Tuesday, March 22, 2022
Forbes Media Group: CEO Discusses Strategy; Raise Price Target
Michael Kupinski, Director of Research, Noble Capital Markets, Inc.
Patrick McCann, Research Associate, Noble Capital Markets, Inc.
Refer to end of report for Analyst Certification & Disclosures
C-suite interview highlights. Forbes CEO, Mike Federle, recently participated in Channelchek’s C-suite Interview series. This report highlights some of the topics discussed in the interview, such as the company’s recent favorable results and outlook, and the strategic investment in the Forbes SPAC merger by blockchain titan, Binance. The full interview may be viewed here.
Revising estimates upwards. The company’s full year results outperformed management’s forecast, achieving revenue and adj. EBITDA targets for 2022 in 2021. As a result, we are applying management’s forecasted growth rates to 2021 full year results to arrive at updated 2022 and 2023 estimates for revenue and adj. EBITDA, detailed later in this report.
Strategic investor joins merger deal. Forbes recently announced that Binance has committed to a $200 million investment in the SPAC merger that will take Forbes public. The investment by Binance will also give Forbes a valuable partnership due to Binance’s blockchain technology expertise. Forbes will be able to leverage that expertise to enhance the value of the recourses Forbes provides to investors who are interested in learning about digital assets.
Forbes CEO to participate at Noblecon 18. Forbes CEO, Mike Federle, will be participating in a panel about blockchain and cryptocurrency technology at NobleCon 18. Forbes will also be giving a company presentation at the conference, which is takes place at the Hard Rock Hotel in Hollywood, FL from April 19-21, 2022. To register for the conference, click here.
Raising price target. Near current levels, the OPA shares trade at 9.5 times Enterprise Value to expected 2022 EBITDA and 7.6 times EV to 2023 EBITDA estimates, which reflects upwardly revised EBITDA forecasts following the company’s strong recent results. We are revising our price target to $16 from $14.
Investment Summary
Forbes Media Group CEO, Mike Federle, recently participated in Channelchek’s C-suite Interview series. In the interview, he discussed the company’s strong fundamentals, favorable results and outlook, as well as the recent strategic investment in the Forbes SPAC merger by blockchain titan, Binance. The full interview can be found here.
Regarding the favorable results, the company’s strong Q4 revenue growth of 51% year-over-year capped off a successful 2021. For the full year, revenue increased 40% to $259 million, which was 15% above management’s most recent projection of $225 million. Full year adj. EBITDA of $60 million topped management’s estimate of $46 million by 31%. Figure #1 Operating Results illustrates the company’s results over the last 3 years. Notably, 2021 profit margins were well above the previous 2 years and revenue exceeded 2019 pre-pandemic levels.
Figure #1 Operating Results
Source: Company filings
The company’s growth in 2021 provides a promising sign for Forbes’ growth initiatives for its Consumer segment. For the full year, Consumer revenue grew an impressive 266% from $18 million to $66 million. Consumer includes subscription revenue from memberships to services such as Forbes Profiles as well as e-commerce. Consumer accounted for 25% of total revenue in 2021 compared with prior estimates by management that it would represent 12%. Management’s long-term expectation is that Consumer will account upwards of 38% of total revenue. As such, 2021 was meaningful step forward towards the company’s goal of growing the segment.
In addition to the strong revenue and EBITDA growth in 2021, the company generated its highest-ever free cash flow, at $43 million, representing free cash flow conversion of just over 70%. Post-merger, the company is expected to have $145 million in cash from investors and virtually no debt on the balance sheet. The cash from the transaction, together with the strong free cash flow generation, should provide flexibility to continue pursuing the company’s growth initiatives.
In February 2022, Forbes announced that cryptocurrency infrastructure provider, Binance, agreed to join the SPAC merger as one of the PIPE investors. Binance will account for $200 million of the $400 million in PIPE commitments. Notably, Binance Chief Communications Officer, Patrick Hillman and Head of Labs, Bill Chin will now be joining the Forbes Board of Directors, upon the completion of the SPAC merger. Binance will not only be an investor, but also a partner, as Binance’s expertise in blockchain technology can help Forbes continue to be a resource for investors interested in cutting-edge digital assets.
The 2021 operating results topped management’s forecasts for both 2021 and 2022. As such, the company will likely be revising estimates upwards for 2022 and 2023. However, management has not released new guidance yet. Therefore, for valuation purposes, we are applying management’s previously indicated growth rates to the full year 2021 reported revenue and adj. EBITDA to arrive at estimates for 2022 and 2023. The valuation detailed in this report assumes year-over-year revenue growth of 12% for both 2022 and 2023. Adj. EBITDA for 2022 and 2023 assumes growth of 20% and 25%, respectively.
Figure #2 Forbes Peer Group highlights the company’s industry peers. The peer group consists of five different sectors in which the company operates: Publishers, Data Information, Media, Education, and Entertainment. The OPA shares trade at a discount when compared to the company’s peer group, based on upwardly revised estimates of adj. EBITDA of $72 million in 2022 and $90 million in 2023. The enterprise value calculation for Forbes is based on 83 million shares outstanding, proforma post-merger cash of $145 million, and no debt. Near current levels, the OPA shares trade at 9.5 times EV to 2022 EBITDA and 7.6 times EV to 2023 EBITDA. If the shares were to trade in line with the company’s peer group average of 16.7 times of 2022 EBITDA and 13.5 times of 2023 EBIDA, the shares would trade near $16, a 60% premium to current levels. Therefore we are revising our price target on the OPA shares from $14 to $16.
Figure #2 Forbes Peer Group
Source: TIKR and Noble Capital Markets
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ANALYST CREDENTIALS, PROFESSIONAL DESIGNATIONS, AND EXPERIENCE
Director of Research. Senior Equity Analyst specializing in Media & Entertainment. 34 years of experience as an analyst. Member of the National Cable Television Society Foundation and the National Association of Broadcasters. BS in Management Science, Computer Science Certificate and MBA specializing in Finance from St. Louis University.
Named WSJ ‘Best on the Street’ Analyst six times.
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| NOBLE RATINGS DEFINITIONS |
% OF SECURITIES COVERED |
% IB CLIENTS |
| Outperform: potential return is >15% above the current price |
99% |
30% |
| Market Perform: potential return is -15% to 15% of the current price |
7% |
3% |
| Underperform: potential return is >15% below the current price |
0% |
0% |
NOTE: On August 20, 2018, Noble Capital Markets, Inc. changed the terminology of its ratings (as shown above) from “Buy” to “Outperform”, from “Hold” to “Market Perform” and from “Sell” to “Underperform.” The percentage relationships, as compared to current price (definitions), have remained the same.
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Report ID: 24586
