F1 Expansion And Digital Transformation Will Energize Racing's Future

Key Takeaways

• Expanding global fan engagement and digital transformation are driving new, higher-margin revenue streams and strengthening Formula One's brand appeal, especially among younger audiences.
  
• Growth in new markets and successful media rights renewals are diversifying revenue sources, improving earnings visibility, and boosting long-term profitability.
  
• One-time revenue boosts, rising costs, reliance on geographic expansion, short-term media strategies, and increased leverage heighten earnings volatility and financial risk amid complex growth plans.

Catalysts

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

• Formula One's surging global fan engagement-including a record 826 million fan base, significant growth in the under-35 demographic, and exceptional social media momentum-positions the company to command higher sponsorship fees and attract new brands, directly supporting ongoing and future top-line revenue growth.
  
• Expansion into high-growth markets such as the U.S., with record-setting race attendance, media viewership, and a robust event calendar-including new race additions like Madrid and continued sell-outs in Las Vegas-will increase hosting fees, media rights values, and local commercial partnerships, providing long-term revenue diversification and growth.
  
• Ongoing digital transformation-evidenced by F1 TV's strong international subscriber growth, premium-tier uptake, and a vibrant digital/social content ecosystem-enables Formula One to directly monetize its expanding young global audience while improving net margins and earnings stability through higher-margin direct-to-consumer subscription streams.
  
• Successful renewal and extension of long-term media rights contracts in core and emerging territories, coupled with a favorable negotiating position in the U.S. due to accelerated audience growth, are expected to deliver step-ups in future broadcast rights revenue and enhance overall earnings visibility.
  
• Hospitality, licensing, and experiential initiatives-including expanded Paddock Club offerings, innovative partnerships (Disney, LEGO), and year-round event activations-are creating high-margin ancillary revenue streams that both complement core race income and structurally improve overall profitability.

Formula One Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Formula One Group's revenue will grow by 11.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.1% today to 14.2% in 3 years time.
• Analysts expect earnings to reach $758.1 million (and earnings per share of $1.81) by about September 2028, up from $273.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.2 billion in earnings, and the most bearish expecting $306 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 50.8x on those 2028 earnings, down from 93.0x today. This future PE is greater than the current PE for the US Entertainment industry at 39.3x.
• Analysts expect the number of shares outstanding to grow by 0.54% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.36%, as per the Simply Wall St company report.

Formula One Group Future Earnings Per Share Growth

Risks

• Formula One's significant growth and profitability this year benefited from one-time factors, such as the F1 movie (mid-teens percentage of quarterly revenue), which are not recurring sources of revenue and may create difficult year-over-year comparisons, impacting perceived revenue growth and EPS.
  
• There is rising cost pressure in both F1 and MotoGP-including freight, hospitality, marketing, and personnel-that is outpacing some revenue growth and could compress profit margins if not managed carefully, especially as race expansion continues and operational complexity increases.
  
• Although F1 is experiencing strong U.S. engagement, the management highlighted a strategy to pursue only mid-term (not long-term) media rights deals due to uncertainty about future growth, raising the risk of less favorable renewals if U.S. momentum stalls or if the shift to streaming leads to lower rights fees over time, thus impacting future revenue visibility and growth.
  
• Both F1 and MotoGP are dependent on adding new races and entering new geographies, but there are execution risks involved with market overexpansion or dilution of exclusivity, which could ultimately soften media rights values, fan excitement, and hospitality/sponsorship revenues, eroding top-line and earnings growth.
  
• With leverage increasing to fund the MotoGP acquisition (F1 OpCo leverage rising to 3.3x and pro forma group leverage at 5.2x post-acquisition), there is heightened financial risk in the event of a market downturn or underperformance, potentially straining balance sheet flexibility and placing pressure on net income through higher interest costs and reduced optionality for buybacks or investment.

Valuation

• The analysts have a consensus price target of $115.867 for Formula One 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 $140.0, and the most bearish reporting a price target of just $86.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $5.3 billion, earnings will come to $758.1 million, and it would be trading on a PE ratio of 50.8x, assuming you use a discount rate of 9.4%.
• Given the current share price of $101.49, the analyst price target of $115.87 is 12.4% 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.