Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Eros International Surged Higher on Wednesday

By Jon Quast – Updated Apr 22, 2020 at 3:16PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Could its future streaming service be a hit in the U.S., like it is in India?

What happened

Last week, Eros International (ESGC) announced a merger with STX Entertainment. The stock traded up and down initially, but on Wednesday, shares were steadily heading higher. As of 3:45 p.m. EDT today, it was up 17.5%, after hitting a 20% gain during the session.

The new company will be called Eros STX Global Corporation, and it appears to be attracting investor attention due to its streaming service opportunity.

A couple streams TV from a couch.

Could Eros STX offer a popular streaming service? Image source: Getty Images.

So what

As the world's second most-populous country, India is an attractive market for many companies. But its linguistic diversity makes it challenging. So Eros International offers a streaming video-on-demand service called Eros Now in 10 Indian languages, attracting 187 million users, including 26 million paying subscribers as of the third quarter. That was up an impressive 60% year over year.

While popular in India, Eros International has yet to find footing in the U.S., but that could change. In March, the company announced a partnership with Comcast's NBCUniversal to launch Eros Now Prime for English speakers. Originally expected to just carry Eros content, now it can also feature STX Entertainment media. And Hollywood films from STX could more easily find a U.S. audience than Bollywood flicks.

For its part, STX Entertainment didn't previously offer a streaming service. Its properties were distributed through other streaming services.

Now what

The combined companies generated around $600 million in 2019 pro forma revenue. Considering its market capitalization is around $360 million, value investors may believe the stock is undervalued at just 0.6 times trailing revenue. That would certainly explain the stock's upward move today.

However, investors should temper expectations for the U.S. streaming service. As streaming competition increases, it's more important to have compelling content to stand out. Eros' content is relatively unknown among English speakers. And STX's biggest film from 2019 was Hustlers, which barely cracked $100 million at the box office. So it's fair to question how much appetite there will be for Eros Now Prime when it launches.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Eros International Plc Stock Quote
Eros International Plc
Comcast Corporation Stock Quote
Comcast Corporation
$29.33 (-3.62%) $-1.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.