Analysts say shares of QYOU Media Inc. (TSXV:QYOU) have the potential to triple to $1.10 over the next 12-18 months
SmallCapPower | October 4, 2021: QYOU Media Inc.’s (TSXV:QYOU) (OTCQB:QYOUF) subsidiary “The Q India” is quickly becoming the top Millennial brand in India, surpassing traditional brands such as MTV and Disney. This investment has the potential to triple to $1.10/share over the next 12-18 months.
[Editor’s Note: Ubika Research initiated coverage and SmallCapPower informed its subscribers about the investment potential of QYOU Media when the stock was $0.06 a share and the target price was $0.30. Ubika then raised the target price to $0.50 per share, which was exceeded this past summer.]
Investment Highlights:
- QYOU Media, through its subsidiary “The Q India,” is quickly becoming the top Millennial brand and is poised to take advantage of the growing trend of influencer marketing as Indian Millennials flock to social media and mobile devices.
- We believe that QYOU Media would likely be valued at $500M as a private company in VC funding rounds based on recent revenue guidance.
- This implies a $1.10/share price target within the next 12-18 months and we believe the company is an attractive acquisition target for a large media company looking to increase its presence in the Indian market.
- Revenue guidance implies a $25M revenue run rate over the next 12 months, a whopping 5x times over the last fiscal year F2021, which was $3.8M (F2021 for QYOU is from July 1, 2020, to June 30, 2021).
- Based on management’s current guidance and our estimates, the revenue for calendar year 2021 would be in the range $11M to $13M.
- With the acquisition of CHTRBOX, the company is in a strong position to capitalized on Social Commerce and the creator economy.
- Strong management team with 80+ years in the media and entertainment industry.
Valuation
Our $1.10 target price is based on an average of QYOU’s EV/revenue multiple and EV/EBITDA multiple. We utilized a comparables valuation with a F2023E EV/Sales multiple of 10.2x and an EV/EBITDA multiple of 30x discounted at 15%.
QYOU Media recently updated revenue guidance to $4.7M from previous guidance of $3.2M for Q1F22 (quarter ending Sept 2021). The record revenue growth occurred in all three segments of QYOU Media’s business, which include The Q India, CHTRBOX/India Influencer Marketing, and US Influencer Marketing. In the previous three sequential quarters, the company’s revenue has growth from $300K to $4.7M. The revenue growth comes on the heels of many announcements over the past six months with the majority coming from television advertising. The company’s flagship Hindi-language television channel “The Q India” currently has a content library of over 800 programs & counting and is available in over 118 million TV households and to over 676 million OTT and mobile users in India.
The Q India has seen its advertising revenue increase over 10 times in the past eight months from $300K to $3.0M. A majority from brands advertising on The Q’s linear channel on cable and satellite television in India (Example: TataSky, which is the Bell ExpressVu or DirectTV equivalent in India). The increased ad revenue comes on the back on strong viewership growth with The Q India now averaging 100 million viewers per week. In addition, strong ratings continue to showcase the strength of The Q India’s 1,300 programs and 300+ content partners, who produce content on a wide variety of topics including, comedy, cuisine, celebrity gossip, and mini serials.
The Q India is in a strong position to capitalize on Social Commerce and the Creator Economy. With the recent acquisition of CHTRBOX, a leading Influencer Marketing company and with strong distribution via apps like Chingari (Indian TikTok) and Jio, The Q India is on track to monetize its viewership through influencer marketing and advertising sales. The Q India is in a strong position to capitalize on the explosive growth of Social Commerce (Creator Economy) in India. Social commerce is the buying and selling of goods or services directly within a social media platform through trusted influencers. According to data firm Global Analytics, Social Commerce is expected to grow at 30% per year and reach US$2.9 trillion by 2026. This is significant growth in six years; as of 2020 the Social Commerce market was estimated at US$560 billion. Notably, most of this growth is expected to come from China and India.
India is the next big investment opportunity for 4 main reasons.
- Market Size: there are 1.4B people of which 340M are between 20 and 30 (650M people 25 or younger); both are key demographics for Social Commerce.
- Mobile phone ubiquity (with over 1B phone users and cheap data rates at 2gb/day for US $5/month)
- FANG and US Media interest (Google, Facebook, Disney, and Viacom have invested billions in the India media space in the last 24 months even during the COVID pandemic, and
4) India’s increasing standard of living (25M+ Indians come out of poverty each year and a mobile phone is often the first purchase).
Additional Highlights over the Past Quarter
Onboarding of over 30 new advertisers on the channel including previously announced brands Unilever, Nestle, P&G, Pepsi and Amazon along with new advertisers Coca Cola and Facebook. The onboarding of 30 new ad partners over the past two fiscal quarters showcases the impressive growth in viewership The Q India has achieved. The growth in viewership is also highlighted by strong ratings for The Q India, which has now recorded an average of over 42GRP for two consecutive quarters (as measured by BARC…the Nielsen TV Ratings of India).
QYOU Media announced a $2M investment at a price of $0.32/share for 7.9M shares with an option for an additional $6M investment from The Times Group. The Times Group is one of the most respected and important media brands in India. It reaches over 700 million Indians every month via 108 national and regional newspapers and magazines, 73 radio stations, 12 television networks, 50+ websites and apps, and 5000+ outdoor sites. The company also added The Q Linear channel to multiple new service partners including Via d2h and launched a new original crime series called “Jurm Ka Cherha” and announced the largest Marathi language channel in the country. Additionally, The Q India announced a few weeks ago that it launched an audition opportunity via Chingari (the TikTok of India) for candidates to be selected for a role in our recently launched original crime series program – an astounding 47,000 people submitted video applications which were viewed over 1 billion times.
QYOU Media Financial Analysis
QYOU Media reports revenues from three business segments: advertisements on The Q India linear channel; Indian influencer marketing; and US influencer marketing.
QYOU Media has seen unicorn level revenue growth over the last three quarters. The company grew its revenues from $300K in Q3F21 (calendar year Q1/21, to $2.6M in Q4F21 (calendar year Q2/21), and $4.7M in Q1F22 (calendar year Q3/21). Currently, the majority of QYOU Media’s revenue is coming from TV advertisements with digital advertising revenues becoming a main growth area for the business. With the management team’s strategy of focusing on the Creator Economy and integrating monetization themes of advertising, influencer marketing and Social Commerce, we believe that QYOU can maintain its current revenue-run rate and grow those revenues well into FY22 and FY23. We are projecting that the company can increase revenues to $50M annually over the next 24 months. We are expecting the company to become EBITDA positive towards the end of FY22.
Content production costs and SG&A costs for QYOU should normalize with a higher revenue run rate. We are expecting an increase for both costs as an absolute dollar standpoint but should decrease as a percentage of total revenue expanding gross margins. Content production costs are incurred primarily for shows and programs offered by QYOU that are part of its linear channel. QYOU also has editors who search the Internet and curate content for its channel, and developers that use a proprietary stack of search tools to look for the best content on the Internet. Included in content production costs line is amortization of content programing assets. QYOU’s content productions are capitalized and amortized on an accelerated basis with 60% in the first year, 30% in the second year, and 10% in the third year. This approach is indicative of the way most subscribers consume content, of which the majority occurs right as the content has been released.
Sales and marketing expenses consist primarily of personal-related costs, including salaries, benefits, and other related expenses. They also include costs for public relations and investor relations, trade shows and other events, professional services, and travel costs. We estimate QYOU will continue to invest in sales and marketing, as it looks to scale its business.
Adjusted EBITDA is a non-IFRS measure that adds back non-cash expenses, such as content amortization and share based compensation. Management believes that this metric is a better measure of cash flow generated through the daily operations of the business.
Management Team
Strong management team with 80+ years of experience in the media and entertainment industry. QYOU Media was founded and created by media industry veterans (G. Scott Paterson and Curt Marvis) with experienced leading executives from Lionsgate, MTV, Disney and Sony. Mr. Paterson has 35 years of capital markets experience and is well connected in the media space, having served on the Board of Directors of Lionsgate Entertainment from its inception for 21 years as well as having co-founding NeuLion/JumpTV, which was sold to Endeavour for $325 million in 2018 amongst other media initiatives. Additionally, The Q India was co-founded by Sunder Aaron, an India based veteran of Sony Pictures India and has former President of Sony Pictures Worldwide Networks, Andy Kaplan, as its Non-Executive Chairman. The Q India has also recently onboarded CHTRBOX executives Pranay Swarup and Julie Kriegshaber.
QYOU Media Valuation
Cheddar Inc – Acquisition Case Study. Cheddar’s VC financing rounds, and purchase by Altice, illustrate the premium media conglomerates are willing to pay for a well-established Millennial brand with strong growth potential. Cheddar Inc. is a Millennial-focused digital news network, dubbed the “CNBC for Millennials.” Cheddar focuses on business news and headlines, and is available through over-the-top devices (online, SmartTVs, tablets, phones, etc), with 19 hours of programming per day. Altice USA is one of the largest broadband communications and video services providers in the United States, delivering content to 4.9M residential and business customers.
Cheddar’s valuation increased by 13-fold from its Series A to its takeover by Altice. Cheddar is the best comparable transaction based on the target demographic, similar distribution channels, and device reach. Cheddar raised ~$55M in funding across four venture financing rounds with an average premium of ~100% for each round. Cheddar was acquired by Altice in August 2019, at a 25% premium over its Series D round. QYOU Media with an even larger distribution reach in India (~1B combined), similar demographics (Millennial/Gen Z Indians 20-30 years old), and existence in an emerging market with M&A growth expected to outpace that of the United States, lead us to believe that QYOU could be a prime acquisition target for a larger player to acquire viewership.
Cheddar was acquired at a 5.7x takeout multiple over LTM revenue. If this acquisition were to happen today, we believe that based on Cheddar’s Millennial influence and growth and based on average 2021EV/Sales multiples, we think Cheddar could easily command a 10x takeout multiple today.
Recent Acquisitions in the Technology, Entertainment, and Media Space.
We selected transactions in the media and entertainment, distribution, and content production space, which we believe to be representative of QYOU Media.
Comparable transactions analysis suggests takeout multiples of 10.2x revenues and 30x EBITDA. Looking at recent acquisitions in the technology, entertainment and media space we see that the median LTM EV/sales takeout multiple is 10.2x. While there is less data on EV/EBITDA multiple, we believe that a multiple of 30x to 40x is attainable.
Our $1.10 target price is based on an average of QYOU’s EV/revenue multiple and EV/EBITDA multiple. We utilized a comparables valuation with a F2023E EV/Sales multiple of 10.2x and an EV/EBITDA multiple of 30x discounted at 15%. We used a 15% discount rate to take into consideration the start-up nature of the company doing business in an emerging-markets environment. For reference, 10-year benchmark Indian investment grade corporate bonds yields are 9.4% and Indian government 10-year treasury bills yield 6.5%.
In our view, the market has not priced in QYOU Media recent increases in revenue guidance and Millennial appeal. Historically, companies focused on youth programming have received premium takeout multiples from large media companies looking for growth. As a result, we believe that QYOU Media has potential for a premium takeout multiple. The Q India now has ratings that are now more than double those of its main competitors (Disney, Viacom, Time Warner) own brands and the company has seen explosive growth in advertising revenue, which we expect to continue based on the company’s numerous influencer marketing partnership and advertising deals with large international recognized brands.
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