Rising Middle Class And Digital Media Will Expand Global Races

Key Takeaways

• Expanding global audience and digital engagement, combined with new experiential offerings, are driving stronger sponsorship, ticketing, and media revenue opportunities.
  
• Effective cost controls and diversified revenue streams are boosting profitability and supporting higher margins with less reliance on any single income source.
  
• Environmental pressures, media fragmentation, rising costs, overexpansion risks, and heightened competition threaten Formula One’s long-term growth, margins, and global appeal.

Catalysts

Engages in the motorsports business in the United States and the United Kingdom.

• Formula One is experiencing rapid global audience expansion, particularly driven by rising middle class income and surging viewership in growth markets such as the U.S., Asia, and Latin America; race attendance records and media ratings are hitting new highs, which is expected to drive durable increases in race hosting fees, ticketing revenue, and sponsorship demand.
  
• The company is capitalizing on the shift to digital media consumption, with its F1 TV direct-to-consumer platform seeing robust subscriber growth and the new premium tier outperforming expectations, paired with strong social media engagement and 100 million followers; this strengthens top-line revenue growth and positions F1 to command higher licensing fees and better bargaining leverage in upcoming media rights renewals.
  
• Corporate investments in experiential and premium marketing are increasing, and Formula One’s sponsorship business is seeing a significant pipeline of high-quality, long-term global partnerships—recent deals with major brands like Barilla and PwC demonstrate this—supporting accelerated, recurring sponsorship and advertising revenue growth.
  
• Diversification into new revenue streams is gaining momentum, including digital products, the global rollout of F1 Arcade and immersive Grand Prix Plaza experiences, expanded licensing deals, and year-round hospitality. These initiatives reduce reliance on single income sources and are expected to drive higher margins and accelerate earnings growth.
  
• Enhanced cost controls through extensions of the Concorde Agreement and ongoing cost cap implementation are stabilizing profitability, lowering team payments as a percentage of revenue and providing better visibility for net margins, enabling greater operating leverage as revenue growth accelerates in coming years.

Formula One Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Formula One Group compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Formula One Group's revenue will grow by 18.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 0.4% today to 15.0% in 3 years time.
• The bullish analysts expect earnings to reach $870.8 million (and earnings per share of $2.6) by about July 2028, up from $13.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 60.6x on those 2028 earnings, down from 1975.0x today. This future PE is greater than the current PE for the US Entertainment industry at 26.9x.
• Analysts expect the number of shares outstanding to grow by 5.59% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.04%, as per the Simply Wall St company report.

Formula One Group Future Earnings Per Share Growth

Risks

• Growing global pressure for environmental sustainability and the worldwide shift away from fossil fuels could reduce Formula One’s appeal among both fans and sponsors, despite its efforts with sustainable fuels, which risks eroding sponsorship revenue and future media rights values.
  
• The ongoing secular decline in linear TV viewership and the fragmentation of how people consume media threatens Formula One’s ability to secure large, long-term broadcast contracts, which risks flattening or even reducing media rights revenue in the future.
  
• Geopolitical instability and protectionist trends could impede Formula One’s strategy to expand or maintain its global race calendar, potentially reducing opportunities for revenue growth from new markets and increasing uncertainty for long-term contractual revenues.
  
• Escalating costs tied to race promotion, freight, partner servicing, and the increasing complexity (and potential inflationary nature) of team payments, especially under new commercial agreements, may pressure net margins and reduce earnings if revenue growth slows.
  
• The risk of overexpansion into new markets or adding too many races threatens to dilute the exclusivity of the sport, which—when combined with shifting demographic tastes and competition from all-electric racing like Formula E—could result in a long-term decline in ticket sales, licensing, and overall revenue growth.

Valuation

• The assumed bullish price target for Formula One Group is $138.98, which represents two standard deviations above the consensus price target of $113.64. This valuation is based on what can be assumed as the expectations of Formula One Group's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $140.0, and the most bearish reporting a price target of just $87.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $5.8 billion, earnings will come to $870.8 million, and it would be trading on a PE ratio of 60.6x, assuming you use a discount rate of 9.0%.
• Given the current share price of $102.93, the bullish analyst price target of $138.98 is 25.9% 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.