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QYOU: Hollywood Strike Impacts Q3; Long-Term Growth Intact

What you need to know:
• QYOU Media reported Q3 financial results that came in softer than expectations due to the Hollywood strike that impacted ~$1.3M in sales.
• We look at the miss as a short-term headwind that should dissipate through 2024, creating a buying opportunity for investors.
• QYOU has reported several positive developments over the last few months including the hiring of media veteran Raj Mishra as India Group CEO.

Yesterday after market close, QYOU Media (QYOU:TSXV) reported Q3 financial results that missed our expectations due to the Hollywood strike which impacted ~$1.3M of QYOU USA’s revenue. We look at the quarter as a temporary headwind which should subside in the coming quarters and view any pullback in the stock as a buying opportunity. We remain confident in QYOU’s management team (with the addition of Raj Mishra) and the investment thesis outlined in our initiation report (read here). QYOU has also reported various positive developments subsequent to the quarter which are highlighted on page 2. We are maintaining our BUY rating and $0.15/share target price on QYOU.

Key Highlights
• QYOU reported $7.3M in revenue compared to our estimate of $8.4M and $7.2M in Q3/22 (+0.5% YoY growth). This represented QYOU’s 10th consecutive quarter of YoY revenue growth. The miss was caused by the Hollywood actors and writers strike which cancelled and delayed advertising projects for QYOU USA’s business. Management highlighted that 50% of QYOU USA’s revenue serves the television/film industry and that revenue would have been ~$1.3M higher without the strike ($8.6M, beating our estimate).
• QYOU India’s revenue came in at $3.5M (-13% YoY) due to the shift to the DTC model. QYOU USA’s revenue came in at $3.7M (+18% YoY), despite the aforementioned impact on operations.
• Adj. EBITDA for the quarter came in at ($0.9M) compared to our estimate of ($0.5M) and ($0.7M) last year. The miss was led by the Hollywood strike as well as larger investments into growth initiatives such as DTC gaming.
• Content & production costs came in at 61% of revenue compared to 64% last year and sales & marketing expenses came in at 11% vs. 15% last year. This demonstrates the focus on cost control and improving operating leverage.
• QYOU ended the quarter with $1.7M in cash and $0.9M in debt (not including its recent financing).