Why I’m Not Buying the Top Media IPO in Years

Univision-IPOUnivision is planning to take the public markets by storm. It plans to trade under the ticker symbol “UVN” on either the New York Stock Exchange or the Nasdaq, and could raise upwards of $1 billion via an initial public offering.
Though little known to the general public, this could be the biggest media IPO we’ve seen in years, suggesting that broadcast media is still alive and well.
Univision is the largest Spanish language broadcaster in the U.S. It owns cable networks, local TV stations and radio properties. So, it has some clout in the broadcast market, but should investors in major cable networks be afraid? Apparently so. CBS Corp. (NYSE: CBS) and Time Warner Inc. (NYSE: TWX) have had talks with Univision about buying the company. So there’s inherent value in what Univision is doing.
And guess what? There is a Donald Trump angle to this story. He’s suing Univision for backing out of Trump’s Miss Universe pageant last month; it withdrew after Trump’s controversial remarks about Latin American immigrants. The Donald has enough on his plate as it is, running for president and facing a wave of backlash from sponsors and businesses.
Amidst the fray, Trump’s lawyer had this to say: “Univision is currently carrying in excess of $10 billion in debt, ‘has swung in and out of profitability’ and barely broke even last year.” That brings up some pressing issues with the company.
It’s unclear how much the company will raise via the IPO or the ultimate valuation, but reports value the company at nearly $20 billion. Yet profitability remains a concern and its $10 billion debt load is sizable.
Ideally, the IPO proceeds would be used to pay down that debt. But it’s said to only be raising roughly $1 billion, which will merely put a small dent in its $10 billion debt load.

Demographic Tailwinds

The broader demographic tailwinds for Univision are strong, however. In its Form S-1, which reads more like a prospectus, the company lays out just how big the Latin American population will be in the U.S.
The number of Hispanic people in the U.S. is expected to grow by 40% over the next 15 years. Spending by Latin American households is on the rise as well, and let’s not forget that it’s one of the younger demographics in the U.S.
The growth rate for Univision’s Hispanic pay-TV subscribers has been much higher than that of U.S. pay-TV customers in the last few years. In truth, the Spanish language broadcast and media might be one of the only parts of the media industry that’s still growing.

The Grupo Televisa Factor

Yet, Grupo Televisa (NYSE: TV) is a big reason for Univision’s success, providing Univision with exclusive broadcasting rights in the U.S. Note that Grupo Televisa is the world’s largest producer of Spanish-language TV programming.
The two recently inked a licensing agreement through 2030. And if Univision does go public, Grupo Televisa will own 22% of Univision’s voting rights.
Broadcasters are still beholden to advertisers, and with advertising shifting to the online markets, that’s bad news for Univision. When it comes to cable and broadcast players, bigger is better. And Grupo Televisa is big.
So, what’s the play? The major cable networks should have some concern, assuming they aren’t tapping into the fast growing Latin American population. If you do want to make a play on Spanish language broadcasting, why not avoid the uncertainty of a Univision IPO and focus on Grupo Televisa?

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