What: Shares of Indian film production and distribution company Eros International (NYSE:EROS) rose on Friday after the company beat analyst estimates when it reported its fiscal fourth quarter earnings. By 11:30 AM on Friday, the stock was up about 9.5%, slightly lower than its high for the day.
So what: Eros reported quarterly revenue of $88.5 million, up 39.8% year-over-year and about $3 million higher than the average analyst estimate. Roughly half of the company's revenue came from theatrical releases, with the rest split between television syndication and digital channels. During the quarter, Eros released a total of 22 new films, down from 29 new films during the same period last year.
Eros reported a net income of $0.30 per share, two cents better than analyst expectations and far higher than the $0.12 per share reported during the same period last year. Gross margin improved significantly year-over-year, rising more than ten percentage points to 45.8%, driven in part by a lower average cost of new films during the quarter.
Eros' online platform, ErosNow, reached 19 million registered users worldwide during the quarter, up from 14 million users at the end of the previous quarter. Growth of the ErosNow platform has led to the company to defer its previous pay television strategy, instead focusing on over-the-top offerings.
Now what: Eros is rapidly growing its revenue and earnings after a few years of much slower growth, and its profit margins are impressive. During the full fiscal year, the company reported a 27.8% operating margin on $284.2 million of revenue. However, the cash flow situation is very different, as the company spends heavily on content each year. During the full fiscal year, Eros spent $267 million on content, although the company expects this number to shrink to $225 million during fiscal 2016.
This heavy spending is to expected given Eros' business model, and investors clearly aren't too worried about it, sending shares higher on a solid quarter.
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