Automated Trading Platform Will Energize Private Market Ecosystem

Key Takeaways

• Advanced trading platform and improved data transparency are set to enhance investor participation and drive revenue growth.
  
• Strategic focus on stock buybacks and IPO pipeline positions Forge for potential market share expansion and earnings growth.
  
• Political events, interest rate cuts, and delayed IPO recoveries could hinder revenue growth and impact margins, despite strategic cost-saving efforts.

Catalysts

Operates a financial services platform in California.

• Forge Global Holdings has developed a strong technology platform, including Forge Pro, which is expected to drive marketplace activity and increase revenue due to its advanced institutional trading capabilities.
  
• The expansion of their fully automated trading experience and increased data transparency is likely to boost investor participation, positively impacting revenue growth.
  
• Forge's role as a central player in the private market ecosystem with its next-generation platform could lead to improved market share and revenue from new financial products.
  
• The approval of a $10 million stock buyback program suggests management believes the stock is undervalued, which could improve earnings per share in the long term.
  
• With a strong pipeline of potential IPOs and increasing demand for private market investment products, Forge could benefit from increased trading volume and revenue if IPO activity accelerates in 2025.

Forge Global Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Forge Global Holdings's revenue will grow by 16.4% annually over the next 3 years.
• Analysts are not forecasting that Forge Global Holdings will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Forge Global Holdings's profit margin will increase from -83.6% to the average US Capital Markets industry of 25.6% in 3 years.
• If Forge Global Holdings's profit margin were to converge on the industry average, you could expect earnings to reach $32.1 million (and earnings per share of $2.29) by about April 2028, up from $-66.3 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 20.1x on those 2028 earnings, up from -2.2x today. This future PE is lower than the current PE for the US Capital Markets industry at 23.1x.
• Analysts expect the number of shares outstanding to grow by 3.92% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.13%, as per the Simply Wall St company report.

Forge Global Holdings Future Earnings Per Share Growth

Risks

• The muted fourth quarter due to the presidential election cycle suggests political events can negatively impact revenue growth, causing potential fluctuations in earnings.
  
• The expectation of continued pressure on custodial administration fees due to Federal Reserve interest rate cuts indicates potential revenue declines in this segment.
  
• The company's reliance on achieving cost savings and selective investments might pressurize margins if revenue expectations from strategic initiatives don't meet targets.
  
• While Forge anticipates a recovery, any delays in IPO market momentum or regulatory issues might hinder revenue prospects and affect overall growth.
  
• The variability in take rates due to different liquidity sources, especially with the potential decrease from larger block trades, might impact net margins despite increased transaction volumes.

Valuation

• The analysts have a consensus price target of $37.498 for Forge Global Holdings 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 $60.0, and the most bearish reporting a price target of just $30.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $125.1 million, earnings will come to $32.1 million, and it would be trading on a PE ratio of 20.1x, assuming you use a discount rate of 7.1%.
• Given the current share price of $11.81, the analyst price target of $37.5 is 68.5% 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.