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Its cloud platform gives content owners the tools to take shows around the world
Thursday 13 May 2021 Author: Steven Frazer

How we watch TV has changed massively in recent years and it is now as common to talk about the latest Netflix shows as anything on BBC or ITV (ITV). One way to tap in to the explosion of on-demand streaming services is a little-known AIM-quoted business Zoo Digital (ZOO:AIM).

This is a small growth company with an up and down track record, so may not suit every investor, but we believe it is ripe for strong profitable growth over the coming years.

The Sheffield and Los Angeles-based business runs an in-house designed, multi-tools technology platform in the cloud that allows media owners to repackage their TV and film content for different geographies, languages, formats and technologies.

This typically means providing subtitling and dubbing services although the platform can also be used for more niche localisation services, such as changing on-screen advertising for example.

Users include many of the big names across the global entertainment and media industry, including some of the big Hollywood studios, Netflix, Amazon, Apple, Google and Hulu, plus other large online retailers, broadcasters, independent distributors and brand agencies.

The pandemic shut down TV and film production everywhere but Zoo Digital was not idle, helping clients to repurpose large back catalogues to help streaming services maintain subscriber stickiness through a period when new content was thin on the ground.

Now, with production springing back to life, prospects look even better for the company.

Zoo recently upgraded revenue guidance for the year to 31 March 2021, noting that revenues are now expected to be $39.5 million, representing year-on-year growth of 33%. This compares to prior guidance of $38 million from January, which was already ahead of market expectations of $36.1 million.

This means a much better level of profitability too, with earnings before interest, tax, depreciation and amortisation now expected to more than double from $2.14 million in the year to March 2020 to $4.7 million.

Investors should be aware that Zoo Digital plans to continue investing in the business to take advantage of the opportunity before it. This could limit short-term earnings upside and may involve raising fresh growth funding down the line. At the end of March 2021 the company raised £7.4 million via a share placing priced at 100p, a cash call that was oversubscribed.

A March 2022 price to earnings multiple of 50 based on Stifel’s $0.034 of earnings may look pricey now, but Zoo Digital aims to more than double revenue to over $100 million over the coming few years. Presuming earnings enjoy the same upwards trajectory, the stock looks ripe for further gains over the next 12 to 18 months.

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