Stagwell CEO Mark Penn Says Software Pivot Could Merit A Stock Price 'Several Times Our Existing Value'
Penn told analysts that growth in software and digital transformation could justify a far higher valuation, then told investors to judge for themselves.
Stagwell Chairman and CEO Mark Penn said on the company's third-quarter earnings call Thursday that its software and digital transformation businesses could merit "a stock price several times our existing value." He added, "But you be the judge."
Penn's "do the math" pitch
Penn, whose company is a marketing and communications network, said software and digital transformation revenue is "worth two or three times that of marketing service revenue." His case rests on double-digit growth in digital transformation and "30% to 40% growth of software sales each year for the next two years."
Investor relations head Ben Allanson said an illustrative valuation model in the company's slide deck assumes a 32% margin for digital transformation. It assumes 35% software growth at a 45% margin, he said, while calling it "obviously not guidance." Allanson said a sum-of-the-parts view is the way to start thinking about the business.
Penn said Stagwell is pivoting from a primarily marketing services company to a marketing transformation company selling AI-based software and services. He said that when he founded the firm he expected marketing services to be slower growth, with a gradual shift toward technology.
A record quarter built on software
CFO Ryan Greene said revenue grew 10% to $816 million and net revenue rose 8% to $664 million. Adjusted EBITDA climbed 25% to a record $144.8 million, a margin of 21.8% of net revenue. Adjusted EPS rose 42% to $0.34.
The marketing cloud segment, which licenses subscription software and data products, grew organic net revenue 108% to $56 million. Its adjusted EBITDA margin was 44.3%, which Greene tied to software sales from the machines, the company's agentic AI products. Digital transformation net revenue rose 23% organically to $119 million at a 32.1% margin.
Marketing services net revenue fell 9% to $218 million, down 7.5% organically. Media and commerce declined 2% organically to $159 million, with a $9 million Middle East drop weighing on it.
Stagwell raised its full-year adjusted EBITDA outlook to $490 million to $540 million and adjusted EPS to $1.07 to $1.21. It kept net revenue growth at 8% to 12%. Penn also doubled his 2027 enterprise tech bookings goal to $150 million; year-to-date bookings are $59 million against an initial goal of $25 million.
Government work and a stock run
Penn said Stagwell won its first major federal assignment, as prime subcontractor for work with the U.S. Central Command, with a total size of $1.5 billion over five years. He said the company conservatively expects to capture 10% in fees.
Net leverage fell to 2.73 times, from 3.42 a year earlier. Stagwell bought back about 12.1 million shares year to date at an average $6.23.
Stagwell shares rose about 5% to $9.28 in Thursday trading, and Zacks noted they have risen about 80% this year.
Stagwell said it will report fourth-quarter results on a call in the new year.
Sources
- Stagwell Non-GAAP EPS of $0.34 beats by $0.03, revenue of $816M misses by $18.21M (STGW:NASDAQ) | Seeking Alpha — seekingalpha.com
- Stagwell (STGW) Q3 Earnings Top Estimates — Yahoo Finance
- Stagwell: Q3 Earnings Snapshot – WTOP News — wtop.com
- Stagwell: Q3 Earnings Snapshot | wusa9.com — Associated Press
- Stagwell’s Freestar deal brings buying and selling under one roof — digiday.com
