Search
Transition to RSOC will dominate the picture in 2025
While in the performance of Search in FY24 was affected by the lacklustre adverting
market and the significant underperfomance of Shinez, FY25 will be dominated by the
transition of business from AdSense for Domains, which is being sunset to Related
Search on Content, the platform that Google is pushing as its replacement.
Google AdSense for Domains accounted for $72m (79%) of Search’s $91.5m net revenue
in FY24. Google started opting Google Ads customers out of AdSense for Domains on
19 March 2025; ultimately, it is likely revenues from this platform will drop to a
fraction of those levels. The rate of decline is unclear, however. It depends on the
rate at which Google opts out customers (which appears to be progressive) and the
extent and rate at which customers opt back in.
The division’s RSOC revenues are now growing strongly, albeit from a low base. We
believe that TIG should be well positioned to capture good market share. The division
has developed its RSOC offering in close alignment with Google, expanding ad inventory
and traffic sources to capture share. The division’s established relationships with
the key social media platforms, core competence in sourcing consumers from social
media and pricing algorithms should all still largely apply in an RSOC environment.
Gross margins will be lower than for AdSense traffic, particularly in the initial
phases as TIG and its competitors compete for market share in the uptake phase, but
also because click-through rates are lower due to the richer on-page content, which
draws attention from Ads. In the longer term, management believes that with further
optimisation of the company’s data and AI optimisation engine, this gap can be closed
and possibly surpassed.
More detail on how this RSOC works can be found here: What is RSOC and how does it work: the ultimate guide.
A cost-reduction programme has also been instigated, although it will likely be H225
before any meaningful benefit comes through, with the full benefit to be felt in FY26.
Comparison
Search engine advertising drives FY24 growth
Comparison’s strong, operationally leveraged growth in FY24 (revenues + 43% y-o-y;
EBITDA + 75% y-o-y) was driven primarily by TIG’s successful adoption of search engine
advertising (SEA), whereby it pays directly for search engine placement as opposed
to the previous search engine optimisation approach. This approach gives TIG more
control and visibility of the cost to secure visits from potential consumers, while
reducing the risk of disruption from search engine algorithm changes.
International expansion key to growth
Growth in FY25 and FY26 is likely to come from international expansion. The French
operation is now scaling quickly, enabled by the SEA transition, and is profitable.
The Italian and Spanish operations are at an earlier stage of development, but replicating
the French success should support robust growth through FY25 and FY26. Expansion into
other geographies should follow. More country launches are scheduled this year.
Domains, Identity and Software (DIS)
Robust performance, further rationalisation and optimisation to come
Domains, Identity and Software (DIS) continues to deliver robust growth (7% in FY24)
with EBITDA margin expanding by 270bp to 10%. The margin expansion has been facilitated
by a rationalisation and optimisation programme (project Unity), which runs through
to June 2025. Growth initiatives include expanding into other elements of digital
identity, including trademarks, certificates and blockchain credentials, integrating
Voluum (acquired in 2020) for performance intelligence. This will be somewhat offset
at the revenue level by pruning below-margin customers, but we expect to see further
gross profit growth and margin expansion.
Estimates
Our headline FY25 revenue and EBITDA estimates have not changed materially, with minor
amendments to the divisional balance reflecting the dynamics described above. We believe
they are set at a relatively cautious level to reflect the transition in Search. Our
FY26 estimates are new with revenue growth reflecting the start of a recovery at Search,
further internationalisation in Comparison and continued solid margin performance
from DIS.
| Exhibit 1: Operational model |
 |
| Source: Company data, Edison estimates |
Below the EBITDA line, there are no material changes to our P&L forecast. Year-end
FY25 net debt reduces slightly to $78m from $80m to reflect the cancellation of the
dividend, offset by a higher anticipated cash tax charge in Germany. Despite the margin compression and dividend
cut, net debt/EBITDA is a comfortable 1.3x for FY25e falling to 0.6x for FY26e.
Valuation
SOTP now becomes possible and relevant
We are introducing an SOTP valuation, which has become possible with segmental reporting
now extended to the EBITDA level and with Comparison reported separately. It is also
appropriate given management has stated it will consider sales of individual businesses
to deliver shareholder value. However, we caveat that the list of relevant comparators
for each division is limited, with wide variances in valuation.
| Exhibit 2: Sum of the parts - peer multiples |
 |
| Source: Edison Estimates, Refinitiv Consensus |
SOTP implies TIG is undervalued on modest comparators
Applying modest fair value multiples for each division results in a fair value above
90p. Given DIS’s robust profile and position in the market, we believe this business
could potentially command a materially higher multiple than the peer median we have
applied here. It is difficult to attribute a fair multiple for Search at this transitional
stage, but even if we were to exclude it completely from the total, our SOTP valuation
would be 68p, equivalent to today’s share price. We believe that successful migration
of revenues to RSOC will be the key catalyst for more value to become ascribed to
Search.
| Exhibit 3: SOTP implied valuation |
 |
| Source: Edison Group, LSEG |
| Exhibit 4: Financial summary |
 |
| Source: Company data, Edison Group |
