Guild Growth Risks And Heavy Content Spend Will Challenge But Eventually Support Long-Term Prospects

Catalysts

About Angel Studios

Angel Studios operates a values-driven, audience-funded entertainment platform that produces, acquires and distributes films and series guided by its paying Guild community.

What are the underlying business or industry changes driving this perspective?

• Although the Guild has scaled to 1.6 million paying members with ARPM near 14 dollars and contributes 77 percent of revenue, sustaining this growth as the broader streaming market matures could prove difficult and may cap long-term revenue expansion if acquisition costs keep rising faster than member lifetime value.
• Despite early success integrating AI-driven discovery that lifted watch time by 12 percent and supports better retention, the company could be outpaced by much larger platforms investing heavily in similar personalization tools, which may constrain Angel's ability to further improve net margins through technology efficiencies.
• Although owning franchises like DAVID, Tuttle Twins, Homestead and The Wingfeather Saga creates a deeper IP library that should enhance recurring revenue and licensing opportunities over time, the high upfront content and acquisition spend could pressure earnings if these titles do not deliver sustained viewership and downstream monetization across windows.
• While expanding distribution across Samsung, Amazon, Apple, Roku and LG broadens reach and has already lowered app store fees by roughly 3.5 million dollars annually, dependence on third-party platforms for 30 percent of Guild sign-ups leaves Angel exposed to future term changes that could compress gross margins or slow top line growth.
• Although a 100 million dollar credit facility, a sizable shelf registration and a Bitcoin treasury position provide capital flexibility to fund Guild and content growth, rising interest expense, potential future equity dilution and cryptocurrency volatility together create downside risk to net income and earnings stability if growth normalizes.

Assumptions

This narrative explores a more pessimistic perspective on Angel Studios compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Angel Studios's revenue will grow by 42.8% annually over the next 3 years.
• The bearish analysts are not forecasting that Angel Studios will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Angel Studios's profit margin will increase from -53.8% to the average US Entertainment industry of 10.4% in 3 years.
• If Angel Studios's profit margin were to converge on the industry average, you could expect earnings to reach $73.2 million (and earnings per share of $0.35) by about January 2029, up from $-130.5 million today.
• 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 29.3x on those 2029 earnings, up from -6.2x today. This future PE is greater than the current PE for the US Entertainment industry at 18.3x.
• The bearish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.14%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The broader streaming and TV market is highly competitive and rapidly consolidating, and much larger platforms are investing heavily in premium family and faith content. This could limit Angel's ability to keep growing Guild memberships at recent triple digit rates and eventually slow revenue expansion and ARPM growth, pressuring long-term revenue.
• Angel's model depends on continually spending heavily on marketing to acquire new Guild members, with selling and marketing already at $64.7 million in the quarter. If acquisition costs rise faster than member lifetime value as the market matures, this could erode the scalability of the model and keep net margins and earnings deeply negative.
• The strategic shift toward owning large scale franchises like DAVID and other acquired series increases capital intensity and execution risk. If blockbuster releases underperform expectations in theatrical and streaming windows, the company may face impaired content assets and weaker licensing demand, weighing on gross margins and earnings.
• Reliance on external distribution and platform partners such as Apple, Amazon, Roku and Samsung, which currently drive about 30 percent of Guild sign ups and provide improved fee economics, exposes Angel to potential future term changes or algorithm shifts. These changes could reduce sign ups and raise effective distribution costs, negatively impacting revenue growth and net margins.
• Angel is choosing to prioritize rapid Guild growth over profitability and is funding expansion with a $100 million credit facility, a $400 million shelf registration and a volatile Bitcoin treasury. If secular industry growth slows or investor appetite for high growth, loss making media names wanes, higher interest expense, dilution and crypto mark to market swings could damage confidence and lead to a sustained decline in earnings power and share price.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Angel Studios is $8.0, which represents up to two standard deviations below the consensus price target of $10.33. This valuation is based on what can be assumed as the expectations of Angel Studios'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 $14.0, and the most bearish reporting a price target of just $8.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $707.0 million, earnings will come to $73.2 million, and it would be trading on a PE ratio of 29.3x, assuming you use a discount rate of 9.1%.
  
• Given the current share price of $4.83, the analyst price target of $8.0 is 39.6% 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.