AI And Digital Shift Will Create Future Opportunities In Media Industry

Key Takeaways

• Alma Media's shift to digital and AI platforms is expected to drive substantial revenue growth and improve net margins significantly.
  
• Strategic investments and acquisitions, supported by a strong balance sheet, are likely to enhance profitability and earnings in the future.
  
• Challenging macroeconomic conditions, falling ad revenue, and currency fluctuations threaten Alma Media's growth, while reliance on cost-saving measures may hinder profitability.

Catalysts

A media company, focuses on digital services and journalistic media content in Finland and the rest of Europe.

• Alma Media's ongoing transition from print to digital services, now at 84%, positions it well for continued revenue growth, especially with the use of AI to develop new business areas. This is expected to drive up digital revenues significantly.
  
• The company is leveraging its strong balance sheet, with a 1.5 net debt-to-EBITDA ratio and 49% equity ratio, to pursue strategic investments and acquisitions, which could lead to substantial revenue growth and improved earnings in the future.
  
• As the operating environment begins to show signs of modest recovery, particularly in markets like housing and mobility, there is potential for increased advertising and transactional business revenues, which would result in improved net margins.
  
• Alma Media's strategic shift towards AI-assisted platforms is aimed at increasing operational efficiency and creating new revenue streams, which can further enhance net margins and earnings as these platforms mature.
  
• With the Career United project, improvements in scalability and cost efficiencies are anticipated, which will benefit profitability and could lead to enhanced earnings growth with reduced operational costs.

Alma Media Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Alma Media Oyj's revenue will grow by 3.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.7% today to 20.2% in 3 years time.
• Analysts expect earnings to reach €70.3 million (and earnings per share of €0.84) by about April 2028, up from €52.3 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 19.0x on those 2028 earnings, up from 18.8x today. This future PE is lower than the current PE for the GB Media industry at 19.1x.
• Analysts expect the number of shares outstanding to decline by 0.23% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.65%, as per the Simply Wall St company report.

Alma Media Oyj Future Earnings Per Share Growth

Risks

• The company faces a challenging macroeconomic environment with weak consumer confidence and a sluggish recovery in key markets like housing, automotive, and recruitment, which could impact revenue growth in the near term.
  
• A significant portion of total revenue comes from advertising, which experienced an 8.4% decline, signaling potential future revenue pressures if this trend continues.
  
• Geopolitical uncertainties, regulation burdens, and changing consumer behaviors present risks that could affect the company's ability to maintain its current net margins.
  
• Currency fluctuations, particularly with the Czech koruna, have negatively impacted revenue and profitability, which poses a continued risk to earnings.
  
• Despite strategic plans to leverage AI and digital transformation, the company's reliance on cost-saving measures to achieve profitability targets may limit earnings growth if market conditions do not improve.

Valuation

• The analysts have a consensus price target of €13.967 for Alma Media Oyj 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 €348.5 million, earnings will come to €70.3 million, and it would be trading on a PE ratio of 19.0x, assuming you use a discount rate of 5.7%.
• Given the current share price of €11.95, the analyst price target of €13.97 is 14.4% 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.