EROS stock is on short-squeeze alert after the company won a default judgment against major short-sellers back on November 21, 2019.

Eros International announced that on November 21, the Supreme Court of the State of New York granted Eros’ motion for default judgment against Manuel P. Asensio.

As previously disclosed, on September 29, 2017, the company filed a lawsuit against Mangrove Partners, Manuel P. Asensio, GeoInvesting, LLC, and other individuals and entities alleging the defendants disseminated material false, misleading, and defamatory information about the company and are engaging in other misconduct that has harmed the company.

The company seeks damages and injunctive relief for defamation, civil conspiracy, and tortious interference, including but not limited to interference with its customers, producers, distributors, investors, and lenders.

On February 23, 2018, the Supreme Court of the State of New York granted Eros’ motion for default judgment against two entities associated with Mr. Asensio-Asensio & Company, Inc., and Mill Rock Advisors, Inc. On March 12, 2019, the Supreme Court of the State of New York entered a Decision and Order granting certain defendants’ motions to dismiss. On March 13, 2019, the company filed a Notice of Appeal and the matter is ongoing. The Supreme Court has ordered that Eros shall conduct an inquest before a Referee on damages as to the Asensio Defendants once its claims against all other Defendants are fully resolved and all appeals exhausted.

A whopping 11% of the float in EROS stock is short, with a two days to cover metric. These short sellers metrics are only updated twice a month by the NYSE so I’m thinking the short covering has already begun as evidenced from the chart.

Another fact that makes holding a short position in EROS stock a bit uncomfortable is that on November 18, 2019, Eros International announced a collaboration with YouTube.

Eros Now, a South Asian OTT entertainment platform with more than 177M registered users owned by Eros International (EROS), announced a collaboration with YouTube (GOOG) Music in India. As part of the collaboration, a special Eros Now subscription package priced at 99 Indian Rupees for 90 days will be made available to all new subscribers of YouTube Music premium and Google Play Music in India. At the end of the three month introductory offer, the customer will be charged separately as per prevailing plans for Eros Now and INR 99 per month for YouTube Music Premium. With Eros Now’s content library of 12,000+ movies, TV shows and short-format content, users will also get access to YouTube Music’s catalogue including tracks in English, Hindi and nine other Indian languages.

On November 15, 2019, the company announced Q2 results. The numbers were fairly poor with revenue growth down -49.1% YoY. However, Eros Now paying subscribers grew by 81% to 23.5 million people.

The Company made the following statement:

“This quarter we generated $32.3 million of top-line revenue and $7.8 million in adjusted EBITDA. Our Eros Now business continues to ramp up and grow its paid user base worldwide, supported by one of the largest libraries of Indian movies, along with its unparalleled market position and brand name. As of September 30, 2019 our Eros Now OTT platform reached 23.5 million paid monthly subscribers and 177.7 million registered users, increases of 81% and 39%, respectively, over the same period last year. This represents net additions of 4.7 million paid subscribers and 23 million registered users during the first half of Fiscal Year 2020. Eros Now currently garners viewership from over 150 countries around the world. Eros has a strong slate of films and original series scheduled for release over the coming quarters, and we expect this to help drive continued growth in our Eros Now business as well as box-office revenue.

We have several high-profile upcoming film releases, including Kaamiyab, Pagalpanti, Marjaavaan, Pati Patni Aur Wo, The Body, the trilingual remake of Haathi mere Saathi as well as a host of regional releases. In addition, Eros Now has a strong slate of originals scheduled to release in the coming quarters, including Flesh, Halahal, Avatar: The Legend of Vishnu, Metro Park 2 and Crisis.

In September, we announced a ground-breaking commercial partnership with Microsoft with the goal of transforming the content streaming experience for consumers globally. This collaboration will help Eros Now develop a new intuitive online video platform to ensure seamless delivery of content across countries and languages. It will also create a host of new interactive voice offerings for customers including video search experiences, voice search for video content across multiple Indian languages, and create personalized content. This collaboration will help our Eros Now platform enhance and strengthen its reach across globe and increase engagement with consumers.

As we see new players enter the Indian OTT market and international players such as Apple, Disney, Fox and Amazon redoubling their focus on India, we believe our market-leading offering built through years of investment and innovation puts us in a very fortunate position. We are one of the first OTT services to develop in India and are now benefiting from the foresight we had years ago to pioneer the market.

For the full fiscal year 2020, we are reiterating our consolidated revenue guidance in the range of $200-220 million, and Adjusted EBITDA of $80-$95 million. We have a healthy balance sheet with net debt of $112.6 million and $99.4 million of cash and cash equivalents.”

Global Strategy

At the core of our strategy has always been the goal to make local stories a global experience. Investing in unique, compelling content to adapt, exploit and expand great stories for consumers around the world is something we have always been very excited about. Great stories transcend languages and cultures and can come from anywhere. We are, therefore, very focused on increasing our distribution and partnership channels outside of India, with a goal to bring people the best and most diverse offering of Indian language content in any format. Our recent successes in China and other overseas markets underscore the appeal of quality content in new markets, and it also highlights the longevity of our content and ability to monetize in new markets and windows.

To that end, here are some recent highlights and proof points of our global strategy:

  • Two of the top 5 grossing Indian films in China were released by Eros – Andhadhun and Bajrangi Bhaijaan – which combined grossed $92 million in the China Box Office
  • We recently secured international distribution rights to four Hindi language films which will be released in the current fiscal quarter
  • We are releasing the critically acclaimed Andhadhun in cinemas in Japan this month
  • Roam Roam Mein, a psychological-drama film produced by Eros, premiered at Busan International Film Festival in Korea and won the Asian Star Award
  • Maunn, an Eros Now Quickie content piece, was the Winner of the Asia Pacific Film Festival in Los Angeles and also nominated at the Vancouver International Film Festival
  • Eros Now original series Smoke was the only original from India to be screened at Mipcom 2018 in Cannes
  • Our highly-acclaimed original series, Metro Park, is an example of cutting-edge cross cultural content which helped grow Eros Now viewership in the US by 22%
  • We launched 120 new films on Eros Now this quarter in 6 different Indian languages

Eros Now Distribution & Technology

Eros Now has continued to expand its distribution partnerships both domestically and globally. We continue to be a front-runner from India and South Asia platforms in regards to distribution deals and alliances around the World. Technology has always been a core focus for Eros Now and in this quarter we announced an important partnership with Dolby. Movies on Eros Now have been Dolby enabled and our Dolby enabled partnership with One Plus TV was the first of its kind for an Indian OTT company. Eros Now also launched a refurbished version of progressive Web Apps in order to improve the funnel conversion into paid subscribers, and early results have been very encouraging.

We closed two meaningful distribution partnerships in India this quarter with Jio and Walmart-owned Indian ecommerce Giant Flipkart. We were one of the first partners to be integrated on the new Jio set top boxes. Our partnership with Flipkart brings entertainment to their millions of daily shoppers tying together the world of entertainment and ecommerce.

This September we announced an alliance with Microsoft to develop a cloud powered online video platform and new AI powered solutions to redefine the video viewing experience for South Asian consumers. This partnership will enable our customers with easy viewing and easy discovery with many personalization options.

The partnership will cover three areas:

  • Building a new intuitive online video player. This will be supported by a robust content delivery network (CDN) that leverages Microsoft Azure and Microsoft Azure Media Services for seamless delivery of content;
  • Exploring new offerings for consumers in the area of interactive voice services starting with 10 Indian languages;
  • Creating a new personalized recommendation engine for users by leveraging Eros’ user data, combined with Microsoft’s AI solutions. It will enable a shift from a tedious user discovery to provide relevant, targeted content on the go.
  • Deep personalisation and localisation will help us target a 50m+ paying subscriber universe as well as serving content to the micro-niches of the world beyond India in a language and environment in which the consumer feels most comfortable.

With a goal of increasing our higher-paying international direct to consumer subscribers, we recently closed on several meaningful distribution partnerships in the Middle East including Zain Telecom in Bahrain, Kuwait, Jordan & Oman. We also look forward to the imminent launch of Eros Now across the global Apple plus platform, we are the only non-US entertainment partner during initial launch.

We recognise the size and importance of the Chinese market which has been a major focus for us. Given recent successes of Indian content in the Chinese box office we believe this is a market ready for Eros Now consumption. In September 2018 we finalised a licensing agreement with digital leader iQiyi which marked our entry point into the digital space in China. Our next step in China was a digital distribution deal with Wasu Media, a large state-owned culture media group, signed earlier this year. The Wasu Group is one of the biggest comprehensive digital content service operator and service provider across interactive TV, 3G / 4G mobile TV and Internet TV in China. Wasu’s services cover approximately 100 cities in 29 provinces in China with cable network as well as covering the three major telecom operators and several million Internet users. The Eros Now service will go live beginning the week of 18th November, 2019 on Wasu.

We will continue to focus on deep experiences to ensure we are able to drive value to both domestic and international subscribers across geographies and multiple distribution channels.

Get Shorty Play

Going long EROS stock right now is a total ‘Get Shorty’ play that’s extremely risky. The market cap of the stock is $296.9 million and the company did $222.4 million in sales last year for a pretty good P/S of 1.3. The stock has been hammered and is now forming what could be a complex bottom. This ‘Get Shorty’ trade is too risky for the GST Portfolio IMO but nevertheless I wanted to alert you to the possible trade opportunity.

finviz dynamic chart for  EROS

Disclosure: We do not hold any position in EROS stock.

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