$5253.T, $COVCF
Cover Corp
What they do: VTuber production leader with 41% of market share. Platform for content creation. Anime/Game/Manga/Music market mesh.
- Four revenue sources: merchandising 45%, streaming/content 20%, concerts/events 19% , and licensing 12%. Seasonality noted, should be appreciated if following on quarterly basis.
Financials:
- MC 1.19B, EV 1.12 B, 58M cash. No significant debt.
- Revenue trend is ~ 45-50% growth. 270M top line.
- Net income trend is ~40% growth also, 35 M bottom line.
- OCF is positive as well, but minimal growth from 2023 to 2024. Most of this probably captured in the increasing accounts receivable.
- CapEx 2024 was substantial (relative to net income 35M) of 16M dollars; ok with me given growth phase.
- Greenblatt ROC and Earnings yield screen: 536% AND 14%. Screens well.
- PE ~33, assuming growth of 40% is sustainable this is cheap. (Equivalent to single digit PE on 10% growth)
- No dividend.
- Mild share dilution in 2023 of 8% diluted, likely management comp, nothing worrisome.
- Growth estimate: 40% historically. 20-30% guided.
Management: 43% insider ownership. Motoaki Tanigo, the CEO, is the principal owner with > 30% of the shares.
IR Presentation:
- English IR presentation is a big positive for Japanese company. Expands investor base. A must for me to be able to follow easily.
- Revenue growth significant with proportionate costs, and stable margins.
- Change to service mix from less streaming and concerts to more merchandising and licensing.
- Hololive Super Expo/Hololive Fes March 8 and 9 2025 expected to be major event.
- Number fans (page 24) is likely the most important KPI.
Earnings call:
- Noted issues with communications between departments due to rapidly increasing # of employees.
- Guidance is growth rate of ~30%. Going back to earlier look at PE, maybe a bit more fairly priced. Guidance for long term operating profit margin of 30%.
- Working on uplisting to "prime" market in Japan. Nothing imminent.
Best social Media insights:
Personal thoughts: Downside is dependency on content creators, and there are some speculation for "graduation" of popular creators. Hard to know margin of safety. As a few major content creators likely make up most of the viewership this could be risky. As the market leader, it often attracts new viewers first – and thus self recruits new talent. If you think the addressable market for VTubing continues to grow, likely a good investment fairly priced to slightly under-priced. Opening new markets w different languages likely helps with continued growth. Upside optionality with video game market. At end of day it's a niche audience that I don't fully understand. From a probabilistic view, expect growth or flattening interest - wouldn't expect decline. Flattening interest would decrease the PE it trades at though.
Conclusion: Watchlist.