Olympics Will Increase Stan's Subscriber Base And Engagement

Key Takeaways

• Strategic investment in digital revenue streams and data enhancements positions Nine Entertainment for growth despite declining traditional media revenues.
  
• Leveraging major events and synergies with Domain are key strategies to boost engagement, subscriptions, and advertising revenue.
  
• Challenges in the advertising market, regulatory issues, and cultural problems could pressure Nine Entertainment's revenue growth, operational efficiency, and shareholder returns.

Catalysts

Engages in the broadcasting and program production businesses across free to air television, video on demand, and metropolitan radio networks in Australia.

• Nine Entertainment is focusing on cost efficiencies, aiming to remove $50 million in costs in FY '25, which follows a $65 million reduction in FY '24. This reflects a total reduction goal of around $100 million over two years. This should support net margins despite challenging market conditions.
  
• The company is strategically placing significant investments towards growth in digital revenue streams, with digital revenues already accounting for about 50% of total revenues. This focus on digital is likely to drive future revenue and earnings growth as traditional media revenues decline.
  
• Nine's increased capabilities in data and AI provide a competitive advantage that enhances targeted advertising, expected to drive higher revenue per audience member and improve net margins through more effective advertising campaigns.
  
• Nine Entertainment is leveraging major events like the Olympics, which have shown success in growing the subscriber base for Stan and increasing engagement across its platforms. This strategy is likely to boost revenue through both increased subscriptions and related advertising.
  
• Domain, a key asset for Nine, shows strong growth potential, supported by increased digital revenues and synergies with Nine's media assets. Enhanced collaboration is expected to drive revenue and profits for both Domain and Nine's broader operations.

Nine Entertainment Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nine Entertainment Holdings's revenue will grow by 1.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.2% today to 7.3% in 3 years time.
• Analysts expect earnings to reach A$201.0 million (and earnings per share of A$0.12) by about February 2028, up from A$110.9 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$227 million in earnings, and the most bearish expecting A$146.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.2x on those 2028 earnings, down from 21.3x today. This future PE is lower than the current PE for the AU Media industry at 20.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.09%, as per the Simply Wall St company report.

Nine Entertainment Holdings Future Earnings Per Share Growth

Risks

• The advertising market has been challenging, with a 9% decline in the Total TV ad market. This trend could continue, negatively impacting Nine Entertainment's revenue and earnings growth.
  
• Meta's decision to disengage and the absence of digital platform revenue from Meta in FY '25 could lead to a reduction in revenue and earnings from Nine Publishing, creating financial pressure.
  
• There is ongoing commentary and investigation into Nine's workplace culture issues, which could affect employee productivity and reputation, impacting operational efficiencies and net margins.
  
• Regulatory challenges, including the increasing dominance of global tech companies, could hinder Nine's ability to monetize its content effectively, impacting future revenue streams.
  
• The decision not to extend the share buyback due to weaker than expected advertising markets and higher interest rates suggests financial caution, potentially limiting shareholder returns and affecting the stock's attractiveness.

Valuation

• The analysts have a consensus price target of A$1.574 for Nine Entertainment Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$2.5, and the most bearish reporting a price target of just A$1.2.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$2.8 billion, earnings will come to A$201.0 million, and it would be trading on a PE ratio of 15.2x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of A$1.5, the analyst price target of A$1.57 is 5.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.