QYOU Media Inc.

(TSX.V – QYOU)

The Howard Group – A Perspective and Introduction

By Grant Howard and Jeff Walker
April 4, 2017

Buy The People

Before we get into the nuts and bolts of QYOU Media, we’ll throw out a few teaser points.

The first is, smart investors know a solid management team is critical to the success of any company. Specifically, a seasoned and experienced management team maximizes the odds for investors when they evaluate the possible future success of an emerging company.

The second relates to why some investors we spoke with participated in the recent “go public” financing, even though they didn’t immediately understand the audience and market opportunity. The fact is most of these people went to their teenage and twenty-something friends and family for an opinion.

By the way, the $5 million financing at $0.50 per share closed on $7.3 million.

And Now, We Begin

It is no secret there is a dramatic shift happening in the way consumers watch entertainment and news programming. The term being used by the industry is “cutting the cord”, which refers to people opting to not subscribe to regular cable services. Rather, they are switching to streaming services such as Netflix, YouTube and Amazon Prime. This trend is accelerating, as are the number of people who are looking for specialized online programming that meets their specific viewing interests. This has put tremendous stress on cable companies who are losing customers in this viewership revolution.

More than any other group, millennials have lead the way, choosing to use their mobile devices to consume entertainment. Add to this sea of change is the younger Generation “Z”, who spend most of their available time on tablets and smartphones, but may never watch TV as we know it.

Enter QYOU Media, a three-year-old international company with a base in Los Angeles where it has offices and studios and a very new arrival to the Toronto Venture Exchange.

As a quick introduction in advance of a more detailed description, QYOU produces “short-form” entertainment programming. This programming is now available in 35 countries through cable, satellite, mobile carriers and online content distributors.

See below for a quick video overview of QYOU’s business. 

Importantly, the content produced by QYOU also levels the playing field for the legacy TV providers.

The Talent Behind The Camera

While the show hosts at QYOU’s Los Angeles studios are familiar faces to its viewers and recognized as YouTube leaders and influencers, the business savvy team behind the lens is the group which created the concept, technology and know-how to seize on a sizeable market opportunity.

There was a time when people in the television industry thought that a 24-hour news station would never work, or executives pondered how the Disney channel could get viewership during the hours that kids were in school or late at night. Why would people want to watch music videos all day, every day? These moves into uncharted territory at the time have become major success stories, but someone had to have the vision and the ability to build a machine from many moving parts.

QYOU has an ‘A-list’ of people that may very well lead to yet another success.

The founders of QYOU can claim these achievements:

  • Co-founder of MTV
  • MTV Lifetime Achievement Award
  • Co-founder of VH1
  • President of Lionsgate Digital
  • Executive with CNBC
  • Co-Founder of Agility Studios (The LXD – Paramount/Hulu)
  • Senior Executive with Newscorp (Fox News)
  • Co-founder & CEO of CinemaNow
  • President of Atlantic Records
  • Former CEO and Chairman of Yorkton Securities
  • Director of Lionsgate Entertainment

Not only is the QYOU team a group of trendsetters, they are also astute and successful business people with their eyes on a big prize.

On that note, we need to disclose that The Howard Group participated in the $0.50 financing and is also being remunerated by QYOU to grow the company’s presence in the capital markets with the investment and institutional communities, individual investors and online audiences.

Buy the People, Four of the People

More on The QYOU Competitive Edge

In the case of any cultural shift, there are a few companies that achieve massive notoriety with a few thought leaders staying ahead of the trend.

So what is QYOU? The company focuses on the millennial audience’s thirst for web video, and curates, licences and packages “premium short form” video from sources such as YouTube. With a B2B2C (business-to-business-to-consumer) model, QYOU sells its licensed content to distributors globally (cable companies, satellite and mobile carriers, OTT services, airlines and restaurants). The partners then distribute the content across all devices and mediums.

Anyone with teenagers at home will know that they consume video much differently than their parents. From personal experience, two of the boys in our family use their iPads or phones to watch video clips instead of the multiple larger HDTV’s that are located throughout the house, with all the channels one could want.

YouTube reaches more 18-49 year olds in America than any US cable company, and there are 500 hours of content uploaded to YouTube every minute. However, 94% of views come from only 1% of YouTube videos.

QYOU has a system in place to select specific kinds of videos such as extreme snowboarding, for example. On YouTube alone, there are thousands of these types of videos to screen. The proprietary tools set the parameters of the desired programming and the in-house technology reaches out to capture all videos within specified parameters.

QYOU then thins out the thousands of videos to accept only the best in 4K HD, or the ones within a length. It then sends each owner of the video an email requesting a non-exclusive viewing licence, for which it pays a nominal fee.

It’s then that a team of young experts screen the worthiest top contenders and create “packages” for any of QYOU’s clients around the world.

Mix the packages with a regional host and a green screen, and by the end of one day, multiple shows are “in the can”. This is all accomplished at QYOU’s HQ and studios near Los Angeles.

Productions may not only feature extreme videos but also extreme EBITDA margins due to the low cost of licensing and production. Currently, QYOU’s licensed library sits at 3.5 million videos and growing daily.

Of importance, QYOU produces content that adheres to broadcast standards of all 35 countries to which it currently distributes programming.

Also adding to margins is the fact that the programming and the library’s content can be re-packaged and sold in many countries and to multiple carriers.

QYOU – The Public Company

QYOU went public by way of a reverse takeover of Galleria. Prior to the recent $0.50 per share financing that raised $7.3 million, $15.7 million (CDN) had been invested in the company. The pre-money valuation was just under $26 million (CDN). Chairman of the Board G. Scott Paterson has invested $1.35 million.

The company began trading on the TSX Venture Exchange on March 31st with the easy to remember trading symbol: QYOU.

It now has 65.9 million shares issued and the insiders own approximately 24% the stock.

(All figures in USD)

Revenue in 2015 was $768 thousand and $2.1 million in 2016. Total costs in 2016 were $6.1 million. It’s not unusual that staffing, marketing, development costs, etc. far exceed revenues for the first few years of a new company. This tends to be the case when a management group is looking to seize a market opportunity and especially so in today’s tech environment where everyone must “move quickly”.

Management’s 2017 revenue objective is to at least triple 2016 revenues. By the end of Q1/17, QYOU already had $3.4 million contracted and a pipeline that according to management, far exceeds revenue projections.

The business plan calls for the company to have its first break-even quarter in Q4/2017.

Further, the goal is for revenues to reach $16 to $17 million in 2018 with an EBITDA margin in excess of 30%. Thereafter, the objective is a CAGR (Compound Annual Growth Rate) in excess of 80% with EBITDA margins rising as high as 50%.

Closing Thoughts

It’s fairly clear that the company founders have the experience, talent and vision to maximize the chances of QYOU becoming an entity of considerable size and value.

What the value will become at any point in time will be tied to fundamental results, growth rates, what analysts will write and of course, how much industry “buzz” it can create.

Is it reasonable to think that a media conglomerate could see accretive value for its organization by scooping up a “multiple screen” entity that has the attention of the much coveted “Z” generation and millennials? Acquisitions are a big part of the entertainment industry’s history.

It’s not that QYOU is a North American story. It falls into the category of “the world is its oyster”. As one small example, in late 2016 it inked a deal with Tata Sky, just one of a hundred companies owned by Mumbai headquartered Tata Group.

Read more at: http://www.televisionpost.com/dth/tata-sky-acquires-the-qyou-content-to-woo-millennials/ 

Perhaps one day the “Z” kid will watch a QYOU program in their parent’s Land Rover or the affluent millennial in his or her Jaguar. Tata owns these brands.

As an aside, QYOU has a unique opportunity that is not available to more than a very few microcap companies. While this is not something that can be immediately quantified, the fact remains that there are some millions of people who have viewed QYOU programming. Should even a microscopic percentage become shareholders in the future, the impact could be significant.

After all, some millennials have proven to be very savvy investors.

And that’s a wrap!


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Disclaimer
The Howard Group is not a registered investment advisor and as such, individuals should consult a registered investment advisor prior to making investment decisions in relation to the companies discussed in this site. The information presented in these website pages was obtained from sources believed to be reliable but is not guaranteed, is not all conclusive and should not be relied upon as the sole source of information/opinion for making an investment decision. The Howard Group or its employees may own securities in the companies presented on 
this site. The Howard Group receives remuneration for Investor Relations activities from the companies presented on this site. The Howard Group Blog is a free blog providing an ongoing perspective on the events, corporate developments and market conditions that affect the client companies of The Howard Group.