Why You Should Go Long On Corus Entertainment
Summary
- The 2016 purchase of Shaw Media for $2.65 billion is a running curse for Corus. This Canadian company’s stock has a 5-year price return of -83.18%.
- The Shaw Media acquisition did not lead to notable growth gains. Corus Entertainment’s 3-year revenue CAGR is just 2.03%. This is lower than its 5-year revenue CAGR of 15.03%.
- Corus has cheap valuation ratios compared to its broadcasting peers.
- Better for Corus to create its own kids-focused, educational paid streaming service.
- Nelvana, Qubo, and Toon Boom Software gave Corus a foothold in the $269 billion animation, VFX, and video games industry.
I use Seeking Alpha Premium Screener to find good value stocks like Corus Entertainment (OTCPK:CJREF). This Canadian company’s stock is very affordable because of its 5-year price return of -83.18%. The $2.65 billion purchase of Shaw Media did not lead to substantial improvement in Corus Entertainment’s fortune. CJREF’s 3-year revenue CAGR is a measly $2.03%. The radio and TV assets can no longer sustain Corus Entertainment’s future prosperity.
(Source: Seeking Alpha Premium)
Yes, the pessimism over Corus Entertainment is also due to its large total debt of $1.35 billion. It was smart of the management to cancel share buybacks. There’s an ongoing pandemic. Management should forget about increasing its dividend payments this year. Bargain income-investment hunters will still buy CJREF for its 7.46% TTM dividend yield.
I’m endorsing CJREF as a buy. Corus has a future in digital streaming and video games. This stock is very cheap compared to its peers in the broadcasting industry. The stock of Corus Entertainment currently trades at only 0.41 TTM Price/Sales, 1.53 EV/Sales, and 0.41 Price/Book. These valuation ratios are notably lower compared to corresponding valuation multiples of Saga Communications (SGA) or Disney (DIS).
(Source: Seeking Alpha Premium)
We should go long on Corus Entertainment because it could become a global company, like a mini Netflix (NFLX). Corus Entertainment owns the globaltv.com mobile app. It is only available to North American Corus Entertainment's paid subscribers. However, the worsening cord-cutting trend in North America will eventually compel Corus to widen its audience reach. Streaming apps are cheaper to build and operate than TV stations. Streaming is the future of broadcasting. Going all-in on streaming can help Corus break free from its Shaw Media-initiated downward spiral curse.
(Source: Corus Entertainment)
CJREF got put down by investors because they think Global TV app is just an add-on feature to make Corus TV subscribers happy. Management should make it clear that the new Global TV app is a prelude to Corus Entertainment’s gradual transformation to a streaming media company.
Corus Is Already Dancing To The Streaming Tune
The Global TV app needs more improvement and lesser advertisements. Going forward, it can become Corus Entertainment’s ticket to joining the fast-growing global video streaming industry. Canada, Corus Entertainment’s home market, has a tiny population, and cord-cutting there is growing. Paid and/or ad-supported digital streaming is Corus Entertainment’s last hope for a comeback.
(Source: Statista)
Corus will eventually realize that its streaming deal with Netflix is just the tip of the goldmine. It can be more rewarding in the long run if Corus operates its own subscription or ad-supported streaming platform. Corus has more years of experience producing original TV shows than Netflix. Rather than sustaining its cable TV business, Corus can just focus on doing original content for its digital streaming audience. Yes, producing original content requires huge capital outlays. However, original content allows entertainment firms to grow a loyal pool of paying subscribers. Going forward, licensing TV/movie content from Hollywood companies is not a margins-friendly long-term strategy. Better to go all-in on original content for streaming.
Instead of forever relying on partners like Netflix to monetize its original TV shows/movies, Corus needs to be more ambitious like Disney. Disney+ came about because the Mickey Mouse empire did not want to let Netflix prosper via Disney-owned IP. Corus management could name the dedicated subscription-only streaming service Corus Fun.
Corus' management knows that licensing fees from letting Netflix stream its TV shows is just pocket change. Investors will appreciate it more if Corus Entertainment can build a streaming app that can compel mobile device owners to pay $5.99 or $6.99 per month.
Rather than focus on satellite or HD radio, Corus can keep improving its award-winning Curiouscast podcasts platform. The local radio stations of Corus ought to also be available via streaming (ad-supported or via paid subscriptions).
Corus Can Be An Online Content King
The animation-centric subsidiaries of Corus can help it become a major cartoon media streaming platform. Nelvana and Qubo can be expanded to become a paid streaming cartoon and educational streaming service focused on children. Monetizing the old and current cartoon shows of Corus can be improved by making Nelvana and Qubo a kids-only version of Netflix.
Corus can outsource animators and storytellers from the Philippines and India. This can help it create cost-efficient entertaining and educational cartoon shows. Learn-from-home or online education is now the new normal in many COVID 19-affected countries. Enabling Qubo as a paid streaming service for online education is also a viable option for Corus Entertainment. Corus Entertainment also owns the most-used 2D animation software products, Toon Boom Harmony and Toon Boom StoryBoard Pro. CJREF is a buy because Corus Entertainment is a SaaS (Software-as-a-Service) company that lets amateur and professional animators rent Toon Boom Software for as low as $15/month. Going forward, Toon Boom Software can disrupt the future revenue streams of Adobe’s (ADBE) $20.99/month Animate CC product.
(Source: Toon Boom Software)
Toon Boom Harmony is compatible with the very popular game engine Unity since 2015. The shift to software subscription model should attract more Animate CC users to Toon Boom Harmony for game development purposes. It is now convenient to export Toon Boom Harmony animations to the Unity game engine. Making Toon Boom Harmony compatible with other popular 2D-focused game engines like Defold, Godot, Corona, and Game Maker Studio can attract more subscribers.
The video games industry is a pandemic-boosted industry. Marketing Toon Boom Harmony and StoryBoard Pro to small and large video game developers can be a growth driver for Corus Entertainment. Supplying Toon Boom Harmony to game developers can be lucrative because of the massive size of the $159.3 billion/year video games industry.
(Source: Newzoo)
Those kids-focused YouTube creators who spam cartoon and educational videos will definitely love the $15/month Toon Boom Harmony plan. YouTube is the best example where ad-supported cartoon videos can be lucrative.
Marketing Toon Boom Harmony as a YouTube creators-friendly software is a must for Corus Entertainment. The massive $15.1 billion annual advertising revenue of YouTube is why millions of people are now vlogging on that social video platform.
Conclusion
Corus Entertainment is a buy because Nelvana, Qubo, and Toon Boom Software gave it a solid foothold on the $269 billion/year global animation, visual FX, and video games industry. Going forward, Corus Entertainment can prosper faster once it prioritizes animated and educational content for streaming. Operating its own subscription-only streaming platform for children is the easiest path for Corus to slowly imitate the success of Netflix and Disney+.
CJREF is a buy because its subsidiaries Nelvana and Qubo likely used Toon Boom Software to create their own video games. Nelvana and Qubo are game developers themselves. Nelvana and Qubo only need to master the art of freemium video games marketing. Corus Entertainment might become a relevant player in the fast-growing $151.06 billion video games industry.
(Source: Nelvana)
Corus Entertainment is a promising, well-diversified entertainment company that caters to TV/video watchers, radio listeners, content creators, and video games developers/players. Buying CJREF while it trades below 0.5x Price/Book and Price/Sales valuation ratios is timely and judicious.
This article was written by
Analyst’s Disclosure: I am/we are long CJREF, DIS, ADBE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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Comments (21)
There are a lot of possibilities here with this one. I think a cut in dividend put into share buyback would make more long term sense here. Unfortunately, the sole focus of management has been, and remains, to pay down the debt.I'm guessing you're hoping that the Corus would get a SP boost like GNUS recently enjoyed by shifting to a streaming service avenue? I don't know about streaming services, the competition is fierce and I don't think it's realistic to expect households to sign up for 3 or more of these various services. I think collaboration and consolidation in these platforms, to make them stronger and more attractive, is imperative. If I were an executive at any of the Canadian media company, I would look into a multiple party JV and collaborative platform building... You need children's content? Get WILD to partner in (they desperately need to diversify away from youtube anyways)... Heck, get BCE and QBR to also partner up and make a Canadian streaming powerhouse. Personally, I would even try to get a few American players on board. T (A&T) as been trying to get a good deal for their content. Try to actually adapt and innovate resulting in a better experience for the Canadian consumers. But the executive at all of those companies rather cry and whine at the CRTC and to the Governements about the negative impact of streaming competition like Netflix. I get that they don't want to accelerate their own cord cutting demise and cannibalize on themselves. But the strategy to slow the outside threat is only going to temporarily help. I guess they haven't learned to proactively adapt from the passed demise in their newspapers assets.
Then I see Heather Ann Shaw buy 862,300 shares in April. What’s up??