Dependence On Legacy Brands And Rising Costs Will Constrain Performance

Key Takeaways

• Audience and revenue declines from shifting viewer habits, brand fatigue in legacy IPs, and rising costs threaten long-term growth and earnings stability.
  
• Growing regulatory restrictions and platform competition put further pressure on margins, reinvestment capacity, and digital revenue streams.
  
• Integrated franchise and content strategy, successful global licensing, and business diversification drive earnings stability, cash flow improvement, and position WildBrain for sustained profitable growth.

Catalysts

Engages in the development, production, and distribution of films and television programs in Canada, the United States, the United Kingdom, and internationally.

• As the decline of traditional linear TV accelerates and viewers, particularly children, shift to user-generated and short-form content like TikTok and YouTube Shorts, WildBrain faces substantial long-term pressure on both audience reach and traditional revenue streams; this trend threatens to erode licensing and distribution revenue, resulting in slower top-line growth and greater earnings volatility.
  
• WildBrain's heavy dependence on legacy IPs such as Peanuts, Strawberry Shortcake, and Teletubbies risks brand fatigue and weakening cultural relevance with younger audiences, exposing the company to stagnating or declining licensing and merchandise revenues and ultimately reducing future earnings potential.
  
• Escalating competition from tech giants and major streaming platforms is driving up content acquisition and production costs, while these same global platforms wield stronger negotiating power and are increasingly favoring in-house or exclusive content deals, putting downward pressure on WildBrain's net margins and diminishing the ability to secure premium distribution partnerships.
  
• Industry-wide increases in content production costs and tightening quality standards, coupled with the company's relatively high leverage and substantial fixed costs, threaten to compress margins and restrict WildBrain's flexibility to reinvest or weather downturns-putting sustainable net income growth at significant risk.
  
• Surging regulatory scrutiny and new restrictions on advertising to children, especially across digital platforms, threaten to further compress digital ad-driven revenue streams and weaken the economics of WildBrain's AVOD and FAST businesses, resulting in an incremental drag on profit growth and free cash flow over the coming years.

WildBrain Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on WildBrain compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming WildBrain's revenue will grow by 7.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -33.7% today to 1.0% in 3 years time.
• The bearish analysts expect earnings to reach CA$6.6 million (and earnings per share of CA$-0.06) by about August 2028, up from CA$-173.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 84.6x on those 2028 earnings, up from -2.2x today. This future PE is lower than the current PE for the US Entertainment industry at 237.6x.
• Analysts expect the number of shares outstanding to grow by 3.01% 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.

WildBrain Future Earnings Per Share Growth

Risks

• WildBrain's core brands such as Peanuts, Strawberry Shortcake, and Teletubbies are demonstrating renewed momentum, with licensing revenue up 44 percent and Strawberry Shortcake's brand revenue growing over 200 percent, which suggests potential for sustained top-line revenue growth as these properties are further leveraged globally.
  
• The company is successfully executing a franchise-focused 360-degree strategy, integrating content creation, digital distribution (AVOD, FAST), and global brand licensing, which enhances profitability by creating multiple recurring, high-margin revenue streams and strengthening earnings stability over time.
  
• Global demand for premium, brand-safe children's content continues to rise on streaming platforms, and WildBrain is capitalizing on this secular trend by expanding production pipelines and securing strategic co-production deals (such as with Apple TV+ and Netflix), bolstering both revenue and profit margins.
  
• The diversification of WildBrain's business across brands, geographies, digital media formats, and licensing categories reduces exposure to region-specific downturns and regulatory changes, supporting stronger and more stable free cash flow and protecting net income against volatility.
  
• The company is delivering improving financials, including a strong turnaround in free cash flow (from negative to positive $67 million year-to-date), EBITDA growth, and steady leverage reduction, which strengthens WildBrain's balance sheet and provides resources for further investment in growth, potentially leading to higher earnings and shareholder value.

Valuation

• The assumed bearish price target for WildBrain is CA$1.75, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of WildBrain's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$3.0, and the most bearish reporting a price target of just CA$1.75.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be CA$637.7 million, earnings will come to CA$6.6 million, and it would be trading on a PE ratio of 84.6x, assuming you use a discount rate of 11.0%.
  
• Given the current share price of CA$1.76, the bearish analyst price target of CA$1.75 is 0.6% lower. The relatively low difference between the current share price and the analyst bearish 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.