Description

Schibsted is a dominant online classifieds player in Scandinavia. Norway is the biggest driver of the business at ~60%, but the business should be looked at as 4 verticals (autos, real estate, jobs and resale) across 4 geographies (Norway, Sweden, Finland and Denmark). In aggregate, the auto vertical is the most important at around 50% of marketplace EBITDA, followed by real estate and jobs at ~25% each.

Thesis

Schibsted is going through a simplification plan and is becoming a pure play online classifieds business that can achieve best in class operating performance. The company has made significant recent strides, announcing two large asset sales in the past twelve months, returning substantial capital to shareholders, announcing a cost reduction plan and introducing a new leadership team. Despite owning dominant online classified assets, the company has historically been a weak operator, both underpricing its offerings and running with significant excess cost. We believe simplification and focus afford this new executive team an opportunity to realize the free cash generation potential of these leading assets.

Recent Corporate Actions

Adevinta was a publicly listed company that had been spun out of Schibsted in 2019 and represented a collection of its non-Scandinavian classifieds businesses, primarily in France, Italy, Spain, and Brazil. In November 2023, Schibsted and other large owners of Adevinta agreed to sell a controlling stake to a PE group led by Permira and Blackstone. Schibsted sold 60% of its 28% stake in Adevinta for $2.3bn in cash and will retain a low teens % interest in Adevinta going forward. Our diligence on Adevinta and the PE buyer thesis lead us to believe that Adevinta’s EBITDA margins can be brought substantially higher in coming years, and the remaining Schibsted stake could grow in value by 50-100% over the intermediate-term.

In December 2023, Schibsted sold its legacy publishing business (Nordic online and digital newspapers) to its controlling shareholder, the Tinius Trust, for approximately $600mm. Many of these legacy news properties had been owned by Schibsted for decades and the sale was a strong demonstration of the company’s newfound focus particularly given how foundational newspapers were to its heritage. The cash proceeds from the Adevinta minority sale were likely a strong contributor in driving Tinius’ willingness to purchase the media assets.

These two transactions closed this summer. Now Schibsted is a pure play Nordic classifieds business with significant revenue growth and margin improvement opportunities ahead. Historically, investors looked at a Schibsted as a complicated sum of the parts investment, whereas now the premise is relatively straightforward. Additionally, in conjunction with these transactions, the Tinius Trust agreed to collapse its super-voting stake into common shares which gives greater clarity around governance. Schibsted has been shareholder friendly with sales proceeds and ongoing cash generation. The company announced a plan this Spring to return the majority of its sale proceeds to shareholders via $1.9bn of special dividends. Additionally, following a share buyback during 2023 in which the company repurchased ~4% of shares, they recently announced a $400mm share buyback that begins shortly.

Lastly, Schibsted recently announced a new CEO who assumed the role in June 2024. This follows the CFO who was appointed in October 2023. While CEO Halvorsen was previously a senior executive responsible for the Nordic marketplaces businesses, together this new team can make their mark on turning Schibsted into a best-of-breed digital classifieds business with leading financial metrics.

Revenue and Margin Opportunity

Schibsted has leading positions in almost all of its markets, but has sub-par margins relative to other leading players. The company has rightly earned a reputation as a poor operator, largely due to excessive overhead costs and a lack of willingness to exert appropriate pricing behavior. In its more established Norwegian and Swedish real estate and auto verticals, EBITDA margins are mid to high 30s% which is materially below other leading peers who generate 50-75% EBITDA margins. In our diligence process, we discovered no good reason why these assets cannot generate comparable best in class margins over time.

Many of Schibsted’s primary assets are truly dominant - Schibsted’s Swedish auto and Norwegian real estate portals have >20x greater traffic share than their nearest competitor. Their Swedish auto portal has 100% dealer coverage and the Norway real estate portal has ~100% market share in for sale listings and ~70% share in rentals. But despite this level of dominance, Schibsted’s portal pricing relative to no. 1 players in other geographies is substantially lower, and most cost lines show massive inefficiency. On the pricing front, there is clear evidence that Schibsted’s underprices its offerings. For example, the Norwegian real estate platform is similarly structured to publicly traded Hemnet and REA in Sweden and Australia respectively, with an advantaged seller-pay model. However, Schibsted’s FINN portal charges ~12bps of an average home value vs. high teens at Hemnet and 35bps+ at REA, both of whom are still pushing strong annual price increases. On the cost side, the primary area of bloat is in personnel cost - Schibsted’s Nordic marketplace personnel cost was ~40% of revenue in 2023 which compares to an average of 17% for other leading vertical and horizontal classified peers. On the advertising and marketing side, Schibsted’s costs are 200-400bps higher than peers at 8% of total 2023 revenue. Additional opportunities to consolidate onto a common technology platform should yield substantial efficiency improvements over time.

As a positive first signal of new management’s willingness to make significant cost improvements, in June the company announced the reduction of 250 positions which should equate to a 300 bps EBITDA margin uplift. We believe there are many more efficiency improvements ahead, and forecast almost 1000 bps of EBITDA margin expansion to be realized by 2027. Schibsted management has an upcoming analyst day in the 4th quarter and we believe they will give more granularity behind their goals at that event.

Conclusion

Schibsted is in the early stages of a simplification and focus process that will lead to accelerated revenue and cash flow growth. If they execute, Schibsted should also receive a superior multiple due to the resulting higher margins and better growth characteristics. We believe EBITDA can more than double between 2023 and 2027. Dominant online classifieds businesses are terrific assets, with strong network effects, pricing power and returns on capital. Leading global classified comparables like Baltics, Scout, Hemnet, Autotrader and Rightmove generally trade for 18x forward EBITDA. In our forecasts, we give new management reasonable credit for execution, with low teens top line growth and improved incremental margins. If we ascribe that peer multiple to our 2027 EBITDA estimate, Schibsted shares should increase by 60% over the next couple of years.

Catalyst

Consistent price increases exerted

Revenue growth improvement and substantial EBITDA margin step-ups