4 Reasons to Invest in Endeavor Group Holdings

NYSE: EDR | Endeavor Group Holdings, Inc. News, Ratings, and Charts

EDR – Endeavor Group Holdings (EDR) went public about a month ago. The stock is up 25%, however, it has much more upside given its ownership of the UFC, the economy reopening, and the increasing value of content.

Endeavor Group Holdings (EDR) is an intriguing combination of entertainment and sports assets. Its major holdings include the William Morris Agency, IMG, and the UFC

EDR made its public debut in late April of this year and is up 24% from its pre-IPO price of $24. The company was able to raise $511 million from public markets and another $1.8 billion in private placements with institutional investors. 

Currently, EDR has a market valuation of $25.43 billion. Although there are some risky elements, I believe that investors should have a bullish stance on the stock and look to accumulate on any weakness.

Here are four reasons why:

UFC Ownership

Maybe the most intriguing aspect of EDR is its ownership of the UFC. Before its IPO, it owned 50.1% but bought back the remaining 49.9% for $1.75 billion as part of the IPO process. 

This gives the UFC a value of $3.5 billion. I believe that the value of the UFC will continue to compound at a double-digit rate and continue to grow in popularity especially on a global scale. 

If we compare the UFC to North American sports leagues like the NFL or NBA, there is much more room for growth and expansion in terms of viewership, TV contracts, sponsorship opportunities, and sports betting tie-ins. Many of the most expensive sports teams have values that exceed the entire UFC such as the Dallas Cowboys at $5.7 billion or the New York Knicks at $4.6 billion

Potential for Retail Interest in EDR

We saw the power of retail traders getting excited about stock and then driving it to absurd levels with Gamestop (GME) in January. And now, we are reliving it in some ways with AMC (AMC). 

There are many attributes of EDR that may resonate with retail traders and specifically, those that frequent Reddit’s WallStreetBets message board. 

The most obvious factor is its ownership of the UFC which is very popular among young males who are most likely to trade aggressively in markets. 

Another factor is that Elon Musk is on the Board of Directors of EDR. Finally, the company’s representation of celebrities and influence in the entertainment industry means there will be more mainstream media coverage than the typical stock which could also fuel retail interest.

Economy Reopening

In 2020, EDR’s revenue dropped and net loss widened compared to the previous year. Of course, the pandemic was the major factor. 

As the economy reopens and life slowly returns to normal, EDR is likely to benefit from the same pent-up demand that is rippling across the economy. If we look at history, there tends to be a creative boom in the years following a pandemic. 

Many summer concerts are already selling out which also bodes well for EDR’s roster of assets which include many that have been negatively affected by the lack of fans.

Betting on Content

If we look at the current online streaming landscape, it’s clear that there are too many companies competing for a finite amount of attention. This circumstance will likely lead to consolidation in the long-term but in the near term, it likely means that there will be a lot of competition for creative talent.

This will certainly benefit EDR which is an important intermediary in the supply chain of content creation with its representation of music artists, movie actors and actresses, athletes, and models. Now, the company is branching out into new areas like YouTube creators, esports players, streamers, TikTok influencers, etc. 

Risks

The most notable risk is that EDR has lost money in the last couple of years. In 2019, it had a net loss of $530 million and a $625 million net loss in 2020. 

It’s also valued at a premium to similar companies like Live Nation (LYV) and Fox Corp. (FOXA).

Another risk is that EDR has $5.9 billion in debt which could impede EPS growth.

Conclusion

Despite these risks, EDR remains an intriguing stock due to the reasons mentioned above. However, its ownership of the UFC is what I believe is the most compelling. Due to the interest and the emotional connection formed with fans, the value of sports franchises has consistently trended higher over the last 50 years.

While there have not been any opportunities for investors to share in this appreciation of professional sports, EDR’s public debut changes this as I see UFC benefiting from the same dynamics that fueled growth in the value of NBA and NFL franchises.

However, UFC could be an even better investment as fighters have shorter careers than most professional athletes, and the company can capture more value rather than the teams and athletes taking the bulk of revenues like in the NFL and NBA.

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EDR shares were trading at $29.46 per share on Wednesday afternoon, down $0.18 (-0.61%). Year-to-date, EDR has gained 16.90%, versus a 12.63% rise in the benchmark S&P 500 index during the same period.


About the Author: Jaimini Desai


Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of POWR Growth newsletter. Learn more about Jaimini’s background, along with links to his most recent articles. More...


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