Hollywood Media (ticker: HOLL) owns about 26% of MovieTickets.com. What's it worth? Here's an extract from the note sent by Ferris, Baker Watts analyst Murray Arenson to clients:
Hollywood Media stock has been weak since the release of the company’s 10-K filing. We suspect that much of the weakness is related to disclosures regarding MovieTickets.com, in which Hollywood Media has a 26% ownership interest. According to the filing, in 2004 MovieTickets generated approximately $11.5 million in revenue and $0.5 million in net income. Although those figures may not be very impressive, they do not paint a complete picture.
MovieTickets also had approximately $2.5 million in expenses during 2004 from depreciation and amortization, along with integration costs from the assumption of MovieFone’s operations. As such, MovieTickets’ EBITDA total for 2004 was approximately $3 million. Furthermore, the 2004 results include only a small portion of the year’s results from MovieFone.
With MovieFone incorporated, MovieTickets is pacing well ahead of last year’s business. In February, MovieTickets recorded 5.8 million unique visitors to its site, versus approximately 3.0 million in February 2004. Thus far this year, MovieTickets’ business is pacing at approximately $5.5 million in EBITDA. At that pace, we estimate that MovieTickets would generate approximately $18 million in revenue. We also note that only about 2%–3% of movie tickets are currently bought online. We believe that MovieTickets should be able to achieve 50% growth or greater in 2006, with significant leverage in the financial model.
In the event that MovieTickets and Fandango were to merge their operations, we would expect the combined growth rate to be higher, due to the creation of a one-stop-shop for cinema tickets to virtually all U.S. theaters. We would also expect the combined operation to generate even higher margins after synergies.
Recent Internet deals have been executed at high multiples of revenue and EBITDA. The New York Times Company is acquiring About.com for $410 million, which is about 10x revenue and 30x cash flow. Interactive Corp is buying Ask Jeeves for $1.85 billion, which is about 7x revenue and 33x EBITDA. Dow Jones is buying MarketWatch for $520 million, which is about 6x revenue and 60x EBITDA.
We believe it is prudent to discount those multiples when applying them to MovieTickets’ operations. That said, we think it is very reasonable to forecast a value for MovieTickets of $200–$300 million within the next 12–24 months. Hollywood Media’s ownership interest would then be worth roughly $50–$75 million. These figures are in line with our most recent valuation model, which applied a value of $69 million to Hollywood’s interest in MovieTickets.
All told, we believe that MovieTickets.com is generating impressive growth, with strong and growing EBITDA margins. We also believe that the company is in a strong competitive position —and would be dominant if combined with Fandango. In our opinion, any weakness in the stock due to concerns regarding the operations of MovieTickets.com is ill founded.
Details about MovieTickets.com were revealed for the first time in HOLL's recent 10-K. Relevant extracts here.
Full disclosure: at the time of writing I'm long HOLL.