Morgan Stanley says Nine's streaming media platform Stan is 'undervalued'

Josh McDonnell
By Josh McDonnell | 15 March 2019

Nine-owned subscription video on demand (SVOD) service Stan is "undervalued" by the Australian market, according to research by Morgan Stanley.

Investment bank analysts Andrew McLeod, Elise Kennedy and Joseph Michael, in a note to clients, disagree with the current $300 million to $400 million consensus valuation of the streaming media platform.

They say it's more like $700 million because the valuation misses the accelerating rate of adoption of streaming TV services globally, and in Australia, with more growth expected over the next 18 months.

And the 100% ownership of the service puts Nine in a "unique" position in the Australian market place, giving the network advantage over Seven and Ten.

Morgan Stanley has a share price target for Nine of $2.30. They last traded at $1.665. 

Stan has 1.5 million paying subscribers in Australia compared to Netflix with about 4 million.

Morgan Stanley forecasts 1.7 million subscribers, and revenue of about $200 million,for Stan by the end the current financial year.

The analsyts say Stan has, four years since launch, the scale to cover its fixed costs and is about to turn EBITDA (earnings before interest, tax, depreciation and amortisation) positive. 

"We see this platform - with a growth trajectory to 2.5 million to 3 million subscribers (30% of households) - holding strategic appeal to a range of industry participants."

Morgan Stanley lifted its enterprise value estimate for Stan to $700 million from $500 million after Nine's recent first half results

This assumes a vale of $380 per Stan subscriber which is about a quarter of Netflix's current market implied valuation of $1,500 per subscriber. 

The US-based investmnet bank says the Australian SVOD market has a "long runway" for growth, given it is a "superior product" for most consumers, compared to traditional TV and Pay TV, due to its lower price point, broader content, and greater flexibility.

Morgan Stanley expects total SVOD subscription in Australia to increase to 11.4 million by 2023 (114% household penetration) from 5.6million today (70% penetration).

SVOD Growth

The growth is largely driven by Netflix (from 3.9 million to 7.2 million subscribers) and Stan (from 1.1 million to 2.8 million), with Foxtel and Amazon growing at slower rates.

"Importantly, we expect penetration to exceed 100% because streaming households have a tendency to subscribe to multiple services," the analysts write.

"Over the next 12-18 months, we expect a number of new and competing SVOD entertainment services
to launch, including a relaunched Foxtel entertainment pack, Disney/Fox's service and likely a HBO/Warner/AT&T product as well."

The report did indicate that the entry of these new players could have a serious impact on the overall strength of Stan's content offering. The launch of new services could end Stan's current content deals with MGM, Showtime, Sony, Starz and Disney.

Despite this, Stan CEO Mike Sneesby has, on multiple occasions, defended the security of its deals with the likes of Showtime, which is owned by current Ten parent company CBS, and Disney.

"When we talk to media companies/contacts around the world, the whole TV industry is turning to streaming at an accelerating rate. For a traditional FTA TV business to have its own large and leading SVOD business, as NEC does with Stan, is rare," the analysts say.

"We think that Stan's strategic value will progressively be recognised by investors. The opportunity we see is if the business is able to grow to 2.5 million to 3 million subs over the next five years." 

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