Sector financial performance:

This company, which primarily produces film (44% of revenue), TV series (20%), and digital products (37%), generating revenue from theatres (7%), physical media (18%), TV (16%), and internet network (33%), has been grouped into movie& TV content sector in admission to amusement industry.

While it seems that the demand for films has been fluctuated depending on quantity and quality of release for some certain year, there is a downward global trend (except for China) in the industry of film content, which may be rooted to declining admissions of theatres in those regions. And this may be why, when the theatrical revenue (down average 3% in 2016 and 2017) of products of those companies goes down, their film content revenue from TV network (up 20% for the same period) and from physical media (up 6%) did not go down as deep as in theatres. However, the slowing down admission in theatres may, in return, affect investment for higher budget films and cause further decline in demand due to poor performance of those films. Strong increase in China’s theatrical market helps offset the decrease of admission in US market.

Growth in digital platform has been stable. Demand for TV content (series) seems to have been strong growing fast.

The general decrease in revenue has hurt profitability of those film makers in this sector. The typical company in this sector has an about 35-40% gross margin in 2017 with a SG&A as percentage of sales of about 25-32% and operating margin of 8-10%.

The typical price/cash flow is 60.

 

                                                                                                       click for reading more about this industry

Company performance:

It seems that the demand for film (content) of this company has been solid but fluctuated depending on quantitates and quality of content in the past several years. However, it seems that there is a downward trend in domestic theatre exhibition of film and sales of physical media. Demand for the products of this company for TV seems to be strong and be increasing.

The fiscal 2018 compared with 2017(ended Mar 3, 2018)

Domestic theatrical revenue (film) decreased 24% due to smaller slate and poor performance of films.

Packaged media revenue (film) decreased about 0.9%.

TV revenue (film) was about flat.

International (film) decreased about 14%.

TV products revenue decreased 4%.

Fiscal 2017 compared with fiscal 2016 

Domestic theatrical revenue (film) increased 18% due to larger slate and better performance of films.

Packaged media revenue (film) increased about 12%.

TV revenue (film) increased 37%.

International (film) decreased about 3%.

TV products revenue increased 25% due primarily to domestic TV revenue growth of 55%.

Fiscal 2016 compared with fiscal 2015

Domestic theatrical revenue (film) decreased 11% due to poor performance of films.

Packaged media revenue (film) decreased about 12%.

TV revenue (film) decreased 24%.

International (film) increased about 11%.

TV products revenue increased 16% due primarily to international TV revenue growth of 70%.

Its gross margin (including depreciation) has been improved slightly to about 40% in 2018.  However, due to acquisition and faster increase in revenue, this company’s SG&A as percentage of sales was improved to about 33% and resulted large decrease in its operating margin (about 7% in 2018).

Stock performance

While this company has a stock price/cash flow ratio of as high as 68, improved margin as a result of acquisition of Starz brings it healthy cash flow. Considering its price/sales ratio of 1.2, which is still same as before acquisition, we think this stock is currently relatively undervalued.