AI Investments And Ecosystem Leverage Will Strengthen Future Operations

Key Takeaways

• Leveraging ecosystem synergies and AI investments will drive operational efficiencies, potentially boosting revenue and net margins.
  
• Strategic acquisitions and upcoming IPOs, particularly in India, could enhance liquidity, revenue growth, and profitability.
  
• Dependence on a strong ecosystem and strategic investments could risk margins and revenue if operational improvements and investments underperform.

Catalysts

Engages in the e-commerce and internet businesses in Asia, Europe, Latin America, North America, and internationally.

• Prosus is focusing on leveraging its ecosystem to improve the performance of its companies by sharing best practices and innovating rapidly, which could lead to better revenue and net margins as companies operate more efficiently and effectively.
  
• The company is increasingly investing in AI to improve operational efficiencies, reduce customer acquisition costs, and fight fraud, which should enhance profitability and potentially expand net margins over time.
  
• Prosus has a strong cash position of $10 billion available for strategic investments, with a disciplined approach to investing in opportunities that complement its ecosystem, indicating potential for revenue growth through strategic acquisitions.
  
• The expectation of multiple IPOs in India, especially with companies like Swiggy, suggests a potential future source of liquidity and value realization, affecting earnings positively.
  
• Prosus is targeting over $6 billion in revenue and expects significant improvements in profitability from its e-commerce segment, indicating strong future revenue growth and improved earnings performance.

Prosus Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Prosus's revenue will grow by 12.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 135.6% today to 100.0% in 3 years time.
• Analysts expect earnings to reach $8.4 billion (and earnings per share of $4.22) by about March 2028, up from $8.0 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $12.8 billion in earnings, and the most bearish expecting $1.6 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.6x on those 2028 earnings, up from 12.7x today. This future PE is greater than the current PE for the NL Multiline Retail industry at 12.7x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.95%, as per the Simply Wall St company report.

Prosus Future Earnings Per Share Growth

Risks

• The company's reliance on a strong ecosystem and internal knowledge sharing presents risks if this approach does not yield operational improvements as expected, potentially affecting future revenue growth and margins.
  
• The strategy of aggressive goal-setting and cultural transformation may not lead to desired outcomes if not executed properly, which could affect operational efficiency and lower earnings potential.
  
• The significant cash reserves and the focus on strategic investments entail risks if such investments do not perform well, thereby impacting net margins and reducing expected returns.
  
• The evolving investment strategy emphasizing long-term partnerships and ecosystem enhancement may not yield the anticipated reduction in investment risks, potentially affecting earnings if market conditions or company performances vary.
  
• The emphasis on using AI to leverage consumer transaction data across different geographies and industries could face challenges due to regional consumer behavior differences, possibly impacting operational costs and revenue projections if efficiencies are not realized.

Valuation

• The analysts have a consensus price target of €51.322 for Prosus 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 €69.13, and the most bearish reporting a price target of just €37.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $8.4 billion, earnings will come to $8.4 billion, and it would be trading on a PE ratio of 21.6x, assuming you use a discount rate of 6.0%.
  
• Given the current share price of €41.99, the analyst price target of €51.32 is 18.2% 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.