Should I buy UFC shares today? That’s the question I’ve been asking myself after its parent, Endeavor Group (NYSE: EDR), hit the market at the end of last week.
Endeavor is the owner-operator of the UFC mixed martial arts league.
That’s not the only entertainment business owned by the group. It also owns the Miss Universe Pageant, the IMG talent agency and other top sports and entertainment properties.
However, it’s probably best known for the UFC business. That’s why many analysts and investors have taken to calling Endeavor by the name of its subsidiary.
Nonetheless, in trying to answer the question of whether I should buy UFC shares, I also want to know if I am happy owning the other enterprises in the Endeavor group.
Tough year
Last year was a rough one for the group. As the coronavirus pandemic disrupted sport and entertainment events around the world, revenues plunged.
According to financial documents submitted ahead of the company’s IPO, revenue plummeted nearly 24% to $3.5bn for 2020 with a net loss of more than $625m. The public offering has added some much-needed cash to the group’s coffers. It planned to raise as much as $511m via the IPO.
As part of the IPO process, Endeavor also received $1.8bn through a private placement from New England Patriots parent Kraft Group LLC, Michael Dell’s MSD Capital, Silver Lake and other investors. In addition, Tesla CEO Elon Musk is also joining the company’s board of directors.
Should I buy the shares?
This year might be a better one for the group, but uncertainty currently dominates the outlook for the entertainment industry. It’s unclear how long it will take for the industry to recover to 2019 levels of activity and whether advertising and viewer demand will ever return to those levels.
Investors like me in UFC shares also have a minimal interest in the business. Endeavor’s senior executives and other controlling investors hold nearly 90% of the company’s outstanding shares, according to the IPO prospectus.
That means public investors hold around 10% of the stock. This may mean that individual investors’ are overlooked at the expense of larger holders. Although this is not a certainty.
Still, despite these risks and challenges, if the entertainment industry sees a strong recovery in 2021, Endeavor shares could roar higher. It owns a portfolio of highly valuable franchises, which may help drive the recovery after the pandemic.
In an uncertain environment, advertisers and customers are more likely to spend with well-known brands. This could work in the group’s favour and help drive the company’s post-pandemic recovery.
Despite this potential, I am not going to buy UFC shares today. Considering the current outlook for the entertainment industry, it’s difficult for me to tell what the future holds for the enterprise’s parent company. This makes it challenging for me to value the stock. However, other investors with more insight into Endeavor may come to a different conclusion.
