DIS announced the $500 million acquisition ($950 million including performance-linked earnout) of YouTube channel Maker Studios. This deal has interesting implications for DWA, including the validation of the market opportunity and DWA's investment in this area, and a sum-of-parts valuation for Awesomeness TV. We maintain our Buy rating, estimates and $39 Fair Value.
Maker vs. Awesomeness – Maker Studios has 380 million subscribers and 5.5 billion views per month on YouTube. This compares to 14 million subscribers and 800 million views for Awesomeness TV, when DWA acquired it in May 2013 for $150 million (including earnout). Awesomeness has since grown significantly to 37 million subscribers and 3.2 billion monthly views. We note that the number of views per subscriber is meaningfully higher for Awesomeness than for Maker (86.5 vs 14.5), which points to a more active and more valuable subscriber base.
Sum-of-Parts Valuation – Maker Studios' valuation of $950 million, is equivalent to $2.50 per subscriber and $0.173 per monthly view. On recent viewing metrics disclosed by DWA, this would imply a valuation of up to $550 million for Awesomeness TV. To put this into perspective, this is approximately 25% of DWA's market cap.
Validates Market Opportunity – The entry into this space by DIS validates the market opportunity that DWA recognized last year. Top-performing YouTube channels with growing viewership and subscribers provide exposure to the intersection of mobile and online video. In addition, these acquisitions provide their new parent companies with expertise in short-form digital video and valuable insights into media consumption behavior of younger viewers.
DWA Diversification – Awesomeness TV is one example of how DWA has diversified from the production and exploitation of theatrical content, a key part of our investment thesis. Awesomeness TV's advertising-based online business complements the original theatrical business, the geographical diversification of Oriental DreamWorks, and the rapidly growing TV and licensing businesses.
Tony Wible joined Janney Montgomery Scott in 2008 and is a Managing Director covering the Media and Entertainment sector after spending the previous 10 years at Citigroup InvestmentResearch—most recently covering the Broadcasting and Entertainment Services industries.
Tony can be reached at firstname.lastname@example.org.
Janney Montgomery Scott LLC, is a U.S. broker-dealer registered with the U.S. Securities and Exchange Commission and a member of the New York Stock Exchange, the Financial Industry Regulatory Authority and the Securities Investor Protection Corp. Disclosures may be reviewed at Wible's Weekly.
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