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On May 23, UFC and Miss Universe owner Endeavor Group Holdings Inc. (NYSE: EDR), filed with the SEC for its IPO.
That has investors wondering if they should buy Endeavor stock.
Endeavor stock has Wall Street hyped up. That's because Endeavor is the biggest talent agency in Hollywood. While it sounds tempting to buy Endeavor stock, it could be very risky for retail investors.
Part of that is because IPOs can be risky. But there's also a little bit more going on under this company's hood. To give you a better idea of what this company does, we've compiled the latest information out there. And we'll even explain why retail investors should skip over this IPO for now.
Instead, we have a backdoor play for investors interested in Endeavor stock.
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And it's a great way to get into the 2019 IPO market without worrying about the volatility of IPOs.
But first, here's everything you should know about Endeavor stock…
What Endeavor Does
In 2009, Endeavor Talent Agency and 121-year-old William Morris Agency merged. The result was the Beverly Hills-based Endeavor Group Holdings. Since then, it's expanded its operations to manage over 700 events worldwide. Plus, it sells media rights in roughly 160 countries.
After the merger, Ari Emanuel and Patrick Whitesell – both of whom made Fortune's 2010 "Businessperson of the Year" list – took over as co-CEOs.
Endeavor is most commonly known for its ownership of UFC and the Miss Universe Pageant. But it represents big-name talent over a variety of platforms. These include the NFL, NHL, movies, e-sports, digital publishing, and more. Plus, it's worked with Seth MacFarlane, Coachella Music Festival, and Zumba Fitness.
In 2012, Endeavor earned the attention of private equity firm, Silver Lake Partner. This is a firm that has invested in big-name companies like Dell Technologies Inc. (NYSE: DELL), Alibaba Group Holding Ltd. (NYSE: BABA), and AMC Entertainment Holdings Inc. (NYSE: AMC). Since then, Silver Lake has put over $1 billion into Endeavor.
Then, in 2013, Endeavor invested in the advertising agency, Droga5. This agency has major accounts like Coca Cola Co. (NYSE: KO), Anheuser-Busch InBev N.V. (NYSE: BUD), Spotify Technology S.A. (NYSE: SPOT), Visa Inc. (NYSE: V), and Under Armour Inc. (NYSE: UAA).
But Endeavor does more than representing and investing in major brands. The company is also known for its philanthropy. In fact, its WME Foundation assists disadvantaged children with art and education.
Celebrities like Alicia Keys, Charlize Theron, and Usher have worked with the foundation.
But not everything is as great as it sounds. Endeavor may be an empire, but its financials are much less impressive.
Endeavor's IPO Shows Lackluster Financials
Endeavor's IPO filing showed us quite a few things. It didn't reveal Endeavor's IPO date and price, but it showed that the lead underwriters would include Goldman Sachs Group Inc. (NYSE: GS), JPMorgan Chase & Co. (NYSE: JPM), Deutsche Bank AG (NYSE: DB), and KKR & Co Inc. (NYSE: KKR).
Endeavor is also filing with the New York Stock Exchange under the ticker "EDR." Endeavor's filing currently shows an offering of $100 million in Class A, B, X, and Y shares. Class B shares have no voting rights. Class A and X provide one vote each, and Class Y shares provide investors with 20 votes each.
This share structure is common for early IPOs, since the primary goal is to reward investors. And Endeavor certainly has a lot of big investors like Silver Lake Partners to please.
Unfortunately, its financials are weaker than they first appear. Sure, between 2017 and 2018, Endeavor's revenue increased 20% to $3.6 billion, turning a profit of $231 million.
But this was only the result of a massive sell-off. It sold its IMG college sports marketing unit for $400 million. So while its revenue and net income were positive, it wasn't because the business is profitable. And operating expenses are still higher than the company's actual revenue and income.
Plus, Endeavor's long-term debt is $4.6 billion, and its liabilities are $7 billion. This is because of mergers, write-offs, discontinued operations, and franchise depreciation.
Beyond that, Endeavor's EBITDA dropped 10% to $84 million in Q1 2019. Between 2018 and now, its margins have also shriveled from 28% to 8%. This means Endeavor's long-term profitability is decreasing.
But its lackluster financials aren't the only things making Endeavor stock risky. In fact, Endeavor is still dealing with major controversy.
In 2017, Terry Crews talked about an incident with Adam Venit, the head of Endeavor's motion picture department. According to Crews, Venit had groped him during a 2016 industry party.
The news led to a public backlash against the company. Endeavor launched an internal investigation on Venit and put him on unpaid leave for a month.
After his month's suspension, Venit returned to work. Since then, Crews and his lawyers have been building a case against him over his predatory acts.
So, with poor financials and controversy, Endeavor stock should be a hard pass for retail investors.
In the meantime, we have a better investment for our readers. And this backdoor play is a great way for investors to ride the hype of early IPOs with none of the risks.