Roughly two years ago, I’d discussed the future of traditional cinema, and how the rise of home entertainment was shaking things up. This process has accelerated into late 2019.
The first phase of the streaming war
Netflix has been a huge success story in this decade, but the space it once dominated is getting crowded. Tech giants like Amazon, Apple, and Facebook have launched their own streaming services and committed billions in creating original content that can rival Netflix and others. This month saw the biggest media player in the game, Disney, enter the fray with its streaming service Disney+.
Early reports indicate that the streaming service managed to gobble up 10 million subscribers in just over a day. More optimistic analysts are forecasting that the service could reach 60-90 million subscribers, as Disney had originally boasted, much earlier than anticipated. The quick success shows that Disney’s marketing and aggressive pricing strategy has paid off in a big way. It does not hurt that the company has a rich stable of original content.
AT&T is set to launch its HBO Max subscription on demand service in the first half of 2020. In addition to HBO’s offering of prestige television content, the service will also host programs like The Big Bang Theory, BBC Studios series like Top Gear and Doctor Who, and the long-running animated series South Park.
In this crowded and competitive market, it will be very difficult for the smaller brands to compete. Companies that find success will need to be nimble and creative. Does the stock we are going to look at today have a chance?
DHX Media is betting on new media
DHX Media (TSX:DHX.B)(NASDAQ:DHXM) is a Canadian media company that specializes in children’s entertainment. It operates English-language channels that include the Family Channel, Family Jr., and Family Chrgd. DHX has several top children’s entertainment brands under its umbrella, including Degrassi, Caillou, Teletubbies, and Peanut’s.
Early last month, I’d discussed DHX Media’s development of its Wild Brain property. It is currently doing business under the Wild Brain name, which illustrates how this streaming property has become the spearhead of its business. The company released its first-quarter fiscal 2020 results on November 6.
Revenues rose 8% year over year to $112.3 million and cash flow from operations grew to $18.7 million over negative cash flow of $10 million in Q1 FY 2019. Adjusted EBITDA climbed to $19.6 million compared to $17.3 million in the prior year. However, its net loss deepened to $16 million compared to a net loss of $2.4 million last year.
WildBrain Spark views increased 66% from the previous year to over 12 million in the first quarter. Revenue at WildBrain Spark posted 37% growth to $22.1 million. The company also delivered Snoopy in Space for Apple TV Plus, which debuted in November.
Is it a buy today?
DHX Media’s average balance sheet has been a creeping concern, but it showed improvement in this quarter, as it paid down $7.6 million in debt from excess cash flow. It also expects to make an additional $50 million payment on the term loan upon closing of the rights offering. The development of WildBrain Spark holds promise, and if it can continue its pace of growth, the company could become an appetizing acquisition target for one of the big fish.
The stock last had an RSI of 35, which puts it just outside technically oversold territory. Investors who are looking for exposure to this sector should consider this as a speculative buy as we look ahead to the new year.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned. David Gardner owns shares of Amazon, Apple, Facebook, Netflix, and Walt Disney. Tom Gardner owns shares of Facebook and Netflix. The Motley Fool owns shares of and recommends Amazon, Apple, Facebook, Netflix, and Walt Disney. The Motley Fool recommends DHX Media and recommends the following options: long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, long January 2021 $60 calls on Walt Disney, and short January 2020 $130 calls on Walt Disney.