Podcast Advertising Shift And Programmatic Adoption Will Support Strong Long-Term Earnings Expansion

Catalysts

About Acast

Acast operates a global, independent podcast network that connects creators and advertisers through its scaled, data driven monetization platform.

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

• Advertising spend in podcasting is still lagging existing audience consumption. As budgets catch up and more blue chip brands commit larger tickets, Acast is positioned to outgrow the market, lifting net sales growth and supporting its targeted organic CAGR above 15 percent.
• The shift from buying individual shows to buying broad podcasting audiences mirrors earlier digital patterns. Acast’s ability to sell both marquee titles and long tail inventory should structurally raise sell through rates and average revenue per listen, driving sustained ARPU expansion and top line growth.
• Programmatic adoption and multichannel campaign planning, accelerated by partnerships like Magnite and the scaling of self serve tools, are expected to push more volume into low touch channels. This is intended to increase revenue while global operating costs grow more slowly, expanding EBIT margins.
• Growing global interest in premium, narrative led influencer content with authentic engagement favors Acast’s roster of established publishers and creators. This supports pricing power on high quality inventory and is intended to improve gross profit and contribution margins over time.
• Continued maturation and consolidation of podcast markets in the U.K., Nordics, North America and Continental Europe, combined with Acast’s stated focus on converting high share positions into higher local contribution margins, is aimed at translating scale advantages into rising group EBIT and stronger operating cash flow.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Acast's revenue will grow by 13.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.6% today to 9.6% in 3 years time.
• Analysts expect earnings to reach SEK 331.5 million (and earnings per share of SEK 1.83) by about December 2028, up from SEK -38.6 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 20.6x on those 2028 earnings, up from -154.4x today. This future PE is lower than the current PE for the SE Interactive Media and Services industry at 30.8x.
• Analysts expect the number of shares outstanding to grow by 0.77% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.27%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The podcast ad market is described as significantly under monetized, with consumption 4.5 times higher than advertising spend. If this structural gap continues to close and ad budgets keep catching up, Acast could sustain high organic net sales growth above 15 percent and drive materially higher revenue and earnings over time.
• Acast is already delivering 41 percent organic revenue growth, expanding ARPU by 33 percent to SEK 0.58 per listen and targeting a 10 percent EBIT margin as a milestone rather than an endpoint. Ongoing operating leverage from scaling global costs and low touch channels could push both margins and earnings well above current levels.
• Strong secular trends toward premium narrative led influencers, broader multichannel campaign buying and the shift from buying individual podcasts to aggregated podcasting audiences all support higher sell through rates and pricing power. This could structurally lift revenue per listen and expand gross and contribution margins.
• Network effects from more than 140,000 podcasts, over 3,300 advertisers and over USD 550 million already paid to creators, combined with new partnerships such as Magnite and exclusive deals with large publishers, may entrench Acast’s market position and allow it to keep outgrowing competitors. This could drive sustained growth in revenue and operating cash flow.
• Rapid growth and improving contribution margins in key regions such as North America and Europe, together with continued optimization of global shared costs that have already fallen from 33 percent of sales to 17 percent, suggest that scale benefits could continue to lift group EBIT margins and free cash flow above current levels.

Valuation

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

• The analysts have a consensus price target of SEK30.5 for Acast 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 SEK3.4 billion, earnings will come to SEK331.5 million, and it would be trading on a PE ratio of 20.6x, assuming you use a discount rate of 6.3%.
  
• Given the current share price of SEK32.7, the analyst price target of SEK30.5 is 7.2% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.