Tesla Renewal And PodcastOne Expansion Will Spark Future Success

Key Takeaways

• Record revenue growth driven by B2B deals and Tesla partnership renewals positions LiveOne for significant future earnings.
  
• Exploring M&A opportunities and expanding PodcastOne subsidiary could diversify revenue streams and strengthen market position.
  
• The company's reliance on upselling, rising competition, and aggressive acquisitions poses risks to financial stability, margins, and long-term growth potential.

Catalysts

A digital media company, engages in the acquisition, distribution, and monetization of live music, Internet radio, podcasting/vodcasting, and music-related streaming and video content.

• LiveOne has achieved record revenues and has expanded its B2B partnerships, with $44 million added in new deals, including significant agreements with Fortune 500 companies, which are expected to drive revenue growth.
  
• The renewal of their Tesla partnership with promotional placement in Tesla cars is a transformative opportunity that could lead to increased revenue from converting free users to paid subscribers, leveraging pricing elasticity and user data.
  
• LiveOne sees a multibillion-dollar opportunity in converting ad-supported Tesla users into long-term subscribers and leveraging advertising partnerships, which could significantly impact their earnings as advertising revenues grow.
  
• The company is actively exploring M&A opportunities, which, if realized, could enhance business offerings and lead to expanded revenue streams and a stronger market position.
  
• LiveOne's focus on growth in its PodcastOne subsidiary, which is targeting positive EBITDA and expanding its network, could improve net margins as new revenue streams from podcasts stabilize and mature.

LiveOne Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming LiveOne's revenue will decrease by 0.1% annually over the next 3 years.
• Analysts are not forecasting that LiveOne will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate LiveOne's profit margin will increase from -10.1% to the average US Entertainment industry of 9.9% in 3 years.
• If LiveOne's profit margin were to converge on the industry average, you could expect earnings to reach $12.5 million (and earnings per share of $0.13) by about April 2028, up from $-12.8 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 24.0x on those 2028 earnings, up from -4.8x today. This future PE is greater than the current PE for the US Entertainment industry at 21.8x.
• Analysts expect the number of shares outstanding to grow by 1.05% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.39%, as per the Simply Wall St company report.

LiveOne Future Earnings Per Share Growth

Risks

• The shift from guaranteed revenue with Tesla to a model dependent on upselling customers may lead to short-term revenue declines, posing risks to overall financial stability and net margins.
  
• Increasing competition in the audio streaming industry and pressure to raise subscription prices present challenges to maintaining and growing the subscriber base, impacting long-term revenue potential.
  
• The company's aggressive acquisition of podcast content has led to costs rising faster than revenue, affecting current gross margins and profitability.
  
• Recording costs for ad-supported services and slow monetization progress could lead to additional pressure on gross margins, particularly in the interim period before advertising revenue is fully realized.
  
• The heavy reliance on B2B partnerships for future growth introduces execution risks; any delays or failures to convert these opportunities could directly affect projected revenue streams.

Valuation

• The analysts have a consensus price target of $2.39 for LiveOne 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 $4.0, and the most bearish reporting a price target of just $1.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $126.3 million, earnings will come to $12.5 million, and it would be trading on a PE ratio of 24.0x, assuming you use a discount rate of 8.4%.
• Given the current share price of $0.64, the analyst price target of $2.39 is 73.3% 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.