This company, which primarily operates digital video subscription service available to subscribers on internet –based devices focusing on yoga, transformation, seeking truth and conscious films, has been grouped into streaming service sector in video &audio goods and service industry.
It seems that demand for subscription for streaming service that companies in this sector provide has been strong and growing fast in the past three years as indicated by increasing number of subscribers and as well increasing spending on subscription. Domestic subscribers have been seen growing at a more than 10% annual rate in the past three years according to typical drama and film streaming service provider. International subscribers have been seen growing at more than 40% rate during the same period of time. The average spending including rising price and plan mix has been seen growing at 10% and 17% annual rate for domestic subscribers and international subscribers respectively.
We have also seen fast grow in subscription for content of education and fitness from service provider.
The fast growth in revenue has brought those companies higher margins while increasing spending on marketing was accompanied. The typical company (drama and film) in this sector has an about gross margin of 38% in 2018, with a SG&A as percentage of sales of about 20% and R&D as percentage of sales of 8%, and operating margin of 10%.
The typical enterprise price/EBI ratio is 180 (12 months trailing).
It seems that the demand for stream service of this company has been very strong and growing fast as indicated by the accelerating increased number of subscribers.
The first quarter of fiscal 2018 compared with 2017(ended Mar 31, 2018)
Net revenue of streaming increased 75% driven by increase in paying subscribers.
Fiscal 2017 compared with fiscal 2016
Net revenue of streaming increased 78% driven by increase of 80% in paying subscribers.
Fiscal 2016 compared with fiscal 2015
Net revenue of streaming increased 36% driven by increase of 52% in paying subscribers.
Its gross margin has been improved significantly to about 86% in 2018 (12 month trailing) due to continuingly increased revenue and subscribers. However, due to increased expenses related to marketing, this company’s SG&A as percentage of sales increased to about 167%. And we have seen that its operating margin was down to -80% in 2018.
Stock performance
Currently this company has an enterprise price/sales ratio of about 12(12 month trailing) or 8(forward 60% growth in sales). We think this stock may be overvalued compared with its peers. Figuring out how they spend more on marketing may be the key to explain its high ratio.
