding its long only clients. The majority of Majestic’s revenues are from subscriptions, although the firm set up a broker/dealer subsidiary at the beginning of 2006 to facilitate commission payments. The broker dealer was designed to help Majestic get paid as part of the broker vote process. Clients reportedly increased by 50% during the year, and presumably a good portion of the new clients are long only. The Crain’s article mentions that Majestic’s 2006 revenues were $15 million, and the firm turned profitable as of December.
Majestic raised $6.5 million from BV-Cornerstone in 2005. BV-Cornerstone is also an investor in CreditSights, a successful fixed income research provider. According to Crain’s, Majestic is “raising a small amount of additional capital through another firm.”
The firm currently covers nine industry segments, including airlines, automotive retailing, casinos, consumer technology, cruise lines, ecommerce, financial exchanges, health care and homebuilders. With the current capital raise, Majestic plans to add coverage of biotech and hotels.
The proposed expansion may set back Majestic’s climb into the black since the costs associated with setting up new sectors. The data needs to be licensed, brought in house, integrated with financial and other indictative data, and models have to built around the data.
The good news of the large set up costs is that Majestic has carved out an innovative research niche which has barriers to entry. Some hedge funds do their own data mining, but so far we haven’t seen a direct competitor to Majestic in the research space. This is a contrast to expert networks, where Gerson retains a first mover advantage, but there are many competitors–and more entering every day.
The Crain’s article mentions that bulge firms might be interested buyers in Majestic. The firm is growing, has an innovative niche, and appeals to hedge funds (as well as long only). When the firm is ready to sell, which might be when it gets to the $40-50 million sales range, it will likely have a variety of interested buyers, ranging from bulge firms to information firms.