Regulatory And Market Headwinds Will Drag Valuation Down

Key Takeaways

• Reliance on a shrinking Swedish market and demographic trends threaten future growth and sustained revenue levels amid rising competitive and regulatory pressures.
  
• Intensifying competition and shifting digital advertising dynamics risk eroding market share, compressing margins, and weakening Hemnet's pricing power.
  
• Dominant market position, strong brand, tech-driven product innovation, and diversified revenue streams reinforce robust growth, high margins, and resilience against market fluctuations.

Catalysts

Operates a residential property platform in Sweden.

• The Swedish housing market is experiencing significant demographic headwinds, including an aging population and declining birth rates, which will likely result in structurally lower listing volumes and user engagement for Hemnet Group over the long term, putting sustained pressure on revenue growth.
  
• Regulatory risks are escalating as data privacy and compliance demands increase across Europe. Any tightening of data regulations could curb Hemnet's ability to monetize user data, increase compliance costs, and reduce the impact of personalization efforts-pressuring both ARPU and net margins over time.
  
• Hemnet's heavy dependence on the saturated Swedish market exposes it to ongoing local economic weakness and cyclical volatility. Persistently slower transaction volumes and high inventory levels suggest long-term revenue stagnation, as there is little scope for top-line growth without expansion into new markets or product categories.
  
• Competitive threats are intensifying, both from established online property platforms and from disruptive proptech models such as direct-buying and blockchain-based real estate exchanges. This trend risks eroding Hemnet's dominant market share and forcing it to invest heavily in product innovation and marketing, ultimately compressing profitability and margins.
  
• The commoditization of online property listings and rising competition for digital advertising budgets-especially from global tech giants and specialized apps-raise the risk that Hemnet's pricing power will deteriorate, leading to declining ARPU and profitability as advertisers devote spend elsewhere or demand greater discounts.

Hemnet Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Hemnet Group compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Hemnet Group's revenue will grow by 17.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 35.4% today to 39.6% in 3 years time.
• The bearish analysts expect earnings to reach SEK 1.0 billion (and earnings per share of SEK 11.11) by about August 2028, up from SEK 548.2 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 bearish analyst cohort, the company would need to trade at a PE ratio of 24.5x on those 2028 earnings, down from 45.3x today. This future PE is lower than the current PE for the SE Interactive Media and Services industry at 68.9x.
• Analysts expect the number of shares outstanding to decline by 1.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.09%, as per the Simply Wall St company report.

Hemnet Group Future Earnings Per Share Growth

Risks

• Hemnet's strong brand recognition and approximately 89% market share, confirmed over six consecutive years, means significant network effects are in place, making it difficult for competitors to erode its leadership; this supports robust user engagement and helps sustain premium pricing, positively impacting long-term revenues and net margins.
  
• Despite a decline in listing volumes, Hemnet consistently achieved double-digit top-line growth, driven by a sharp increase in average revenue per listing through successful monetization of value-added services and new premium products; this diversified revenue stream buffers against cyclical market downturns and supports ongoing EBITDA margin expansion.
  
• High user preference and satisfaction, as evidenced by 83% of buyers and 87% of sellers indicating Hemnet as their first choice and by Hemnet being rated the most user-friendly platform, reinforce customer loyalty, ensuring continued platform dominance and helping protect future earnings and cash flow even in weaker property markets.
  
• Ongoing investments in technology and product development-including the launch of Hemnet Max, personalized recommendations, and enhanced platform features-drive user engagement, stimulate higher-tier product uptake, and improve operational efficiency, which together lift ARPU and underpin strong net margin resilience.
  
• The company's significant free cash flow generation and low leverage support continued investment in growth, capital returns such as expanded share buybacks, and potential expansion into new business areas, all of which contribute to sustained strong earnings and shareholder value over the long term.

Valuation

• The assumed bearish price target for Hemnet Group is SEK227.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Hemnet Group's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK482.0, and the most bearish reporting a price target of just SEK227.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be SEK2.5 billion, earnings will come to SEK1.0 billion, and it would be trading on a PE ratio of 24.5x, assuming you use a discount rate of 6.1%.
• Given the current share price of SEK261.8, the bearish analyst price target of SEK227.0 is 15.3% 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.