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Is Genius Sports Limited (NYSE:GENI) Trading At A 40% Discount?

Simply Wall St·04/30/2025 10:38:01
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Key Insights

  • The projected fair value for Genius Sports is US$18.10 based on 2 Stage Free Cash Flow to Equity
  • Genius Sports' US$10.92 share price signals that it might be 40% undervalued
  • The US$12.23 analyst price target for GENI is 32% less than our estimate of fair value

Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Genius Sports Limited (NYSE:GENI) as an investment opportunity by taking the forecast future cash flows of the company and discounting them back to today's value. This will be done using the Discounted Cash Flow (DCF) model. Believe it or not, it's not too difficult to follow, as you'll see from our example!

Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model.

We check all companies for important risks. See what we found for Genius Sports in our free report.

Crunching The Numbers

We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.

Generally we assume that a dollar today is more valuable than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today's dollars:

10-year free cash flow (FCF) forecast

2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
Levered FCF ($, Millions) US$56.8m US$101.4m US$149.1m US$188.1m US$231.7m US$264.6m US$293.1m US$317.7m US$338.9m US$357.5m
Growth Rate Estimate Source Analyst x4 Analyst x5 Analyst x1 Analyst x1 Analyst x1 Est @ 14.21% Est @ 10.77% Est @ 8.37% Est @ 6.68% Est @ 5.50%
Present Value ($, Millions) Discounted @ 8.5% US$52.4 US$86.2 US$117 US$136 US$154 US$163 US$166 US$166 US$163 US$159

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$1.4b

The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.8%. We discount the terminal cash flows to today's value at a cost of equity of 8.5%.

Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = US$358m× (1 + 2.8%) ÷ (8.5%– 2.8%) = US$6.4b

Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$6.4b÷ ( 1 + 8.5%)10= US$2.9b

The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is US$4.2b. The last step is to then divide the equity value by the number of shares outstanding. Relative to the current share price of US$10.9, the company appears quite undervalued at a 40% discount to where the stock price trades currently. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent.

dcf
NYSE:GENI Discounted Cash Flow April 30th 2025

Important Assumptions

The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Genius Sports as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 8.5%, which is based on a levered beta of 1.114. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

Check out our latest analysis for Genius Sports

Looking Ahead:

Valuation is only one side of the coin in terms of building your investment thesis, and it ideally won't be the sole piece of analysis you scrutinize for a company. It's not possible to obtain a foolproof valuation with a DCF model. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. What is the reason for the share price sitting below the intrinsic value? For Genius Sports, we've put together three essential aspects you should further examine:

  1. Financial Health: Does GENI have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Future Earnings: How does GENI's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
  3. Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!

PS. Simply Wall St updates its DCF calculation for every American stock every day, so if you want to find the intrinsic value of any other stock just search here.

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