We Will Elevate Wealth And Payments With Intelligent Investing

Key Takeaways

• Mogo's focus on scaling wealth and payments enhances market share, while exiting low-margin operations concentrates resources on high-margin growth areas.
  
• AI-driven Intelligent Investing could disrupt traditional wealth models with low-fee structures, enhancing net margins and boosting earnings in high-margin segments.
  
• Strategic shifts away from brokerage and reduced lending activities could hurt revenue, while crypto volatility and economic uncertainties pose further financial risks.

Catalysts

Operates as a financial technology company in Canada, Europe, and internationally.

• Mogo's focus on scaling its wealth and payments platforms, driven by significant growth in assets under management and payment volumes, positions them to capture a larger market share, potentially boosting revenue.
  
• The introduction of Mogo's Intelligent Investing solution, which leverages AI for portfolio management, could disrupt traditional wealth management models by providing transparent, low-fee structures, enhancing net margins.
  
• The anticipated growth in the wealth segment, with revenue expected to increase by 20% to 25% in 2025, supports a trend toward accelerated earnings within this high-margin domain.
  
• The strategic decision to exit low-margin institutional brokerage operations allows Mogo to focus resources and capital on higher-margin areas like wealth and payments, contributing to improved operating margins and potential earnings growth.
  
• Investment in innovative payment technology platforms within Carta Worldwide is expected to continue driving growth in international markets, potentially leading to increased transaction volumes and revenues in the coming years.

Mogo Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mogo's revenue will grow by 26.9% annually over the next 3 years.
• Analysts are not forecasting that Mogo will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Mogo's profit margin will increase from -32.5% to the average CA Consumer Finance industry of 15.9% in 3 years.
• If Mogo's profit margin were to converge on the industry average, you could expect earnings to reach CA$13.7 million (and earnings per share of CA$0.57) by about May 2028, up from CA$-13.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.2x on those 2028 earnings, up from -2.4x today. This future PE is lower than the current PE for the CA Consumer Finance industry at 16.4x.
• Analysts expect the number of shares outstanding to decline by 0.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.02%, as per the Simply Wall St company report.

Mogo Future Earnings Per Share Growth

Risks

• The company's decision to exit the institutional brokerage business, despite its previous contributions to revenue, underscores its focus on higher-margin areas. This strategic shift might lead to a decline in subscription and services revenue by 5% to 8% in 2025, affecting overall revenue growth.
  
• Mogo's proactive reduction of lending activities due to economic uncertainties, particularly tariff-related risks between the U.S. and Canada, is expected to decrease interest revenue by 8% to 10% in 2025, impacting earnings negatively due to a cautious lending approach.
  
• The reliance on crypto-related investments, including a substantial stake in WonderFi, presents volatility risks. This could impact the marketable securities valuation and the liquid asset position, potentially affecting net margins if the market conditions for crypto deteriorate.
  
• Significant investments in technology and marketing to scale the wealth and payments business might constrain cash flow and delay achieving positive adjusted net income, as indicated by the decision not to prioritize this financial metric for 2025. This creates risk in overall profitability.
  
• Uncertainty in the broader economic environment, such as interest rate fluctuations and macroeconomic factors, could adversely impact consumer behavior and, consequently, Mogo's payments and wealth management businesses, leading to lower-than-expected revenues.

Valuation

• The analysts have a consensus price target of CA$3.0 for Mogo based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$86.0 million, earnings will come to CA$13.7 million, and it would be trading on a PE ratio of 7.2x, assuming you use a discount rate of 11.0%.
• Given the current share price of CA$1.33, the analyst price target of CA$3.0 is 55.7% higher.
• 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.