India’s Eros Grows Streaming Service Users, Analysts Bullish

For the Eros Now service, which has 19 million registered users, “eventually the goal is to convert transactional users and free viewers into monthly subscribers a la Netflix," says one Wall Street observer.

Indian film company Eros International, whose stock is listed in New York, drew a slew of bullish analyst reports after reporting its latest financials on Wednesday.

Wall Street observers particularly lauded the growth in users for streaming service Eros Now.

Macquarie Securities analyst Tim Nollen, who has an “outperform” rating on the stock, said in a report: “Eros Now is the real story here. Registered users have grown from 14 million last quarter to 19 million now, of which over 15 million are in India and 3.5 million around the world.”

Next month, the company will launch a roughly $10 million marketing campaign to convert viewership from free to paid as recent and popular films will start requiring a charge, while some library content will remain free. “Initially Eros expects to monetize users through transactional one-off sales a la iTunes, with films costing from 5-20 rupees (7.8 cents-31 cents), and to supplement this with ad revenues,” Nollen said. “Eventually the goal is to convert transactional users and free viewers into monthly subscribers a la Netflix. Such premium subs will get ad-free content and other benefits like device portability.”

Concluded Nollen: “Eros offers rare exposure to both fast-growing India and structural growth in generation-skipping OTT distribution.”

Jefferies analyst John Janedis has a “buy” rating on Eros shares with a $26 target price. He also touted the streaming service. “With several high-budget films being released to Eros Now prior to the TV window, we see an opportunity for sustained growth,” he wrote in a report.

While he said that the conversion to paying subs “has proved to be slow,” he said that “management remains focused on growing the sub base — an initiative which we expect will gather momentum with a marketing push in July.”

The company also said it would hold off on the planned launch of a TV network. “With the success of Eros Now, management announced plans to delay the launch of a TV net for the foreseeable future, a clear positive,” Janedis said. “The company has an early-mover advantage with Eros Now, which should ultimately drive significant value to Eros' stock.”

Wells Fargo analyst Eric Katz put a price tag on the savings from not having to pay for a network launch. “With the TV network shelved indefinitely, Eros will no longer have to shell out $50 million in capital expenditures for the launch, meaning Eros expects to be free cash flow positive” for its fiscal year, he said.

Reiterating his “outperform” rating on the stock, Katz concluded: “Eros delivered a solid quarter relative to consensus estimates, Eros Now has strong momentum, and we like that the company should be free cash flow positive this year.” He added: "We really like the Eros Now story."

Eros’ stock on Wednesday closed up 3 percent at $21.97, near its 52-week high of $23.42.

Twitter: @georgszalai