Endeavor Group (NYSE:EDR) looks well-positioned to capitalize on the streaming arms race, in which a large variety of deep-pocketed competitors are vying to gain compelling content for their platforms. Endeavor Group is a global sports and entertainment company.
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While the Beverly Hills-based company is best known as the parent company of UFC, it also owns a number of other properties like Professional Bull Riders, Euroleague, and Diamond Baseball Holdings, which hold live sporting events and license broadcast rights to them.
The company also owns IMG Academy in Florida and offers representation (as an agent) to athletes and entertainers. Shares of Endeavor Group are down 39% from their 52-week high and 32.5% over the past year. However, based on the demand for compelling content from media companies and live events from the public, as well as its favorable valuation, I’m bullish on Endeavor stock.
Content is King
Endeavor is well-positioned to capitalize on what CEO Ari Emanuel calls two long-term secular trends, “the competition for premium sports and entertainment content and the demand for live events and experiences.”
The entry of tech giants like Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) into the media space with the advent of streaming creates an arms race for content as incumbent legacy media companies now compete with these big tech newcomers (not to mention each other) to procure the type of content that will draw viewers and subscribers to their platforms.
Emanuel says, “Every single one of [these platforms] requires a steady flow of premium entertainment and sports content and we are the leader in these categories. It’s undeniable that premium sports and entertainment content have become the most powerful and efficient means to acquire customers and keep them engaged.”
It’s not just the demand for entertainment on streaming platforms that’s growing; demand for live entertainment is also booming as the pandemic recedes. As of the most recent quarterly earnings call, UFC has sold out 26 straight events since resuming them post-pandemic. Beyond UFC, other Endeavor-associated live events like the Super Bowl, NFL games in Europe, live comedy, and even art festivals are all seeing strong demand.
Endeavor’s Positive Trajectory
The trajectory of Endeavor’s financial results has been impressive over the long term. The company more than doubled its revenue from 2016 to 2021, as it grew from $2.36 billion to just over $5 billion. Revenue continues to increase, clocking in at $5.51 billion in sales over the past 12 months. Also, Endeavor has increased its EBITDA at an even more impressive rate over the same period. EBITDA has grown from $266 million in 2016 to $808 million in 2021 and over $1.1 billion in the past twelve months.
Endeavor’s overall third-quarter results were noisy year-over-year, thanks to the sale of its scripted content business, which it completed in early 2022. Because of this, consolidated revenue was down 12% year-over-year. However, consolidated revenue increased by 15% when excluding scripted content.
Most importantly, the results for the Owned Sports Property Group were impressive. During the third quarter of 2022, revenue for the Owned Sports Property Group, which encompasses UFC and other live sporting events, climbed 39% to $402.13 million, while EBITDA surged 45% to $195.7 million.
A Favorable Valuation
Endeavor stock trades at just under 15 times 2023 earnings, which is a discount to the S&P 500’s (SPY) forward multiple of 20.4 times.
Endeavor looks particularly interesting when evaluating the stock using a price/earnings-to-growth (PEG) ratio. Popularized by renowned investor Peter Lynch, the PEG ratio seeks to account for a stock’s earnings growth when valuing it. It achieves this by dividing a stock’s price-to-earnings multiple by its earnings growth rate.
Investors generally consider stocks with a PEG ratio of under 1.0 to be undervalued. Based on this, Endeavor looks particularly attractive, with a current PEG ratio of just under 0.9.
Is EDR Stock a Buy, According to Analysts?
The consensus on Wall Street is that Endeavor is a Moderate Buy. The two analysts covering the stock both have a Buy rating on it, and the average EDR stock price target of $29.00 implies significant upside potential of 34.6%.
The Road Ahead
Looking ahead, Endeavor stock looks appealing. Media companies are hungry for the type of premium live sports and entertainment that Endeavor provides. Simultaneously, consumers are eager to get back out and attend the types of live events that Endeavor stages. Endeavor’s impressive revenue and earnings growth, along with its undemanding valuation, add to this appeal.
