Search Transition And Comparison Expansion Will Drive Long-Term Earnings Improvement

Catalysts

About Team Internet Group

Team Internet Group operates a diversified digital infrastructure and online marketing platform across Domains, Comparison and Search.

What are the underlying business or industry changes driving this perspective?

• Expansion of the Comparison business from its core German-speaking base into larger markets such as the U.K. and U.S. meaningfully increases the addressable population and ecommerce spend. This should support sustained top line growth and higher group earnings as these newer geographies move from loss making to profitable.
• Growing global demand for digital identity, cybersecurity and brand protection, with domains remaining the anchor of online presence, underpins steady mix shift toward higher value, non domain services in DIS. This supports continued ARPU gains, resilient revenue and structurally improving net margins.
• The transition in Search from AdSense for Domains to Related Search on Content, where click prices are already notably higher and traffic volumes remain strong, offers significant operating leverage as machine learning optimizes page layouts. This supports a recovery in revenue per thousand visits and EBITDA over the next few years.
• Ongoing cost restructuring, including upfront redundancy investments already expensed, lowers the fixed cost base across segments. As a result, even moderate revenue growth can translate into faster growth in operating profit, cash generation and earnings per share.
• Improving cash conversion, reduced working capital needs and a steadily falling net debt balance give the company more flexibility for disciplined capital allocation. This can enhance equity value through lower interest expense, potential accretive buybacks and selective growth investments that lift future earnings.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Team Internet Group's revenue will decrease by 12.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from -6.3% today to 1.1% in 3 years time.
• Analysts expect earnings to reach $5.1 million (and earnings per share of $0.01) by about December 2028, up from $-41.6 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 68.4x on those 2028 earnings, up from -3.8x today. This future PE is greater than the current PE for the GB Media industry at 14.4x.
• Analysts expect the number of shares outstanding to decline by 2.33% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.51%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The transition of the Search segment from AdSense for Domains to Related Search on Content may take longer or prove less effective than management expects. If machine learning fails to materially lift click through rates and revenue per thousand visits back toward historic levels, the structurally lower monetization could depress group revenue and EBITDA for several years.
• Team Internet is highly exposed to Google as its main partner in Search. Further unilateral workflow changes, tighter traffic quality controls or unfavorable contract terms could again reset economics or volumes, creating recurring shocks to revenue, net margins and earnings.
• The international expansion of the Comparison business into larger but competitive markets such as the U.K. and U.S. could underperform expectations, either because of weaker traffic acquisition economics or slower brand adoption. This would prolong loss making operations and weigh on group operating profit and net margins.
• Although Domains, Identity and Software is positioned around higher value, non domain services, the deliberate shift away from low margin volume means the business relies on sustaining ARPU growth and mix upgrades. Any slowdown in demand for premium cybersecurity and brand protection solutions could limit top line growth and cap improvements in net margins.
• Management’s restructuring program and cost reductions assume that efficiency gains can be achieved without impairing execution in RSOC, product development and international rollouts. If headcount cuts or organizational changes impede innovation or delivery, the company may miss growth opportunities and see lower revenue growth and weaker earnings than planned.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of £0.9 for Team Internet Group based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $445.2 million, earnings will come to $5.1 million, and it would be trading on a PE ratio of 68.4x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of £0.49, the analyst price target of £0.9 is 45.9% 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.