Focusing On Global Digital Infrastructure Will Capitalize On AI And Cloud Demand

Key Takeaways

• Expansion into the data center sector and co-investment opportunities aims to drive high-margin revenue and strengthen net margins.
  
• Diversified product offerings in digital energy and stabilized data centers address market demands, supporting long-term revenue growth and improved profit margins.
  
• Heavy reliance on co-investment and credit markets may limit revenue growth and increase risks due to interest rate fluctuations and execution challenges.

Catalysts

DigitalBridge is an infrastructure investment firm specializing in digital infrastructure assets.

• Continued growth in the fundraising sector, with a record $9 billion raised in 2024 and plans to further expand this in 2025, can significantly increase fee-earning assets under management (FEEUM), enhancing future revenue streams.
  
• Strategic focus on co-investment opportunities and partnerships, particularly in the rapidly growing data center sector, demonstrates a commitment to high-margin revenue generation, which is expected to positively impact earnings and net margins.
  
• Expansion of product offerings, including new investment funds in digital energy and stabilized data centers, diversifies revenue streams and addresses significant market demands, likely to support long-term revenue growth and improve net margins.
  
• Intentions to achieve a steady increase in revenue from management fees by growing FEEUM from $35.5 billion to over $40 billion in 2025, with a clear plan to support earnings growth and improve profit margins through scale and efficiency.
  
• Strong focus on global digital infrastructure, including data centers, fiber, and tower assets, is expected to benefit from increased demand due to trends in cloud and AI, further supporting top-line revenue growth and strengthening net profit margins over time.

DigitalBridge Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming DigitalBridge Group's revenue will decrease by 6.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.1% today to 17.7% in 3 years time.
• Analysts expect earnings to reach $86.2 million (and earnings per share of $0.6) by about March 2028, up from $30.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $149.2 million in earnings, and the most bearish expecting $28.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 45.4x on those 2028 earnings, down from 55.7x today. This future PE is greater than the current PE for the US Capital Markets industry at 23.2x.
• Analysts expect the number of shares outstanding to grow by 0.39% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.51%, as per the Simply Wall St company report.

DigitalBridge Group Future Earnings Per Share Growth

Risks

• The company's heavy reliance on co-investment, which is raised at a lower fee structure, might limit revenue growth despite strong capital formation efforts, impacting overall earnings and revenue predictability.
  
• The anticipated decrease in co-investment raising in 2025 could result in diminished capital inflows, potentially affecting revenue and net margins if not compensated by increased fundraising in other areas.
  
• Fluctuations in carried interest revenues, which are episodic, can create variability in earnings, potentially unsettling investor expectations and impacting earnings consistency.
  
• Exposure to significant financing through credit markets and reliance on debt markets' conditions introduces risks related to interest rate fluctuations and credit availability, which could affect net margins.
  
• Large-scale data center investments focused on powering emerging AI and cloud demands might face execution risks, potentially resulting in unforeseen capital expenditures impacting overall profitability and net margins.

Valuation

• The analysts have a consensus price target of $16.75 for DigitalBridge Group 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 $20.0, and the most bearish reporting a price target of just $13.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $488.2 million, earnings will come to $86.2 million, and it would be trading on a PE ratio of 45.4x, assuming you use a discount rate of 7.5%.
• Given the current share price of $9.75, the analyst price target of $16.75 is 41.8% 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.