Rapid Product Launches And Global Expansion Will Create Future Opportunities

Key Takeaways

• Rapid product innovation and global brand expansion drive strong growth, enhancing revenue and market positioning.
  
• New offerings outside the core app diversify revenue streams, while share repurchases reflect confidence in long-term performance.
  
• Significant investment in ad tech and challenges in cultural consistency and product execution may impact revenue growth, net margins, and financial stability.

Catalysts

Operates social network and dating application for the lesbian, gay, bisexual, transgender, and queer (LGBTQ) communities worldwide.

• Grindr's focus on rapidly shipping new products such as A-list, For You, and Discover is expected to maintain strong product-led growth, driving future revenue increases.
  
• The expansion of their global brand and creative content is anticipated to enhance engagement and user acquisition, positively impacting revenue and market positioning.
  
• The introduction of new products outside of the core app, such as health and wellness offerings, is expected to diversify revenue streams and contribute to overall revenue growth.
  
• Grindr's continued success in increasing user engagement and conversion from free to paid subscriptions suggests potential improvements in net margins and earnings.
  
• The execution of a $500 million share repurchase program could enhance EPS by reducing the number of outstanding shares, reflecting confidence in long-term financial performance.

Grindr Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Grindr's revenue will grow by 22.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -38.0% today to 22.5% in 3 years time.
• Analysts expect earnings to reach $142.2 million (and earnings per share of $0.7) by about May 2028, up from $-131.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 48.0x on those 2028 earnings, up from -36.8x today. This future PE is greater than the current PE for the US Interactive Media and Services industry at 16.6x.
• 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 7.54%, as per the Simply Wall St company report.

Grindr Future Earnings Per Share Growth

Risks

• The company is only in the early stages of enhancing its ad tech, which suggests that significant investment is needed to reach the targeted 15% of total revenue from advertising. This could impact revenue growth projections if ad tech advancements do not materialize as expected.
  
• The majority of the company’s workforce, around 75%, joined after the CEO took over, which indicates potential challenges in maintaining a consistent company culture and productivity, potentially affecting net margins and earnings.
  
• There are risks associated with the company's aggressive expansion into new product areas outside of its core app, particularly with the Gayborhood initiative. Execution risk could impact future revenues if these new ventures don't align well with user expectations or fail to take off.
  
• The company indicates a significant level of anticipated product releases and enhancements, but if these new features and tiers do not convert free users to paying users as expected, this could negatively affect the payer penetration and average revenue per paying user (ARPPU), directly impacting revenue projections.
  
• Liquidity and float concerns have been raised despite the share buyback program, which could continue to impact investor sentiment negatively, affecting stock price stability and potentially leading to lower future capital inflows, affecting overall financial growth.

Valuation

• The analysts have a consensus price target of $21.5 for Grindr 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 $24.0, and the most bearish reporting a price target of just $20.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $633.0 million, earnings will come to $142.2 million, and it would be trading on a PE ratio of 48.0x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of $23.15, the analyst price target of $21.5 is 7.7% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.