Expanding Into Tokenized Assets And Calculated Advisor Growth Fuels Financial Diversification And Strength

Key Takeaways

• Introduction of tokenized assets and expansion into blockchain finance by WisdomTree aims to enhance revenue growth and market diversification.
  
• Expanding the U.S.-listed and offshore ETF offerings along with improving the WisdomTree Prime app suggests strategies for AUM growth and increased revenue stability.
  
• WisdomTree's growth and revenue are at risk from market fluctuations, concentrated investment strategies, and the uncertainties of expanding into technology and blockchain ventures.

Catalysts

Through its subsidiaries, operates as an exchange-traded funds (ETFs) sponsor and asset manager.

• The introduction of tokenized assets and blockchain-enabled finance by WisdomTree is expected to open new revenue opportunities, which could boost the company’s revenue growth and diversification, enhancing its overall financial health by tapping into new markets.
  
• WisdomTree’s strategy of increasing the number of advisors who have access to its models, as well as expanding the accessible market to over 85,000 advisors, indicates a potential for higher net inflows and organic growth, which could positively impact revenue and earnings over time.
  
• The company’s focus on expanding its U.S.-listed ETFs and offshore UCITS ETF suite, which have seen strong engagement and net inflows, suggests continued AUM (Assets Under Management) growth. This growth could drive revenue expansion and improve net margins through scale benefits.
  
• WisdomTree’s emphasis on improving its other revenue streams, such as transaction and asset-based revenues, especially in the European market, signals potential for increased revenue diversity and stability, potentially enhancing the company’s financial resilience and profitability.
  
• The continuous updates and enhancements of the WisdomTree Prime app, coupled with targeted marketing strategies, indicate potential for increased user base and customer engagement. This approach could lead to higher AUM and revenue, contributing to the company’s growth and valuation over time.

Assumptions

• Analysts are assuming WisdomTree's revenue will grow by 10.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 18.9% today to 26.4% in 3 years time.
• Analysts expect earnings to reach $137.7 million (and earnings per share of $0.82) by about September 2027, up from $72.8 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 16.9x on those 2027 earnings, down from 20.3x today. This future PE is lower than the current PE for the US Capital Markets industry at 21.6x.
• Analysts expect the number of shares outstanding to grow by 1.19% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 6.9%, as per the Simply Wall St company report.

Risks

• WisdomTree may face challenges in maintaining and expanding its AUM growth if favorable market conditions change, impacting its future revenue growth.
  
• The reliance on tactical nature and potential outflows from commodity products expose WisdomTree to fluctuating revenues and can influence net flow stability.
  
• Dependence on the continued engagement in U.S.-listed ETFs and offshore UCITS ETF suite for net inflows poses concentration risk, which could impact organic growth if there are market downturns or shifts in investor preferences.
  
• The strategy to broaden revenue through other revenue streams, although successful, introduces the risk of unpredictability in earnings, especially if these asset-based and transaction-based revenue elements do not grow as expected.
  
• Heavy investment and focus on technology, tokenization, and blockchain-enabled finance ventures carry execution and regulatory risks, potentially affecting the anticipated future revenue opportunities and impacting earnings if these initiatives face delays or do not achieve forecasted growth.

Valuation

• The analysts have a consensus price target of $12.5 for WisdomTree 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 $15.0, and the most bearish reporting a price target of just $9.75.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $522.1 million, earnings will come to $137.7 million, and it would be trading on a PE ratio of 16.9x, assuming you use a discount rate of 6.9%.
• Given the current share price of $10.08, the analyst's price target of $12.5 is 19.4% 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.