Top-line Growth to Be Driven by Increases in Price and Quantity
The author is an analyst of KB Securities. He can be reached at yonghyun.choi@kbfg.com. -- Ed.
4Q22 review: OP misses market consensus
— Studio Dragon posted 4Q22 revenue of KRW190.5bn (+28.8% YoY) and OP of KRW1.2bn (-81.4% YoY; 0.6% OPM), missing the market consensus.
— The no. of aired episodes was unchanged YoY at 101, but a price increase per episode boosted revenue by 28.8% YoY, confirming rising production costs are sustaining top-line growth.
— Distribution revenue reached KRW132.8bn (+66.4% YoY) thanks to the airing of four original shows and four multi-platform shows. Overseas sales hit KRW116.7bn (+148.5% YoY) with expanded global OTT client bases at Netflix, Amazon Prime Video and Apple TV.
— Programing revenue fell to KRW54.0bn (-9.1% QoQ), as no. of aired TV episodes stopped at 76 (-23 QoQ).
— OP fell short of the market consensus because of PPA write-offs associated with the Gill Pictures acquisition as well as larger-than-expected depreciation related to the Alchemy of Souls license.
Looking forward to a great year
— We expect top-line growth this year to be driven by increases in both price and quantity, especially the latter.
— Price: We see a price increase with the airing of nine shows. 4Q22 construction-in-progress rose to KRW221.5bn (+7.6% QoQ), confirming preparation of blockbuster works (e.g., Ask the Stars, Arthdal Chronicles season two).
— Quantity: The no. of aired shows should reach 35 (19 TV shows; 16 OTT shows; +2 YoY). The no. of aired OTT content should increase by 1 YoY.
— In terms of profitability, the recoup rate should rise with the airing of 10 OTT multi-platform content (high margins) and an increase in OTT clients. The no. of OTTs broadcasting Studio Dragon’s multi-platform content should expand (Netflix/Disney→Netflix/Disney/Amazon).
— We see Studio Dragon reducing earnings volatility by renewing contracts with existing OTTs and signing long-term deals with new OTTs.
— We expect Studio Dragon to air two multi-platform shows and five original shows in 1Q23, with the no. of aired episodes reaching 116.