About Endeavor
Show business, baby.
This is an age-old industry that most just can’t seem to get enough of.
Apologies are in order for my former high school English teacher Mr. Hunt, as I know I shouldn’t be ending sentences with a preposition, but.
I just can’t help myself.
With the rise of “accessible” fame proliferated through social media platforms, everyone wants to be an influencer and/or be applauded at and practically worshiped for their appearances on reality television shows or through basically any and every media venue where they can show their face and be noticed.
I for one prefer to live a little more below the radar and just write about and invest in stocks all the livelong day, but that’s just me, and thankfully, this stock analysis article is not about me, it is about one of the world’s most prominent, well known and yearned after talent agency and management companies, the Endeavor Group, which just so happens to be the parent organization of the William Morris Agency, as well as also recently acquiring a sizable stake in World Wrestling Entertainment, better known as the WWE as well as the UFC, or the mixed martial arts entertainment network and business of the Ultimate Fighting Championship.
As it relates to the company’s main line of business, Endeavor is best known for its talent management division through William Morris, as the firm itself manages entertainers such as Ben Affleck, Matt Damon, Christian Bale, John Krasinski, Joaquin Phoenix, Conan O’Brien, Denzel Washington, among others, simply taking a cut of their client’s earnings through essentially connecting them to roles and parts in movies.
Now, regarding the company’s fighting business arms, Endeavor makes money through putting on and managing events, of course, charging pretty pennies for fans to have access to these events, primarily in person, generating revenues through selling tickets as well as selling sponsorships during their events as well.
While it initially feels sort of strange to ponder whether or not an event and talent manager such as this one as being recession proof or not, in doing some soul searching we would venture to preliminarily assert that Endeavor is certainly not immune to recessionary and/or inflationary pressures, but as long as humans are broadly the way they are and continue craving and enjoying entertainment of all sorts, they will probably remain intent on being able to continue consuming content, especially with the rising younger generations (see how we feel about them here), thus, if demand for entertainment remains intact and even moreso, grows, demand for talent will follow, and boy does this company have plenty of it.
Although I am not completely well versed (by any means) about the intricacies of showbiz and the entertainment industry from a deep financial perspective, given what I do already know about this company and the entertainment landscape generally speaking, I am just downright eager to learn more about Endeavor and more importantly, its finances.
Endeavor’s stock financials
In kicking things off, Endeavor is a $7.2 billion company (according to its prevailing market capitalization) accompanied by a share price of $23.80 along with a price-to-earnings (P/E) ratio of 64.07, all while dishing out an annual dividend of $0.24, or $0.06 per fiscal quarter.
So far, so bland and slightly bad, as pretty much every bit of this initial information doesn’t tell us a whole lot, but the pieces that do happen to speak, they speak volumes, particularly as it relates to the company’s present valuation.
Specifically, Endeavor pays out a relatively small annual dividend, and while it is a general plus that it pays out any sort of regular dividend to its shareholders, it is still nevertheless unexciting to us and doesn’t really push the needle one direction or the other, however, the needle is certainly pushed as it relates to the company’s price-to-earnings ratio, as it is commonly held that a P/E of 20 implies that a company’s stock is trading at exactly fair value, or what it is worth paying for today, and subsequently anything greater than 20 indicates that said security is overvalued, leading us to initially believe that Endeavor’s stock (NYSE: EDR) is trading at a premium valuation, which can be justified by a great deal of recent annual revenue growth, however, we do not initially presume this to be the case with Endeavor, as it is already operating off of a huge and wide base and it leads a very mature industry.
We would certainly welcome being proven wrong, but these are our initial, objective and somewhat educated assumptions, which we will certainly verify later on within this stock analysis article.
At any rate, regarding the overall condition of the company’s balance sheet, Endeavor’s executive team is in charge of just about $12.5 billion in terms of total assets along with approximately $10.6 billion in terms of total liabilities, which, candidly is a little higher on the liabilities end than we had initially expected, however, upon further thought, the fact of the matter is that the showbiz industry, talent representation and content creation and distribution is filled with expenses aplenty, especially as Endeavor has and perhaps continues acquiring various larger targeted media entities, once again leaving us mostly indifferent regarding the overall breakdown of its balance sheet.
Nevertheless, for the long haul, we need to see the company slowly but surely trim down its total liabilities and become more and more total asset-heavy than it already is.
Pictured above is Denzel Washington himself
Moving over to the state of the company’s income statement, Endeavor’s recent annual revenues (specifically spanning during and between 2018 and 2022) have generally been growing, but not nearly at the rate we would need to see to comfortably justify paying the massive premium this company’s shares (NYSE: EDR) presently demand.
For instance, the company’s revenues during this period have spanned (and grown, for that matter) between just north of $3.6 billion (2018) and almost $5.3 billion (2022), seeing some of its growth being thwarted during 2020, more than likely due to the effects and impacts on media of COVID-19, which is simply just an inherent risk with this company and the industry in which it operates within, and there’s hardly any way around it.
Growth is good, and we spot a lot of different ways in which the company can organically and inorganically grow its revenues at a fair pace, but fair isn’t fast enough given its current price-to-earnings ratio.
Peering over the company’s cash flow statement, Endeavor’s net income figures (also as recorded during and between 2018 and 2022) have been resoundingly disappointing and negative in both senses of the word, with annual losses as low as -$625 million (2020), however, in its most recent reported year, it touted its only positive net income metric (again, only referencing during and between 2018 and 2022) of $322 million, as reported in 2022.
Perhaps following the initial onset and impact of COVID-19 the company has been able to successfully pivot closer and closer to more sustainably profitable operations, however, we do think some ever so slight leniency or breathing room is warranted being that this firm has been on a recent acquisition tear and the targets and operations thereof are prone to inducing some cash flow bleed.
The turned corner is promising, not to mention the fact that during this timeframe Endeavor’s total cash from operations have actually been positive each and every year, even if candidly not standing that tall with respect to its associated annual revenues.
Endeavor’s stock fundamentals
And with that, let’s briefly discuss the company’s profit margin, primarily, its trailing twelve month (TTM) net profit margin, or its margin following all of its expenses and associated costs of running its business(es).
According to TD Ameritrade’s platform, Endeavor’s TTM net profit margin is listed as 8.19% to the industry’s respective average of 6.36%, which I believe just so happens to be a probable perk of being top dog in the entertainment management segment of showbiz, and while to many degrees this was to be reasonably expected, a little positive confirmation hardly hurts, as it makes us feel a bit more warm and fuzzy as it relates to the company’s ability to out-profit the industry’s average, even though, objectively speaking, 8.19% isn’t generally viewed as a whole lot of net margin for such a mature company and industry for that matter.
Onto the company’s core TTM returns on both assets and investment(s), Endeavor, also according to the figures shown on TD Ameritrade’s platform, lags a bit behind on both of these measures when butting heads with the industry’s averages, for instance, with its TTM return on assets pegged at 2.73% to the industry’s relative average of 4.27%, which, at first glance isn’t all too material of a difference, however, it does tell us that Endeavor needs some work with better streamlining its operations and/or personnel, but at the same token, it would be fair to say that being that it is such a massive entertainment agency, it will naturally have more costs and expenses that smaller media companies simply don’t.
Should you buy Endeavor stock?
Given all of the aforementioned facts and figures, as exciting show business is in the context of becoming rich and famous, the actual business of showbiz is far from exciting, at least as it pertains to Endeavor.
The company’s stock (NYSE: EDR) is overvalued with respect to earnings, its balance sheet is in just fine shape, its revenues have been growing at a solid rate but, again, not quickly enough to warrant paying this much of a premium at these current share price levels, and its cash flows with respect to its revenues are relatively unimpressive, along with the fact that its comparable TTM net profit margin and core return metrics are far from being compelling as well.
Putting all of this together, we feel it is most appropriate to lend this company’s stock a “sell” rating until we see some improvement on these fronts.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.
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