AI-Driven Software Subscriptions And M&A Will Sustain This Digital Platform Thesis

Catalysts

About Bending Spoons

Bending Spoons acquires digital businesses, integrates and transforms them, and uses the resulting cash flows to fund further acquisitions.

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

• The growing need for scalable software tools and infrastructure supports Bending Spoons focus on subscription-based and self-serve products such as Tractive, WeTransfer and the pending Airtable acquisition. These products can support revenue and earnings as more usage aggregates on these platforms.
• Broader adoption of AI inside software operations is lifting productivity, illustrated by Alt-Spooner usage and AI-enabled recruiting and engineering workflows. This can help sustain high revenue per employee and support net margins and operating income.
• The increasing importance of AI features inside content, media and workflow products, such as Brightcove’s translation, dubbing and recommendation tools, creates opportunities to deepen customer engagement and justify higher contract values, supporting revenue and potentially earnings.
• The shift by enterprises toward no-code and workflow management platforms supports the rationale for acquiring Airtable and building on existing enterprise products like Brightcove and Vimeo. This can help expand Bending Spoons mix of business customers and support revenue and adjusted operating income.
• The availability of a large pool of digital businesses that Bending Spoons views as potential targets, combined with expanded access to term loans, revolving credit facilities and IPO proceeds, supports ongoing M&A capacity, which can influence future revenue scale and earnings power.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Bending Spoons's revenue will grow by 49.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.3% today to 15.2% in 3 years time.
• Analysts expect earnings to reach $1.0 billion (and earnings per share of $1.5) by about September 2029, up from $251.2 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $1.4 billion.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 32.1x on those 2029 earnings, down from 53.9x today. This future PE is greater than the current PE for the US Software industry at 31.0x.
• Analysts expect the number of shares outstanding to decline 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 12.35%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Bending Spoons depends heavily on finding and closing attractive digital acquisitions over time. If the pool of more than 1,000 identified targets or the M&A environment becomes less favorable, the company could deploy less than the nearly US$6b invested since early 2023 and slow its acquisition pace, which would affect revenue and earnings growth.
• The model relies on deep integrations and transformations of acquired businesses like AOL, Eventbrite, Vimeo and the pending Airtable acquisition. If Spooners become stretched or talent hiring lags the growing portfolio, management has already acknowledged it may need to slow deal activity, which would pressure revenue growth and could limit further net margin expansion.
• Leverage is a key part of the Bending Spoons playbook, with US$4.88b of long-term debt and net debt of US$4.09b at a leverage ratio of 2.4x. A less supportive credit market or higher funding costs could constrain new term loans and revolving credit, which would limit future acquisitions and could weigh on net income through higher interest expense.
• AI tools such as Alt-Spooner and AI-enabled product features are intended to lift productivity and support higher operating margins. If AI efficiency gains plateau or competitors achieve similar tools, the current revenue per Spooner of more than US$4m annualized and the 54% adjusted operating income margin could be harder to maintain, which would affect operating income and earnings.
• The long-term thesis depends on improving and growing a diversified portfolio that includes slower growth or declining assets such as AOL and Remini, as well as higher growth assets like Tractive, WeTransfer and Airtable. If competitive intensity, AI commoditization or saturation in categories like AI media tools or consumer subscriptions continue to weigh on businesses such as Remini or future acquisitions, this could offset contributions from stronger properties and limit consolidated revenue growth and net margin resilience.

Valuation

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

• The analysts have a consensus price target of $48.27 for Bending Spoons 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 $72.28, and the most bearish reporting a price target of just $38.0.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $6.8 billion, earnings will come to $1.0 billion, and it would be trading on a PE ratio of 32.1x, assuming you use a discount rate of 12.3%.
• Given the current share price of $41.69, the analyst price target of $48.27 is 13.6% 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.