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Research: TMT
Team Internet’s FY23 results exceeded our forecasts and consensus on revenue and EBITDA. Online Marketing was driven by increased consumer engagement, reflecting investment in delivering more targeted ads across a wider array of channels. The group’s latest acquisition, Shinez, strengthens Online Marketing via diversification of publishers and is earnings accretive with scope for further synergies. Online Presence returned to strong revenue growth, driven by demand for exotic domains, pricing optimisation and strategic partnerships. Robust free cash flow enabled diverse capital allocation, focused on shareholder returns.
Written by
Team Internet Group |
Growth and returns, acquisition bolsters outlook |
FY23 results |
Software and comp services |
19 March 2024 |
Share price performance
Business description
Next events
Analysts
Team InternetTeam Internet Group Group is a research client of Edison Investment Research Limited |
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Team Internet’s FY23 results exceeded our forecasts and consensus on revenue and EBITDA. Online Marketing was driven by increased consumer engagement, reflecting investment in delivering more targeted ads across a wider array of channels. The group’s latest acquisition, Shinez, strengthens Online Marketing via diversification of publishers and is earnings accretive with scope for further synergies. Online Presence returned to strong revenue growth, driven by demand for exotic domains, pricing optimisation and strategic partnerships. Robust free cash flow enabled diverse capital allocation, focused on shareholder returns.
Year end |
Revenue (US$m) |
Adjusted EBITDA* (US$m) |
PBT* |
Diluted EPS* (c) |
EV/EBITDA |
P/E |
12/22 |
728.2 |
86.0 |
64.3 |
15.4 |
5.9 |
10.7 |
12/23 |
836.1 |
96.4 |
82.6 |
22.4 |
5.3 |
7.4 |
12/24e |
909.6 |
103.0 |
87.7 |
25.8 |
5.0 |
6.4 |
12/25e |
964.5 |
106.1 |
90.7 |
27.1 |
4.8 |
6.1 |
Note: *Excludes impact of share-based payments, foreign exchange charges and non-core operating costs.
Robust results amid a tough advertising environment
FY23 gross revenue was up 15% y-o-y to US$836.1m, with both divisions growing by double digits. Online Presence revenue increased 17% y-o-y to US$179.8m, driven by growing demand for ‘exotic’ names, pricing optimisation and partnerships (see our November update note). Online Marketing revenue rose 14% y-o-y to US$656.3m, validating the strategy to build an Omni-media Omni-monetisation (OM2) Platform. OM2 aims to optimise targeted ad placements across channels, expanding traffic volumes, which was key to offsetting weaker FY23 click prices. The recent acquisition of Shinez for US$41.8m opens up a previously unaddressed monetisation channel and is another step towards completing the OM2 vision. Management is confident in meeting current FY24 consensus estimates. Our FY25 forecast indicates further revenue growth of 6% y-o-y, which does not yet take into account the acquisition (completion expected in late April/early May 2024, first full consolidation in Q324).
Continued margin progression
FY23 adjusted EBITDA rose 12% to US$96.4m, representing 50.7% conversion on US$190.3m net revenue, up 2.3pp y-o-y despite inflation. We forecast margins to remain at these high levels over FY24 and FY25, now at the top-end of management’s target. Robust FY23 free cash flow enabled US$40m of buybacks, US$3.6m of dividends and US$22m of deferred consideration. Reported net debt increased to US$74.1m (0.8x adjusted EBITDA) to support these initiatives but remains low compared to historical levels. Our estimates drive an expected net debt reduction in FY24 to US$28.5m, before swinging to net cash of US$23.6m in FY25.
Valuation: Shinez brings US$1bn+ revenue potential
Across FY24e and FY25e, the group remains at a steep discount versus peers, despite delivering faster FY23 revenue growth and margin expansion. Pro-forma with Shinez, US$1bn+ mid-term revenue seems achievable. Combined with continued operationally geared organic growth, this could drive stock upside.
Organic progress made in FY23, more to come
Team Internet reported FY23 revenue of US$836.1m, slightly ahead of our US$833.7m forecast and substantially ahead of the US$800.7m consensus estimate.
Online Marketing gross revenue increased by 14% y-o-y to US$656.3m, driven by consumer engagement growth from 4.6bn traffic journeys in FY22 to 5.9bn in FY23, more than offsetting the value capture per thousand decline from $105 to $95 amid weaker click prices. Team Internet’s FY23 presentation highlighted its social media specialisation benefiting from rising usage, privacy-safe solutions and diverse return on investment (ROI) optimisation tools. Notably, advertisers are transitioning from pay per impression (PPM) to pay per click (PPC) and pay per action (PPA) models, where investment is directly linked to consumer engagement outcomes. PPC and PPA are core to Team Internet’s platform, lowering risk for advertisers while aligning revenues with performance.
While providing no specific figures, management affirmed the success of its PPA platform Vergleich.org’s international expansion into France through meilleurs.fr in FY23. Building on this accomplishment, it aims to broaden Vergleich.org’s footprint across five additional markets in H224, further capitalising on the global opportunity.
Online Presence returned to strong growth, with gross revenue up 17% y-o-y to US$179.8m. Its performance was primarily driven by increased demand for ‘exotic’ domain names, reflecting the rise of domains like ‘.ai’ that coincide with rising trends as well as the saturation of more typical domains like ‘.com’.
Looking to FY24, momentum with exotic domains and progress with the UK government could provide additional scope for growth. Team Internet’s Registry business has been selected as one of two suppliers of critical domain services to the UK government’s Crown Commercial Service’s Network Services 3 framework. Further out, ICANN’s proposed release of new generic top-level domains in 2026 will provide additional growth opportunities.
Exhibit 1: FY23 results summary
US$m |
FY21 |
FY22 |
y-o-y growth |
FY23 |
y-o-y growth |
Gross revenue |
410.5 |
728.2 |
77% |
836.1 |
15% |
Online Marketing |
261.3 |
574.7 |
120% |
656.3 |
14% |
Search* |
N/A |
67% |
N/A |
67% |
- |
Comparison* |
N/A |
6% |
N/A |
6% |
- |
Affiliate Advertisers (Zeropark)* |
N/A |
5% |
N/A |
5% |
- |
Analytics SaaS (Voluum)* |
N/A |
1% |
N/A |
1% |
- |
Online Presence |
149.3 |
153.5 |
3% |
179.8 |
17% |
Net revenue |
118.5 |
177.7 |
50% |
190.3 |
7% |
Online Marketing |
65.2 |
125.1 |
92% |
130.9 |
5% |
Online Presence |
53.3 |
52.6 |
-1% |
59.4 |
13% |
Adjusted EBITDA |
46.3 |
86.0 |
86% |
96.4 |
12% |
Adjusted EBITDA/net revenue |
39% |
48% |
9% |
51% |
2% |
Free cash flow |
36.2 |
70.9 |
96% |
65.2 |
-8% |
Reported net debt |
81.4 |
56.6 |
-31% |
74.1 |
31% |
Source: Team Internet. Note: *Percent of total gross revenue.
Adjusted EBITDA of US$96.4m was also ahead of our forecast, reflecting the group’s initiative of combining business units to reduce consumer friction and operating leverage. Faster adjusted EPS growth of 45% y-o-y to 22.4c reflects a deferred tax asset impact and lower than estimated tax rates.
Free cash flow remained robust at US$65.2m, with the 8% y-o-y decline attributable to one-off working capital impacts, which we expect to normalise in FY24 and beyond. Despite the fall, cash generation enabled two FY23 share buyback programmes totalling US$40m, as well as US$3.6m in dividends, showing that management is delivering on its shareholder returns commitment. Reported net debt increased to US$74.1m to support these initiatives, as well as settle US$22m deferred consideration. That said, net debt to adjusted EBITDA of 0.77x remained at a healthy level and significantly below the financial covenant of its senior facilities agreement of 2.5x.
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Exhibit 2: Edison TV – Executive interview covering FY23 results and Shinez acquisition |
|
|
Source: Edison Investment Research |
Shinez acquisition could drive sales in excess of US$1bn
On 19 March, Team Internet announced the acquisition of Shinez, its first major acquisition in the last 18 months. Shinez is being acquired for an enterprise value of US$41.8m, on a net debt free basis and subject to customary adjustments for net working capital, payable in cash. The initial consideration represents a multiple of 4.0x Shinez’s FY23 adjusted EBITDA. Additional contingent consideration of up to US$12.3m will be due subject to Shinez achieving ambitious financial targets over the next two years, payable in cash. The acquisition will be funded through a combination of cash reserves and the group’s rolling credit facility.
Shinez will bolster the capabilities of Team Internet’s Search division, driving further traffic growth from the 40 sites it operates, as well as enhancing the company’s prominence across key publishers like Google, Amazon, Facebook, X and Yahoo. Additionally, as shown Exhibit 3, the acquisition expands Team Internet’s traffic monetisation model by incorporating PPM tools, which is a key next step in the OM2 vision. While we have noted that PPC and PPA are becoming the preferred tools for advertisers, the addition of a PPM model could provide diversification advantages and potentially be the more favoured option in certain verticals.
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Exhibit 3: Shinez expands tools to monetise traffic |
|
|
Source: Team Internet |
On a pro forma basis, the consolidated entity would have combined revenue of US$947.9m (Shinez: US$111m), indicating that achieving gross sales of US$1bn+ in the mid-term appears achievable. At an FY23 EPS level, management believes the consolidation would have driven a pro forma 9.4% accretion to 2.4c.
Shinez's FY23 free cash flow yield of c 18% versus Team Internet’s 14% underpins strong value accretion potential once the deal closes (expected in mid-Q224). From a cash flow perspective, management expects the transaction to yield a higher potential ROI than share buybacks and it is therefore aligned with the group’s cash allocation model.
Management expects the acquisition to complete by late April/early May 2024, with the first full consolidation in Q324.
New FY25 forecasts indicate swing to net cash
Our headline FY24 forecasts remain materially unchanged. However, we have adjusted our interest expense projection to align with the group’s interest expense in FY23, leading to a 4.5% reduction in the FY24 forecast for reported PBT. We have raised our net income forecast by 9.1%, assuming similar tax rates to FY23 of around 20% (excluding any deferred tax benefit). This has resulted in a reduction of c US$5m to our previous tax charge forecast, offsetting the interest expense impact. The increase in EPS is slightly lower due to a higher estimated average share count, reflecting the carry-over impact of the share buyback programme in FY24.
As discussed previously, we expect growing general social media popularity alongside Team Internet’s OM2 investment to drive FY25 Online Marketing growth. Online Presence should also deliver robust growth, albeit lower than current levels given that FY23 has been an especially strong year for exotic domain transactions.
Exhibit 4: Summary of forecast changes
Year end 31 December |
Forecast |
Reported |
Change |
y-o-y |
Old |
New |
Change |
y-o-y |
New |
y-o-y |
US$'000 |
2023e |
2023 |
growth |
2024e |
2024e |
growth |
2025e |
growth |
||
Gross revenue |
833,705 |
836,100 |
0.3% |
15% |
909,572 |
909,572 |
- |
9% |
964,461 |
6% |
Net revenue |
190,585 |
190,300 |
(0.1)% |
7% |
208,116 |
203,363 |
(2.3)% |
7% |
209,255 |
3% |
Adjusted EBITDA |
94,416 |
96,400 |
2.1% |
12% |
103,017 |
103,017 |
- |
7% |
106,091 |
3% |
Profit before tax (norm) |
80,087 |
82,555 |
3.1% |
28% |
89,299 |
87,683 |
(1.8)% |
6% |
90,682 |
3% |
Profit before tax (reported) |
34,090 |
31,755 |
(6.8)% |
114% |
47,202 |
45,083 |
(4.5)% |
42% |
48,082 |
7% |
Net income (normalised) |
57,663 |
68,555 |
18.9% |
66% |
64,295 |
70,147 |
9.1% |
2% |
72,546 |
3% |
Basic average number of shares outstanding (m) |
267 |
272 |
257 |
262 |
258 |
|||||
EPS – basic normalised (c) |
21.58 |
23.22 |
7.6% |
49% |
25.00 |
26.76 |
7.1% |
15% |
28.12 |
5% |
EPS – diluted normalised (c) |
21.37 |
22.41 |
4.9% |
45% |
24.75 |
25.79 |
4.2% |
15% |
27.09 |
5% |
Revenue growth (%) |
14.5 |
14.8 |
9.1 |
8.8 |
6.0 |
|||||
Gross Margin (%) |
22.9 |
22.8 |
22.9 |
22.4 |
21.7 |
|||||
Adjusted EBITDA margin (%) |
11.3 |
11.5 |
11.3 |
11.3 |
11.0 |
|||||
Adjusted EBITDA/net revenue (%) |
49.5 |
50.7 |
49.5 |
50.7 |
50.7 |
|||||
Closing net debt/(cash)* |
80,867 |
73,927 |
(8.6)% |
31% |
35,109 |
28,481 |
(18.9)% |
(61)% |
(23,618) |
N/A |
Source: Team Internet, Edison Investment Research. Note: *Excludes debt related derivatives.
We forecast net revenue to adjusted EBITDA conversion to remain broadly flat in FY25, as we believe the group has reached the target level set by management. Delivering continued high margins should drive free cash flow, which we expect will swing the group to a net cash position. However, this may change once the acquisition of Shinez is accounted for, which we will look to incorporate into our forecasts closer to the deal completion date in Q224.
Exhibit 5: Financial summary
$'000s |
2021 |
2022 |
2023 |
2024e |
2025e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
410,540 |
728,237 |
836,100 |
909,572 |
964,461 |
Cost of Sales |
(292,041) |
(550,541) |
(645,800) |
(706,209) |
(755,207) |
||
Gross Profit (net revenue) |
118,499 |
177,696 |
190,300 |
203,363 |
209,255 |
||
EBITDA |
|
|
46,251 |
86,024 |
96,400 |
103,017 |
106,091 |
Normalised operating profit |
|
|
42,737 |
83,045 |
93,100 |
98,914 |
101,905 |
Amortisation of acquired intangibles |
(18,291) |
(36,399) |
(38,800) |
(38,100) |
(38,100) |
||
Exceptionals |
(7,087) |
(7,395) |
(7,500) |
0 |
0 |
||
Share-based payments |
(5,006) |
(5,698) |
(4,500) |
(4,500) |
(4,500) |
||
Reported operating profit |
12,353 |
33,553 |
42,300 |
56,314 |
59,305 |
||
Net Interest |
(10,798) |
(18,736) |
(10,545) |
(11,230) |
(11,223) |
||
Joint ventures & associates (post tax) |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
31,939 |
64,309 |
82,555 |
87,683 |
90,682 |
Profit Before Tax (reported) |
|
|
1,555 |
14,817 |
31,755 |
45,083 |
48,082 |
Reported tax |
(5,097) |
(16,895) |
(5,000) |
(17,537) |
(18,136) |
||
Profit After Tax (norm) |
25,551 |
41,409 |
68,555 |
70,147 |
72,546 |
||
Profit After Tax (reported) |
(3,542) |
(2,078) |
26,755 |
27,547 |
29,946 |
||
Minority interests |
0 |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
25,551 |
41,409 |
68,555 |
70,147 |
72,546 |
||
Net income (reported) |
(3,542) |
(2,078) |
26,755 |
27,547 |
29,946 |
||
Basic average number of shares outstanding (m) |
227 |
266 |
272 |
262 |
258 |
||
EPS - basic normalised (c) |
|
|
11.24 |
15.59 |
23.22 |
26.76 |
28.12 |
EPS - diluted normalised (c) |
|
|
10.91 |
15.44 |
22.41 |
25.79 |
27.09 |
EPS - basic reported (c) |
|
|
(1.56) |
(0.78) |
9.83 |
10.51 |
11.61 |
Dividend (c) |
0.00 |
0.01 |
0.02 |
0.02 |
0.02 |
||
Revenue growth (%) |
71.0 |
77.4 |
14.8 |
8.8 |
6.0 |
||
Gross Margin (%) |
28.9 |
24.4 |
22.8 |
22.4 |
21.7 |
||
EBITDA Margin (%) |
11.3 |
11.8 |
11.5 |
11.3 |
11.0 |
||
EBITDA/Net Revenue (%) |
39.0 |
48.4 |
50.7 |
50.7 |
50.7 |
||
Normalised Operating Margin |
10.4 |
11.4 |
11.1 |
10.9 |
10.6 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
271,830 |
365,062 |
347,196 |
317,381 |
287,400 |
Intangible Assets |
254,169 |
347,938 |
327,038 |
294,938 |
262,838 |
||
Tangible Assets |
8,601 |
7,358 |
7,258 |
9,543 |
11,662 |
||
Investments & other |
9,060 |
9,766 |
12,900 |
12,900 |
12,900 |
||
Current Assets |
|
|
128,391 |
193,650 |
199,603 |
238,017 |
296,146 |
Stocks |
895 |
646 |
200 |
219 |
234 |
||
Debtors |
71,363 |
98,231 |
106,730 |
99,679 |
105,694 |
||
Cash & cash equivalents |
56,133 |
94,773 |
92,673 |
138,119 |
190,218 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
137,129 |
197,712 |
208,300 |
206,505 |
205,366 |
Creditors |
117,016 |
190,348 |
187,800 |
186,005 |
184,866 |
||
Tax and social security |
0 |
0 |
0 |
0 |
0 |
||
Short term borrowings |
18,276 |
5,456 |
18,900 |
18,900 |
18,900 |
||
Lease liabilities |
1,837 |
1,908 |
1,600 |
1,600 |
1,600 |
||
Long Term Liabilities |
|
|
149,110 |
193,667 |
184,692 |
180,892 |
180,681 |
Long term borrowings |
119,251 |
145,872 |
147,700 |
147,700 |
147,700 |
||
Other long term liabilities |
29,859 |
47,795 |
36,992 |
33,192 |
32,981 |
||
Net Assets |
|
|
113,982 |
167,333 |
153,807 |
168,000 |
197,498 |
Minority interests |
0 |
0 |
0 |
0 |
0 |
||
Shareholders' equity |
|
|
113,982 |
167,333 |
153,807 |
168,000 |
197,498 |
CASH FLOW |
|||||||
Op Cash Flow before WC and tax |
23,360 |
54,195 |
73,855 |
87,287 |
90,368 |
||
Working capital |
4,091 |
7,245 |
(7,700) |
12,237 |
(6,969) |
||
Exceptional & other |
15,804 |
24,434 |
14,845 |
15,730 |
15,723 |
||
Tax |
(2,230) |
(8,399) |
(5,600) |
(17,537) |
(18,136) |
||
Net operating cash flow |
|
|
41,025 |
77,475 |
75,400 |
97,718 |
80,985 |
Capex |
(4,810) |
(6,543) |
(10,200) |
(7,819) |
(7,856) |
||
Acquisitions/disposals |
(18,344) |
(81,396) |
(5,600) |
(10,000) |
(200) |
||
Interest paid |
(8,695) |
(7,766) |
(12,100) |
(11,230) |
(11,223) |
||
Equity financing |
0 |
58,187 |
(39,700) |
(14,410) |
0 |
||
Change in borrowing |
24,721 |
34,691 |
15,000 |
0 |
0 |
||
Dividends |
0 |
0 |
(3,600) |
(6,529) |
(7,277) |
||
Other |
(3,700) |
(30,730) |
(24,500) |
(2,285) |
(2,330) |
||
Net Cash Flow |
30,197 |
43,918 |
(5,300) |
45,446 |
52,099 |
||
Opening net debt/(cash) |
|
|
84,985 |
81,394 |
56,555 |
73,927 |
28,481 |
FX |
(2,718) |
(5,278) |
3,200 |
0 |
0 |
||
Other non-cash movements |
(23,888) |
(13,801) |
(15,272) |
0 |
0 |
||
Closing net debt/(cash) |
|
|
81,394 |
56,555 |
73,927* |
28,481 |
(23,618) |
Source: Edison Investment Research. Note: *Excludes debt-related derivatives of US$0.2m.
|
|
Research: Healthcare
OSE Immunotherapeutics has announced the completion of patient enrolment in its Phase II CoTikiS trial, marking another step in the clinical development of its novel anti-IL-7R antibody, OSE-127/Lusvertikimab, in moderate to severe ulcerative colitis (UC). Lusvertikimab is OSE’s most advanced immune-inflammation asset, and we view the upcoming top-line efficacy results (from induction to week 10 and after six months of maintenance; expected by mid-2024) as representing a significant inflection point for the company, following the commencement of Phase III trials for its lead asset, Tedopi, in the US. With this news, we see the upward momentum continuing for OSE, which saw an uplift in sentiment following the recent collaboration agreement with AbbVie (up to $713m with $48m upfront payment) to develop its pre-clinical asset OSE-230 in chronic/severe inflammation.