Starz Q2-25 Earnings Recap
Time for $STRZ to “Get the Strap”
As regular readers of this Substack are aware, I have been cautious about the upside potential of the company Starz ($STRZ), ever since it spun out from Lionsgate earlier this year. Well, last night they reported Q2-25 earnings and I won’t bury the lede. STRZ reported losing over 500,000 subscribers and overall revenue was down -8% YoY for the quarter. Understandably, disappointed investors “got the strap”, shooting the stock price down over -20% Friday.
While some writers use AI to generate quick recaps of earnings, devoid of context, I want to give you color that AI cannot provide. So, for my update today, I am sharing my top 5 quotes from the earnings conference call with Starz management. I’ll give you my quick take on what it means for the investment thesis going forward.
1)Arguing their stock is undervalued — Jeffrey Hirsch, CEO
Accrued Interest Take:
A management team that dedicates time on earnings calls to persuade the market of their stock's undervaluation raises a red flag for me.
I used to think that it was the CEO's duty to act as a cheerleader for their stock. But with more experience I know the market will value a company based on earnings and not the strength of their investor pitch deck.
A better use of the CEO’s time would be to explain to investors any signs of organic growth in the business. Demonstrating future growth would do more to help the stock than arguing about the proper EBITDA multiple.
Besides - I prefer EV to Free Cash Flow as my metric of choice.
STRZ management said they anticipate the spin-offs from other media companies will make their stock appear cheap by comparison.
To that I would say…be careful what you wish for! It is possible the other spinoffs could end up making Starz’s stock look expensive. Comparative valuation can cut both ways.
2)Trying to make their ratings sounds better than they are — Jeffrey Hirsch, CEO
Accrued Interest Take:
Starz is presenting a misleading comparison by stating that the viewership for their new prequel series, Blood of My Blood, is up 40% over the last episode of Outlander's Season 7.
A more appropriate comparison for viewership would be between the season premieres of Blood of My Blood and Outlander Season 7.
This is likely a strategic narrative to present a favorable view to investors, as season premieres typically have the highest ratings, and viewership trails off over the course of the season.
3)Lost more than a half million subscribers — Scott MacDonald, CFO
Accrued Interest Take:
Honestly there is no need to build a complex financial model here. When I read in the press release that Starz had lost 520,000 subscribers, I knew the stock was going to have a strong NEGATIVE reaction.
Streaming is a high fixed-cost business and losing over half a million subscribers is painful for anyone, particularly a smaller network.
STRZ business model does not rely on advertising revenue. Without year-round ad revenue to smooth out the business, revenue can be volatile when subscribers are churning.
Even non-financial publications used the -520K loss figure for their headlines. Some situations are just bleak and don’t require much explanation.
4)Goal to improve margins by cutting programming — Jeffrey Hirsch, CEO
Accrued Interest Take:
I am also unconvinced that Starz, after spinning-off from Lionsgate , is going to be able to produce similar content more cheaply because smaller companies have less bargaining power in the media industry.
It is risky to cut content costs and not worry that it will affect program quality. Media companies typically have inflationary production costs. That is because success breeds higher paychecks for talent and everyone involved.
I can't think of any examples where cutting costs did not impact quality in some way. Cost cuts can never make up for falling revenue.
5)Organic revenue growth nowhere to be found — Jeffrey Hirsch, CEO
Accrued Interest Take:
I would have much more confidence in the Starz investment case if they were able to confidently project future revenue growth that could help expand margins.
As I have said before, management teams tend to forecast on the more optimistic side of reality. If the “optimistic” outlook is only for 1% to 3% growth this year, that is a very low bar. It probably means to more realistically expect 0% growth, or less. I raised this issue in my article - Starz ($STRZ) Is It a Buy at $16.50? My First Take on Valuation.
CONCLUSION
I still think that Starz can pick up some subscribers when their new original shows from the Power Universe come back. The third and final season of Power Book IV: Force is scheduled to premiere on November 7, 2025.
But overall, I think the stock is not investable until they prove they can not only stop the subscriber losses, but also grow on a consistent basis. Until I dive into the financials and update my model I cannot recommend the stock. In the meantime, investing is hard enough, so I suggest you spend your time with companies whose earnings reports do not end with an unsettling cliffhanger.
-Accrued Interest
Recent Accrued Interest articles on Starz ($STRZ):
Interview – Stock Spin-Off Investing Podcast ($WBD, $STRZ, $CMCSA) - July 3
Starz ($STRZ) Is It a Buy at $16.50? My First Take on Valuation - June 26
Disclaimer: The information presented in this Substack is for educational purposes and should not be construed as investment advice. Investors should make their own decisions regarding the prospects of any company discussed here, as I am not a registered investment advisor.
You can always reach me at simeon@accruedint.com.