Zoo Digital forecasting huge growth

Zoo Digital (ZOO) is employed by studios to make movies and TV shows accessible to global audiences. This is known as localisation. Zoo adds subtitles and dubs movies and shows, as well as making sure they run smoothly online. The company works with most of the major streaming platforms. 

Management sees dubbing as the strongest growth area. The company has a system that allows voice actors from all around the world to work from home, rather than having to record in studios. Dubbing is currently only a small part of the business but makes up around 70 per cent of the global localisation market.

Zoo has benefited from higher levels of spending on new content as the streaming wars raged. Its adjusted cash profit (Ebitda) more than doubled to $7.3mn (£6.3mn) and it swung to a profit before tax for the first time. Content production is now slowing down, but Zoo is yet to be affected, with a “strong order book” in place.

The board currently thinks Zoo’s addressable market is $1.5bn; it currently has 4 per cent of this. By 2030, it expects the market to double to $3bn and believes its market share could rise to 14 per cent, driven mainly by the growth of its dubbing business, which is yet to take off. This would give Zoo revenue of $420mn. In that time, it expects operating margins to expand to 20 per cent as it benefits from its scaleable platform.

If all of this comes to fruition, Zoo could be a valuable business. However, streaming has just gone through a boom period, boosted by low interest rates and pandemic lockdowns, but this is now slowing down. Even so, a FactSet consensus forward price/earnings ratio of 22 looks affordable given rapid top-line growth. Buy.