This company, which primarily operates digital video subscription service available to subscribers on internet –based devices focusing on original series, documentaries and feature 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 and spending of average subscriber. And it seems that international subscribers contribute most of growth.
The first six months of fiscal 2018 compared with 2017(ended June 30, 2018)
Domestic streaming revenue increased 25% attributable to increase of 11% in number of paying subscribers and increase of 12% in monthly spending per subscriber (higher price and plan mix).
International streaming revenue increased 67% attributable to increase of 41% in number of paying subscribers and increase of 19% in monthly spending per subscriber (higher price and plan mix).
Fiscal 2017 compared with fiscal 2016
Net revenue increased 32%.
Domestic streaming revenue increased 21% attributable to increase of 10% in number of paying subscribers and increase of 11% in monthly spending per subscriber (higher price and plan mix).
International streaming revenue increased 58% attributable to increase of 43% in number of paying subscribers and increase of 11% in monthly spending per subscriber (higher price and plan mix).
Fiscal 2016 compared with fiscal 2015
Net revenue increased 30%.
Domestic streaming revenue increased 21% attributable to increase of 12% in number of paying subscribers and increase of 8% in monthly spending per subscriber (higher price and plan mix).
International streaming revenue increased 64% attributable to increase of 57% in number of paying subscribers and increase of 4% in monthly spending per subscriber (higher price and plan mix).
Its gross margin has been improved significantly to about 38% 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 20% in 2018. And we have seen that its operating margin was up to 10% in 2018.
Stock performance
Currently this company has an enterprise price/EBI ratio of about 180(12 month trailing) or 140(forward 120% growth in EBI), we think this stock may be undervalued compared with its peer, which has same price/sale ratio with it.
