This company, which primarily produces content/programming including survival, exploration, sports, lifestyle and entertainment and distributes by cable TV and internet platform earning revenue from affiliate fees (based on subscription) and advertising, has been grouped into content maker – nature sector in video &audio goods and service industry.
Generally, companies in this sector have experienced weak demand, especially from cable subscribers, for their channels. However, some of major channels providers seem to still be able to raise contractual rate to offset the declining subscribers.
We also have seen some of companies in this sector have been able to raise price of advertising to improve their advertising revenue while the industry presents a downturning trend for most of companies in this sector.
The leaving of subscribers of paid TV channels made some of channels companies able to raise rate but also caused intensive competition among companies in this sector for programming quality, which may be the reason behind increasing programming costs.
Typical gross margin seems to be declining since 2016, which present an about 53% gross margin in 2018. With the SG&A as percentage of 26%, we see the operating margin is about 27% down from about 32% in 2015.
It seems that demand, from cable TV subscribers, for programming/channels of this company has been weak as indicated by gradually declining subscribers/viewers. However, this company has been benefiting from rising contractual rate of its channels due to higher quality content provided. And it seems that the decrease in revenue resulted from decreasing subscribers has been able to be offset by raised rate so far and, working with gradually increased revenue of advertising (price and international market), has driven this company’s revenue to go up.
The first three quarter of fiscal 2018 compared with 2017(ended Mar 31, 2018)
Net revenue (excluding acquisition) increased 14% attributable to increase of 5% (excluding currency) in affiliate fees in cable network ( 2% in US and 9% in international) and increase of 5% (excluding currency) in advertising (2% in Us and 11% in international).
Fiscal 2017 compared with fiscal 2016
Net revenue increased 8% attributable to increase of 7% (excluding currency) in affiliate fees in cable network due to raised contractual rate offset by decrease in subscribers ( 5% decrease in US subscribers) and increase of 3% in advertising (pricing growth in US).
Fiscal 2016 compared with fiscal 2015
Net revenue increased 2% attributable to increase of 5% in affiliate fees in cable network due to raised contractual rate offset by decrease in subscribers and increase of 2% in advertising (pricing growth in US).
Its gross margin has been declining from 58% to 53% since 2015 due to acquisition and increased programming costs (mainly international market). With a flat SG&A as percentage of sales (26%), we have seen decreased operating margin (about 27%) in 2018.
Stock performance
Currently this company has a similar price as it has before announcement of acquisition.
Considering that this company had about 20 ratio of price/EBI (may be improved in 2018 due to increased revenue, overvalued) and the acquired company had about 16 ratio based on acquired price (overvalued), the new price/EBI ratio of consolidated company is between 16-20, which we think may be overvalued depending synergies saved after consolidation.
