Zee Entertainment: Profit Soars 1.4x, Stock Slides 6% | Explore the Reasons

Zee's profits soar 140%, yet stock falls 6%; Explore the reasons behind the fall

Zee, Zee Entertainment Enterprise, Liquide, Zee-Sony Merger, Sony

In an unexpected twist, Zee Entertainment Enterprises Ltd (Zee) has reported a staggering 140% surge in profits, hitting Rs 58.5 crore for the December quarter of FY24, a significant leap from the Rs 24.32 crore recorded in the same quarter the previous year. Despite this impressive financial performance, the stock fell over 6% on Thursday, to close at Rs 187.90 on the National Stock Exchange (NSE). 

ZEEL One-Day Price Chart
ZEEL One-Day Price Chart

This raises a crucial question: what's driving the disconnect between Zee's financial performance and its stock performance?

A Closer Look at the Financials

Zee's financial performance this quarter paints a complex picture. Alongside the profit spike, the television broadcasting giant noted a 3% fall in revenue, reaching Rs 2,073 crore, down from Rs 2,127 crore in Q3 FY23. Further, the backdrop of a failed merger deal with Sony and a sequential 52% dip in profits sequentially from Rs 122.96 crore in Q2 FY24 casts a shadow over these gains.

Revenue Chart
Revenue Chart

Also Read: Zee-Sony Merger Called Off: Analysing the Future Path for Zee Enterprises

A deeper look into the financials reveals a mixed bag. Advertising revenues dipped slightly by 3.3% to Rs 1027.4 crore while Subscription revenue offered a glimmer of hope, growing by 3% year-on-year to Rs 921.3 crore.

The allocation of advertising budgets was notably redirected towards the Cricket World Cup event, held from October 5 to November 19, 2023, and broadcasted on Disney Star's sports channels. Despite a slight boost in advertising during the festive season of the third quarter of FY24, the recovery rate of advertising expenditure remains gradual.

The Path to Recovery

Although the advertising revenue is likely to improve, particularly with increased investments from the Fast-Moving Consumer Goods (FMCG) sector, however, this progress is expected to be slow as some brands face slow growth due to a decline in rural demand.

With an eye on boosting profit margins, Zee has aimed for an 8-10% annual growth rate in overall revenue with its existing portfolio, while anticipating a quicker expansion in its digital offerings.

Zee5, the company's streaming service, saw its revenue for the third quarter increase by 14.9% year-over-year to Rs 223.2 crore, thanks to a surge in subscriptions. The platform also managed to decrease its operating loss to Rs 244 crore, improving from Rs 282 crore the previous year and Rs 253.9 crore in the second quarter.

In the same quarter, Zee5 introduced 19 new shows and movies, including five original productions. The company plans to overhaul the cost structure of its OTT service, Zee5, aiming to optimize expenses.

Looking Ahead

Zee is set to reassess its spending strategy across technology, content, marketing, and staffing, striving to establish a more efficient cost baseline in preparation for FY25. Management has indicated that, due to these strategic changes, there might be a temporary impact on profit margins over the next three to six months, primarily because of the one-off expenses required for these implementations.

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