As the world’s largest software provider for the wild film industry, few companies have been hit as hard by the pandemic as Group View.
The forced closures have caused three of Vista’s top 15 customers to start restructuring. Others remain on the brink. Few buy new software, and of those who do, even fewer pay for it.
As of December, Vista’s two biggest markets were still in serious trouble: Only 40% of North American theaters and 20% of European ones had reopened. More collapses may be imminent, as loan deferrals, covenant waivers and insolvency moratoria end. It is a disaster.
|Year to December ($m)||2020||2019||Change
|Income (Cinema Vista)||57||99||(42)|
|Revenue (additional group companies)||14||18||(22)|
|loss of benefits)||(57)||13|
|Free cash flow||(17)||(5)||240|
|World market share* (%)||51||51||0|
|Earnings per share (c)||(24)||6|
|Dividends per share (c)||0||0||0|
|*20 screens, excl. Porcelain|
Vista’s response was predictable and appropriate. It scrapped its dividend, raised capital, restructured its workforce, took heavy write-downs, wrote off accounts receivable, and burned newly raised cash to stay afloat. The result was a massive loss of NZ$57 million. With the company still burning through 3-4 million NZ dollars per month waiting for a recovery, there is more to come.
None of this was a surprise. When we first updated the stock in September (Spec Purchase: $1.70), we argued that the pandemic would not last forever and that Vista would prevail afterwards. With mass vaccinations underway and the world about to reopen, we will soon see if events confirm that view.
pressure makes diamonds
Giving us confidence is that Vista started the recession with 51% of the market. Apart from in-house solutions, it has few serious competitors; those that do exist are small niche operators, often serving a few chains or regions.
Vista’s unmatched scale allows you to invest more than anyone else in sales, marketing, and product development. Its broader customer base reduces reliance on a single customer and drives never-ending product enhancements, like a COVID reopening kit, which helps with physical distancing requirements and contact tracing.
So while Vista has been hit hard, its competitors will have been hit even harder. Most are reducing investment in products, sales and marketing. In contrast, Vista is launching a new SaaS product this year, allowing theater operators to put their sales, kiosk and customer data in the cloud, saving money on on-site technicians and getting automated updates. While its rivals cling to life, Vista is cementing its market leadership with plenty of cash to weather the recession.
Are moviegoers coming back?
The question is not whether Vista will emerge as the supreme ruler of movie software, but whether there will be a kingdom to rule over. Consumers are streaming more content. Studios are shortening release windows and experimenting with direct-to-consumer releases. Will moviegoers and studios return to the movies?
The first data is irregular. Encouragingly, the Chinese box office has recorded $1.6 billion in sales so far this year, which is slightly behind the $9.2 billion reached in 2019. Meanwhile, in New Zealand and Australia, Google Trends data shows that searches for ‘movie tickets’ are on the rise, though still well below from pre-pandemic levels. Meanwhile, CEO Kimbal Riley, has said that he is encouraged by the “steady accumulation of positive news related to theater openings in China, Japan and Russia, as well as good signs in the US and UK.” But of course he would.
With studios still holding back content, it’s too early to tell. Our view, however, is that with global vaccines underway and an entire human race about to explode out of their living rooms, the last thing anyone wants to do is watch a movie on their couch. With pent-up demand meeting a glut of Hollywood blockbusters, the crowds could be bigger than ever. We believe that Vista will break even by the end of the year.
Question marks remain around release windows and studio moves like Warner Brothers to Release All 2021 Movies Direct-to-Consumer on its streaming platform simultaneously with the cinema. But such moves are likely a customer acquisition boost and will likely be temporary.
Streaming may erode theaters to the margins over time, but top directors and actors are looking for the big screen prestige and moviegoers appreciate the best sensory experience. Even the studios acknowledge the hype and additional revenue that is only possible with a theatrical release.
Yes, it’s inevitable that some movie theater chains will go bankrupt, but most won’t be wiped out. The fastest way a new owner will make money is by turning movies back on. For that, they’ll need Vista’s software, and with less than three times 2022 revenue, there’s plenty of upside to this stock if Vista can get the show back on track. SPECULATIVE PURCHASE.
Disclosure: The author owns shares in Vista.