SIRI - LiveOne's Stock Is Undervalued Right Now

2023-08-22 21:22:24 ET

Summary

• LiveOne, Inc. is trading near its 52-week high and has a cheaper valuation compared to its peers.
• LiveOne has a diversified business model that includes music subscription, live events, livestreams, merchandise, podcasts, and pay-per-view.
• The company has sustained revenue growth and increased profitability, with strong projections for the future.
• Solid membership momentum for FY-2024 (exceed 4 million by 2024).

Investment Thesis

LiveOne, Inc. (LVO) is trading near its 52-week high, and most importantly its valuation looks cheaper at an EV-to-Revenue (EV/Revenue) multiple compared to its peers average. LiveOne is a solid company with strong revenue growth, margin expansion and operating in an industry with a robust growth scenario. In a nutshell, LiveOne has upside potential and should command premium valuations in my view. If you buy LiveOne stock at its current price, it could provide an investment opportunity for a solid return in future driven by strong fundamentals in the industry and a diversified business model.

LiveOne is a music, entertainment and technology platform that delivers content through memberships and live and virtual music events.

Stock Catalyst

Here's a closer look at why LiveOne is on the cusp of a Small-cap growth story.

1. Diversified Business Model

LiveOne's addressable market includes music subscription, live events, livestreams, merchandise, podcasts, and pay-per-view (PPV).

Music Subscription Market: The worldwide recorded music revenues increased to $26.2 billion in 2022, a 9% YoY growth due to growth in paid subscription streaming. Furthermore, global recorded music sales will increase to $80 billion and paid music subscribers are estimated to grow to 1.2 billion by 2030, according to management. LiveOne's library features 30 million songs and a continuously growing library of franchises to capture a bigger pie in the music subscription market.

Podcast Market: The worldwide podcasting market was valued at $18.52billion in 2022 and is estimated to expand at a CAGR of 27.6% from 2023 to 2030, as the audience can relate to the hosts of podcasts and consider podcasts as part of their daily lifestyle. PodcastOne is a subsidiary of LiveOne and a leading podcast company which provides a complete solution for content creators and advertisers. Through this subsidiary, LiveOne is well positioned to benefit from industry growth.

2. New Revenue Stream From Pay-Per-View (PPV) for Live Events

Traditionally, live events generate revenue from tickets and advertisements. LiveOne introduced a unique new revenue stream from pay-per-view (PPV) for digital live events. The live streaming PPV global market is estimated to increase at $2.3, a CAGR of 15% (2020 to 2027). With its physical and digital presence for live music events, the company can attract an audience in the US, where 30M+ people attend at least one music festival in the US annually. Also, 74% of concert fans said they prefer to use livestreaming music events even after physical events resume. Due to changes in consumer expectations, the global video streaming market is expected to be $80B by 2025, providing a bigger market for LiveOne. Furthermore, PPV encourages strong connections between PPV participants and social media followers. This trend enables a resilient business model by reducing marketing expenditure as artists and talent proactively promote PPV events through their social media, resulting in reduced customer acquisition costs.

In a nutshell, if investors want to make profits from stocks in the long term, then choose to invest in the growing sectors and LiveOne qualifies for this criterion of investment.

3. Sustained Revenue Growth and Increased Profitability

Sustaining revenue growth and increasing profitability are vital for business success. In the last 5 years, the revenue has increased from $7.2 million in FY-2018 to $99.6 million in FY-2023 , a whopping CAGR of 70% due to acceleration of membership services, advertising and merchandising. For FY-2024, the management is expecting revenue in the range of $122 million to $130 million , an increase of 30% YoY growth driven by growth in total membership and audio division.

Tesla (TSLA) is the largest customer and almost every new car sold in the U.S. has a LiveOne membership paid by Tesla. In Q1-2024, total paid members were 2.3 million, an increase of 42% YoY. Furthermore, total membership (including free ad supported memberships) was approximately 3.2 million in Q1-2024, which will exceed 4 million (with paid memberships to exceed 3 million) by FY-2024. This shows strong momentum for LiveOne business model and acceptance of content by the consumers.

In terms of operational efficiency, the EBITDA in FY-2023 turned positive with a 7% margin. In addition, the adjusted EBITDA for FY-2024 is projected in the range of $12 million to $16 million , a margin of 10% to 12%. With the introduction of PPV for live events, the cost has decreased, which resulted in better margins.

In conclusion, LiveOne remains a compelling investment case with strong revenue growth projections supported by EBITDA margin expansion.

4. Peer Group Valuations

From the above analysis, we can conclude that LiveOne's valuation looks cheaper at an EV-to-Revenue (EV/Revenue) multiple of around 1.84x compared to its peers average of 2.57x. It seems that investors need to consider improving the financials of the company and the resilience of the business model in valuation. Even during the COVID pandemic, the revenue increased due to a strategic move by introducing a page-per-view feature. In a nutshell, although LiveOne is trading near its 52-week high, it has upside potential.

Investment Risk

Highly Competitive Market: The addressable markets of LiveOne's are highly competitive with limited barrier to entry. To sustain in the competitive markets its important for the company to provide premium experience and unique content. Also, the growing of franchises and association with artists is important for digital platforms.

AI is Revolutionizing Music Events: AI is revolutionizing the digital event industry by optimizing content delivery and providing a more unique interactive experience for the audience. AI can be useful in sound engineering, visual effects, audience engagement and music composition. Although it's still in the nascent stage, LiveOne should prepare for this transformation.

My Recommendation: Buy Rating

I recommend a Buy rating for LiveOne based on the following factors:

1. LiveOne has a whopping revenue CAGR of 70% between 2018 to 2023 and a projected revenue growth rate of 30% for FY-2024

2. Solid membership momentum for FY-2024 (exceed 4 million by 2024)

3. Improving operational efficiency through an annual saving plan. Reported positive EBITDA margin in FY-2023 and estimated to continue with the same trend.

4. Based on current valuation, LiveOne is trading at a discount compared to the peer group. However, I believe that LiveOne's lower multiples are not justifiable provided strong expected growth and margin expansion.

5. Addressable markets showing strong positive trends

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