The Entertainment Vue has had a stellar year, generating a total return of +32.21% in the last twelve months (1 Jul 2017 to 30 Jun 2018).
The key drivers contributing to performance were Netflix (+171.64%), Discovery Inc. Class A (+29.55%) and Twenty-First Century Fox Inc Class A (+28.66%).
Underperformers include Comcast (-11.31%) and AMC Entertainment Holdings Inc. (-24.02%).
Entertainment investment portfolio - Vue company updates
Netflix Inc (NASDAQ:NFLX)
Netflix, Inc. operates as an Internet subscription service company, which provides subscription service streaming movies and TV episodes over the Internet and sending DVDs by mail. Netflix is the world’s largest internet television and movie network.
Netflix is one of the key beneficiaries of the global trend of “cord cutting” – consumers freeing themselves from expensive and predictable cable TV entertainment. Netflix is on track toward significantly disrupting the linear TV market through strong subscriber growth, content differentiation, and a better consumer proposition. The company is benefiting from key secular trends, including the proliferation of Internet-connected devices and increasing consumer preference for on-demand video consumption over the Internet rather than linear TV.
As of end of 1Q FY 2018, Netflix has more than 125 million subscribers globally, driven by the growing popularity of its original TV shows and movies and depth and breadth of its licensed content. Revenue grew +40%+ during 1Q relative to the same period the prior year, reaching US$3.6 billion. While most of the revenue growth was due to increase in subscriber numbers, Netflix was also able to achieve a +14% increase in average selling price. NFLX grew subscriber base by 7.4 million (net), with 5.46 million coming from international (ex-US). Company management recognizes the importance of original content in attracting new customers and customer retention and will be spending US$7.5 to US$8 billion in content in FY 2018 to develop original content. Most of the spending is slated for 2H 2018.
Discovery Inc., Class A (NASDAQ:DISCA)
Discovery Communications, Inc. is a global media company that provides content across multiple distribution platforms, including digital distribution arrangements, throughout the world. Discovery has a massive footprint with access to more than three billion cumulative viewers through pay TV and free-to-air channels in more than 200 countries. It has differentiated content and assets – primarily fact driven programming which is delivered via Animal Planet, Discovery channel, Investigation Discovery, Science, and TLC among others.
Among recent noteworthy developments was a strategic alliance announced by Discovery in June with PGA Tour to create a multi-platform home for golf. The partnership is slated to begin in 2019 and continue for 12 years till 2030. The deal will include live rights outside the US for 150 tournaments that operate under the PGA Tour's jurisdiction, including the Players Championship, FedEx Cup Playoffs and the Presidents Cup. The service will provide a streaming service direct to consumers along the lines of Netflix. Discovery estimates it will spend US$2 billion over the life of the deal, which will also secure international media rights.
AMC Entertainment Holdings Inc. (NYSE: AMC)
AMC (American Multi-Cinema) Theatres, or simply AMC is a chain of movie theatres operated by AMC Entertainment Inc., which in turn is owned by AMC Entertainment Holdings, Inc. The Dalian Wanda group of China owns a majority stake in AMC Holdings.
AMC reported a return to profitability to report a net profit of $0.14 per share, beating consensus estimates of $0.07 per share for 1Q FY 2018. The 1Q was one of the strongest quarters for the movie industry in general with the release of blockbusters like Black Panther and Avengers: Infinity War. 2Q looks promising as well with a strong line up of movies from incredibly successful franchises, including: Star Wars, Jurassic World, Deadpool, The Incredibles, Mission: Impossible, and an all-female caper in Ocean's 8.
Among new initiatives, AMC launched a new extension to its loyalty program. As a result of its ongoing capital expenditure initiatives, AMC now has some 400 premium large format (PLF) screens globally. While total revenue reported for the quarter at US$1.38 billion was the highest ever for a 1Q, on a constant currency basis the picture was not as rosy. On a constant currency basis, admissions revenue declined by -1%, but on the brighter side it did better than the broad industry.
In terms of new initiatives, AMC launched an extension of its loyalty program in June called AMC Stubs A-List. The plan offers a US$20 per month subscription which enables the members to watch three movies a week (including IMAX and 3D) with the ability to reserve seats in advance and watch the same movie multiple times. This initiative is primarily designed to fend off competition from MoviePass, a similar concept which offers subscriptions for US$10 per month and enables subscribers to watch one movie a day. Currently AMC has some 15 million members and management is confident of being able to leverage the new plan to further grow member base.
Learn more about Macrovue’s Entertainment investment portfolio.
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