Bokfabriken Acquisition And AI Upgrades Will Drive Content Retention

Key Takeaways

• Subscriber growth in non-Nordic regions and strategic acquisitions enhance revenue and market share expansion beyond the Nordics.
  
• AI investments and operational efficiencies improve customer experience and financial flexibility, supporting profitability and strategic growth.
  
• Negative cash flow from investments and increased competition threaten Storytel's liquidity, while ARPU decline and market volatility impact revenue and earnings stability.

Catalysts

Provides audiobooks and e-books streaming services.

• Storytel's strong momentum in the first quarter of 2025, driven by subscriber growth, especially in non-Nordic regions, suggests continued revenue growth as they expand their market share beyond the Nordics.
  
• The acquisition of Bokfabriken enhances Storytel's content offerings, likely leading to increased revenues through expanded content libraries and more subscriber engagement, aiding net margin improvement.
  
• Successful reduction in Subscriber Acquisition Cost (SAC) and lower churn rates through personalized content recommendations indicate better customer retention and cost efficiency, which should positively impact net margins and earnings.
  
• Strategic investments in AI, such as the Voice Switcher feature, and content optimization might enhance user experience and operational efficiency, leading to potential improvements in net margins and overall profitability.
  
• The improvement in cash flow and leverage ratio amid operational efficiency gains reinforces a strong financial position, providing Storytel more flexibility for strategic growth investments, which can positively influence future earnings.

Storytel Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Storytel's revenue will grow by 10.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.1% today to 12.3% in 3 years time.
• Analysts expect earnings to reach SEK 643.2 million (and earnings per share of SEK 6.84) by about May 2028, up from SEK 236.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.3x on those 2028 earnings, down from 30.7x today. This future PE is lower than the current PE for the SE Media industry at 30.8x.
• Analysts expect the number of shares outstanding to grow by 0.06% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.82%, as per the Simply Wall St company report.

Storytel Future Earnings Per Share Growth

Risks

• The company's cash flow from investing activities is negative, significantly impacted by acquisitions such as Bokfabriken, which may strain cash reserves and affect net margins if integration isn't seamless.
  
• There is a reported 3% decrease in ARPU year-on-year, which could lead to lower revenue growth if not countered by subscriber volume increases.
  
• Despite improved profitability, Q1's net cash flow was negative, largely due to investment expenditures, which could impact the company's liquidity position if such trends continue.
  
• Increased competition from global players like Spotify entering the audiobook market may affect revenue as maintaining market share could become costly.
  
• Seasonal and geographical factors contribute to a volatile EBITDA margin and changes in subscriber numbers, where continued instability might affect earnings predictability.

Valuation

• The analysts have a consensus price target of SEK104.0 for Storytel 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 SEK125.0, and the most bearish reporting a price target of just SEK83.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK5.2 billion, earnings will come to SEK643.2 million, and it would be trading on a PE ratio of 14.3x, assuming you use a discount rate of 4.8%.
  
• Given the current share price of SEK94.4, the analyst price target of SEK104.0 is 9.2% 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.