NeuLion is a defensive way to play OTT growth, says M Partners

Investors looking for exposure to Over-The-Top content should consider NeuLion (NeuLion Stock Quote, Chart, News: TSX:NLN), says M partners analyst Manish Grigo.

This morning, NeuLion reported its Q3, 2014 results. The company earned (U.S.) $248,877 on revenue of $12.2-million, a 22% bump over last year’s third quarter topline.

“With increased revenue across our three divisions, marked by increased usage and volume in pro sports and TV Everywhere, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) increased from $200,000 to $1.3-million, demonstrating the operating leverage inherent in our business model,” said CEO Nancy Li. “In addition, with the rate of revenue growth increasing, our third quarter results are indicative of the increasing momentum in our business. With growing adoption of the consumption of content through digital media worldwide, NeuLion is in an excellent position for future growth.”

Grigo notes that NeuLion’s gross margins increased from 74% to 77% due to higher fixed and variable fees, a development he says shows the company has pricing power. He points out that NeuLion experienced year-over-year growth across all of its business segments, including pro and college sports and in its “TV Everywhere” platform.

“We believe NLN is a defensive way to play the growth in OTT video, without the customer acquisition risks that would be associated with a service provider/ content owner offering OTT video services,” said Grigo.

In a research update to clients this morning, Grigo maintained his “Buy” rating and one-year target price of $1.30 on NeuLion.

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