Guild Expansion And Values Driven Content Will Power Long Term Upside Potential

Catalysts

About Angel Studios

Angel Studios operates an audience-first entertainment platform where paying Guild members help select, fund and promote values-based films and series released in theaters and on its streaming app.

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

• Rapid expansion of the Angel Guild to 1.6 million paying members, supported by paid acquisition and strong engagement, is building a larger base of recurring membership revenue that can scale across new titles and formats over time, supporting top line growth and potential operating leverage.
• Growing global appetite for values-driven, family oriented content, reflected in Angel’s focus on stories that “amplify light” and survey data that a large majority of entertainment consumers care about faith or values, gives the company a clear audience identity that can support membership growth and help sustain revenue per member.
• Ownership or control of high performing franchises like DAVID, Tuttle Twins, Homestead and The Wingfeather Saga, plus plans for derivative experiences such as games and live events, increases the potential to monetize each intellectual property across multiple windows, which can support both revenue diversification and content related margins.
• AI driven discovery in the Angel app that increased average watch time by 12% in testing, along with ongoing product optimizations that lifted sign ups and revenue, points to technology driven gains in engagement and retention that can support higher recurring revenue and improve marketing efficiency, with a direct read through to net margins and earnings.
• Direct distribution relationships with platforms like Apple, Amazon, Samsung and Roku and lower in app purchase fees are widening reach and reducing transaction costs, which can support higher content licensing revenue and improve gross margins as more Guild members sign up through these channels.

Assumptions

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

• The bullish analysts are assuming Angel Studios's revenue will grow by 43.0% annually over the next 3 years.
• The bullish 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 10.2% in 3 years.
• If Angel Studios's profit margin were to converge on the industry average, you could expect earnings to reach $72.6 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 bullish analyst cohort, the company would need to trade at a PE ratio of 51.7x on those 2029 earnings, up from -5.7x today. This future PE is greater than the current PE for the US Entertainment industry at 20.2x.
• The bullish 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 9.09%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The model is heavily tied to rapid Guild expansion, with 1.6 million paying members already contributing 77% of revenue and marketing spend of US$64.7 million in the quarter focused on growth. If long term demand for values driven or faith oriented content plateaus or slows, customer acquisition could become more expensive and membership growth could cool, which would pressure revenue growth and limit operating leverage, weighing on earnings and net margins.
• Angel is committing large sums to content and IP such as the US$80 million DAVID acquisition and additional franchise buyouts. If future theatrical and streaming performance for these properties is weaker than expected over their long lifecycles or audience tastes shift away from these themes, the company may not recoup its content and royalty costs, which would hurt gross margins and keep the business in a sustained net loss position.
• The model relies on ongoing high marketing intensity and paid acquisition to build the Guild, with selling and marketing expense of US$64.7 million against a quarterly net loss of US$38.6 million. If returns on this spend decline over time or competition for viewer attention increases, Angel may have to keep spending heavily just to maintain membership levels, which would constrain improvements in net margins and delay any path to positive earnings.
• Angel is leaning on external financing and balance sheet flexibility, including a US$100 million credit facility with US$40 million drawn, a US$400 million shelf registration and Bitcoin holdings of US$34.6 million. If credit markets become less supportive, equity issuance is done at unfavorable prices or Bitcoin values experience sustained declines, funding content commitments and growth initiatives could become more difficult, which would increase financing costs and weigh on future earnings.
• The business model depends on partner platforms and theatrical distributors, with about 30% of Guild sign ups coming through channels like Apple, Amazon, Samsung and Roku and content licensing agreements contributing to revenue. If long term terms with these partners worsen, fees rise again or platforms prioritize their own competing content, Angel could face higher distribution costs or lower reach, which would affect revenue growth, compress gross margins and reduce the contribution from recurring membership earnings.

Valuation

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

• The assumed bullish price target for Angel Studios is $14.0, which represents up to two standard deviations above 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 bullish 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 bullish analyst cohort, you'd need to believe that by 2029, revenues will be $710.2 million, earnings will come to $72.6 million, and it would be trading on a PE ratio of 51.7x, assuming you use a discount rate of 9.1%.
  
• Given the current share price of $4.44, the analyst price target of $14.0 is 68.3% 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.