Key takeaways:
- Maoyan Entertainment returned to profitability last year as China’s movie industry bounced back from pandemic lows in 2020
- The company is transitioning from online ticket seller to a wider range of film-related services, including a fast-growing content production and distribution business
By Lau Ming
When it comes to China’s film sector, everything is relative. Sporadic Covid-19 outbreaks last year caused many theaters to flicker on and off with local restrictions, hurting ticket sales. But that was nothing compared with the half-year closure in 2020 at the start of the pandemic – a contrast that’s in clear focus in the latest results from Maoyan Entertainment (1896.HK).
China’sleading movie ticketing platform reported its revenue doubled in 2021 as theaters came back to life. In the process, it also swung to a 369 million yuan ($58 million) profit last year, reversing a loss in 2020. The company is shifting its focus to include content development, given uncertainties dogging its short-term prospects and a slowdown in its ticketing business.
China’s online film ticketing market is already quite developed, as the country vies with the U.S. for the title of world’s largest movie market. Chinese bought 86.25 of their cinema tickets online last year, making that easily the dominant purchasing channel. Maoyan, whose name means “cat’s eye,” has become a fat cat in that business with 60% of the market. It has also expanded into the ticketing business for concerts, live performances, exhibitions and sporting events.
Its revenue last year soared by 143% to 3.32 billion yuan ($522 million), with its core online entertainment ticketing business raking in 1.71 billion yuan, up 126%. Talk about shaking off the pandemic-induced blues of 2020. Better still, its faster-growing content business grew by an even bigger 284% last year, bringing in 1.36 billion yuan in revenue.
Those strong results didn’t seem to impress investors, who perhaps were expecting even more and also worried about the company’s future. Maoyan’s shares plunged 13.7% over two days after the announcement. They made up some of that in the last two days, but are still down by 8% since the announcement and now trade near the bottom of their 52 week range.
Most Chinese cinemas stayed closed for much of 2020 and did not fully reopen until late in the year. Thus Maoyan’s strong ticketing revenue gains in 2021 partly reflect a rally from a very low base in 2020. Even then, last year’s box office was still back to just 75% of 2019’s level. Official data showed Chinese cinemas earned 6.04 billion yuan in ticket sales during this year’s Lunar New Year holiday, down 23% from 2021. The holiday season saw 114 million tickets purchased, down 29% to a four-year low.
High price deterrent
A report published by the Chinese Consumers Association showed that media have been critical of high movie ticket prices this year. That was especially true during the Lunar New Year holiday, when many consumers were put off as prices reached new highs. Frequent closures during the pandemic have put immense pressure on the industry, prompting companies to hike prices in hopes of regaining lost ground. But the tactic has backfired, leading to a vicious cycle of high prices and low attendance. A noticeable lack of big Hollywood blockbusters like the latest “Spider Man” movie and “Shang-Chi,” the latest film based on a superhero from Marvel Comics, has also hurt attendance.
The weakening movie market has prompted Maoyan to step up its investment in content development. It has been working closely with a range of industry players to assist in the production, marketing and distribution of Chinese movies, including patriotic ones that have become popular lately. As a result, revenue from its content services now makes up 41% of its total, mostly from providing marketing and distribution services and revenue-sharing of the box office earnings of movies it has produced or backed.
The company now boasts a broad ecosystem including movie community, entertainment content and ticketing platforms, as well as a huge trove of customer data from its substantial user base. It has also made big inroads in movie distribution and marketing. Last year, domestically produced movies for which it served as lead distributor garnered 8.6 billion yuan in ticket sales, accounting for more than 20% of the 39.9 billion yuan for that segment. A big chunk of that came from the sleeper hit “Hi, Mum,” which pulled in more than 5.4 billion yuan and became the third best earner in Chinese box office history.
Maoyan has harnessed its big user base to gain insights into consumer preferences and provide recommendations to industry players, enabling them to make movies better suited to consumers’ tastes. The company has also profited by directly producing and investing in movies.
Worsening finances
Despite this year’s rebound, it hasn’t been all smooth sailing for Maoyan. Industry downturns or poor performance for its movie projects continually force the company to reassess its investments, which often results in one-time asset write-downs. In that regard, the company logged fair value losses of 87.6 million yuan last year for its movie and TV show investments, an increase of 2.2 times from 2020. It also reported a 307 million yuan loss as a result of depreciation of its financial and non-financial assets. And its outstanding receivables shot up by 185% during the same period to 910 million yuan. Those measures highlight some of risks it faces to its financial condition.
The company also faces major policy risks in a Chinese market where movies are subject to strong government oversight. Last year the Cyberspace Administration of China cracked down on artists’ irregular use of their online accounts, and the State Administration for Market Regulation has also beefed up its anti-trust enforcement actions. The China Film Administration also instructed the industry to go all-out to contain the pandemic, and put control and prevention measures in place for theaters. One such example saw Shanghai close all of its theaters amid a recent spike in Covid-19 cases, which will undoubtedly deal a blow to companies like Maoyan.
In valuation terms, another movie ticketing and content operator Alibaba Pictures (1060.HK), which lost money in the first half of last year, is on track to generate 2.72 billion yuan in revenue this year, giving it a price-to-sales (P/S) ratio of 6.3 times. The estimated P/S ratio for Huayi Tencent Entertainment (0419.HK), another film producer, is 5 times. By comparison, Maoyan has a relatively low P/S of 1.8 times, implying investors are cautious about its prospects.
JP Morgan has also released a report expressing concern that the recent worsening pandemic situation in China might lead to a wave cinema closures that disrupts the industry’s recovery. Given unpredictable box office prospects and growing uncertainties about Maoyan’s financial condition, the bank is increasingly cautious on the company. It recently revised its target stock price down by 40% from HK$11.50 to HK$6.50, and downgraded the company from “overweight” to “neutral”.
