Zoo Digital confident after strike-affected weak first half

Localisation and digital media service provider Zoo Digital reported a 58% fall in first-half revenue on Thursday, to $21.4m, primarily attributed to the Hollywood writers’ and actors’ strikes.

The AIM-traded firm said gross profit also saw a substantial 87% decrease to $2.1m, as it swung to an adjusted EBITDA loss of $7.1m from EBITDA of $7.3m in the prior year.

It recorded an operating loss of $10.9m, contrasting with a $3.8m operating profit in the first half of the 2023 financial year.

Despite the financial challenges, Zoo Digital completed an equity fundraising of £12.5m in April to support its proposed acquisition of a trusted partner in Japan.

The company’s cash balance at the end of the period was $16.8m, up from $10.8m a year earlier.

On the operational front, Zoo revealed a 58% decrease in localisation revenues and a 61% decline in media services revenue.

Its freelancer network decreased slightly, with 11,745 members compared to 12,343 in the first half of 2023.

The company said it continued its strategic international investments in Korea and Turkey and launched a Chennai facility after the reporting period.

Zoo also highlighted its commitment to customer satisfaction, maintaining a 99.5% retained sales key performance indicator.

In a positive development, Zoo was named the APAC Netflix Preferred Fulfilment Partner of the year after the period ended.

That, the board said, was based on results including an on-time delivery rate of 99.5%.

Looking ahead, Zoo Digital noted the resolution of writers’ and actors’ strikes in September and November, respectively.

The second half started with a more substantial order book from major customers.

It anticipated progressively stronger sequential performance in the third and fourth quarters, with a significant increase in sales expected in the 2025 financial year.

Zoo said it aimed to achieve at least breakeven at the EBITDA level in the fourth quarter and return to profitability in 2025, aligning with current market expectations.

Additionally, the company said it remained in regular dialogue with the vendor of the proposed target in Japan.

“The year to date has been overshadowed by the first joint strike of Hollywood actors and writers in more than 60 years,” said chief executive officer Stuart Green.

“This temporary disruption has had a significant impact across our sector and the wider media and entertainment industry, resulting in artificially low production volumes in the short term.

“While this has had a significant impact on our financial performance, we have taken targeted measures to conserve cash while positioning the business to recover rapidly once orders return to more usual levels.”

Green said that as the streaming industry focussed increasingly on profitability, Zoo was already seeing evidence that major buyers were relying on fewer vendors and prioritising those with end-to-end capacity and scale.

“This puts Zoo in a strong position to process higher volumes of work from customers over time, particularly as we make strategic investments in customers’ high-priority growth regions.

“With the resolution of the strikes, we look to the future with optimism and anticipate a phased return of orders in the second half, accelerating into the 2025 financial year.

“We remain confident in the industry’s long-term structural growth drivers and our role as a trusted partner to many of the world’s largest entertainment companies.”

At 1420 GMT, shares in Zoo Digital Group were up 5.8% at 59.25p.

Reporting by Josh White for Sharecast.com.