Stingray - The Profitable Anomaly with Explosive Growth

Montreal-based Stingray Music is a bit of an anomaly: it’s not quite a streaming service, although at times it behaves like one, and it’s not quite radio, although, again, the similarities are there.

With more than 400 million households and 11,000 commercial clients in 74,000 locations and 156 countries around the world, Stingray, owned by parent company Stingray Digital, offers a number of disparate services ranging from aural to audio visual services; curated playlists and karaoke.

But whatever they’re doing, they’re doing it right.

Stingray issued their fourth quarter report in March 2017 and reported a 12.8% increase in revenues to a record $101.5M, an adjusted net income of $27.3M or $.53 per share compared with 2016’s $24.3M or $.50 per share, and an adjusted EBITDA that increased 9.2% to an all-time high of $33.9 M.

In the fourth quarter alone, Stingray’s adjusted net income rose to $10.5M or $.20 per share compared with 2016’s figures of $7.1M and $.14 per share respectively.

Since Stingray launched its IPO in June 2015, they’ve raised their dividend three times to where it currently sits at $.18 per quarter or an increase of 28.6% in fiscal 2017 alone.

“Our growth internationally has helped increase our numbers,” says Mathieu Péloquin, Stingray’s Senior Vice-President, Marketing and Communication in an interview with FYIMusicNews.

“Our objective is to build a robust Canadian business with our headquarter in Canada, in Montreal. So we did announce record numbers, and we also announced that we’re growing our headquarter in Montreal and will hire roughly 400 people over the next five years.”

Péloquin says Stingray positions itself differently than the streaming and satellite contingent.

“We position ourselves very differently - our product offering is so much broader than just the pure music side of it," he notes.

"To give you an idea of international versus Canadian numbers, we had revenues of just over $100M as of March 31 (2017): 

"75% of those revenues are mainly B2B revenues - roughly 400 TV operators and telcos worldwide - so they could be Vodafone, Ziggo out in Europe, AT&T, Comcast in the U.S., Movistar AK Telefonica in Latin America and Spain -  that’s 75% of our business.

"The other 25% is commercial music: music curated specifically for B2B purposes and commercial establishments including hotels, airports, planes, and trains. That’s the commercial side, and we also do digital display.”

There are other services:  10 TV channels and subscription VOD services that include Stingray Classica - the top music video classical performance channel in the world, and Stingray Jazz, which provides a similar function for jazz music.

This month, Stingray also launched the first 4K all music television channel, offered to all pay-TV providers across Canada.

In May, the company expanded its karaoke services by purchasing the Tel Aviv-based music app provider Yokee, which boasts 80M downloads and 4M-plus users monthly over three apps: Yokee Karaoke, Yokee Piano and Yokee Guitar.

“Everything revolves around music,” says Péloquin, and acquisitions also figure prominently in the future.

“We’re hoping to 20% increase through acquisition and a 5% increase through organic growth,” Péloquin explains.

“Our target is to do four or five acquisitions a year - basically one every couple of months. 

"We’re looking at music providers locally and potential acquisitions in the UK, in Poland, in Australia, in Latin America - everywhere in the world. We have 60- 80 potential targets, that may or may not happen. But our intention is to do four to five a year.

"One thing that we’re very adamant about is being part of building the next Canadian generation of corporations that support our systems, the health system, and  the ecosystem. There are too many companies with very high potential that end up being sold and cashed out, and at Stingray there’s a culture of building something. Our CEO (Stingray founder Eric Boyko) often says, 'I want your grandkids to be able to work here.'"

While many in Canada access Stingray through their cable TV provider, the company can only offer a finite number of channels of music due to channel availability. The Stingray Music App, however, is a different story altogether: Péloquin points out that their mobile app — which recently reached the download milestone of 2M, with 1.25M originating from Canada - has close to 3000 channels “because we don’t have capacity issues.”

So who is Stingray’s demo?

Péloquin says because Stingray covers over 100 music genres, the demographic his company reaches “7 to 77 years old.”

“Our listenership will tend to skew towards 15-to-24 because that’s the most consumed content by that age group. That’s where you’ll find the most popular music genres, anywhere from urban to pop to hip-hop.”

He speculates that Stingray listeners “probably use two other services as well.”

“You look at Nielsen 360, and just the Stingray mobile app alone is two points below Apple Music.”

Listener retention is measured at the aggregate level, pulled from IPTV provides that Péloquin says “gives us a good sense of the hours our channels are being tuned to.”

A quarterly survey through Matchbox on the Angus Reid Canadian sample is also deployed, with Péloquin claiming that close to 50% of the Canadian population that has access to cable “will listen to us on a monthly basis.”

As far as performance royalties are concerned, Stingray's pay audio rates are certified by the Copyright Board of Canada.

"Fifteen- to-25% of our revenues go directly to the collective societies and are remitted back to the artists," Péloquin explains.

"The big difference with Stingray is that if you get on rotation with a classical channel, you will not be paid by the listenership to that channel, but rather the fact that you're part of the rotation and you’ve been played 'x' number of times on that channel as part of the overall channel offering.

"For anyone outside of the pop, rock, hip-hop arena, we’re a significant source of revenue, and that’s something the artists communicate with us."

While future technological trends such as virtual reality and augmented reality may play a role in Stingray's future, Stephen Tapp, Senior Vice-President, Business Development, says there are no current plans to develop anything in those realms. 

However, one area they are making inroads in is voice activation technology.

"We’re actually on the product road map side fast-tracking the compatibility of our services to the Apple Pod as well as Alexa from Amazon," notes Péloquin. "Most of our services are compatible with AppleCar and Android Auto, so now we’re going to the voice-activated services as well.”

Adds Tapp: 

"With the rollout of the Xfinity platform for cable IPTV that Shaw announced with their  Blue Sky initiative, you know one of the features of that set top box is voice activation. So that’s interesting for us, and you know that Rogers is rolling out that technology next year? We’re watching that very closely. I think it’s going to be good for us because it’s a convenience."

As they add new territories through striking deals with mobile phone providers, diversifying product and channels, Stingray is poised for continuous and profitable growth through the foreseeable future. 

But one thing you won't see from them anytime soon is a stand-up comedy channel.

“We’re pretty good at knowing what we’re good at and what we should stay away from and that’s a good example. Anything we do will revolve around music and comedy is a world we’re just not familiar with,” says Péloquin.

Leave a comment