To The Moon

$Manchester United PLC(MANU)$ shares took a significant hit after the soccer giant reported a larger-than-expected net loss for its fiscal 2024 fourth quarter. The club also indicated that it anticipates a decline in broadcast revenue for fiscal 2025 due to missing out on the lucrative UEFA Champions League competition this season.

As one of the few publicly traded sports teams and among the most valuable globally, Manchester United reported total revenue of 142.2 million pounds ($185 million), which was about 3 million pounds higher than analysts' consensus estimate compiled by Visible Alpha. However, the team's net loss widened from the previous year, coming in worse than expected at 36.3 million pounds.

Q4 net losses skyrocketed by 1,152% to 36.3 million GBP ($47.2 million). Operating losses surged an astonishing 10,700% year over year.

As it's the final quarter of the year, we should review the total 2024 results, however painful. For fiscal 2024, Manchester United reported a modest 2.1% revenue growth, reaching 661.8 million GBP. However, the yearly losses amounted to 113.2 million GBP, nearly four times the loss incurred in 2023.

Q1 2025 Earning Overview

Back in 2012, Manchester United became a public company, at $14/share. Over a decade later with many ups and downs, the share price is up disappointing 18%. For comparison, the S&P500 is up over 300% during the same period, and the FTSE100 is up a bit over 40%.

Revenue: For the first quarter of fiscal 2025, Manchester United reported revenue of 143.1 million pounds, which was below analyst estimates.

Earnings Per Share (EPS): The club’s financials continue to deteriorate, and I’m sure anyone who supports a sports club has plenty of ideas about what can be done differently. The goal of this post is to elaborate on why the club is deteriorating (financially) and how I concluded that sports clubs are billionaires’ toys that serve to boost their egos. The club reported an adjusted loss per share of (0.21) pence, which was better than the analyst consensus loss estimate of (0.29) pence.

Operating Loss: Manchester United posted an operating loss of 6.9 million pounds, compared to a profit of 1.9 million pounds in the same quarter last year.

Adjusted EBITDA: The club's adjusted EBITDA was 23.7 million pounds, slightly up from 23.3 million pounds last year.

Stock Performance: Shares of Manchester United were trading at $17.5 as of November 22, 2024, and have been down 10.38% over the last 52-week period.

Despite the revenue decline, Manchester United remains optimistic about its fiscal 2025 outlook, reiterating revenue guidance of 650 million pounds to 670 million pounds and adjusted EBITDA of 145 million pounds to 160 million pounds.

Fundamental Analysis

Manchester United reported a significant decline in adjusted earnings per share (EPS) for Q1 of fiscal year 2025. The adjusted EPS was £0.21, down from £5.27 in the same quarter of the previous year. This drop reflects challenges in revenue and performance across multiple areas, despite some improvement in adjusted EBITDA (£23.7 million versus £23.3 million last year) and cost reduction initiatives.

Revenue decreased by 8.9% year-over-year to £143.1 million, attributed to fewer matches and altered tournament participation, impacting commercial, broadcasting, and matchday revenues. The club's leadership highlighted new sponsorship deals, such as a partnership with Heineken, and ongoing investments in facilities like the Carrington Training Centre and Old Trafford renovations as key strategic efforts to drive future growth

Broadcasting revenue is expected to decrease by approximately 30 million pounds due to the club's eighth-place finish in the Premier League last season, which resulted in missing out on the UEFA Champions League.

Restructuring Program:

Manchester United expects the restructuring program initiated in the third quarter to yield benefits over fiscal 2025 and 2026. The program is projected to deliver annual cost savings of around 40 million to 45 million pounds, with about 10 million pounds in one-time expenses anticipated during the mplementation. Shares of the British soccer giant fell to $16.50.

Free Cash Flow

In Q1 FY2025, Manchester United's free cash flow (FCF) declined to £58.74 million, representing a 42.98% decrease compared to the same quarter in the prior year. The drop is part of a trend influenced by increased capital expenditures, particularly on player acquisitions and training center redevelopment, as well as a lower operating cash flow compared to previous periods

Technical Analysis

MANU's stock recently closed at $17.29, marking a 1.83% increase for the day. This indicates a short-term positive sentiment despite longer-term challenges. Support and Resistance Levels: Current support is seen near $16, with resistance around $18. Breaking these levels could signify new trends. The 50-day Moving Average (MA) has been trending upward, aligning with the stock's recent recovery from earlier lows. The Relative Strength Index (RSI) hovers near 50, indicating neither overbought nor oversold conditions. the stock shows potential for short-term gains but remains within a cautious "Hold" consensus by analysts due to uncertain broader financial performance and strategic developments.

Risks and Challenges

Financial Risks:

High Debt Levels: Manchester United carries significant debt, which exposes it to risks from rising interest rates and economic downturns. Servicing this debt reduces available funds for reinvestment​

Declining Revenues: Fluctuations in broadcasting and matchday revenues, often tied to on-field performance, create financial uncertainty. Missing out on lucrative tournaments like the UEFA Champions League amplifies this risk​.

Operational Challenges:

Player Costs: High player wages and transfer fees can strain profitability, especially if the team's performance does not justify the expenditure​.

Market Risks:

Competition: Intense competition from other top clubs in securing players, sponsorship deals, and fan engagement can erode Manchester United’s dominance.

Reputational Risks:

Ownership Controversies: The Glazer family’s ownership and potential sale of the club remain contentious issues. Fan dissatisfaction could impact brand value and investor confidence.

Valuation

As of Q1 2025, Manchester United's stock continues to be a subject of varied analyst opinions. Despite the club's global prominence and strong brand, financial challenges persist. For instance, analysts suggest that the stock is currently undervalued, with a market valuation around $3 billion, well below its potential. The club's valuation ratios, such as Enterprise Value (EV), are impacted by fluctuations in revenue streams and expenses, including broadcasting, commercial partnerships, and matchday earnings​. One of the major hurdles for Manchester United's valuation is its inconsistent financial performance. The company has faced difficulties with its revenue generation, notably a decline in broadcasting revenue as compared to previous periods.

Conclusion

Is Man Utd the world's biggest football clubs truly without value? I would argue that Manchester United, like many other sports clubs, isn’t so much valued in the traditional sense—where significant positive free cash flow might underpin its worth—but rather priced. These clubs fall into the same category as collectibles like Pokémon cards, antiques, or art: their appeal lies largely in the eye of the beholder. In this case, the beholders are billionaires, and their decisions likely hinge on a checklist of personal or strategic priorities.