CoreWeave And OpenAI IPOs Will Open New Opportunities

Key Takeaways

• Strategic investments in AI and pre-IPO companies are poised to enhance earnings and boost investor confidence through potential value realization.
  
• Anticipated IPO successes in portfolio companies like CoreWeave and WHOOP are expected to significantly bolster revenue growth and increase capital distributions.
  
• The company's high concentration in a few major investments and reliance on uncertain IPO timelines pose significant financial risks to valuation and earnings stability.

Catalysts

A venture capital, mezzanine, secondary(direct) and business development company specializing in growth capital, emerging growth, late stage and venture capital-backed private companies.

• SuRo Capital expects significant value from upcoming IPOs in its portfolio, including CoreWeave, Canva, WHOOP, and Liquid Death, which could boost revenue upon successful listings.
  
• CoreWeave's partnership with OpenAI and its substantial growth trajectory, including a significant contract and acquisition of Weights and Biases, are poised to elevate earnings.
  
• The investment in AI companies like OpenAI and VAST Data positions SuRo Capital to benefit from rapid growth and valuation increases, potentially enhancing net margins.
  
• The firm anticipates growth in other key portfolio companies like ServiceTitan, WHOOP, and Liquid Death, supporting long-term revenue increases and improving investor confidence.
  
• Strategic investments in notable pre-IPO companies provide opportunities for capital gains, which may lead to higher distributions, impacting earnings per share positively.

SuRo Capital Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SuRo Capital's revenue will grow by 2.6% annually over the next 3 years.
• Analysts are not forecasting that SuRo Capital will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate SuRo Capital's profit margin will increase from -815.8% to the average US Capital Markets industry of 25.6% in 3 years.
• If SuRo Capital's profit margin were to converge on the industry average, you could expect earnings to reach $1.3 million (and earnings per share of $0.05) by about April 2028, up from $-38.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 188.4x on those 2028 earnings, up from -2.8x today. This future PE is greater than the current PE for the US Capital Markets industry at 23.1x.
• Analysts expect the number of shares outstanding to grow by 0.85% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.6%, as per the Simply Wall St company report.

SuRo Capital Future Earnings Per Share Growth

Risks

• The decline in NAV by 16% in 2024 raises concerns about future valuation of portfolio assets, which can impact financial metrics such as net asset value and possibly affect investor sentiment.
  
• Market volatility creates uncertainty about IPO timelines and valuations, which might impact potential revenue from monetizing these investments.
  
• Several significant investments depend heavily on AI infrastructure, which may not grow as anticipated due to rapidly changing technology landscapes, potentially affecting future earnings.
  
• The sizable investment and reliance on CoreWeave’s IPO may pose a financial risk if the IPO does not achieve anticipated valuation, affecting net margins negatively.
  
• The high concentration of investments in a few companies (top five make up 44% of the portfolio) could lead to increased portfolio risk if any of these companies underperform or face market challenges, which would impact portfolio valuation and earnings reliability.

Valuation

• The analysts have a consensus price target of $7.925 for SuRo Capital 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 $8.7, and the most bearish reporting a price target of just $7.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $5.0 million, earnings will come to $1.3 million, and it would be trading on a PE ratio of 188.4x, assuming you use a discount rate of 8.6%.
• Given the current share price of $4.54, the analyst price target of $7.92 is 42.7% 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.