AI And Acquisitions Will Strengthen International User Engagement In 2025

Key Takeaways

• Initiatives to grow international users and enhance the Fora app aim to boost user engagement and advertising revenue.
  
• Strategic acquisitions and AI-powered features are set to expand business scale and improve earnings, contributing to shareholder value.
  
• Heavy reliance on advertising for revenue and economic uncertainties pose risks to future profitability and sustainability amidst digital shifts and platform algorithm changes.

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.

• The company's initiatives to grow MAUs (monthly active users) by double digits in 2025, particularly through international user growth and AI-powered language translations, are expected to enhance revenue through a larger user base and stronger user engagement.
  
• VerticalScope's focus on enhancing its Fora mobile app with new features to improve user retention and content contribution is likely to increase daily active users and engagement, which can potentially drive higher advertising revenue and improve net margins.
  
• The company's strategic emphasis on AI initiatives, including differentiated product reviews and optimized user experience, aligns with growing consumer preferences for user-generated content and is anticipated to bolster revenue and engagement metrics.
  
• The planned M&A activities and tuck-in acquisitions, such as the acquisition of Enthused Digital's communities, are anticipated to expand VerticalScope's business scale, enhance EBITDA, and drive free cash flow growth, thus potentially increasing earnings.
  
• VerticalScope's capital allocation strategy focuses on share buybacks and executing accretive M&A deals, which can contribute to EPS growth and shareholder value through a disciplined approach to financial management and resource allocation.

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 -0.0% today to 15.1% in 3 years time.
• Analysts expect earnings to reach $12.8 million (and earnings per share of $0.59) by about March 2028, up from $-15.9 thousand today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.3x on those 2028 earnings, up from -9287.9x today. This future PE is lower than the current PE for the CA Interactive Media and Services industry at 79.6x.
• Analysts expect the number of shares outstanding to grow by 0.75% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.55%, as per the Simply Wall St company report.

VerticalScope Holdings Future Earnings Per Share Growth

Risks

• The earnings call includes forward-looking statements that involve known and unknown risks, uncertainties, and factors that could cause actual results to differ materially from expectations, highlighting potential risks to future revenue and earnings.
  
• Revenue growth is heavily reliant on advertising, which constitutes 87% of total revenue, making the company vulnerable to fluctuations in advertising demand, potentially impacting future revenues and profitability.
  
• The company's net income is negatively affected by non-recurring expenses such as share-based compensation and financing fees, suggesting concerns about the sustainability of its earnings.
  
• Economic uncertainty in the macro environment, including trade disputes, poses a risk to the company's financial performance, particularly impacting digital advertising, which could affect future revenue.
  
• Algorithm changes by platforms like Google, which have affected monthly active users (MAUs) in the past, present a risk to sustaining user traffic and engagement metrics that can significantly influence advertising revenues.

Valuation

• The analysts have a consensus price target of CA$16.897 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$18.94, and the most bearish reporting a price target of just CA$14.48.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $84.9 million, earnings will come to $12.8 million, and it would be trading on a PE ratio of 25.3x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of CA$9.7, the analyst price target of CA$16.9 is 42.6% 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.