Chiba Jets' New Arena And Monster Strike Collaborations May Improve Future Prospects Despite Challenges

Key Takeaways

• International expansion and strategic collaborations are expected to drive revenue growth, enhancing profitability in the Sports and Digital Entertainment segments.
  
• Investments in product improvements and user acquisition are anticipated to boost future revenue, despite short-term EBITDA declines.
  
• Strong performance in sports and digital gaming segments, product improvements, and cost efficiency drive potential long-term earnings growth and profitability for MIXI.

Catalysts

Engages in the sports, digital entertainment, lifestyle, and investment businesses in Japan.

• The completion of a new arena for the Chiba Jets and the anticipated increase in game attendees are expected to drive revenue growth in the Sports segment through enhanced ticket sales and related activities.
  
• TIPSTAR's MAU is growing due to successful product improvements and increased investment in user acquisition, which could lead to higher future revenue despite the short-term decline in EBITDA from increased expenses.
  
• The Family Album's expansion into international markets, along with the growth of high-margin premium plans, is anticipated to support future revenue and profitability growth, despite challenges in the domestic New Year's card service market.
  
• Monster Strike's strategy to boost ARPU through collaborations and new character sales is expected to enhance revenue and potentially improve net margins as the cost reductions from past business withdrawals are realized.
  
• The company's overall upward revision of full-year net sales, EBITDA, and profit forecasts, driven by stronger-than-expected performance in the Sports and Digital Entertainment segments, indicates potential future earnings growth that the market may have already priced in.

MIXI Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MIXI's revenue will grow by 1.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.4% today to 13.1% in 3 years time.
• Analysts expect earnings to reach ¥20.7 billion (and earnings per share of ¥298.55) by about April 2028, up from ¥12.8 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.2x on those 2028 earnings, down from 17.2x today. This future PE is lower than the current PE for the JP Entertainment industry at 20.8x.
• Analysts expect the number of shares outstanding to decline by 2.99% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.77%, as per the Simply Wall St company report.

MIXI Future Earnings Per Share Growth

Risks

• Increased ticket sales for the Chiba Jets and successful growth in betting ticket sales for TIPSTAR indicate higher revenue potential in the Sports segment. This growth positively influences overall sales and profit margins.
  
• Successful product improvements and increased user acquisition for TIPSTAR led to a significant increase in monthly active users (MAU) and sales, suggesting continued revenue growth potential from this high-performing service.
  
• Despite a challenging environment in the New Year's card market, the Family Album segment maintained sales and improved profitability through a focus on high-margin products, which may enhance net margins.
  
• The Monster Strike game showed resilience with an increase in average revenue per user (ARPU) driven by successful collaborations, which exceeded internal targets. This may contribute positively to future earnings.
  
• An upward revision of the full-year forecast for net sales, EBITDA, and profit attributable to owners reflects strong overall performance and cost efficiency in various business segments, indicating potential sustained improvement in earnings and returns on equity.

Valuation

• The analysts have a consensus price target of ¥2850.0 for MIXI 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 ¥158.2 billion, earnings will come to ¥20.7 billion, and it would be trading on a PE ratio of 10.2x, assuming you use a discount rate of 6.8%.
• Given the current share price of ¥3260.0, the analyst price target of ¥2850.0 is 14.4% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.