Intense Global Competition Will Shrink Margins Yet Spark Modest Recovery

Key Takeaways

• AI-generated and free audio content threaten subscriber growth and retention, while shorter-form media trends may reduce engagement and average revenue per user.
  
• Price competition in emerging markets and rising content costs limit margin expansion, despite operational efficiencies and international subscriber gains.
  
• Aggressive international expansion, intensifying competition, rising costs, M&A reliance, and currency risks threaten sustainable revenue growth and long-term profitability.

Catalysts

Provides audiobooks and e-books streaming services.

• Although Storytel continues to benefit from expanding global smartphone and internet access, enabling it to reach new audiences in non-Nordic markets and drive paid subscriber growth, the proliferation of AI-generated and free audio content poses a serious risk to consumer willingness to pay for subscriptions, which could limit sustained revenue growth and increase churn over time.
  
• While the growing preference for on-demand, personalized content should support adoption of Storytel's services and boost its ability to leverage AI-powered recommendations for higher retention, the global shift toward shorter-form media may undermine engagement with long-form audiobooks, potentially hindering subscriber growth and reducing average revenue per user.
  
• Despite strong international expansion, especially outside the Nordics with double-digit subscriber growth, the continued decrease in average revenue per user from lower-priced emerging markets highlights the company's vulnerability to price competition and limits margin improvement, even as top-line revenue rises.
  
• Although ongoing investments in original content, local partnerships, and technology infrastructure have yielded operational efficiencies and margin expansion, Storytel remains exposed to surging content acquisition and production costs, and any failure to control these expenses as it scales could erode net margins and earnings.
  
• While Storytel's integrated model and robust engagement among book lovers reinforce its brand differentiation, fierce competition from larger global platforms and increasing consolidation among publishers threaten Storytel's market share and bargaining position, potentially suppressing future revenue and compressing profitability despite operational improvements.

Storytel Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Storytel compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Storytel's revenue will grow by 8.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 6.4% today to 10.7% in 3 years time.
• The bearish analysts expect earnings to reach SEK 536.5 million (and earnings per share of SEK 7.05) by about September 2028, up from SEK 250.1 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 15.5x on those 2028 earnings, down from 23.5x today. This future PE is lower than the current PE for the SE Media industry at 24.1x.
• Analysts expect the number of shares outstanding to grow by 0.05% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.02%, as per the Simply Wall St company report.

Storytel Future Earnings Per Share Growth

Risks

• The rapid expansion into new international and non-Nordic markets is resulting in a declining average revenue per user as subscriber growth increasingly comes from lower-priced markets, which could put sustained pressure on group revenues and limit profit growth if not offset by volume.
  
• The competitive landscape is described as super sharp and intensifying, with both strong global rivals like Spotify and local players increasing their focus on audiobooks, raising risks to Storytel's market share and creating potential for increased marketing and content acquisition costs that could squeeze net margins.
  
• The company is committing to further investments in AI, data, and locally relevant content, as well as higher marketing outlays to support international growth. If these incremental cost increases do not translate into proportional top-line expansion, long-term earnings leverage may be limited.
  
• Reliance on continued acquisition activity for segment growth, such as the Bokfabriken acquisition driving much of the recent uplift in Publishing segment revenues and margins, may introduce integration risks and foster expectations of M&A dependence to sustain revenue and profit expansion.
  
• Currency headwinds, called out as a primary factor in declining ARPU and fluctuating group net sales, indicate that Storytel's financial performance is vulnerable to ongoing exchange rate volatility, which could unpredictably impact revenues and earnings for shareholders over the long run.

Valuation

• The assumed bearish price target for Storytel is SEK93.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Storytel'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 SEK160.0, and the most bearish reporting a price target of just SEK93.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be SEK5.0 billion, earnings will come to SEK536.5 million, and it would be trading on a PE ratio of 15.5x, assuming you use a discount rate of 5.0%.
  
• Given the current share price of SEK76.2, the bearish analyst price target of SEK93.0 is 18.1% 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.