Progressive Equity Research: Zoo Digital Group plc

Nothing lost in translation

Positive dynamics set to continue

ZOO Digital is a provider of services to showcase, localise, and distribute TV and movie content globally. ZOO is targeting a very large, fast-growing market with a high quality agile proposition that is both scalable and efficient. Over the last few years, ZOO Digital has been rapidly growing market share, supported by its proprietary cloud-based technology which drives quicker time to market, to a high standard and attractive price point. We believe the robust market dynamics in the home entertainment market experienced over the last few years appear set to continue, which should positively underpin ZOO Digital’s prospects.

▪ Positive market dynamics – Growth in the localisation market is being driven by the proliferation of high bandwidth broadband and increased demand by consumers for localised content. The global home entertainment market reached c.$48bn in 2017, with digital distribution accounting for 66% of that spend. Since 2012 nearly 200 streaming platforms have emerged, with 447 million subscriptions to over the top (OTT) services for streamed content over the internet globally in 2017. OTT investment in content reached $13bn in 2017, with growth expected to continue as providers such as Netflix commit to increased future spending.

▪ Unique technology proposition – Although other firms employ technology, ZOO appears to be unique in its ability to manage all its activities within one technology ecosystem driving a scalable and efficient footprint, faster time to market, high quality deliverables and a lean cost structure.

▪ Clients – ZOO Digital counts the major Hollywood studios, the BBC and several major OTTs among its client base. The Group has been increasingly winning market share driven by its service quality rankings, product innovation, pricing structure and technology enabled services, supporting a quicker time to market and are less prone to human error.

▪ Estimates – In line with today’s trading update we look for FY2018E revenue of $28m and adj. EBITDA of $2.3m. For FY2019E we estimate revenue growth of 15% and adj. EBITDA growth of c.45%. We believe our forecasts are prudent and would anticipate upward pressure on estimates over the period driven by positive market dynamics and the Group’s ability to gain market share.

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