Dissecting MultiChoice’s numbers

MultiChoice’s latest financial and operational data raises serious concerns regarding the company’s strategy and prospects.

On Tuesday, MultiChoice released its consolidated interim financial statements for the period ending 30 September 2024.

Revenue for the six months declined by 11% to R24.8 billion, operating profit declined by 49% to R2.5 billion, and its loss increased by 102% to R1.8 billion.

The balance sheet also worsened. The company’s negative equity increased by 155% to R2.7 billion, driving it deeper into technical insolvency.

MultiChoice CEO Calvo Mawela said they are progressing well to address the technical insolvency, which should be a thing of the past later this month.

He refers to selling a 60% interest in NMS Insurance Services to Sanlam. The company offers insurance products to MultiChoice’s DStv customers.

It is a R2.7 billion deal, where Sanlam will pay R1.2 billion cash up front, with a potential performance-based cash earn-out of up to R1.5 billion.

This will be enough to wipe out the negative equity. However, it is not only MultiChoice’s balance sheet which is of concern.

MultiChoice is losing subscribers rapidly, and its strategy of Showmax becoming its growth engine is unproven.

Showmax reported 50% year-on-year growth in paying customers. However, revenue declined from R704 million to R469 million due to a much lower average revenue per user (ARPU).

Showmax’s loss increased from R799 million to R2.4 billion, putting a tremendous strain on MultiChoice’s income statement.

The operator continues to punt Showmax as its future and has invested R1.6 billion in Showmax over the last six months.

“Showmax strategically positions the business to actively participate in the streaming revolution as it gains momentum across Africa,” MultiChoice said.

It raises the question of where MultiChoice stands regarding its Showmax targets, which include aggressive subscriber and revenue growth.

Multichoice’s CFO, Tim Jacobs, set two targets: one for the new Showmax platform and the other for the group as a whole.

The first was to generate $1 billion (R18.5 billion at the time) in revenue from the Shomax platform by 2028.

The second was to achieve a total subscriber base of 50 million users by 2028. It includes DStv and Showmax subscribers.

The newly released interim results bring the group one step closer to its target date but one step backwards in achieving it.

Showmax reported a significant deterioration in its external revenue, which dropped by 40% from the previous period, from R555 million to R334 million.

Over the past 12 reporting months, Showmax generated revenue of R779 million which is a long way from its R18.5 billion target.

If Showmax is to achieve its 2028 target, it would need to grow its revenue by 121% each year, for the next 4 years. This is incredibly ambitious.

MultiChoice’s second target, reaching a total subscriber base of 50 million users across the group by 2028, also took a step backwards over the last six months.

MultiChoice’s subscribers declined by 11%, from 16.7 million to 14.9 million, moving in the opposite direction of its target.

Therefore, to reach the 2028 target of 50 million subscribers, Multichoice will need to grow its entire subscriber base by 35% per year for the next four years.

These numbers show that MultiChoice has failed to show that it can achieve its lofty goals and build a profitable company outside of DStv.