DStv-owner MultiChoice hits all-time low

MultiChoice’s share price plummeted to an all-time low amidst increased pressure on its premium DStv products.

Last week, MultiChoice’s share price closed at R70.81, representing a year-to-date decline of 41%.

The slide started in March after MultiChoice’s share price peaked at over R144.00. However, poor results and an uncertain outlook hammered the share price.

By May, it traded under R100 per share. In July, JPMorgan downgraded MultiChoice 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.

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.

The JPMorgan downgrade and big investment in ShowMax with an uncertain outcome did not sit well with investors.

The share price moved towards the R80 per share price target, broke through that resistance level, and continued to slide towards R70 per share.

The decline is unsurprising considering MultiChoice’s poor capital allocation and struggle to find new revenue streams.

The pay-TV service struggles to hold on to high-end DStv subscribers without a clear way to compensate for lost revenue.

Its new strategy includes selling Internet packages, pumping billions into its Showmax streaming service, and acquiring a significant stake in sports betting service KingMakers.

However, none of these new revenue streams are guaranteed to produce big profits. In fact, it can be challenging to make them work.

MultiChoice has already lost a tremendous amount of money after investing nearly R6 billion in KingMakers, formerly known as BetKing.

Between 2020 and 2021, MultiChoice bought a 49% stake in KingMakers in multiple transactions worth $393.5 million – equivalent to around R5.9 billion.

KingMakers did not live up to its promise. It managed to increase its revenue, but the costs associated with this growth were far higher than anticipated.

As revenue increased, the company’s profits have done the opposite. Since the MultiChoice acquisition, KingMakers’ losses have grown to a record high.

In the last financial year, KingMakers recorded a loss after tax of $28 million (around R500 million).

Its expansion plans also did not work as expected, and KingMakers exited operations in Kenya and Ethiopia.

MultiChoice announced in its latest results that an increase in the discount rates in Nigeria prompted a R2 billion write-down in the value of KingMakers.

In its capital markets presentations, MultiChoice punted its streaming service ShowMax as its next focus area.

MultiChoice said Africa is the final frontier for subscription video-on-demand (SVOD) growth and is confident that Showmax can become the leading streaming service on the continent.

MultiChoice expects a step-change in customer numbers by leveraging this partnership with Comcast and launching new products and price offerings.

The company is now pumping lots of money into Showmax and local content to facilitate this growth. It wants to create ten times more local content within ten years.

MultiChoice expects 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 five years, with a trading profit breakeven target in full-year 2027,” MultiChoice said.

However, making money from online streaming is easier said than done. For example, CNN+ was shut down one month after launch because of poor performance.

Large streaming providers like Disney+, Warner Bros. Discovery and HBO Max also struggle to make money.

MultiChoice revealed that Showmax, launched in August 2015, lost R1.2 billion in the last financial year. It would not disclose Showmax’s historical losses.

These numbers show that MultiChoice will find it challenging to achieve the planned 25% EBITDA target and free cash flow margins of around 20% with ShowMax.

MultiChoice’s share price hovering at R70 is, therefore, not surprising considering its struggle to show sustained growth.