Partnerships With TikTok And YouTube Shorts Will Open New Global Revenue Streams

Key Takeaways

• Partnerships and strategic content focus are set to enhance global revenue streams and expand international segments.
  
• Increasing short-form content popularity and advertising opportunities could significantly boost ad revenues and earnings growth.
  
• Increased content acquisition costs and platform reliance pose significant risks to net margins and revenue growth amid market uncertainties.

Catalysts

Engages in the acquisition and exploitation of music rights in India and internationally.

• The partnership with TikTok and the potential return of TikTok in India is expected to open up new revenue streams through international markets, enhancing global music streaming revenue.
  
• The extension of YouTube Shorts and Meta Reel videos to longer formats is likely to increase advertising opportunities for Tips Music, which could significantly boost ad revenue on these platforms.
  
• The company aims to focus on content quality over quantity, potentially leading to high-margin hits and an increase in net margins due to reduced content costs.
  
• Strategic utilization of public performance rights and partnerships such as with Sony Music Publishing could drive additional revenue and further expand the international business segment.
  
• The growing popularity and potential monetization of short-form content driven by social media platforms could significantly increase revenues, contributing to enhanced earnings growth.

Tips Music Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tips Music's revenue will grow by 30.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 54.7% today to 49.4% in 3 years time.
• Analysts expect earnings to reach ₹3.3 billion (and earnings per share of ₹25.56) by about January 2028, up from ₹1.6 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 47.6x on those 2028 earnings, down from 53.3x today. This future PE is greater than the current PE for the IN Entertainment industry at 46.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.49%, as per the Simply Wall St company report.

Tips Music Future Earnings Per Share Growth

Risks

• The substantial increase in content acquisition costs planned for upcoming years could pressure net margins if expected returns do not materialize as anticipated.
  
• Dependence on platforms like Spotify and YouTube Shorts for revenue growth entails significant risk if these platforms experience disruptions or changes in their earnings structures, potentially impacting the company's revenues.
  
• Speculation regarding the return of TikTok to India and its potential revenue contribution might not materialize, posing a risk to expected growth in new revenue streams.
  
• The competitive bidding for new music content could lead to higher acquisition costs, affecting net margins if the anticipated content does not perform as expected.
  
• Reliance on a select group of older songs and lack of blockbuster film releases could limit revenue growth potential if newer content does not gain similar traction.

Valuation

• The analysts have a consensus price target of ₹815.0 for Tips Music based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹6.6 billion, earnings will come to ₹3.3 billion, and it would be trading on a PE ratio of 47.6x, assuming you use a discount rate of 14.5%.
  
• Given the current share price of ₹674.3, the analyst's price target of ₹815.0 is 17.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.