Investments In AI And Blockchain Will Elevate Future User Engagement

Key Takeaways

• Strong MAU growth and user interest in authentic content are likely to boost digital advertising revenue.
  
• Strategic M&A and investments in emerging technologies could drive future growth and enhance revenue.
  
• Heavy reliance on digital advertising and M&A for growth poses risks due to economic fluctuations, stagnant revenue streams, and integration challenges.

Catalysts

A technology company, operates a cloud-based digital community platform for online enthusiast communities in the United States, Canada, the United Kingdom, and internationally.

• Strong MAU growth driven by increased user interest in authentic content amid the rise of AI and content communities, expected to sustain digital advertising revenue growth.
  
• Expected double-digit growth in programmatic advertising due to enhancements such as identity solutions and direct DSP connections, likely improving net margins due to high scalability.
  
• Anticipated resurgence in direct advertising revenue with recent major automotive OEM signings, forecasting increased revenue and improved earnings.
  
• Strong balance sheet and expanded credit facility enabling strategic M&A, poised to be an accretive driver of growth in 2025.
  
• Ongoing investments in emerging technologies like AI and blockchain for user engagement and product differentiation, expected to enhance revenue and retention metrics.

VerticalScope Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming VerticalScope Holdings's revenue will grow by 7.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.1% today to 15.1% in 3 years time.
• Analysts expect earnings to reach $12.4 million (and earnings per share of $0.55) by about February 2028, up from $2.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.0x on those 2028 earnings, down from 70.9x today. This future PE is lower than the current PE for the CA Interactive Media and Services industry at 37.7x.
• Analysts expect the number of shares outstanding to decline by 1.25% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.04%, as per the Simply Wall St company report.

VerticalScope Holdings Future Earnings Per Share Growth

Risks

• The company highlights substantial dependence on digital advertising growth, which is susceptible to economic fluctuations and changes in advertiser demand, potentially impacting future revenue stability and growth.
  
• The decline and subsequent flattening of e-commerce revenue could pose a risk if overall revenue growth slows, as this business line is currently not contributing to revenue growth but rather stabilizing.
  
• Continued investments in technology and partnerships led to a decrease in adjusted EBITDA margins, which, if not offset by sufficient revenue growth, could impact net margins and overall profitability.
  
• Although the company mentions successful advertising growth, the direct advertising component was stagnant for the quarter, indicating potential challenges in sustaining or growing this revenue stream.
  
• The company’s reliance on M&A for growth, with a focus on small tuck-in acquisitions, carries inherent risks related to successful integration and the impact of these smaller acquisitions on earnings growth.

Valuation

• The analysts have a consensus price target of CA$15.199 for VerticalScope 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 CA$18.03, and the most bearish reporting a price target of just CA$10.27.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $82.3 million, earnings will come to $12.4 million, and it would be trading on a PE ratio of 21.0x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of CA$12.9, the analyst price target of CA$15.2 is 15.1% 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.