The Endeavor IPO: Should Investors Jump In, or Wait It Out?

Tackling the ultimate pre-IPO question.

Motley Fool Staff
Motley Fool Staff
Jul 16, 2019 at 11:28AM
Consumer Goods

In this final segment from a recent Motley Fool's Industry Focus show devoted to the upcoming IPO of talent agency and content behemoth Endeavor Group Holdings, the podcast team boils down its analysis to answering the single most important question in IPO investing: Should you call your broker to try to get shares, or stay on the sidelines? Click below for a thumbs-up or thumbs-down from host Nick Sciple and guest contributor Asit Sharma.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

This video was recorded on July 09, 2019.

Asit Sharma: Moving to the larger question, let's say they get through the IPO. Is this something that you, listener, would want to put your money behind? I'm going to ask Nick to opine on that first. I'll also give my opinion.

Nick Sciple: I would say, right now, I want to see a couple quarters of how things play out. As I mentioned earlier, they've made a large number of acquisitions in the past few years. Particularly, some of the more interesting content that they've moved into has been in the last couple of years. So, I'd like to see how those things continue to get integrated. As well, we have this litigation hanging over their heads. Even if this dispute doesn't go to trial, the negotiations back and forth could take some time. If there is a work stoppage at any point, that of course is going to be a significant issue to Endeavor. If their clients are not working, they can't collect fees.

However, when you look at these package rights, that does give maybe Endeavor a little bit of leverage over the Writers Guild in this situation, in that Endeavor is going to have consistent revenue coming in from these package rights, while the agency, if they had a work stoppage or something like that, is just not going to have the same type of cash coming in. So, it looks as though Endeavour could have some leverage. But I want to see how things play out.

Another thing to think about, too, is the employees of this company, as they've made all these acquisitions and been preparing to go public, have been counting on getting some liquidity from this IPO. If that affects that, I'd be concerned -- in an agency like this, you could have some departures or move elsewhere. I really want to see those question marks be resolved before I put a lot of cash behind this company.

I will say, before we really dove into a lot of these issues, I was very excited about all the assets that Endeavor holds and the way that they can leverage their relationships with their clients to touch content across the board. I still like those assets, but I really want to see this dispute with the Writers Guild get resolved, and I would like to see a couple quarters at least have continued integration and some positive signs that we're going to see upticks in EBITDA. So, I think it's a "watch, wait and see" for me. Very interesting, but I want to see some more clarity right now. What about you, Asit?

Sharma: Yeah, I'm in the same boat, Nick. I want to watch this for a few quarters. Like you, I like the assets. The assets are strong. But the problem with this S-1 is, "Our strengths are our strengths, and we're going to amplify them even more." There really is no consideration in this S-1 to say, "Hey, we could have done a better job with controlling our operating costs, especially the distribution costs that go hand in hand with content, our marketing and selling costs," which are high. I think, if there'd been a little bit of focus to that, and a plan presented, like, "We have not just a way to become stronger on adjusted EBITDA basis, but on an EBITDA basis, or GAAP basis," income according to generally accepted accounting principles. Some kind of plan to show, on the operational side, that they can control costs and start getting some of that operating leverage. I would have been a little more excited about this. To me, that would signal, "We've got these great assets and we can make them profitable." And at the end of the day, investor, you need strong and growing cash flows just as you need a nice-looking adjusted number that you've been able to pick and choose what goes into that formula.

So, I'm going to wait and see. A very interesting company. This isn't to say that some point, you wouldn't want to make an investment. But I would not rush in for a few quarters at least.

Sciple: Yeah, I feel the exact same way, Asit. We'll continue to follow this one. It touches so many things I like -- sports, content.

Sharma: I know!

Sciple: Super interesting company. We'll definitely continue to follow it.

Sharma: Even had the betting angle for us, sports betting.

Sciple: I know, right? Everything we're talking about.