Endeavor Group Holdings closes its first month as a publicly traded company with a share up 24% from its IPO price of $ 24. The company that is home to the UFC, WME, IMG and other media and event brands has a good story to tell, as the UFC in particular seeks to tap into what appears to be pent-up demand for sports, concerts and other live events.
For those wondering how Endeavor CEO Ari Emanuel is going to handle his first revenue call as the head of a public company, the wait is almost over. Endeavor is expected to release its second quarter results on June 2.
The company’s profile has grown outside of the entertainment industry now that it is publicly traded. Investment banking giants JP Morgan, Morgan Stanley, Jefferies Group and Evercore ISI Group began hedging the company earlier this week.
“We have had a healthy dialogue with the management team over the past few months. Especially in the live events sector and in the representation sector, you see very strong growth in 21 and 22 as these segments are really bouncing back from being practically at a standstill, ”said Alexia Quadrani, media analyst senior at JP Morgan, who was an IPO underwriter.
Endeavor shares debuted on April 29 on the New York Stock Exchange, about 18 months after the company first sought to mine the public markets for capital. Endeavor bowed out at the last minute in September 2019 due to weak demand for shares in a freezing market for IPOs at the time. Conditions warmed up considerably in the months that followed, despite the pandemic. Since the start of the year, more than 400 IPOs have been launched, compared to more than 400 for all of 2020 (which set a new record) and around 200 in 2019.
Endeavor’s stock price briefly fell below $ 24 on the first day of trading, but rallied to close that day at $ 25.20. The stock hasn’t dropped below $ 25 since April 30. The high so far has been $ 33.20, reached on May 14. On Friday, the shares closed at $ 29.65, a gain of 4% from the previous close.
Earlier this week, JP Morgan gave the stock a neutral rating and set a price target of $ 34 for the stocks by the end of the year. Jefferies gave the shares a buy rating with a target of $ 40. Evercore ISI Group opted for Outperform with a target of $ 35. Morgan Stanley set the goal at $ 30 with an equal weight rating.
Quadrani said Endeavor’s rebound was fueled by optimism around UFC, the MMA giant which is now 100% owned by Endeavor, a deal made to improve its reputation with investors. This time around, the timing of Endeavor’s Wall Street debut worked in the company’s favor as it coincided with UFC’s return to full strength with fans in arenas with its UFC 261 event on April 25. in Jacksonville, Florida.
“Owning 100% of the UFC makes a big difference,” Quadrani said. “It’s a tangible asset with very healthy growth to come. He has good visibility with his ESPN contracts ”for pay-per-view and streaming access. “You have better visibility and a history of growth than the last time they tried this,” she said. The fact that Disney executives have touted recent UFC performances on ESPN and ESPN Plus is a big plus for Endeavor.
Investors will have an appetite for Endeavor stocks even if earnings and dividend payouts are not for the short term. Endeavor’s biggest challenge in the years to come is to manage its consumption of cash and heavy debt. The level of debt revealed next week will be revealing, as the company pledged to use some of the $ 511 million raised during the IPO to reduce the $ 5.9 billion of red ink in his books from December 2020.
“Over time, as the company continues to deleverage and execute on its financial forecast, this will shape the dialogue around it,” said Quadrani. “I think they are well positioned to generate robust growth in the short to medium term. Further on, the visibility becomes less clear. “
Endeavor’s IPO is remarkable for Hollywood because it is extremely rare for talent agencies like WME and IMG to be exposed to the ups and downs of quarterly earnings reports. The unpredictability of the agency business – where clients and the best agents can go out at any time – has always been viewed as anathema to investors who value predictable income streams.
But with the lifeblood of the UFC and a myriad of live events – from Professional Bull Riders and Miss Universe competition to lifestyle, fashion and food festivals – Endeavor is seen as a hybrid between media stock and live event player at Live Nation or WWE.
For now, Quadrani sees Endeavor’s strong post-IPO performance as a sign that the market is giving the company the benefit of the doubt that it can deliver its mix of sports, talent, content and talent. live events in a post-COVID environment.
Endeavor shares “are significantly higher than the market in general,” she said. “There is certainly a certain optimism reflected in the course of action.”
(Pictured: UFC fighters Conor McGregor and Dustin Poirier)