The ties between the Ellison family and Elon Musk grew even stronger recently. According to a report by Semafor, the world's richest man and the CEO of SpaceX (SPCX) and Tesla (TSLA) has purportedly invested $1 billion in Skydance (SKYD), the David Ellison-led media conglomerate formed after the merger of Paramount and Warner Bros.
Further clarity is needed, but former Chairman of the Board at Liberty Media Group, John Malone, has predicted that Musk's involvement with Skydance will not stop here. It will entail a total investment of about $10 billion, with Malone stating, "I predict — big prediction — that you’ll see a global output deal for Skydance with SpaceX, and an investment by SpaceX into Skydance, to de-lever Skydance and take a little bit of the burden off [Skydance CEO] David Ellison’s shoulders, because he’s taking on a pretty big pile of debt.”
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The Ellisons, Musk, and $80 Billion Debt
Larry Ellison, the Chairman of the Board at Oracle (ORCL) and the father of Skydance's CEO, has been like a mentor to Musk over the years. A relationship built on mutual admiration, Ellison's first financial tryst with Musk came back in 2018 when he bought 3 million shares of Tesla and joined the company's board of directors, where he served until 2022. In that same year, the senior Ellison committed $1 billion in equity financing through the Lawrence J. Ellison Revocable Trust to support Musk’s $44 billion takeover of Twitter.
Twitter is now X and is part of SpaceX, Musk's rocket, broadband, and AI company, which went public in the biggest-ever IPO, raising $75 billion. Meanwhile, Tesla, although mired in competition with Chinese upstarts, has seen its market cap soar to $1.5 trillion from about $50 billion in 2018.
However, a case can be made that Musk's companies would have survived even without Ellison's investments. Yet, to make the same assertion for David Ellison and Skydance would not be as appropriate. Skydance has total debt of $82.5 billion. Amid this, Ellison and his team are targeting at least $6 billion in annual savings within the next three years, reducing leverage while also committing to spend between $30 billion and $40 billion on content. Moreover, Ellison remains mindful of cash flows as well, with positive cash flows of $10 billion by 2030.
Thus, to achieve all this, Ellison would require funding, lots of it, and merely a billion dollars would not suffice. However, more than an investment, the symbolic worth of the same cannot be missed. Musk's input on content could be valuable for a company doing business with it, considering Musk's cult following and divisive nature. For instance, Musk's fandom for Star Trek is well known, and a collaboration can be worked on as a content piece.
The possibilities are endless, but the competition from the likes of Alphabet's (GOOG) (GOOGL) YouTube, Meta Platforms' (META) family of apps, Netflix (NFLX), and Disney (DIS) is also fierce. A positive for Skydance is that the merger overhang is done with, but the most difficult part lies ahead — execution.
And it will be an uphill task for Ellison if one considers the company's latest finances before the merger.
In the most recent quarterly results covering the three months ended June 30, and preceding the completion of the merger, Paramount Skydance exceeded forecasts on revenue while falling short on earnings.
Total revenue advanced roughly 1% from the year-earlier period to $6.9 billion. Growth was supported by the streaming and studios segments, which rose 9% and 16%, respectively, to $2.5 billion and $1.3 billion. Television media revenue, however, declined 9% year over year to $3.2 billion.
Earnings per share dropped to $0.04 from $0.08 in the prior year period, missing the consensus estimate of $0.11.
Despite the broader transition, the company remained cash flow positive. Net cash from operating activities for the six months ended June 30 totaled $504 million compared with $339 million in the corresponding period a year earlier. Paramount Skydance closed the June quarter with $1.63 billion in cash and carried no short-term debt, although long-term debt had already increased to $14.5 billion.
With a market capitalization of $8.7 billion, SKYD shares have declined 42% year-to-date and currently offer a dividend yield of 2.57%. These figures should be viewed in light of the merger and the related valuation distortions. A clearer assessment of the combined entity is likely to become available only after at least one full year of joint operations.
www.barchart.com Analyst Opinion on SKYD Stock
Overall, analysts have earmarked SKYD stock to be a “Hold.” The mean target price of $9.68 denotes a potential upside of 24.6% from current levels. Out of 23 analysts covering the stock, two have a “Strong Buy” rating, two have a “Moderate Buy” rating, 12 have a “Hold” rating, one has a “Moderate Sell” rating, and six have a “Strong Sell” rating.
www.barchart.com On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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