Nine Entertainment is spending on content in exchange for bigger revenue in the future from streaming platform Stan, seen by some analysts as a crown jewel for the media group.
The market pulled down Nine’s share price when the media group announced upbeat full year results, showing the projected content spend, with a $70 million to $90 million increase in costs.
However, analysts at investment banks see this as more positive and still value Stan from $800 million up to a $1 billion.
The increased spend is necessary to continue to play in the highly competitive subscription video on demand market, they say.
Brain Han, senior equities analyst at Morningstar: “While Stan’s recent earnings escalation will be halted by a step-up in content spend, we see the investment as boosting the SVOD unit’s future sustainable revenue base.”
Revenue for Stan was up 29% to $311.8 million in the year to June but the after costs the result was described as “tepid”. EBITDA (earnings before interest, taxes, depreciation, and amortisation) was below Morningstar’s expectations, up 27% to $40 million.
The analysts say EBITDA is likely to fall to $13 million in the 2022 financial year as Nine fortifies Stan’s market position with more content.
Subscriber growth was good, up 200,00 to 2.4 million, with 100,000 from Stan Sport, with its expensive sports rights.
Analysts at Jefferies believe Stan, the number two SVOD player in Australia after Netflix, remains relevant despite the arrival of more platforms.
The analysts think the higher investment in content and marketing is necessary for Stan to retain its market share in an increasingly competitive SVOD market with the recent entry of Disney+, Amazon Prime Video, and Paramount+.
“Stan continues to offer a strong line up of content through distributors (including the completion of a major output deal with NBCU), while also being committed to growing Stan Originals,” the analysts say.
The metropolitan free-to-air advertising market has been under pressure for a decade.
In the 2011 financial year ad spend was $3.08 billion. In pre-COVID 2019, it was $2.72 billion and $2.6 in the 12 month to June.
At the same time the BVOD market has grown, with 9Now’s 2021 revenue is at $107 million.
“We have taken a more positive view on the combined metro FTA + BVOD markets,” write UBS analysts in a note to clients.
The analysts forecast Nine’s TV and BVOD revenue combined to grow to $1.232 billion in the 2023 financial year from $1.152 billion in the year to June.
Goldman Sachs analysts see Stan Sport reaching EBITDA breakeven by the 2024 financial year.
Credit Suisse: “Stan has built a solid platform which has consistently delivered revenue and subscriber growth in a competitive environment.
“On this basis, we remain of the view that Stan will deliver earnings growth over time, albeit that profile has now been pushed out.”
The Credit Suisse analysts forecast Stan to deliver revenue of $367 million and EBITDA of $13.4 million in the 2022 financial year.
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