Quick note on Cover Corp's biggest talent leaving

What it means for the company that Gawr Gura leaves, and does that mean Cover in not investable now?

So first of all, cards on the table: I sold my position on Cover as soon as I could after seeing this

If you are wondering what that is, it is Hololive's biggest star leaving the company. Now, the monetary impact will probably be a lot less than that implies, as Gura's activity has been intermittent since 2022 and, while popular, she had a very broad but less engaged fanbase than the likes of Marine, Mori, Kobu, or Pekora due to her subdued activity. Still, really important in terms of vibes.

But I will get back in, I just think it might drop further (drops on prior minor announcements were sharper), and you might not want to trade around it as I am doing. Let's see why I still think this is investable and with what caveats. The heavy investment in Cover Corp was based on three points:

• Strength of the V-tuber industry

• Better treatment of talent vs Anycolor (and hence longer time in the company and better presence outside Japan)

• Price

Now, the price is higher than it was back when I first published (roughly 40%, although my average price was a bit higher than that), but not incredibly so, and the multiple (27x PE after the drop tonight) is not huge for a company growing both top and bottom line at more than 40%. So price, while less compelling, is still adequate.

Let's go over the other two points.

Strenght of the v-tuber industry

Look, the v-tuber industry looks much better than last year. Don't take my word for it, look at v-stats numbers for the last three months (in order, January, February, March):

January presented a mild increase in viewing time in YouTube for the tracked v-tubers (17%, although Cover grew only 5%) but Februray (+39.6%/+79.3% for Cover) and March (+49.8%/+52.7% for Cover) were just impressive. Anycolor also grew very significantly, and so did almost everyone else involved (althoguh Brave is still a distant third).

In terms of revenue and profit, the last sets of results reported by both Anycolor and Cover were good for the accumulated 3 quarters of the fiscal year and fantastic for the last quarter.

• Anycolor is making +24.2% on revenue and +20.9% on profit cumulatively and +48.5%/+63.8% in the last quarter

• Cover Corp is making +50.1% on revenue and +43.9% on profit cumulatively and +69.2%/+71.2% in the last quarter. And they finally started to use the merchandise lever.

Granted, Cover has worse cash conversion due to heavy investments in content and working capital this year, but both are generating cash without trouble. So the sector is doing well.

There might be some problems with the US tariffs for Cover, as they sell more in the US (roughly 28% of sales for all verticals) and they manufacture part of their merchandise in China, and that could impact profitability until they adjust. But still, an acceptable risk, as this would only affect merchandise, one of the verticals.

Talent in Cover vs. Anycolor

That was the main reason to choose Cover vs Anycolor in the initial analysis, and we also revisited the potential problems in this piece from December, in previous Cover graduation announcements

Is Cover Corp the next Anycolor?

My conclusion then was that departures at Cover were still not that worrying. After three more departures in 4 months (Mumei, Shion, and Gura), I am a bit less convinced.

Now, all of them have known health issues (physical and mental) that have caused them to have hiatuses, and all have been in the spotlight for a while (Shion for 7 years, Gura for 5, Mumei for 4), so without the prior leavers, I might not be that worried. But the fact that all three have cited disagreements with management as part of the reasons for leaving is worrying, especially in Gura's case, taking into account she had a lot of leeway for taking hiatuses, streaming less, and so on (in fact, she has been on and off since 2022). Now, they are still far from Anycolor's numbers and level of vitriol, but it implies the advantage Cover had has deteriorated markedly.

There is also another phenomenon that I think is relevant. In March, we saw a huge comeback for Nijisanji EN (the branch Anycolor basically destroyed last year) through new talent debuts and intensive streaming and promotion.

And it seems they are beeing able to carry a big part of that momentum through April (provisional numbers as of April 10, with a 200% increase over last year). Interesting to note that April is still seeing healthy increases across the board for everyone involved.

Yes, their average viewership is lightyears away from Hololive (Cover), but that is true also in Japan, and Anycolor is extremely profitable there regardless.

So what I am seeing here is two things:

• Cover's advantage on retaining talent has deteriorated

• Retaining talent and focusing on the talents you have is important (average numbers and growth from Cover looks great because of that)… but less important than it seemed, as Anycolor seems to be able to reset their branch (pending confirmation over time). That means Anycolor's extreme focus on efficiency is less risky

Conclusion

My conclusion when looking at everything is that the industry is still more than fine, growing well in both viewership and monetization… but that Cover, while still the best asset in the industry, has less of a premium over Anycolor.

What I am going to do with this (once I think Cover's price has settled down, but hey, I am trading around, you might prefer to remain invested if you already are) is invest in both. Still have to think through the percentages, and will probably depend on where the prices land (as Anycolor is also dropping in sympathy). But for me, this has switched from trying to invest only in the asset with the most quality to investing in the sector trend, and as long as Anycolor's multiple is a bit less demanding than Cover's, as is the case today, I think it makes sense to have both.

As always, not a recommendation, and please do your own research. And if you reach different conclusions, we'll all be wiser if you share them!