Endeavor Group Holdings is My Growth Stock of the Week
Endeavor Group Holdings (EDR) is a global sports and entertainment company. It is comprised of industry leaders, including entertainment agency WME; sports, fashion, events, and media company IMG; and premier...
Endeavor Group Holdings (EDR) is a global sports and entertainment company. It is comprised of industry leaders, including entertainment agency WME; sports, fashion, events, and media company IMG; and premier mixed martial arts organization UFC. In today's article, I will discuss why EDR has such a promising growth outlook, the particular upside for its core asset, the UFC, and developments in the broad economy that bode well for EDR.
Endeavor Group Holdings (EDR) is a global sports and entertainment company. It is comprised of industry leaders, including entertainment agency WME; sports, fashion, events, and media company IMG; and premier mixed martial arts organization UFC. The company specializes in talent representation, sports operations & advisory, event & experiences management, media production & distribution, experiential marketing, and brand licensing.
EDR made its public debut in April of last year and is up about 10% from its opening price. However, the company has been a beneficiary of the recovery in live events as well as growth in its core assets. This is evident in its recent earnings report which showed revenues more than 50% higher compared to the same quarter last year.
In today's article, I will discuss why EDR has such a promising growth outlook, the particular upside for its core asset, the UFC, and developments in the broad economy that bode well for EDR.
EDR has many ingredients of a growth superstar and a long-term outperformer. This includes strong franchises, exposure to powerful, secular trends, and reasonable valuations.
This is quite evident in its recent earnings report which showed that the company generated $5.1 billion in revenue in 2021, and it's forecasting between $5.2 billion and $5.5 billion in 2022. Next year, the company is forecast to earn $1.51 per share, implying a forward P/E of 19.7 which is in-line with the S&P 500.
This is quite reasonable considering that EDR owns several unique and high-quality assets with obvious synergies and long-term upside that are positively exposed to secular trends in the economy like the rising value of high-quality content, rights to streaming sports, and the pent-up demand for live events.
Maybe the most intriguing aspect of EDR is its ownership of the UFC. In 2020, EDR acquired the remaining portion of UFC that it didn't own for an estimated value of $3.5 billion. Currently, the UFC has an estimated value between $8 and $9 billion as UFC's streaming rights are coming up in 2023.
Its previous deal was signed with ESPN in 2018 for 5 years and $150 million per year, and it's quickly become an important part of its ESPN+ package. The value of sports content continues to increase as it's a subscriber magnet for streamers and for networks, it's one way to ensure that live viewing doesn't totally plummet.
Beyond this, it's also possible to see UFC's value continuing to grow. Based on trends, demographics, and interests of young people, it's possible that MLB and the NHL are displaced as the 3rd and 4th most popular sports by MLS and the UFC. It also has a global appeal like the NBA or the Premier League.
Thus, I believe that the value of the UFC will continue to compound at a double-digit rate and continue to grow in popularity faster than other major sports. Individual sports teams are realizing values in the billion-dollar range with the Denver Broncos estimated to sell for around $4 billion later this year. Thus, the UFC's total value of $8-$9 billion seems reasonable in this context especially when the league has better economics as it takes 80% of revenues vs 50% for owners in sports leagues.
Betting on Content
EDR's ownership of UFC exposes it to the rising value of sports content. EDR is also exposed to other types of content as it manages some of the highest-profile talent in the sports, media, and entertainment worlds
If we look at the current online streaming landscape, it's clear that there are too many companies competing for a finite amount of attention. This circumstance is leading to competition and bidding wars for high-profile actors and creators which benefits EDR. This will certainly benefit EDR which is an important intermediary in the supply chain of content creation with its representation of music artists, movie actors and actresses, athletes, and models. Now, the company is branching out into new areas like YouTube creators, esports players, streamers, TikTok influencers, etc.
In 2020, EDR's revenue dropped and net loss widened compared to the previous year. Of course, the pandemic was the major factor.
As the economy reopens and life slowly returns to normal, EDR is likely to benefit from the same pent-up demand that is rippling across the economy. If we look at history, there tends to be a creative boom in the years following a pandemic.
Many summer concerts are already selling out which also bodes well for EDR's roster of assets which include many that have been negatively affected by the lack of fans.
These positives are reflected in EDR's POWR Ratings which rate the stock a B which equates to a Buy. B-rated stocks have B-rated stocks have posted an average annual performance of 20.1% which compares favorably to the S&P 500's annual performance of 8.0%.
The POWR Ratings also evaluates stocks by different components to give additional insight on each stock. EDR has an A for Growth due to the positive trends detailed above and a B for Sentiment as 6 out of 9 analysts covering the stock have a Buy rating. Click here to see more of EDR's POWR Ratings.
EDR shares were trading at $30.24 per share on Tuesday morning, up $0.75 (+2.54%). Year-to-date, EDR has declined -13.33%, versus a -3.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini's background, along with links to his most recent articles.
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