Goldman Sachs analyst Eric Sheridan has initiated coverage on MediaAlpha, Inc. (MAX) with a ‘Buy’ rating and a price target of $20. Sheridan’s optimistic outlook is based on the belief that MediaAlpha stands to benefit from long-term growth trends in the insurance digital advertising market. This includes the recovery of the P&C insurance market, particularly in the auto sector, and the increasing adoption of direct-to-consumer models by insurance companies. Additionally, consumers and advertisers are increasingly using digital channels, further bolstering MediaAlpha’s position.
While the current market exhibits volatility influenced by factors such as the health of the P&C insurance market and the pace of insurance carrier ad spend recovery, Sheridan highlights the substantial and expanding addressable market opportunities for MediaAlpha. The company’s focus on the insurance sector within the growing U.S. digital advertising market is expected to drive acceleration in the coming years. Sheridan forecasts that MediaAlpha’s revenue growth will compound at over 20%, driven primarily by the P&C insurance industry’s recovery and long-term secular trends.
Beyond revenue growth, Sheridan projects cost leverage and margin expansion, attributing this to scaling revenues against a relatively fixed cost base. This leads to a forecast of adjusted EBITDA as a percentage of contribution profit steadily increasing from approximately 7.0% in 2023 to around 9.5% in 2025 and reaching 11.0% by 2029. Sheridan attributes this positive trajectory to management’s continued discipline in controlling operating expense growth.
It’s worth noting that MediaAlpha recently reported strong second-quarter results, exceeding analyst expectations. GAAP EPS reached $0.07, surpassing the estimated $0.03 loss, while sales of $178.274 million outpaced the anticipated $151.419 million. As of Tuesday’s last check, MAX shares were down 0.74% at $16.77.
Overall, Goldman Sachs’ bullish stance on MediaAlpha hinges on its strong position within the expanding digital insurance advertising market and the company’s anticipated revenue growth, cost leverage, and margin expansion. Sheridan’s positive outlook suggests a compelling investment opportunity for those seeking exposure to the evolving insurance landscape.
