Rising Broadband Penetration And Digital Ads Will Fuel Media Expansion

Key Takeaways

• Structural transformation, digitalization, and asset spin-offs position Vivendi for outsized earnings growth, higher margins, and reduced earnings volatility across diverse entertainment and media platforms.
  
• Strategic stakes, content premiumization, and global market reach offer substantial upside optionality, with potential for further rapid value unlocking through acquisitions and market re-ratings.
  
• Structural headwinds in mature European markets, digital disruption, and regulatory risks threaten Vivendi's growth prospects, profitability, and stability amid strategic portfolio shifts.

Catalysts

Operates in the content, media, and entertainment industries in France, rest of Europe, the Americas, Asia/Oceania, and Africa.

• Analyst consensus sees value unlocked from Vivendi's transformation and spin-offs, but this likely understates the potential for an aggressive re-rating as these streamlined, pure-play assets are revalued significantly higher by the market, resulting in major upward revisions to Vivendi's net asset value and earnings power.
  
• While consensus projects strong synergies from Havas and Louis Hachette, there is scope for an even more pronounced margin expansion and revenue acceleration as the combination of diversified, premium content and expanded cross-platform advertising capabilities captures a larger share of global digital ad spend.
  
• The group's increased exposure to high-growth emerging markets through assets like Canal+ and expanded investments in sectors benefiting from rising global broadband adoption positions Vivendi for multi-year, outsized revenue expansion and long-term reduction in earnings volatility.
  
• Vivendi's embedded optionality in strategic stakes such as Universal Music Group and further M&A activity provides the foundation for transformational transactions, which could rapidly boost per-share intrinsic value and unlock significant upside to current net asset value.
  
• Sustained operational leverage from rigorous cost rationalization and digitalization initiatives, paired with the secular trend of escalating global consumer entertainment spend, sets the stage for a powerful earnings inflection and structurally higher EBITDA margins over the next decade.

Vivendi Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Vivendi compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Vivendi's revenue will grow by 7.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -99.3% today to 53.9% in 3 years time.
• The bullish analysts expect earnings to reach €198.4 million (and earnings per share of €0.19) by about July 2028, up from €-295.0 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 bullish analyst cohort, the company would need to trade at a PE ratio of 26.2x on those 2028 earnings, up from -11.9x today. This future PE is lower than the current PE for the GB Entertainment industry at 58.3x.
• Analysts expect the number of shares outstanding to decline by 1.62% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.47%, as per the Simply Wall St company report.

Vivendi Future Earnings Per Share Growth

Risks

• The company's significant exposure to the slow-growing and mature European media market, particularly in France and Western Europe, exposes Vivendi to structurally lower revenue growth and limited opportunities for margin expansion in the long-term.
  
• Intensifying competition from global streaming platforms, U.S. and Asian tech giants, and escalating industry-wide investment in premium content make it increasingly difficult for Vivendi's portfolio companies (such as Canal+ and Gameloft) to maintain or grow subscriber and advertising revenue, squeezing both revenue and net margins.
  
• Shifting consumer behavior towards short-form, user-generated, and interactive media continues to erode demand for legacy media products (such as those within Lagardère and Hachette), which threatens Vivendi's remaining core revenue streams and shrinks total addressable markets.
  
• The recent transformation into a holding company with a dynamic portfolio, frequent reorganization (spin-offs, acquisitions, and attempted exits from investments like Telecom Italia), and ongoing reduction in consolidated revenue heighten execution risks and can lead to inconsistent earnings and increased SG&A costs.
  
• Ongoing regulatory and political uncertainty in Europe, including antitrust scrutiny and data privacy obligations, presents a risk of costly compliance, forced divestitures, or fines that could undermine Vivendi's conglomerate strategy and negatively affect both earnings and shareholder value.

Valuation

• The assumed bullish price target for Vivendi is €4.2, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Vivendi's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €4.2, and the most bearish reporting a price target of just €2.8.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €368.1 million, earnings will come to €198.4 million, and it would be trading on a PE ratio of 26.2x, assuming you use a discount rate of 9.5%.
• Given the current share price of €3.53, the bullish analyst price target of €4.2 is 15.9% 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.