Videogame Industry
Vivendi's online game heroes
Auteur : The Business online
Du : 06/11/2005
WOW is a crass word that might be used to describe the 200% jump in Vivendi Universal shares since the summer of 2002. It’s also the acronym for World of Warcraft, the company’s hit online subscriber role-playing video game.
Under the direction of chairman Jean-Rene Fourtou and more recently chief executive Jean-Bernard Levy, the French telecom and media giant has staged a remarkable comeback from its post-bubble collapse, and its American depositary receipts (ADRs) have tripled from their low to $30.50.
The duo have streamlined the sprawl and excesses created in the name of “synergies” by ousted predecessor Jean-Marie Messier, paid down debt and reinvigorated and refocused the company around its key components. They are SFR, France’s second-largest wireless telecommunications company; Universal Music Group, the largest music company in the world; the Canal+ Group cable television provider and filmmaker and distributor; and VU Games, the video-games publisher that made WoW.
More stock gains are likely as Vivendi moves beyond restructuring and recapitalising and concentrates on building core businesses.
Chief executive Levy says: “The numbers are really amazing, and we see there is really an explosion of multimedia services and broadband services. There’s an explosion of music usage, an explosion of online games usage, text and video messaging and so forth and we are right in the heart of that.”
Vivendi’s ADRs are still a bargain at just under six times 2006 cash flow compared with a multiple of around nine-to-11 times for other media companies (each ADR represents one common share). Even battered Viacom trades at eight times cash flow. Potential catalysts for more gains include moves such as Vodafone purchasing Vivendi’s stake in SFR; the monetisation of Vivendi’s 18.5% stake in NBC Universal; and the possible merger of its Canal + satellite operations with competitor Lagardère’s TPS satellite operations.
Larry Haverty, media specialist and portfolio manager at Gabelli Global Multimedia Trust (GGT), where Vivendi is one of the top 10 holdings, expects the shares to move higher in the next six-to-nine months, as investors become more aware of the enormous cash flow generated by World of Warcraft. Analysts at Gabelli put the private-market value of Vivendi at about E36, or about $43 per ADR.
Natexis Bleichroeder’s Julien Wirth puts fair value for Vivendi shares at E33, or $40 an ADR, but also factors in a 10% discount because of the company’s conglomerate structure, bringing his estimated fair value to E30, or about $36.50 an ADR. The firm expects Vivendi to deliver net income of E2.05bn this year, or E1.79 a share, on sales of E19.4bn. That compares with net of E1.31bn, or E1.14 a share, on sales of E18.9bn in 2004.
Vivendi’s true value tends to be obscured because its many moving parts, though fewer than in the past, still distract from the whole and make it difficult for some to understand. Vivendi’s overall multiple gets nicked a bit because of its telecom assets, which typically trade at a lower multiple than media assets.
“The internet is already a key to our operations right now,” Levy says. “Take World of Warcraft as an example. There would be no World of Warcraft without broadband internet access. For TV applications, or for games applications, or music downloads or other interactive applications, the development of broadband internet is the key to our future growth. Broadband internet today is in fewer than 35% to 40% of US homes.”
SFR, which is about 44% owned by Vodafone, has been an outstanding performer. And despite a slump in the music industry, Vivendi’s Universal Music Group has managed to gain market share, and generate huge free cash flow and a roster of talent including 50 Cent, Eminem and Mariah Carey.
VU Games has been transformed from a loss-riddled operation to a profitable one thanks to World of Warcraft, which is expected to generate $250m in cash this year.
Game geeks around the world pay an average of between $15-$25 a month to spend around 25 hours a week on the role-playing game. Industry analysts say VU Games is worth $2bn to $3bn and should receive a much higher implied multiple than its current three times cash flow. In contrast, Electronic Arts, a games developer, trades at about 20 times cash flow.
Video gaming is one area of consumer spending that shouldn’t be hurt by rising oil prices, notes Gabelli’s Haverty.
Despite the new glamour of the games division and the strong performance of the telecom and music business, the real allure of Vivendi rests on the hope it will see fit to sell SFR to Vodafone, which has made no secret that it would be interested in Vivendi’s stake.
Vodafone revealed to analysts in mid-September it was as keen as ever to own SFR. Transactions in the industry have been fetching hefty premiums of between 20% to 30% of average multiples in the sector, which was underscored by the recent acquisition of 80% of Spain’s wireless operator Amena by France Telecom. A sale of SFR to Vodafone would add E3 a share to Vivendi’s net asset value, some analysts estimate.
“We are not selling assets any more,” insists chief executive Levy. “We have decided a long time ago which assets we will keep and which we will sell.”
Pressed on whether a sale of SFR would create more value for Vivendi’s shareholders, as they maintain, Levy contends, “I think exactly the opposite.”
Vivendi has positioned itself so shareholders should benefit whether or not it sells its stake in SFR. But for a attractive price, investors can take a flier on a sale.
Under the direction of chairman Jean-Rene Fourtou and more recently chief executive Jean-Bernard Levy, the French telecom and media giant has staged a remarkable comeback from its post-bubble collapse, and its American depositary receipts (ADRs) have tripled from their low to $30.50.
The duo have streamlined the sprawl and excesses created in the name of “synergies” by ousted predecessor Jean-Marie Messier, paid down debt and reinvigorated and refocused the company around its key components. They are SFR, France’s second-largest wireless telecommunications company; Universal Music Group, the largest music company in the world; the Canal+ Group cable television provider and filmmaker and distributor; and VU Games, the video-games publisher that made WoW.
More stock gains are likely as Vivendi moves beyond restructuring and recapitalising and concentrates on building core businesses.
Chief executive Levy says: “The numbers are really amazing, and we see there is really an explosion of multimedia services and broadband services. There’s an explosion of music usage, an explosion of online games usage, text and video messaging and so forth and we are right in the heart of that.”
Vivendi’s ADRs are still a bargain at just under six times 2006 cash flow compared with a multiple of around nine-to-11 times for other media companies (each ADR represents one common share). Even battered Viacom trades at eight times cash flow. Potential catalysts for more gains include moves such as Vodafone purchasing Vivendi’s stake in SFR; the monetisation of Vivendi’s 18.5% stake in NBC Universal; and the possible merger of its Canal + satellite operations with competitor Lagardère’s TPS satellite operations.
Larry Haverty, media specialist and portfolio manager at Gabelli Global Multimedia Trust (GGT), where Vivendi is one of the top 10 holdings, expects the shares to move higher in the next six-to-nine months, as investors become more aware of the enormous cash flow generated by World of Warcraft. Analysts at Gabelli put the private-market value of Vivendi at about E36, or about $43 per ADR.
Natexis Bleichroeder’s Julien Wirth puts fair value for Vivendi shares at E33, or $40 an ADR, but also factors in a 10% discount because of the company’s conglomerate structure, bringing his estimated fair value to E30, or about $36.50 an ADR. The firm expects Vivendi to deliver net income of E2.05bn this year, or E1.79 a share, on sales of E19.4bn. That compares with net of E1.31bn, or E1.14 a share, on sales of E18.9bn in 2004.
Vivendi’s true value tends to be obscured because its many moving parts, though fewer than in the past, still distract from the whole and make it difficult for some to understand. Vivendi’s overall multiple gets nicked a bit because of its telecom assets, which typically trade at a lower multiple than media assets.
“The internet is already a key to our operations right now,” Levy says. “Take World of Warcraft as an example. There would be no World of Warcraft without broadband internet access. For TV applications, or for games applications, or music downloads or other interactive applications, the development of broadband internet is the key to our future growth. Broadband internet today is in fewer than 35% to 40% of US homes.”
SFR, which is about 44% owned by Vodafone, has been an outstanding performer. And despite a slump in the music industry, Vivendi’s Universal Music Group has managed to gain market share, and generate huge free cash flow and a roster of talent including 50 Cent, Eminem and Mariah Carey.
VU Games has been transformed from a loss-riddled operation to a profitable one thanks to World of Warcraft, which is expected to generate $250m in cash this year.
Game geeks around the world pay an average of between $15-$25 a month to spend around 25 hours a week on the role-playing game. Industry analysts say VU Games is worth $2bn to $3bn and should receive a much higher implied multiple than its current three times cash flow. In contrast, Electronic Arts, a games developer, trades at about 20 times cash flow.
Video gaming is one area of consumer spending that shouldn’t be hurt by rising oil prices, notes Gabelli’s Haverty.
Despite the new glamour of the games division and the strong performance of the telecom and music business, the real allure of Vivendi rests on the hope it will see fit to sell SFR to Vodafone, which has made no secret that it would be interested in Vivendi’s stake.
Vodafone revealed to analysts in mid-September it was as keen as ever to own SFR. Transactions in the industry have been fetching hefty premiums of between 20% to 30% of average multiples in the sector, which was underscored by the recent acquisition of 80% of Spain’s wireless operator Amena by France Telecom. A sale of SFR to Vodafone would add E3 a share to Vivendi’s net asset value, some analysts estimate.
“We are not selling assets any more,” insists chief executive Levy. “We have decided a long time ago which assets we will keep and which we will sell.”
Pressed on whether a sale of SFR would create more value for Vivendi’s shareholders, as they maintain, Levy contends, “I think exactly the opposite.”
Vivendi has positioned itself so shareholders should benefit whether or not it sells its stake in SFR. But for a attractive price, investors can take a flier on a sale.