2023-12-26 15:26:25 ET
Summary
- MarketWise, Inc. provides investment research and related services via its various properties, but revenue has been declining since the end of the pandemic.
- The global market for financial analytics is expected to reach $18.7 billion by 2030, driving potential growth opportunities.
- CEO F. Porter Stansberry aims to improve operations and subscriber acquisition, but the company's revenue decline is concerning.
- I'm on Hold for MarketWise stock until management can reignite revenue growth.
A Quick Take On MarketWise
MarketWise, Inc. ( MKTW ) operates a family of financial and investment research services for investors of all types and interests.
While the founder appears to be making moves to improve operations among the firm’s various services, I’ll wait and see until MarketWise, Inc. can restart meaningful top line revenue growth.
I’m on Hold for MarketWise stock for now.
MarketWise Overview And Market
Baltimore, Maryland-based MarketWise was founded in 1999 to develop a group of subscription online media properties and research services for users interested in U.S. financial market information.
The firm is headed by founder, Chairman and Chief Executive Officer F. Porter Stansberry, who was also founder of Stansberry Research.
The company’s primary offerings include the following:
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Market research
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Investment research
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Analytics
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Portfolio management tools
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Database
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Financial summaries
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Proprietary indicators.
The firm acquires customers through various online and offline efforts for its respective properties and research services.
According to a 2022 market research report by Fortune business Insights, the global market for financial analytics was estimated at $8 billion in 2022 and is forecasted to reach $18.7 billion by 2030.
If achieved, this would represent a CAGR (Compound Annual Growth Rate) of 11.4% from 2023 to 2030.
The main drivers for this expected growth are a growing focus of organizations of all types on data-driven decision-making processes, risk management, predictive analysis and continued digital transformation.
Also, major players are seeking to streamline the process of collecting and analyzing ESG-related data.
The chart below shows the historical and projected future growth trajectory of the financial analytics market in North America through 2030:
MarketWise is also active in other related markets with significant market sizes.
MarketWise’s Recent Financial Trends
Total revenue by quarter (blue columns) has continued to decline due to reduced subscription volume; Operating income by quarter (red line) has also trended lower in recent quarters because of the drop in revenue.
Gross profit margin by quarter (green line) has trended lower in recent quarters; Selling and G&A expenses as a percentage of total revenue by quarter (amber line) have risen materially in the two most recent quarters, likely due to stable costs on declining top line revenue:
Earnings per share (Diluted) have flatlined at breakeven in the two most recent quarters:
(All data in the above charts is GAAP.)
In the past 12 months, MKTW’s stock price has risen by 86.08% vs. that of the iShares Expanded Technology-Software ETF’s ( IGV ) gain of 61.93%:
For balance sheet results, the firm ended the quarter with $194.0 million in cash and equivalents and no debt.
Over the trailing twelve months, free cash flow was $55.4 million, during which capital expenditures were only $0.1 million. The company paid $12.2 million in stock-based compensation in the last four quarters.
Valuation And Other Metrics For MarketWise
Below is a table of relevant capitalization and valuation figures for the company:
Measure (Trailing Twelve Months) | Amount |
Enterprise Value / Sales | NM |
Enterprise Value / EBITDA | NM |
Price / Sales | 0.2 |
Revenue Growth Rate | -12.8% |
Net Income Margin | 1.3% |
EBITDA % | 17.1% |
Market Capitalization | $982,470,000 |
Enterprise Value | -$303,680,000 |
Operating Cash Flow | $55,510,000 |
Earnings Per Share (Fully Diluted) | $0.20 |
2024 FWD EPS Estimate | $0.21 |
Free Cash Flow Per Share | $1.78 |
SA Quant Score | Hold - 3.47 |
(Source - Seeking Alpha.)
Below is an estimated DCF (Discounted Cash Flow) analysis of the firm’s projected growth and earnings:
Based on the DCF, using a discount rate of 10% (10-year Treasury (US10Y) at 4% plus 6% equity risk premium) and forward earnings per share assumption of $0.21, the firm’s shares would be valued at approximately $2.62 versus the current price of $2.93, indicating they are potentially currently fully valued.
Commentary On MarketWise
In its most recent earnings letter (Source - Seeking Alpha ), management said it would no longer be performing conference calls and instead will be providing a quarterly "letter."
Leadership noted that its overall number of paid subscribers has declined by 13.4% YoY as of September 30, 2023.
To rectify this, CEO Stansberry intends to re-establish "our previous culture of mutual respect by treating our leading operators as equal partners."
In the quarterly letter , Stansberry sought to put the focus on "Billings" rather than "Revenue" since Billings is a better leading indicator of where the business is going since it records actual cash received rather than revenue recognized.
It’s also a more optimistic measure of the two.
For the quarter’s results , total Revenue fell by 11.4% year-over-year, and gross profit margin dropped by 1.1%.
Selling and G&A expenses as a percentage of revenue rose by 5.8% YoY while operating income dropped 46.5%.
The company's financial position is solid, with plenty of liquidity, no debt, and strong free cash flow.
The Board recently announced a special dividend and intends to start paying a regular dividend to shareholders in the amount of $0.01 per share per quarter for a current forward dividend yield of approximately 1.33%
Notably, management did not disclose any customer or revenue retention rate metrics, which are critical to understanding the health of subscription-based businesses.
Looking ahead, 2023 full-year top line revenue is expected to decline by about 12.9% versus 2022’s revenue.
If so, this would be an acceleration of revenue decline from 2022’s drop of 6.7% against 2021’s results.
While the decline may be a result of the end of strong growth during the pandemic period, which saw outsized trading activity from investors working from home and benefiting from temporary stimulus payments, the acceleration of the drop is concerning.
On the qualitative side, it appears Stansberry seeks to work more closely with the underlying service owners, perhaps creating greater synergies leading to improved subscriber acquisition and retention.
A potential upside catalyst to the stock could include a year ahead that may present better stock performance potential for a wider swath of the equity market, favoring the firm’s research services rather than investors just acquiring the "Magnificent 7" for success.
However, the stock appears fully valued at its current level, and management will need to stabilize its current revenue decline and begin to reignite growth.
I’m on Hold for MKTW until we begin to see meaningful growth.
For further details see:
MarketWise Faces Challenges To Stabilize And Reignite Revenue Growth