STX Entertainment Starts Hong Kong IPO Process

Robert Simonds - Getty - H 2017
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It will become the first U.S. entertainment company to be listed in Hong Kong.

Burbank-headquartered STX Entertainment has submitted preliminary paperwork for its planned initial public offering on the Hong Kong Stock Exchange in the form of a draft prospectus. 

A timetable for the offering and its financial terms weren't immediately clear, but the planned IPO, jointly led by Goldman Sachs and J.P. Morgan, would make it the first U.S. entertainment company to be listed on the stock market in Hong Kong.

The company was valued at $1.5 billion in a financing round in 2016 and is reportedly expected to raise $500 million via the IPO at a target valuation of $3.5 billion.

According to the preliminary IPO document, the company expects to incur a loss for the fiscal year 2018, just like it did every year since 2015 due to a persistently high cost of sales. It also noted that its film business relies heavily on the Bad Moms franchise, with an increase in revenue for fiscal year 2017 being driven by the post-theatrical release business of Bad Moms, while theatrical revenue decreased because none of the films the company launched in cinemas last year matched the success of Bad Moms in 2016. 

STX's loss for the fiscal year 2017, which ended in September, amounted to $11.8 million on revenue of $201.0 million. The prospectus also showed that for the first quarter of the current fiscal year, the company recorded a loss of $28.1 million on revenue of $93.0 million, up 41 percent. 

STX's TV business saw a 299.2 percent revenue improvement with the production and delivery of a large number of unscripted TV series in fiscal 2017.

Focused on bridging the two largest box-office markets in the world, the U.S. and China, and on making mid-budget films with production costs of $20 million-$80 million, STX has a list of shareholders in the U.S. and the Greater China region, including Uber and Spotify backer TPG Growth, China-based Hony Capital, Chinese internet giant Tencent and Hong Kong telecom firm PCCW Media. It also has commercial relationships with Alibaba, Tencent, Huayi Brothers and XG Media.

Co-founded by chairman and CEO Robert Simonds in 2011, STX has thus far distributed 23 films, with $1.3 billion in worldwide box office.

The company’s slate contains co-productions that integrate Chinese elements with Hollywood storytelling techniques, such as the Jackie Chan-Pierce Brosnan-starrer The Foreigner, which brought in $145 million globally last year, as well as U.S.-made but internationally financed comedies and dramas, such as the hit Bad Moms franchise and the award-nominated Molly’s Game and All the Money in the World.

The company also licensed the rights of the Golden Globes Awards to China through Tencent. In 2016, it co-produced a Chinese TV show, Number One Surprise, which drew more than 1 billion views on China’s Hunan TV. The company’s goal is to distribute 12-15 films a year, all of which feature a star in a signature role, and five to eight scripted and up to 10 unscripted TV series annually. Its acquisition of virtual reality content creator Surreal Inc in 2016 helped it launch a business for VR platforms.