Zoo Digital (LON: ZOO) made its maiden interim profit and was highly cash generative. The cloud-based localisation and digital media services provider to the entertainment sector nearly doubled revenues in the first half and there is a strong order book. Zoo Digital could even get near to its medium-term revenues target of $100m this year.
Clients are major film and TV production and streaming businesses. Management estimates that it has around 4% of its addressable market, which is growing at 7.5% a year.
In the six months to September 2022, revenues were 91% higher at $51.4m and the company swung from a loss of $1.5m to a pre-tax profit of $3.5m. Costs are increasing as more staff are employed, but the greater scale is improving margins.
The fastest growth was in localisation. Last year, mainly back catalogue content was being dubbed and subtitled so that it can be sold in additional countries. This year new productions of TV programmes and films are no longer hampered by lockdown restrictions and that was behind the rapid growth. This content is important for streaming services to retain customers.
Operations in India and South Korea are fully integrated, and a site in south India will be added in the second half with potential for other international expansion. That will help to grow the market share.
Investment for the future
Capital spending is being increased in order to build capacity for future growth. The long-term strategy is to achieve revenues of $400m by 2030.
Higher depreciation and tax charges mean earnings forecasts are trimmed. There had already been an upgrade a few weeks ago. Earnings of 6.1 cents a share are forecast for this year, rising to 10.8 cents a share next year.
The share price rose 0.5p to 169p, which is equivalent to 32 times prospective earnings, falling to 18 next year. Zoo Digital has built a good base from which it can grow rapidly by adding services and increasing its presence in international markets.
