An article in the Wall Street Journal on Friday reported that both Fox and Comcast were pursuing acquisitions in the advertising supported video on demand (AVOD) space to supplement their online offerings which have focused on subscription supported video on demand (SVOD.) It stated that Fox was interested in buying Tubi for over $500 million, while Comcast was pursuing both Wal-Mart-owned Vudu, and Panasonic and Time Inc.’s Xumo. While certainly both these players could develop their own ad-supported channels, it appears that time to market may result in a great premium in an acquisition. This has caused investors to wake up and begins to validate how much Chicken Soup for the Soul Entertainment (NASDAQ:CSSE) is actually worth not only because we believe its revenues are higher than Tubi, but because of the limited pool of acquisition targets with any meaningful traction and size. If indeed Fox is considering $500 million, and Tubi’s revenues are under a $64 million run rate, that would be over 7.8 times sales. CSSE is now trading at an enterprise value of $120 million. Keep in mind that Sony still owns 49% of Crackle+.
As seen in the market share chart below, many of the largest OTT AVOD services are already spoken for, leaving CSSE one of the few available for purchase, unless one were to buy Roku (valued at $14 billion.) Pluto is owned by ViacomCBS; Twitch is a subsidiary of Amazon; and Crunchyroll is a subsidiary of Otter Media, which is a subsidiary of AT&T’s WarnerMedia, and streams primarily Asian shows. The non-profit PBS, who is funded by member stations, donations and the US government, owns PBSKids. Olympic Channel is owned by the Olympic Committee. Sony owns Funimation (anime.). Docurama and CONtv are owned by Cinedigm (CIDM) and are very small.
We expect investors will start to realize Crackle’s position in the market and the stock could respond. We believe this article has caused lot of interest its the story both from investors, bankers and potential acquirers.
Chart 1. Market Share of AVOD OTT Services
Source: Chicken Soup for the Soul Entertainment
In the 2020 May 15th to November 15th time period, Sony has to make a decision whether to keep 49% of the equity in Crackle Plus or take $40 million in preferred stock from CSSE. Our assumption in forecasting is that Sony will make that decision on May 15th and will keep the equity, at which point earnings at CSSE will be reduced by minority interest. It is difficult to forecast what that portion of earnings for the Crackle Plus business will be so we have guessitmated by taking out half of 30% of earnings for the year.
We are maintaining $105 million revenues for 2020 for now with upward revision possible. This assumes that the online business only grows 20% for the year, which we imagine to be conservative. The GAAP loss is calculated at $0.62 per share, however the adjusted EBITDA estimate of $30 million remains the same.
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