Stingray confident in TuneIn acquisition expanding global digital audio footprint

Key Concepts

• Stingray Acquisition of TuneIn: Stingray, a music media and technology firm, is acquiring TuneIn, a live audio streaming and ad monetization company, for up to $175 million USD.
• Growth Vectors: Stingray's strategy focuses on three key growth areas: Fast Channels (free TV channels), Retail Media (audio ads in stores), and Karaoke/In-Car Entertainment.
• Advertising Shift: A significant portion of advertising revenue is moving from traditional TV to new devices and platforms like free TV channels, retail media, and in-car systems.
• B2B vs. B2C: Stingray primarily operates on a Business-to-Business (B2B) model, selling its services to manufacturers and platforms, rather than directly to consumers (B2C).
• Music Distribution: Stingray is positioned as a major player in music distribution, ranking third globally behind XM and Spotify.
• Mergers and Acquisitions (M&A): Stingray has a history of aggressive M&A activity, with 45 acquisitions to date, and maintains financial capacity for future deals.

Stingray's Acquisition of TuneIn and Strategic Expansion

Stingray is set to acquire TuneIn, a company specializing in live audio streaming and ad monetization, for a sum of up to $175 million USD. This acquisition is expected to significantly expand Stingray's global digital audio presence and accelerate its growth in streaming and advertising capabilities.

Financial Impact of the TuneIn Acquisition

The acquisition is projected to have a substantial positive impact on Stingray's financial performance:

• Sales Increase: Expected to increase sales by 40%.
• EBITDA Growth: Projected to increase EBITDA to over $200 million, a significant jump from the current $565 million (this figure seems to be a typo in the transcript and likely refers to a previous EBITDA or a different metric).
• Free Cash Flow: Anticipated to boost free cash flow by 50%.

Strategic Synergies and Future Vision

Eric Boyo, President, Co-founder, and CEO of Stingray, highlighted three key areas of excitement regarding the TuneIn acquisition:

1. Advertising Complementarity: TuneIn is described as a powerful "advertising machine" for audio and video ads. This will complement Stingray's existing ad offerings on TV and in retail media.
2. In-Car Entertainment Dominance: Stingray anticipates that within the next five years, every car globally will feature the "Stingray TuneIn Car Player." This is driven by trends like Tesla abandoning AM/FM radio and GM phasing out CarPlay. Stingray's system will integrate traditional XM series channels, TuneIn content, and Stingray's music offerings.
3. Market Validation: The stock market's positive reaction, with Stingray's stock rising by nearly 20% to an all-time high, and the positive reception from analysts, underscores the strategic value of this deal.

Stingray's Three Key Growth Vectors

Stingray's overarching strategy is built upon three primary vectors of growth:

1. Fast Channels: This refers to the free channels available on television, a significant area of focus for Stingray.
2. Retail Media: This involves delivering audio advertisements within retail environments, a growing segment for Stingray.
3. Karaoke and In-Car Entertainment: Stingray has a substantial presence in the karaoke market, with deals in place with major car manufacturers like Tesla, BYD, Ford, GM, and Toyota. The company sees significant potential in in-car karaoke, despite acknowledging safety considerations that require manufacturer-specific implementations and potentially the use of phones or co-pilots.

Previous Acquisitions and Integration

Stingray has been actively pursuing acquisitions to bolster its growth strategy. Notable recent acquisitions include:

• DMI: This acquisition involved securing the Walgreens account, giving Stingray access to 8,500 stores across the US.
• Singing Machine: This acquisition positions Stingray as the world's leading provider of karaoke machines and microphones. The company's ambition is to integrate karaoke capabilities into every TV and car globally.

Competitive Advantage and Market Position

Stingray differentiates itself in the competitive landscape through several key advantages:

• Worldwide Music Rights: Stingray possesses worldwide rights for music distribution, a significant advantage in the audio music and karaoke sectors.
• Global Reach: The company has successfully expanded its offerings, such as the Galaxy service, to 142 countries.
• Top-Tier Music Distribution: Stingray ranks as the third-largest music distributor globally, following XM and Spotify.
• B2B Focus: While not as widely recognized by consumers, Stingray's B2B model, supplying services to major electronics manufacturers like Samsung, LG, Vizio, and Tesla, ensures its technology is embedded in numerous products, often indicated by "powered by Stingray."

Business Model: Advertising Over Subscriptions

Stingray's primary focus is on the advertising market, which is experiencing a significant shift:

• Advertising Market Growth: An estimated $70 billion is transitioning from traditional TV advertising to new platforms, including free TV channels, retail media, and in-car systems. Stingray is strategically positioned to capture a substantial portion of this market.
• Subscription Model: While Stingray offers subscription services, they are considered a "nice business" rather than the primary growth driver. The company is experiencing 30-40% organic sales growth driven by the booming advertising market.
• Partnerships: Stingray collaborates with major players like Google and Amazon, recognizing the sophistication and growth potential of the advertising market.
• Long-Term Car Play: The automotive sector is viewed as a 10-20 year play, given the average car ownership duration of 11 years.

The Enduring Appeal of Music

Stingray's business model is anchored in the timeless appeal of music:

• Music as a Constant: As a music distributor, Stingray does not need to predict future music trends or artists. Its role is to distribute existing and emerging music.
• Licensing Guarantee: Music licensing ensures Stingray's relevance for the foreseeable future, as music and singing are expected to remain popular.

Future M&A Activity and Financial Prudence

Despite a history of aggressive acquisitions, Stingray is currently focused on integration:

• Integration Priority: The TuneIn acquisition is Stingray's largest US acquisition to date, and the team requires a period of integration and rest.
• Financial Capacity: Stingray has maintained financial flexibility for future opportunities. The company secured a $150 million term loan in USD to hedge its currency exposure and retains $300-$400 million on its line of credit, providing "dry powder" for potential future acquisitions.
• Quebec Inc. Trend: Stingray's M&A strategy aligns with a broader trend among Quebec-based companies (e.g., Couche-Tard, WSP) that are actively engaged in acquisition modes.

Eric Boyo concluded by expressing excitement about the integration of TuneIn, the establishment of a significant office in New York, and the continued pursuit of strategic growth opportunities.