MultiChoice’s share price plummeted on Tuesday following a JPMorgan downgrade from neutral to underweight with a price target of R80 per share.
An analyst note revealed that Nigerian naira weakness negatively affected JPMorgan’s revenue outlook for the broadcaster.
Other challenges highlighted include the significant investment in Showmax and the harmful effects of load-shedding on MultiChoice’s South African operations.
MultiChoice told analysts that Showmax lost R1.2 billion in the last financial year, with further losses expected in the coming years.
It will relaunch a new version of Showmax powered by NBCUniversal’s Peacock technology platform to take on Netflix and Disney+ in Africa.
Multichoice CFO Tim Jacobs said investment in the streaming platform is expected to peak in the 2024 financial year at between R3 billion and R4 billion.
MultiChoice’s CEO for connected video, Yolisa Phahle, said they expect ShowMax to have the same 3 to 5-year J-curve as its global peers in the streaming industry.
“We are aiming to generate revenue of more than $1 billion after 5 years, with a trading profit breakeven target in full-year 2027,” she said.
MultiChoice’s latest results further revealed that South Africans continue to dump DStv Premium and Compact Plus packages in preference for more affordable services.
The company admitted that its South African consumer-facing business environment faced severe challenges during the last financial year.
Higher interest rates, elevated inflation, high levels of unemployment, and load-shedding put pressure on people’s finances.
These factors negatively impacted the South African pay-TV subscriber base and activity levels, with a noticeable increase in churn when load-shedding reaches stage 4 and above.
MultiChoice warned investors that sustained high levels of load-shedding significantly impacted the activity levels of the DStv customer base.
Based on these challenges, JPMorgan adjusted its revenue outlook for MultiChoice and said it expects trading losses in 2024 and 2025.
It adjusted its MultiChoice price target by 38% to R80 per share.
The MultiChoice share price plummeted 12% on the downgrade and is now trading at its lowest level since the 2020 pandemic.