The Nine Entertainment Co Holdings Ltd (ASX: NEC) share price has increased by 23% in the past year. The company is a diversified media company with TV, radio and online services. It controls well-known streaming service Stan, which I believe has considerable growth ahead of it.
How has Nine Entertainment performed recently?
Nine Entertainment has stated weakness in its traditional markets of free-to-air TV, which will result in its HY20 being down by an estimated 10% on the prior corresponding period. These issues could prove temporary if its digital and publishing division and its streaming service Stan continue to grow strongly. The company expects to make up for the first half of FY20 in the second half of the financial year.
On 7 December 7 2018, Nine Entertainment merged with Fairfax Media Limited, which had an ownership interest in Stan. The merger has resulted in Stan being consolidated in the group's accounts from the date of merger to the end of FY19.
I think having a full year of Stan's growth in Nine's financial statements will help offset the decline in TV and radio. The company's strategy to diversify its media offering to growth assets looks to be solid, given the explosive growth in tech.
In its current trading and outlook media release in November 2019, Nine stated "subscriber momentum has continued through the current period and the business is performing ahead of expectations on all metrics."
Revenue was up by 62%, costs were down 23% and earnings before interest, tax, depreciation and amortisation losses improved by 56%, when comparing FY19 to FY18. It is expected that Stan will move strongly into profitability in FY20. Nine disclosed there are 1.7 million active subscribers and 1.5 million daily total hours streamed.
I think seeing the growth of the service in the number of active subscribers and daily total hours will be interesting. Stan lost the streaming rights to Disney content to newly released Disney Plus service during the financial year and has competition in streaming giant Netflix (NASDAQ: NFLX). Both providers have deep pockets.
A key to Stan's competitive advantage is the ability of the streaming service to be able to lockdown and maintain access to popular tv shows and movies. Its ability to produce exclusive content that captures a large audience will also be key to success.
Foolish takeaway
With Stan having the potential to be an explosive growth asset for Nine in the years to come, patient investors could see considerable capital growth. In the meantime, Nine shareholders are receiving a very attractive dividend yield of 5.1%.
