AI Integration And Service Expansion Will Deepen Future Customer Relationships

Key Takeaways

• Strong revenue growth driven by core agent memberships and private subscriptions, alongside positive contributions from strategic acquisitions and enhanced product offerings.
  
• Integration of AI features and expansion of subscription services are set to deepen customer relationships, increasing average revenue per user and driving growth.
  
• Scout24 may face revenue growth challenges due to dependency on organic growth, a sluggish real estate market recovery, and heightened competition in key sectors.

Catalysts

Operates ImmoScout24, a digital platform for the residential and commercial real estate sectors in Germany and internationally.

• The implementation of an interconnectivity strategy has led to improvements in product usage, which in turn has driven a significant operating leverage and margin expansion of 4.1 percentage points, suggesting potential future growth in profitability through increased efficiencies. This impacts net margins.
  
• Scout24 is on track for double-digit revenue growth for the fourth consecutive year, with revenue growth driven by strong performance in core agent membership and private subscription segments. This is expected to continue into 2025 due to ongoing momentum, impacting overall revenue growth.
  
• The recovery in the German residential sales market is expected to contribute positively to Scout24's growth as interest in property acquisitions increases and the real estate market gradually rebounds. Improved market conditions could lead to increased demand for Scout24's services, impacting revenue.
  
• The company's strategic acquisitions and successful integrations, such as Sprengnetter, have enhanced product offerings and operational capabilities, leading to increased margin expansion and more robust revenue streams. This reflects positively on net margins and earnings.
  
• A focus on expanding subscription services, such as the LivingPlus product, and integrating AI features and valuation data into customer offerings, has potential to deepen customer relationships and increase average revenue per user (ARPU), positively affecting revenue and earnings growth.

Scout24 Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Scout24's revenue will grow by 8.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 30.7% today to 36.9% in 3 years time.
• Analysts expect earnings to reach €270.0 million (and earnings per share of €3.86) by about December 2027, up from €176.1 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 26.0x on those 2027 earnings, down from 35.2x today. This future PE is greater than the current PE for the GB Interactive Media and Services industry at 25.4x.
• Analysts expect the number of shares outstanding to decline by 1.29% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.32%, as per the Simply Wall St company report.

Scout24 Future Earnings Per Share Growth

Risks

• The completion of the consolidation of Sprengnetter means that there will no longer be any inorganic revenue contribution, which could impact future revenue growth rates as organic growth will need to compensate. This may challenge future revenue projections.
  
• The German real estate market is still recovering, with transactional volumes lower than historical levels due to reduced buyer affordability. If this persists, it could negatively affect Scout24's revenue and earnings from transaction-related services.
  
• Although the company is optimistic about market recovery, the timeline for returning to 2021 and 2022 transaction levels is uncertain and projected to be in '27, '28. A prolonged recovery period could impact medium-term revenue projections.
  
• The company highlighted strong competition in market areas like mortgage leads. If demand remains soft while competition increases, this could adversely impact revenue and profit margins in the financial services segment.
  
• While organizational efficiency and interconnectivity have driven margin improvements, future revenue growth may face headwinds if economic conditions change or if market demand slows, which could affect net margins and profitability.

Valuation

• The analysts have a consensus price target of €87.1 for Scout24 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 €110.0, and the most bearish reporting a price target of just €74.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €731.5 million, earnings will come to €270.0 million, and it would be trading on a PE ratio of 26.0x, assuming you use a discount rate of 5.3%.
• Given the current share price of €85.3, the analyst's price target of €87.1 is 2.1% 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.