Ubika Research has increased its target price on shares of QYOU Media Inc. (TSXV:QYOU) to $0.50 from $0.30
SmallCapPower | January 26, 2021: On January 21, 2021, QYOU Media Inc. (TSXV:QYOU) announced that The Q India secured $220K in advertising contracts from large cap Indian and international companies. As a result of de-risking of the company’s revenue streams through contracts with well-established players, we (Ubika Research) have increased our target price to $0.50 per share from $0.30. Recall, QYOU’s stock is up about 223% since we first recommended the stock with a $0.30 price target in our initiating coverage report last January.
[Editor’s Note: Shares of QYOU Media have soared more than three fold since SmallCapPower first introduced the story to our readers at $0.06 a year ago.]
$200K in ad contracts on the back of strong viewership growth. QYOU has gained $200K in advertising contracts from notable Indian and international media, healthcare, and CPG companies such as Airtel, Reckitt Benkiser, Britannia, and SBS Biotech. The initial $200K in advertising spend comes during the first two weeks of 2021, with additional advertising campaigns expected to be launched throughout the remainder of the year. In our view, the recent advertising commitments from well known Indian and international brands adds validity to The Q India’s strategy of becoming a top platform among Indian Millennials/Gen Z. Additionally, weekly ratings numbers from BARC confirm The Q India’s increasing popularity among Young Indians.
Figure 1: Week One 2021 BARC Ratings (CNW Group/QYOU Media Inc.)
Source: Company filings
The Q India viewership grows by 3,800% since first becoming rated by BARC. During its debut week of being rated by BARC (Broadcast Audience Research Council, the “Nielsen of India”), The Q India had 639k impressions, growing to 22.4m impressions by the first week of 2021. Average time spent viewing also increased to 73min/week in the first week of 2021, compared to 9min/week during the debut week. Of note, The Q India’s average time spent viewing is now greater than many well-established media companies such as MTV, Disney, and Sony in India. With such numbers, The Q India has become the fastest-growing Hindi general entertainment channel in the country on satellite and cable television. These numbers do not include audience viewership on digital and mobile distribution platforms, which represent a substantially larger audience footprint for the company.
In 2020, we discussed The Q India’s business strategy to create a powerful media brand appealing to Young Indians who are identified as the Millennial/Gen Z who are 20 to 35 years old. As a recap, the three phases of this strategy included:
- Build the most relevant channel for Young India with content from top social stars and digital creators;
- Secure vast distribution across TV, OTT and mobile platforms while growing a loyal engaged audience; and
- Monetize ever increasing viewership via advertising and influencer marketing sales;
In our view, the recent advertising contracts with well established companies validates The Q India’s strategy of creating Millennial brand appeal that can be monetized. As the company grows its audience, we believe that a large media conglomerate looking for access to Indian millennials could emerge as a potential buyer. Companies such as MTV—Viacom, Bindaas—Disney, HBO—Warner are looking to capitalize on the market for Indian Millennials.
Figure 2: QYOU Media Stock Chart
Source: stockcharts.com, Ubika Research
QYOU Media breaking out on key technical resistance levels. QYOU broke through long-term resistance of $0.07 in early December and just recently broke through the short consolidation pattern of $0.09 to $0.135 on much larger than average volume. The next target/resistance level would be the stock’s 2018 peak in the $0.31 to $0.32 zone.
Valuation
Target Price Increase to $0.50 per share from $0.30. We believe that advertising contracts from well established Indian and international companies have significantly de-risked the company’s revenue stream. As a result, we have lowered the discount rate in our cash-flow model to 8% from 15%, which has increased our 12-month target price to $0.50.
The Q India could be a potential acquisition target. We believe that the advertising contracts and strong viewership growth data from BARC validates The Q India’s strategy of creating a powerful brand among Young Indians. An established brand such as The Q India could likely be acquired by a large cap media company looking for access to the Indian Millennial market. Cheddar, a platform dubbed CNBC for Millennials, was acquired by Altice in 2019 for 13-fold its original $15M Series A venture capital financing.
Figure 3: QYOU Media M&A Table
QYOU undervalued based on comparable M&A transactions. We selected transactions in the media and entertainment, distribution, and content production space, which we believe to be representative of QYOU Media. Analysis of comparable transactions over the past 10 years, indicates the mean LTM revenue and EBITDA takeout multiples for media and entertainment companies are 5.4x and 29.9x, respectively. Based on managements preliminary revenue estimates, QYOU Media is currently trading at a 1.3x F2022E EV/Revenue multiple. This valuation gap should continue to narrow further as QYOU continues to monetize its viewership through recurring advertising contracts.
QYOU has the potential for a premium takeout multiple. We believe that The Q India, if purchase by a media conglomerate, could likely receive a substantial premium to the average takeout multiple in our M&A table (5.4x EV/Sales+). Historically companies focused on youth programming have received premium takeout multiples, especially Indian and U.S. media conglomerates that are looking to diversify from the mature U.S. market and are already competing with The Q India.
Company Description
QYOU Media Inc. is a media company focused, via its 88% owned subsidiary QYOU Media India Pvt. Ltd., on ‘Young Indians’ being the approximately 400M 20 to 30-year old’s who are a subset of the Millennial and Gen Z market in India. QYOU Media produces ‘The Q India’, a Hindi-language television channel with a growing VOD content library, with over 800 programs and counting, that is now available to approximately 610M users via 55M television homes with partners including TATA Sky, Airtel DTH & SitiNetworks; 355M OTT users via platforms including MX Player, ZEE5 and Dish Watcho; and 200 million users on mobile and digital platforms including JioTV, Airtel Xstream, SNAP and Chingari.
Disclosure: SmallCapPower has an online exposure and awareness contract with QYOU Media Inc and has received compensation in the past.
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