Slow CTV Expansion Will Challenge Market Outlook Despite Diversification

Key Takeaways

• Slow growth from key partnerships and uncertainty around scaling new initiatives may impede anticipated revenue improvements and offset programmatic declines.
  
• Intensifying competition, regulatory risks, and elevated investment needs could erode margins and challenge long-term profitability despite operational gains.
  
• Sluggish growth in key segments, reliance on concentrated partnerships, and rising costs amid industry shifts threaten Nexxen's market position, profitability, and long-term revenue prospects.

Catalysts

Provides end-to-end and video-first platform that engages advertising campaigns for brands, agencies, media groups, and content creators worldwide.

• While Nexxen stands to benefit from the continued expansion of digital video and connected TV advertising, the ramp-up from their exclusive VIDAA partnership in CTV has been slow to materially accelerate revenue, raising concerns about whether anticipated growth in CTV can be fully realized or if additional investments will be required before seeing a meaningful uplift to top-line results.
  
• Although the company's investments in AI-powered products like nexAI and the integration of first-party data are expected to drive client efficiency and operational leverage, there are risks that the accelerating arms race in AI and rapidly evolving privacy regulations could dilute Nexxen's competitive advantage and increase technology costs, potentially weighing on future margins and EBIT growth.
  
• While Nexxen's shift to licensing proprietary data and technology is opening new revenue streams and diversifying its business, the magnitude of these contributions is still uncertain as off-platform data licensing is early in adoption-raising the risk that these initiatives may not scale enough to offset potential declines in core programmatic revenue or justify elevated R&D and partnership expenses.
  
• Despite sharing in the industry-wide tailwind of programmatic and performance-driven advertising, Nexxen remains vulnerable to the growing dominance of walled gardens and macroeconomic headwinds that can compress advertiser budgets or limit open-web market share, which could stifle both revenue growth and pricing power over the long term.
  
• While Nexxen has achieved strong operational improvements and margin expansion driven partly by scaling and cost controls, further efficiency gains may be harder to realize as future growth becomes more dependent on heavy upfront investment in global footprint and sales infrastructure, potentially putting pressure on near-term free cash flow and requiring disciplined management to maintain net margin improvement.

Nexxen International Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Nexxen International compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Nexxen International's revenue will grow by 7.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 13.4% today to 8.9% in 3 years time.
• The bearish analysts expect earnings to reach $40.6 million (and earnings per share of $0.61) by about September 2028, down from $49.7 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 bearish analyst cohort, the company would need to trade at a PE ratio of 22.8x on those 2028 earnings, up from 12.4x today. This future PE is greater than the current PE for the GB Media industry at 20.6x.
• Analysts expect the number of shares outstanding to decline by 6.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.36%, as per the Simply Wall St company report.

Nexxen International Future Earnings Per Share Growth

Risks

• Nexxen's Connected TV revenue grew only 1 percent year-over-year this quarter, which is notably slower than industry peers, suggesting the company might struggle to capture the full benefits of long-term CTV secular growth, putting future revenue growth and competitive positioning at risk if this trend persists.
  
• The sector is seeing declining open Internet traffic due to generative AI and changing search habits, which could shrink the available ad inventory and audience that Nexxen can monetize, creating long-term pressure on both revenue and margin expansion.
  
• Nexxen's increasing investments in AI, commercial hires, and its $35 million additional commitment to VIDAA represent significant fixed cost outlays at a time when parts of its core business, such as mobile and PMP, are in decline; if expected growth in areas like CTV does not materialize, operating leverage and net margins could be negatively impacted.
  
• Nexxen relies on exclusive partnerships, such as VIDAA, for data and inventory advantage, but this creates customer and partner concentration risk; if VIDAA's expansion or competitive position falters, or if major partners shift spend or strategies, Nexxen's revenue and earnings would be disproportionately affected.
  
• The competitive landscape remains challenging, as walled gardens like Google and Meta continue to attract a larger share of digital ad budgets, while regulatory risks and the open web's decline mean Nexxen may face secular market share erosion, which could limit long-term revenue scalability and compress overall profitability.

Valuation

• The assumed bearish price target for Nexxen International is $14.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Nexxen International's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $25.4, and the most bearish reporting a price target of just $14.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $457.9 million, earnings will come to $40.6 million, and it would be trading on a PE ratio of 22.8x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of $9.74, the bearish analyst price target of $14.0 is 30.4% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.