By Brian Lantier, CFA
NASDAQ: MKTW
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MarketWise’s (NASDAQ: MKTW) third-quarter results showed the power of the company’s operating model to harvest earlier investments in customer acquisition. As we anticipated, the company moderated its customer acquisition investments in the third quarter to improve cash flow for the balance of 2026. The relatively flat performance of the S&P 500 during the quarter (up 2%) and persistent inflation provided a backdrop in which retail investors were more inclined to hold off on new investments in trading and investing tools, which dovetailed with the company’s marketing strategy. Geopolitical tensions kept market volatility at the forefront of investors’ minds, which normally drives strong subscription additions, and that could have helped the company generate strong new billings in the quarter despite pulling back on marketing spending. The relative calm of the third quarter in US markets probably limited the ROI of new marketing campaigns, so it appears the company pulled back on those efforts to focus on generating cash.
Investors in MarketWise are well-versed in the quirks of its revenue recognition and billing cycles, as revenue and earnings generally follow billing trends by 12-24 months. As the company’s billings have surged in 2026, revenues have remained relatively subdued, but that should translate into much stronger results in 2027 and 2028, depending on how the company manages its marketing spending.
We have been impressed by the company’s ability to pull marketing levers at its disposal to drive new subscriptions and increase the average revenue per user over the course of 2026. The company appears to be hyper-focused on delivering sustainable long-term profitability, cash flow, and dividends.
The company’s total number of paid subscribers decreased in the third quarter to 389k, down roughly 2.7% from 400k at 6/30/26. The company attributed this decline to a planned reduction in marketing efforts in the quarter. Given that the company intends to continue its efforts to monetize its existing subscribers in the fourth quarter of 2026, we think it could see another sequential decline in paid subscribers. Total billings, which we consider a more accurate view of real-time demand for the company’s services, grew to more than $80 million in the quarter, up 27% year-over-year (though down 12% sequentially).
In the first half of 2026, management at MarketWise asked investors to support marketing investments to drive subscriber engagement and improve the company’s ARPU, thereby sacrificing some near-term profitability in favor of the promise of better profit margins and cash flows in the second half of the year. It is encouraging to see the company’s vision play out in the third quarter, with cash flow from operations increasing meaningfully and profitability returning.
The company reaffirmed its prior cash flow guidance of $50 million from operations, following a CFFO of $28.2 million for the first nine months of 2026. This implies that the company’s fourth quarter cash flows will be nearly $22 million. The company has discussed further limits on marketing spending that will continue into the fourth quarter, and we think improved operating efficiency will help it achieve this target. The company also maintained its 2026 total billings guidance at $330 million. The company has already booked $253 million in billings during the first nine months of 2026, which implies that Q4 billings will be at least $77 million. We think investors are finally beginning to understand that the metrics that matter for MarketWise are cash flows, average revenue per user, and billings. Based on these metrics, investors should be optimistic about the outlook for 2027.
Based on our assumption that the company delivers on its cash flow projections ($50 million in 2026) and dividend payout ($1.80/class A share), we believe the company’s P/E ratio could reach 8x in 2027, resulting in our target valuation of $28/share. The company’s shares remain highly volatile, and with an average daily trading volume of under 20,000 shares, any sizable buying or selling can materially impact the share price. We would encourage investors to build positions when market conditions allow for attractive entry points. However, we acknowledge that in an increasingly volatile market, a stable small-cap company with a sizeable dividend and strong revenue visibility may attract new investors, which may make it challenging to find attractive entry points.
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