This company, which primarily develops and acquires drama and film content and distributes channels by broadcast and paid TV, theatrical, physical media, and digital channels (subscription), has been grouped into content maker - drama& film sector in video &audio goods and service industry.
It seems that demand for subscription for paid linear channels (drama and film) has been weak and presented a general downturn trend as indicated by declining number of subscribers for most of channels. To lower costs of subscribers and deal with declining demand for TV channels, the platform operators of distribution decrease bundles of channels, which caused large difficulties for many less attractive TV channels in maintaining their viewers. However, the more specific bundle of TV channels and the availability to subscribe for specific channel from digital platform helps stimulates demand for some of better channels from those who, otherwise, would not like to subscribe a bundle of channels from TV distributors. We have seen fast increase in subscription for some of smaller channels. However, for most of companies the growth from digital platform is too slow to offset their loss in linear cable platform. It seems that many companies depend on raising contractual rates for their channels to deal with declining subscribers.
In the downward trend of TV industry, companies’ revenue of advertising has declined accordingly as well.
There is a downward trend (except for China) in the industry of motion picture, which may be rooted to declining admissions of theatres in those regions.
The general decrease in subscription has hurt profitability of those TV channels makers in this sector. However, we have seen increasing margins for many companies in this sector in 2018 probably attributable to quick increase in consumers’ demand for video content and continuingly increasing subscription for their digital platform. The typical company in this sector has an about 44-47% gross margin in 2018 with a SG&A as percentage of sales of about 22% and operating margin of 24%.
The typical enterprise price/EBI ratio is 13 (12 months trailing).
It seems that its revenue has started increasing across all of its channels since 2018 probably attributable to increase in the demand for content (drama and film and urban content) of this company, the success of third-party digital platform (Amazon), or increase in demand for business advertising. In the past three years, decreased revenue from TV, theatrical, and physical media has been well offset by fast increase in revenue from subscription of its digital channels. When the increase from its digital channels presents sign of slowing down, revenue from its other distribution channels picked up.
The first quarter of fiscal 2018 compared with 2017(ended Mar 31, 2018)
Net revenue increased 34% driven by increase in subscription of digital channel and increase in all other channels.
Subscribers of digital channel increased 44%.
Fiscal 2017 compared with fiscal 2016
Net revenue increased about 8% driven by increase in subscription of digital channel offset by decrease in all other channels.
Subscribers of digital channel increased 51%.
Fiscal 2016 compared with fiscal 2015
Net revenue decreased about 18% driven by decrease in all other channels offset by increase in subscription of digital channel.
Subscribers of digital channel increased 125%.
Its gross margin has been improved significantly to about 41% in 2018 (12 month trailing). However, due to increased expenses related to digital channels and deleveraging of decreased revenue of TV channels, this company’s SG&A as percentage of sales increased to about 39%. And we have seen that its operating margin turned into positive (about 2% in 2018).
Stock performance
Currently this company has an enterprise price/EBI ratio of about 44(12 month trailing) or 22(forward 320% growth in EBI) after adjusted with 15,000 preferred stock (redeemed at $1,000 per share or converted at 333 :1 to common stocks). We think this stock may be overvalued compared with its peers if it cannot keep its fast growth as we have seen in the first quarter of 2018.
