MultiChoice Investors Burnt as Pay-TV Giant's Market Cap Plunges by R32 billion

MultiChoice, prominent owners of DStv, hit a notable financial rut as investors accrue a hefty R32 billion loss within the past six months. This drastic drop is primarily attributed to a dwindling high-end subscriber base and an uninspired search for fresh revenue streams.

Trading at over R147 per share in early March due to optimistic investor outlook, the media conglomerate's fortune took a tumble following a 13th March 2023 trading statement. The report signaled below-par revenue growth, heightened fixed costs, and increased Showmax related expenses, causing its trading margin to contract significantly. Consequently, the share price significantly nose-dived, capping the initiation of a six-month downward trajectory that gradually shaved billions off the MultiChoice's market cap.

Unfortunately, a 7% revenue increase to R59.1 billion, as recorded in the company’s results released for the year ended 31st March 2023, was outshone by a 48% slump in free cash flow. Currency volatility in Nigeria and South Africa further forced the board not to declare a dividend.

MultiChoice's primary challenge stems from South African subscribers continuously canceling their DStv subscriptions, hitting hard on the Premium and mid-market segments. The impact is evident in the dip in average revenue per user - shrinking from R269 to R256 YoY.

Amidst these challenges, MultiChoice continues to explore new revenue avenues to offset the high-end subscriber decline and lost earnings. However, these planned investments have been questionably risk-heavy and guaranteed returns are elusive at best.

Interestingly, the most significant loss comes from the company's investment in KingMakers (formerly known as BetKing), where MultiChoice sunk almost R6 billion, yielding far less than anticipated. The decline of KingMakers in Kenya and Ethiopia further prompted a R2 billion write-down for MultiChoice.

Despite these setbacks, MultiChoice is heavily investing in ShowMax and hopes to generate revenue of more than $1 billion after five years. This ambitious step, however, challenges the realities of streaming services, with many industry giants also struggling to generate profits.

Given these circumstances, JPMorgan, in July, downgraded MultiChoice from neutral to underweight, with a price target of R80 per share. With MultiChoice currently trading at around R74 per share, investors have incurred significant losses, eroding R32 billion of market cap in six months.