Thunderbird Entertainment: Strong Revenue Performance, But Risk Remains (OTCMKTS:THBRF)

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Summary

While revenue growth for Thunderbird Entertainment Group has been impressive, growth prospects going forward are uncertain.
The company has shown a strong cash position, but we need to see evidence of further growth to justify further upside.
Thunderbird Entertainment Group could have upside from here, but it is not without risk.

Media concept multiple television screens — Vertigo3d/E+ via Getty Images

Investment Thesis: While revenue growth for Thunderbird Entertainment Group has been impressive, growth prospects going forward are uncertain.

As a Canadian multi-platform entertainment company, Thunderbird Entertainment Group (OTCQX:THBRF) is a stock that has seen strong upside over the past two years.

The company went public in 2018, and since then has seen particularly strong growth in 2020 and 2021, in significant part due to COVID-19 lockdowns bolstering demand for entertainment platforms.

Since then, we have seen the stock consolidate from a high of above $5 to a price of $2.727 at the time of writing.

The purpose of this article is to determine whether the stock could see renewed upside from here after the recent consolidation.

Performance

When looking at Thunderbird Entertainment Group's recent performance, we can see that the company's cash position has improved considerably over a six month period - with cash and cash equivalents doubling over the period. Thunderbird Entertainment Group saw a significant increase in cash to current liabilities, and a strong increase in cash to long-term lease obligations.

(in thousands of Canadian dollars, except ratios)	Jun 2021	Dec 2021
Cash and cash equivalents	22420	40360
Current Liabilities	96214	132609
Long-term lease obligations	20303	19767
Cash to current liabilities ratio	23.30%	30.44%
Cash to long-term lease obligations ratio	110.43%	204.18%

Source: Figures sourced from Thunderbird Entertainment Group: Unaudited Interim Condensed Consolidated Financial Statements For the Three and Six Months Ended December 31, 2021 and 2020. Ratios calculated by author.

From these figures, it appears as though the company is in a good position to fund its short and long-term debt obligations. Should we see a further rise in these ratios in the upcoming quarter - then I envision bullish interest in the stock rebounding significantly.

When looking at revenue and earnings performance, we can see that while net income growth itself was relatively modest at just over 8% over a six-month period as a result of higher expenses, that of revenue growth was significant at just over 42%.

Thunderbird Entertainment Group Inc: Unaudited Interim Condensed Consolidated Financial Statements For the Three and Six Months Ended December 31, 2021 and 2020

In this regard, revenue growth itself does not show signs of slowing and I take the view that continued progress in this regard could result in upside for the stock in spite of higher operating expenses.

When looking at earnings on an EBITDA basis, we can see that while earnings growth has been leveling off, the EV/EBITDA ratio is trailing lower than levels seen in 2021. This could indicate that the stock has room for upside in the event that earnings growth see acceleration once again.

Should we see a situation where revenue growth starts to outpace that of operating costs, then this marks a plausible scenario in which earnings could start to rise.

Looking Forward

However, when looking forward, one must be mindful of the extent to which revenues can continue rising at the pace we have seen - particularly as broader demand for streaming has shown signs of slowing as the emergency phase of COVID is increasingly in the rear-view mirror and demand for home-based entertainment has started to drop.

Earlier this year, we saw Netflix (NFLX) decline by over 35% from its late 2021 highs, which marked the biggest decline for the stock since 2004.

The reason this could prove to be an issue for Thunderbird Entertainment Group is that a significant number of the company's titles such as Highway Thru Hell and Heavy Rescue: 401 rely on Netflix for global streaming - even though these productions air locally in Canada through Discovery Canada. The recent decline could be indicative of a broader drop in appetite for streaming services and production content more generally.

In this regard, there is risk for Thunderbird Entertainment Group if we see a situation where revenues come in significantly lower than expected in the next quarter - and downside could still remain in spite of recent performance.

Conclusion

To conclude, Thunderbird Entertainment Group has seen strong performance as demand for streaming and content more generally rose during COVID. However, there could be significant consolidation ahead if demand drops across the broader industry. From this standpoint, Thunderbird Entertainment Group might have upside ahead if revenue continues to grow strongly - but the path ahead for the industry is uncertain and investors may wish to see further revenue growth potential before we see upside going forward.

Additional disclosure: This article is written on an "as is" basis and without warranty. The content represents my opinion only and in no way constitutes professional investment advice. It is the responsibility of the reader to conduct their due diligence and seek investment advice from a licensed professional before making any investment decisions. The author disclaims all liability for any actions taken based on the information contained in this article.

This article was written by

Discount Fountain

4.43K Followers

I am an independent investor with an interest in analyzing stocks across the consumer, finance, telecommunication, and travel sectors. As a data scientist, I also have a great interest in using data tools to better understand a company's financial position.Some examples include:- Analysing total room revenue across brands for Hyatt Hotels using data visualisation: https://seekingalpha.com/article/4632039-hyatt-hotels-stock-hyatt-regency-and-china-revpar-growth-impressive- Building a Monte Carlo simulation in Python to analyze loss ratios for Zurich Insurance Group (ZURVY): https://seekingalpha.com/article/4605533-zurich-insurance-group-premium-growth-low-loss-ratio-encouraging- Calculating seasonality of customer lifetime value (LTV) for AT&T: https://seekingalpha.com/article/4634204-att-stock-growth-customer-lifetime-value-necessary-upsideDisclaimer: All of the author's articles are written on an "as is" basis and without warranty, with no guarantee of accuracy or completeness. They represent the author's opinion only and in no way constitute professional investment advice. It is the responsibility of the reader to conduct their due diligence and seek investment advice from a licensed professional before making any investment decisions. The author disclaims all liability for any actions taken based on the information contained in any articles published.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. 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.

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