2 Possible Acquisition Targets as the Streaming War Heats Up
Last month, e-commerce giant Amazon (AMZN) announced it would acquire MGM Studios (Metro Goldwyn Mayer) for a whopping $8.45 billion. MGM is one of the largest studios in Hollywood and the acquisition will allow Amazon to access a vast library of content including popular movie franchises such as James Bond and Rocky.
The streaming space is a high-growth vertical and content platforms including Amazon are investing heavily to increase their subscriber base. Amazon in fact pumped in $11 billion to produce original content and acquire licensing deals in 2020. Prime Video competes with Netflix (NFLX) which is the largest streaming platform in the world as well as with Disney (DIS) and HBO that already have a vast amount of legacy content.
So, streaming platforms need to keep attracting subscribers either by securing licensing deals, generating original content, and by acquisitions. Keeping this in mind, let’s take a look at two possible acquisition targets that might be on the radar of streaming companies.
ViacomCBS (VIAC) is one of the lesser-known streaming players in the entertainment industry but is valued at a market cap of $28 billion. In the last few months, the company revamped its previous streaming service which was called CBS All Access to Paramount+ that bundles live sports and breaking news with a robust portfolio of movies, sitcoms, hit shows, and marquee franchises. It also operates an ad-supported streaming service called Pluto TV which is one of the largest free streaming platforms in the U.S.
ViacomCBS has lost significant market value since March 2021 and is down over 55% in less than three months. Investors were worried about the stock’s high valuation as well as its capital raise of $3 billion that might dilute shareholder wealth. Further, the sell-off was exacerbated as Viacom was unwittingly part of the Archegos Capital Management fiasco.
It means ViacomCBS is now available at a lower valuation. The net proceeds of the capital infusion will also allow the company to fund streaming projects allowing it to expand an already extensive content library that has 2,500 movies, 1,000 live sporting events, and 30,000 episodes.
Viacom already has over 30 million subscribers and it expects this figure to rise to between 70 million and 75 million by 2024, allowing it to derive almost $7 billion in streaming sales.
Lions Gate Entertainment
Lions Gate Entertainment (LGF.A) is engaged in the film, television, and subscription businesses in the U.S., Canada, and other international markets. It has three business segments that include Motion Picture, Television Production, and Media Networks.
Lionsgate reported sales of $876.4 million and an operating income of $14.3 million in Q4 of 2021. Its adjusted net income stood at $0.3 million while cash flow from operating activities was $159.8 million and adjusted free cash flow was $3.1 million.
In full-year fiscal 2021 revenue was $3.27 billion while operating income was $170.6 million. Adjusted net income stood at $205.5 million or $0.92 per share. It’s STARZ Global Subscribers rose to 29.5 million at the end of fiscal 2021 while global streaming subscribers rose close to 70% to 16.7 million.
Lions Gate stock is valued at a market cap of $3.93 billion. Analysts tracking the stock expect the company to increase sales by 16.7% to $3.82 billion in 2022 and by 14.6% to $4.37 billion in 2023. It shows us that the stock is trading at an attractive price to sales multiple of just over 1x making Lions Gate an interesting acquisition candidate.
The final takeaway
The streaming industry has multiple players today and it is unlikely for people to subscribe to each of these services. The rise in competition has made the streaming industry a crowded one but it is also ripe for consolidation. There is a good chance that streaming giants will acquire other content companies, like VIAC and LGF.A, in the not-too distant future as they look to expand their library of content.