Global Expansion Through OTT Platforms In 2025 Will Increase Content Reach

Key Takeaways

• Diversifying platform presence and collaborating with top creators are expected to drive revenue and strengthen intellectual property through global expansion and high-demand series.
  
• Strategic partnerships with global OTT platforms aim to boost international distribution and earnings by targeting new regional markets and expanding subscriber bases.
  
• Studio Dragon faces challenges with declining lineups and industry conditions, needing successful diversification and expansion to manage costs and maintain earnings.

Catalysts

A drama studio, produces and provides drama contents worldwide.

• Studio Dragon plans to diversify its platform presence both domestically and internationally in 2025, focusing on securing high-grade creators and exploring new global business opportunities. This expansion is likely to drive revenue growth by increasing viewership and content distribution across different regions.
  
• The introduction of more pre-sold new titles and the implementation of cost-plus models are strategic moves expected to improve net margins by reducing the financial risk associated with unsold content and better controlling production costs.
  
• Studio Dragon's strategy to collaborate with S and A-level creators and increase the production of midweek dramas aims to enhance IP strength and optimize content production. This is expected to enhance revenue by releasing more successful and high-demand series.
  
• The company's partnership strategy with global OTT platforms and regional production seeks to expand their global distribution network, enhancing earnings through increased international sales and partnerships.
  
• The focus on expanding Korean content in global markets, particularly through platforms like TVING, which is extending into Southeast Asia and other international markets, is designed to significantly increase its subscriber base and potentially boost earnings from subscription and viewership revenue.

Studio Dragon Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Studio Dragon's revenue will grow by 9.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.1% today to 8.5% in 3 years time.
• Analysts expect earnings to reach ₩62.3 billion (and earnings per share of ₩2118.23) by about March 2028, up from ₩33.5 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 31.7x on those 2028 earnings, down from 42.5x today. This future PE is greater than the current PE for the KR Entertainment industry at 28.7x.
• 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 8.55%, as per the Simply Wall St company report.

Studio Dragon Future Earnings Per Share Growth

Risks

• Studio Dragon experienced a 40.4% decline in its annual lineup compared to the previous year, which could negatively impact future revenue streams if such reductions continue or are inadequately addressed.
  
• The persistence of a challenging media environment negatively impacted drama production and operations in 2024; unless adequately managed, these industry conditions could pressure Studio Dragon's margins and overall profitability.
  
• Despite efforts to minimize market impact through pre-sold titles and cost-plus models, the decline in the total number of broadcast episodes and the associated operational adjustments could affect future margin growth and earnings stability.
  
• Studio Dragon's ambitious plans to rebuild fundamentals and secure growth drivers require diversifying platforms and expanding lineups, which could entail significant costs and investment risks, potentially impacting net margins if not executed successfully.
  
• The high target for 2025 entails attracting top-grade creators and expanding globally, yet this could lead to increased operational costs and expose Studio Dragon to execution risks, impacting earnings if collaboration and expansion goals are not achieved.

Valuation

• The analysts have a consensus price target of ₩51466.667 for Studio Dragon based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₩64000.0, and the most bearish reporting a price target of just ₩35000.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₩728.8 billion, earnings will come to ₩62.3 billion, and it would be trading on a PE ratio of 31.7x, assuming you use a discount rate of 8.6%.
  
• Given the current share price of ₩47400.0, the analyst price target of ₩51466.67 is 7.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.