June 24, 2015 - 4:30am EST by
2015 2016
Price: 1.53 EPS 0.01 0.11
Shares Out. (in M): 178 P/E nfm 14
Market Cap (in $M): 272 P/FCF 0 0
Net Debt (in $M): -9 EBIT 10 30
TEV (in $M): 263 TEV/EBIT 27 9

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  • FCF yield
  • TV
  • secular tailwinds



At an 11% FCF yield, with growth ahead, this tech growth stock qualifies as a value sit.


NeuLion has the lead in a new niche category of Live TV on mobile devices (TV Everywhere – TVE), made possible by the relatively recent proliferation of the current generation of smartphones and tablets that can handle such data… nearly 1 billion deployed consumer electronic devices delivering a pleasurable viewing quality.  They provide cable companies and content owners with the connectivity to our devices, and share in the revenue when we view our favorite sporting events, award shows, or other breaking news in real time.  NLN is the beneficiary of several powerful trends including a fundamental shift toward 4K video, Over-The-Top services, and TV Everywhere. 


Niche Viewing – People won’t give up their big screens so it will always be a niche, however there is a market for on-the-go viewing when someone can’t be at their TV… especially for live events.  If you’re thinking a small screen kills this market, think again… I’m sure there are many VIC readers who have caught the end of The Masters, March Madness, or the NFL Draft on their iPhone from a dinner table, not to mention those who want to share in who won Best Picture live… Beyond immediate gratification, there is now a vast army of people out there who will post on social media about such outcomes in real time, and the amazing thing is people are showing a willingness to PAY for this on-the-go content.  Just click here to view: usage based at 29 to 99 cents, or there are monthly subscription fees.  Revenues are 40% usage based, and 55% fixed/license fee based, with the balance of 5% setup/dev.


Growth in Petabytes Streamed – A Petabyte (PB) is 1015 bytes = 1000 Terabytes… think about the meaning of the word google before Google Inc.  With improvements in data services on Apple and Android devices, PB streamed has roughly tripled since 2012.  In 2012, 82 PB were streamed from ~40,000 live events.  In 2013, 154 PB were streamed from ~47,000 live events with 2.3 million consumer transactions.  In 2014, 227 PB were streamed from ~50,000 live events with 3.5 million consumer transactions and app downloads doubled to 16 million. The estimates for 2015 are 305 PB streamed, but we will likely hit that before the end of summer.  Just a few years ago, this data was quirky to view on an iPad 1 or early iPhone, but the latest generation of smartphones and tablets, whether Apple, Android, or other, can stream this beautifully. 


Catching A Wave – NeuLion bought DivX which was included for 2 months in Q1 results for a 90% revenue increase, but core NeuLion showed organic revenue growth of 22% while EBITDA grew 90%.  It’s at 11x ’15 EBITDA and 7x next year’s.  These aren’t normally levels I get excited over, but this is tech in a vertical that is definitely growing.


Shared Revenue with Content Owners and Distributors – In Canada they love hockey, and Rogers NHL GameCenter Live is exemplary of a key revenue share product.  The DivX acquisition for $62.5m is also important because it allows them to offer more integrated services, and to a wider array of devices given DivX’s codes are widely installed in the latest consumer electronic devices.


Smart TVs / 4K Video – 4K is a new format standard in high definition video that will allow growth in Over-The-Top (OTT – basically content direct off the internet bypassing cable/distributors).  It’s more than just nice picture quality… it’s two-way interactive which means you can click, not only to pay/vote/post social media, but you can, for example, take personal control of multiple camera feeds making sporting events a heck of a lot more fun and interactive.  The industry is getting behind 4K with 11.6 million 4K video enabled units shipped in 2014, and will be 100 million by 2018.  Major content providers are behind it… Amazon has it free with Amazon Prime and Netflix offers it for an additional $3 per month.  Comcast partnered with Samsung to deliver 4K content and their new set top box is 4K ready.  The gaming device makers are in on it too: Xbox, Playstation, Roku, Apple TV, AmazonFireTV, GoogleTV, etc.


Competitive Advantages – NeuLion/DivX is a powerful combo for both content owners and distributors because it speeds time to market, drives new revenue, and reduces the complexities for content rights holders.  It has a moat combining software, technology and operational services with multi-dimensional monetization.  And it creates meaningfully new and different experiences that engage, retain and help grow customers.


Big Opportunity – OTT is a massive opportunity for content providers and networks to stream live & on-demand direct to consumers and it allows both enhanced personalization and a new interactive experience.  For Cable Operators they have new markets in TV Everywhere which they can monetize, as well as ward off churn from early adopters who might cut the cable cord as OTT content proliferates.  TV Manufacturers will have a next gen offering that supports, decodes, decrypts and plays back new digital content in high definition. 


So, NeuLion is at the nexus of the shift to 4K video, OTT, & TVE in a fast growing online video market.  It’s barriers to entry are created by unique service offerings and differentiated by delivery of live interactive TV.  The model is scalable with ~60% of incremental organic revenue flowing through to EBITDA and they are generating cash.  Management has some interesting previous experience, and of note is the CEO stepped aside to a Chief Tech role to allow the DivX CEO to take the helm.  With 90% revenue growth last quarter from a mix of acquisition and organics while improving margins, I could give you lots of figures but they’d be fairly wild guesswork so I’ll leave it here with the notion that this 300m mkt cap could be way cheap and going a lot higher given the market opportunities and size of the trends in front of it.


I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


- Continued PB streamed growth


- DivX integration and cost savings


- Consumers & the media discovering the interactive features of next-generation video experience


- More close right down to the wire key sporting events

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